The impact of international policy initiatives against money laundering, terrorist financing and tax evasion on offshore financial centres in the caribbean

Resumen

The proliferation of Offshore Financial Centres (OFCs) in the 60’s and 70’s in the Caribbean region did not happened by chance. The development of offshore financial activities was in most cases strategically developed overtime and has become a key element for Caribbean economies. These countries, generally small economies, vulnerable to exogenous shocks, began developing initiatives in the agriculture sector and gradually shifted towards tourism, but its growth has been insufficient to maintain a sustainable gross national product per capita. The establishment of Offshore Financial Centers (OFCs), presents an alternative to achieve greater real growth. Its economic benefits range from employment creation, increase spending within the local economy, and a rise in government revenues, to positive growth in other sectors, such as tourism, construction, retail and wholesale trade resulting in a more favorable climate for foreign direct investment. However, these OFCs carry certain costs, such as the vulnerability of financial systems to sudden changes in international capital flows through the transmission of banking and financial crisis. Although these OFCs have built their business on key legislations and have constructed sound legislative frameworks, there legislative structures were inadequate to combat money laundering, terrorist financing and tax evasion. This inadequacy has led to rigorous and diverse scrutiny by international organizations, such as the Financial Action Task Force (FATF), the Basel Committee on Banking Supervision and the Organization of Economic Cooperation and Development (OECD) through the work of the Global Forum, among others, due to their role in money laundering, terrorist financing and tax evasion. The concerns stemming from the use of OFCs in facilitating financial crimes have gradually evolved into global policy initiatives which have come at a high cost to these OFCs. Consequently, these international policy initiatives pose important questions about the future of OFCs in the Caribbean region. Among them, questions related to the impact of global policy initiatives on the business of the offshore banking sector in OFCs in the region, and inevitably on the local economy, are critical to the future of OFCs in the region. In this investigation we will review the historical context of all these phenomena and study the effects of global policy initiatives on the business of the offshore financial sectors in The Bahamas, the Cayman Islands, Bermuda and the BVI. We will also examine the effects of these policy initiatives on the domestic economies of these jurisdictions. This research will be based on an analysis of the legal instruments and institutions of the four jurisdictions and a comparative analysis using data obtained from the central banks and various governing institutions. The segments that will be examined in this analysis includes banking and fiduciary services, corporate services, securities and investment services and insurance services. The period used for this analysis will be from 2011 to 2017. A further analysis will be conducted to determine the effects of the offshore banking sector on the local economies of these jurisdictions by analyzing the impact on critical data related to employment, spending by offshore operations within these domestic economies, and revenues generated from the offshore sector by the Governments in these countries. Conclusions will be made based on the results of these analysis.