Re-branding Caribbean IFCs: Girding Law and Diplomacy with Critique

By Dr Don D Marshall, Senior Fellow, Sir Arthur Lewis Institute of Social and Economic Studies, University of the West Indies, Cave Hill Campus, Barbados (01/09/2014)


The impulse for global re-regulation of financial systems since the Wall Street financial tumult of 2008 continues to take on a greater surveillance character as benchmarking metrics, complete with ratings and rankings reports, abound. 


Only recently core countries like Canada have gone further in their quest for full tax disclosure.  The most ambitious initiative in this regard remains the USA’s Foreign Account Tax Compliance Act (FATCA), enacted in 2010, requiring foreign banks to report and disclose US interests in foreign financial institutions.  The stated aim is to ensure greater burden-sharing in combating tax evasion and terrorist financing. 


Together these initiatives and developments are changing the structure of the market for wooing international business.  Countries hosting international financial or offshore financial centre OFC operations have been blacklisted, grey-listed or white-listed, depending on their degree of compliance with the Organisation of Economic Cooperation and Development (OECD) guidelines for tax exchange information, regulation and transparency.  Meanwhile compliance costs continue to mount as FATCA implementation requires information technology upgrades and trained support. 


From the vantage point of the Caribbean, the sub-text remains familiar: that OFCs are suspected facilitators of financial crimes, including tax evasion, terrorist financing, money laundering and corruption.  The uncontested assumption also remains the same – that many of the problems associated with regulating the international financial system stem from the growth of OFCs.  Policy officials in the Caribbean have been careful to defend their shores as sites for legitimate business.  The legal fraternity has been employed to defend national interests in accordance with norms in international law; and they, along with accountants, are busy seeking to nuance FATCA and other similar type initiatives for the benefit of existing and potential clients doing business in non-US financial institutions.     


But crucially, the semiotics of global financial governance institutions based in OECD countries does require considerable attention. The notion that OFCs provide secrecy shelters for tax evaders and money launders has more often been taken for granted than problematised. 


Indeed the empirics have been remarkably thin.  With OFCs there is the disjuncture between limited empirical validation and seemingly unlimited conceptual mobilisation of offshores as sham havens.  I argue that it is important to treat the broader knowledge produced on global financial flows as largely mired in silences and premature closures over the question of OFCs and their affect in high finance.  There is a need for recognition of the spatial choreographies of financial flows and actors and their embeddedness at different scales.  An intellectual challenge of prevailing knowledge orthodoxies is required. 


There are many lively discussions in the relevant literature that each occupy centre stage at various moments.  These range from the capital mobility/volatility debate; the exclusionary character of international financial governance bodies; the challenges posed to banking confidentiality principles by new requirements for monitoring and assessing clients, to anxieties about the proportion of investment in proprietary trading over greenfield options. 


A discussion about how OFCs fare in the interaction structure of the international financial architecture dovetails with current preoccupation with how to fix global finance.  Capital, state-sovereignty strategies, and financial engineering feature.  These three properties form the hard-wired logics underpinning capital flows, international business and wealth management choice.  International business has been spawned by tax policy, agreements on financial practices and flexible legislative frameworks featuring innovations in trust, banking, fiscal, insurance and company law.  I cultivate some skeptical distance from two dominant analytical strands: first, the tendency to evacuate or minimise the subject of OFCs when addressing the rise of finance and its effect on global capitalism; and two, those approaches that re/present the fashionable distrust of OFCs when seeking to explain international financial instability.  Such approaches ultimately fail to identify and integrate the problematics - capital mobility; competitive state-sovereignty strategies to woo international business; and recurring ethical and political trepidation over the puzzles inherent in moralising financial speculation. 


The dissociation of these strands leads to a truncated understanding of late-modern finance and currently reconfiguring spatial processes.  We learn in the argument by Sharman (2010) for example, that OFCs engage in “ploys designed to cultivate calculated ambiguity”.[1] This is evident, he argues, by examining how OFCs through their financial innovations facilitated the “repackaging debt and diffusing risk that no one could be quite sure who owed what to whom” (Sharman 2010:p.2).   This opinion has held sway among the influential global elite, not least leaders of OECD countries.  Recall former British Prime Minister Gordon Brown’s address to US Congressmen in Washington on 4 March 2009 when he opined:

“How much safer would everybody's savings be if the whole world finally came together to outlaw shadow banking systems and offshore tax havens.”[2] 


While financial regulatory reforms remain incomplete in London and Wall Street, particularly in the direction of rules governing the trading and processing of derivatives, Western non-governmental organisations (NGOs) such as Oxfam France and InterAction,[3] continue to welcome appeals by OECD leaders to shun the ‘tax havens’ that fail to comply with transparency standards in 2011.[4]  It is from this knowledge-producing context that negative stereotypes and portrayals cling to the OFC operation without necessarily extending to the global field and operation of financial engineering.  This has had the impact of re-casting geographies of the South as anachronisms in need of colonial mastery and tutelage, leaving intact impressions of an international financial system in need of a supranational regulatory fix.  It also simultaneously affirms the financial sphere – inclusive of its trading practices and complex financial instruments – as legitimate, rational and coherent so long as cool-headed calculations and stricter oversight standards are upheld, and OFCs outlawed. 


Here we ought to be reminded about the complexities abounding the establishment of best practice in financial transparency, and democratic deficits attending global ordering structures.  The regulatory intention is to reduce systemic and prudential risks by demanding transparent financial reporting in accounting and full disclosure protocols with respect to sovereign wealth funds, balance sheet risk accumulation, and tax exchange information.  The question, however, is whether harmonisation of financial regulation between different countries may actually interfere with the competitive nature of markets, thereby reducing consumer choice.  This explains the absence of linear progression towards best practice in transparency standards for over 30 years, as these standards evolve in an ad hoc manner in response to domestic and international pressures.      


The next is to do with the larger question of global governance: is the OECD-led global financial architecture open to justice claims?  Fifteen years of naming and shaming islands and territories have been matched by public international denial and/or condemnation by some of the host governments.  As OFCs are excluded in the international architecture, they do not assist in the shaping of the agenda nor can they seek redress for the architecture is not open to compensatory claims.  Furthermore, `peer’ reviews of OFCs and core onshore financial centres by the Financial Action Task Force could hardly count as such for policy experts drawn from the OFC world do not play roles in the conceptual framework and design methodology girding what constitutes benchmark transparency and quality standards in international business.      

In questioning various approaches to the study of OFCs, I do not discount that financial abuses have occurred in OFCs.[5] My argument, which is more circumscribed, is simply that we cannot infer susceptibility to abuse and regulatory arbitrage on the basis of being a low or zero-tax offshore jurisdiction.  Those accounts which do so are, I argue, discursively imperial as they (i), refer to an inappropriate geographical scale; (ii)  infer that OFCs represent anachronistic space; and (iii) in conjunction with this framing, they conspicuously disregard recurring moral and ethical trepidations linked to the grey world of global finance.  A critical, interrogative turn in the direction of overturning hegemonic knowledge claims and discourses about international finance centres outside the West beckons.  As it is, a variety of mechanisms for privatising and anonymising money exists in the City of London, New York - indeed within the seamless contiguous whole of the global financial nexus of offshore and onshore.  The issue of who facilitates capital flight, money laundering, tax evasion or who is/are its worse perpetrator/s does not rest singularly with any of the geographies of global capitalism; it is an excrescence of freely mobile capital and the different tax systems among states in the world system.  But this point can hardly be won if from within the Caribbean and the Pacific there is no challenge to the knowledge production complex around finance and threats to international financial stability.

[1] See J. Sharman (2010) 'Offshore and the New International Political Economy', Review of International Political Economy, 17:1, 1 – 19.


[2] See full text of Gordon Brown's speech. Available from: Accessed 11 March 2009.


[3] InterAction is the largest alliance of USA NGOs.  Since the crisis of 2008, both InterAction and Oxfam France have campaigned against `tax havens’ seeing these as facilitating tax evasion. 


[4] See C. Whelan (2011) ‘G20 Leaders Shun Tax Havens’, November 6 Accessed: April 29 2014.  


[5] I also acknowledge that Switzerland, Austria and Leichtenstein suffer from negative portrayals much like their OFC counterparts in the global South but that this provides no contradiction as the discourse of international financial regulation is imperial.