Organise or Die: The Future of International Financial Centres

An Organisation of International Financial Centres - OIFC

The foundation of a sustainable solution to the existing risks to International Financial Centres (IFCs) is the establishment of a United Nations registered international body, founded to speak for IFCs in the international setting, to research, explain and foster the role of IFCs in the global financial system, whilst working towards fair cross-border tax regulations and against forced tax harmonisation.

In 2003, the late Mr Eric Crutchley – of Cayman National Bank – supported an invitation-only Plenary on the Drafting of a Convention for an Organisation of International Financial Centres, at Nassau, Bahamas. The driving concept was that IFCs had now to act with relevant scope, given their capacity to impact money related issues in the global financial system.

There is a reason the previous efforts to organise amongst financial centres failed:

1. Their interactions in recent years was the result of fear – rather than deliberate strategy - driven by an immediate crisis, which blinded them to the larger forces at play, and so their scope of imagination was not equal to the challenges they faced; offering no sustainable solutions to the war of financial centres, of a certain size and location.

2. They suffered from both hubris and myopia: ‘Competitive Hubris’ that somehow organising impairs competitive advantages against other IFCs, and ‘Perspectival Myopia’ meaning the total vortex of the global financial system remained inscrutable to them; which convinced them that they had no means to influence its architecture or operations.

3. IFCs must come to terms with what has been for most of them a ‘passive ambition’ to be in the financial services business, without the scale of responsibilities required, even as a threshold proposition. Today’s world requires active institutionalisation of representation on an international scale, owing to the demands for multilateral responses to the exogenous impacts of and on financial centres; whether positive or negative.

Foundation of the OIFC

The objective of the OIFC must aim at a restoration of the priority of the rule of law in cross-border financial services regulations. Additionally, the central issue is not to promulgate or accept the promulgation of arbitrary rules applied evenly. Rather it is to establish a set of rules that support the global financial system and the international system of rules, upon which the legitimacy of state action is founded rightly.

The foundation of the OIFC should rest upon the following:

1. Defence of the Constitutional Obligations of its Members.

2. To Conclude International Agreements based on the Vienna Convention on Treaties 1969[1], emphasising the following principles:

• Reciprocity – Articles 19-21

• Absence of Threats or Force - Articles 51 & 52

• Non-conflict with Preemptory Norms of the Rule of Law – Article 53.

  1. Consistency with the IMF Convention 1945[2] - specifically Section 3, on Non-Discrimination and particularly Section 5 (b) on information exchanges.

  2. Consistency with the OECD Convention 1960[3] – specifically Article I (c), and particularly Article 6 (3); which states: “No decision shall be binding on any Member until it has complied with the requirements of its own constitutional procedures”[4].

  3. Consistency with the Right of Innocence Until Proof of Guilt, through the support of Legal and Professional Privilege.

  4. Commitment to maintaining a legitimate distinction between illegal tax evasion and legal tax avoidance.

  5. Cultivation of an International Double Taxation Treaty Network (IDTTN), as the Foundation for Fair Tax Competition.

  6. Establishment of an International Financial Centres Research Institute (IFCRI).

  7. Seek to develop an operational matrix, together with rules and guidelines for trade in financial services under the General Agreement on Trade & Services (GATS), of the World Trade Organisation (WTO).

Initial Phase Agenda:

Membership:

The Criterion for Membership must be established in the first plenary session. Decisions can be made according to a matrix of financial centre significance, institutional depth, regulatory profile, capacity, with a minimum of $100 billion under management.

Provisions may be made for “Observer Status” for those jurisdictions which do not meet the initial membership threshold.

Each Member must be represented by A Minister of Finance or Minister for Financial Services, together with a representative from the Ministry of Foreign Affairs or the Attorney General’s office, The National Law Association (The Bar) and Bankers Associations.

Phase I:

A Plenary Meeting for Founding Member IFCs at which the Mission, Membership Criteria and Organisational Structure are decided.

Phase II:

The holding of a Convention, concluding in a Multilateral Agreement between the Founding IFCs, together with operational by-laws; The selection of a Secretary General with support staff; The Establishment of an Endowment Fund and the Adoption of a Budget.

Phase III:

Registration as an International Government Organisation; Registration with the Union of International Associations under UN Resolution 334 B (IX); Apply for Membership in the International Association of Constitutional Law (IAIL)

The proposition of a new International Organisation, in a world that appears increasingly like the world from 1804-1870, when a “superclub of nationstates” held each other in détente, whilst dictating to and dominating smaller nations may seem foolhardy. Certainly, amongst (small island state) financial centres, which have suffered the unilateral impositions from OECD and G8 (G20) nations, there is a palpable fear, which belies the 1945 narrative of the United Nations of an equality of nations before law. Yet, given the forces driving G8 (G20) nations to eliminate all but their own financial centres or those of other powerful nations or nations (Panama, Turkey, Middle Eastern Centres) of strategic importance, the 19^th Century imperatives and so prerogatives suggested above seem extant.

When combined with the horizon of the social safety-net crisis in G8 (G20) or OECD nations, together with economic stagnation - wrought by their own lack of regulation and political will - and the increasing non-state capacity for capital mobility, I fear the worst excesses of extra-territorialism retailing in a subornation of breaches of fundamental rights in financial centre jurisdictions to satisfy demands in G8 (G20) nations, for practices which (G-20) nations are themselves engaged in, are just beginning.

These imperatives and prerogatives of larger nations imposed upon smaller ones have been met by fear, some protest, dissonance and capitulation. Yet, if there is to be a true, lasting solution, it must contribute to the credibility of the international system and bring into being a new world order by means of law and lawfulness.

In Defence of Constitutionality

The weapon of choice for the G8 (G20), supported by the OECD, with the US promulgating its own special criteria under the FATCA Act[5], is Automatic Information Exchange. In each case, the jurisdiction at which a request is directed is being asked to supply information on the citizens of the requesting country on an administrative basis, so implicitly without due process of law.

Take for instance the Turks and Caicos 2011 Constitution[6] Article 9: Reading the article (see below) makes clear that a person enjoys a fundamental Protection of Privacy. Section 2(B) shows an obligation to protect Third Parties as a balancing factor of those rights. This duty is to be exercised by government and if it is to mean anything, it must occur by some process, reasonably, before any limitation of those rights to the advantage of the government.

How can that be done, conceivably, under an Automatic Information Exchange regime?

The retort likely to be advanced most vigorously by G8 (G20) and OECD nations asking non-member states (essentially smaller former colonial possessions) to sign Mutual Legal Assistance Treaties (MLAT), is that the right to privacy is conditioned in their Constitutions by a power retained by government to adumbrate the fundamental right to privacy for the reasons given in Section 2 (a), particularly (c), (d) and (e) - (See: below) – namely, in order to enforce a law.

However, for any act, which adumbrates rights, governments must show reasons, and those reasons must reflect and operate within a process of law. That means we cannot read the section to be saying: "You have a fundamental right until we (the government) need access to your information". Constitutional Democracy is precisely that interstice in which government cannot invade the privacy of citizens or those who possess rights in law, just because it wants or needs to. The government's need for and access to private information protected by Constitutional Rights, must be both justified and executed in a manner that - again - reflects due process of law, included in which are timeless principles such as innocent until proven guilty, legal and professional privilege, a right not to incriminate oneself and more importantly access to an independent judiciary, whose duty it is to balance rights of citizens against powers of government. Moreover, any limitation of these rights imposes a duty on government to exercise a higher duty of protection through due process, without which the constitution is mere cotton candy; appearing large and substantive, disappearing in the instance when its protections are most relevant and necessary.

Since constitutionalism is the primary basis for the establishment of this OFC representative body as I see it, let’s take another example.

Under the Cayman 2009 Constitution there are expressed ‘Entrenched Rights’ and ‘Rights Balanced’ by the government's power and duty to enforce laws.

Privacy is one of those Balanced Rights. 

Here is where trouble begins: In a bid to disturb that balance, the government cannot act administratively or from executive power as an Automatic Information Exchange regime requires. A judicial power must act in this capacity, saving the executive or administrative authorities from usurping a judicial authority. That is because in disturbing that balance the government must act within terms of common law ‘Due Process’ and that means Administrative Information Exchange or worse, Automatic Information Exchange are inherently unconstitutional, since they can only be exercised without the ‘balancing mechanism’ of a due process of law. 

In speaking to officials from financial centre jurisdictions, I detect a confusion concerning the balance of rights and duties, as anchored in the fundamental principle of Due Process. There is a misconception of the foundation of constitutionalism. For instance, amongst the enumerated entrenched rights in the Cayman Constitution is Freedom from Slavery. But this can only be confirmed where there is a question according to a process that balances rights and powers where a breach is claimed against government. Due Process is the most fundamental of fundamental rights, and so is an 'Entrenched Right', even where it is unmentioned in a constitution, without which Constitutions would themselves be meaningless.

The argument as is moved by some financial centre officials – actively seeking ways to ignore or reinterpret their Constitutions to facilitate capitulation – is that rights are “subordinated” to the government’s power to enforce the law. That is barking nonsense.

The balancing of rights and powers is the essence of a jurisculture, where the rule of law is extant. So it can never be correct structurally or substantively to say Cayman’s Constitution ‘subordinates’ rights to powers. Rather they are balanced against each other. Crucially, the government in the executive cannot itself decide that question, or rights would prove to be arbitrary, tenuous and lacking the potency to stay the government’s hand in any respect.

No jurisdiction in which that is so can claim to be a Constitutional Democracy.

Therefore, any process that limits, dislodges or eliminates rights without a process that balances the rights of citizens against the powers of government – such as Automatic Information Exchange - is inherently (prima facie) unconstitutional. Additionally, since the government is an interested party in this balancing of rights against powers, it cannot do so on the assumption of its discretion, because there must be some impartial body that arbitrates to disturb this balance between the governed and the government.

 
An Organisation of International Financial Centres could serve therefore, more than the interests of financial centres’ desire to be heard. It may serve the greater purpose of advancing the cause of the rule of law, by advocating reforms in cross-border financial services regulations that reflect settled principles of law, which disciplines policy at the international level, even as it retails domestically, creating a seamless approach to the strengthening of Constitutionalism as a basis for legitimacy in state actions.

Validity and Legitimacy of Cross-Border Rules

If there is an original thesis advanced here, it is very plain: It is that the only means by which (small island) IFCs can survive the selective onslaught of impositions from larger nations is through a robust constitutionalism. In recent years, the ‘treaty practise’ which has grown up through Tax Information Exchange Agreements are better marked by their failure to adhere to basic treaty rules, such as Reciprocity, Absence of Threats, and Non-Conflict with Pre-Emptory Norms – such as due process – leaving in their wake, oftentimes contradictory unilateral demands from the G8 (G20), particularly in instances in which - largely post-Colonial nations[7] or British Overseas Territories[8] - IFCs are prevented from engaging in practices or offering services engaged with impunity or practiced without incident within G8 (G20) jurisdictions themselves.

It cannot be denied therefore that in significant ways, the measures taken to counteract the impacts – real and perceived – of IFCs in the last 12-years, have been extra-legal, extra-territorial and have suborned the treatment of IFC constitutional obligations as mere inconveniences to G8 (G20) nation objectives; raising questions about the conduct of the larger nations toward smaller ones in the international community; threatening to undermine the collective commitment to and regard for legitimacy in state action.

More often than not, it has been the IFC’s own lack of understanding of the integrative nexus between constitutional rights and financial service structures (companies, funds, trusts, etc), a misapprehension of the total competitive vortex of a financial sector, the derivative nature of their operational models and products, the absence of locally relevant, adaptable legal frameworks, together with a woeful lack of technical sophistication, of ministerial capacity or support – particularly in foreign policy[9] – that has taken effect as principal impediments toward establishing a viable, defensible model for sustainable financial services offerings.

This is because most jurisdictions have confused the mere offering of such services with actually becoming or being a financial centre in a meaningful sense.

The question is whether, on the one hand, these smaller jurisdictions are content to be placed on one list after another – Black, Grey, White – leaping through constantly moving goalposts blindly, allowing larger nations to use their global media apparatus to define them arbitrarily, imposing feckless rules upon them – at times by threat – all, without a credible response based upon and correspondent to legitimacy between states, and that resting upon an understanding of the role of their financial centres in the global financial system.

Appurtenant to the question above, will the G8 (G20) (and its sister agencies) recognise the counter-productivity of their initiatives - in the long run - to shape a competitive global financial system?

The Goose and the Gander

It is possible to summarise the nature of the selectivity of “international financial services regulations” in recent years by the following reference: “…the investigation by the International Consortium of Investigative Journalists neglected a crucial point: Money laundering and financial secrecy do not take place only offshore. On the contrary, the US, Britain and other mainstream financial centers are at the heart of the action. Indeed, most of the shell companies implicated in the World Bank study were registered in the US. And British, US and European banks are routinely reprimanded — but rarely prosecuted — for handling the proceeds of crime. Just last year, it was revealed that British-based HSBC enabled Mexican drug cartels to launder hundreds of millions of dollars through the US financial system”.[10]

Invariably, the approach by the OECD, the EU, the G8 (G20) and even the IRS has been one which sees IFCs competing to be seen to be capitulating, at times advertising that fact, as if it were the most certain pre-condition of their survival. This fact or prospect is anathema to a world thought to be distinct from the 19^th century in its regard for the rule of law.

Specifically, a do as we please Goose, dictating to a do as you are told Gander runs afoul of principles and international commitments by OECD member and G8 (G20) nations themselves. These include:

• The International Monetary Fund (IMF) Convention - 1945

• The OECD Convention - 1960

Both Conventions are established against discrimination in their practices, and the OECD Convention carries an expressed clause against demanding that countries breach their Constitutions for the sake of cooperation or consensus. These large nation initiatives of recent years by the G8 (G20) and the OECD (supported by the IMF) ‘succeeded’ therefore, just because IFCs have not seen the rationale of organising according to a baseline, sustainable concept, to defend obvious existing principles larger than their mere immediate survival: That is, assuming whether if at all, the presumption of equality of states in international law has – at long last - a practical meaning.

The Level Playing Field

The proposition of the founding of a representative body to speak for IFCs internationally grew not merely from the general desire to establish a sustainable legal basis for cross-border financial services regulations, but also as a result of their feeble efforts at self-representation to date.

The most significant representative action taken by IFCs in concert in the last 15-year was the issuing of a report in 2006 called ‘The Level Playing Field’. There, they argued that the rash of rules imposed on their jurisdictions should be applied evenly and reciprocally. Again, they seemed to lack the confidence to argue that whilst some objectives in the increasing variety of initiatives may have been desirable, the initiatives were themselves unconstitutional within their jurisdictions, and the issue was not that they should have been applied equally to all nations, but that they lacked legitimacy in international law; which is why they were selective in their imposition in the first instance. However, the report did manage the following quite dramatic statement, shedding light on the problem of the Goose and the Gander:

 

“Two issues continue to rankle and are unresolved by the OECD’s Report. The first is the exceptionalism invoked by the United States in failing to adhere to the basic tenets of a programme significantly funded and staffed by the US government, but intended, apparently, only for the little people in the global economy. The US thirst for bank deposits comprised of foreign flight capital evading home country taxation is scandalous, particularly in view of the aggressive posture adopted by the United States when its own tax revenue is at stake. Similar hypocrisy underpins the US refusal to deal with anonymously owned US companies, while demanding that others jettison such structures. The OECD’s failure to enlist ‘do as I do’ support from their principal constituent undermines the credibility it requires to cajole co-operation from others. The second issue that rankles is the missed opportunity for the OECD’s Global Forum to identify the meaningful quid pro quo promised for inducing co-operation from non-member states. Durable and stable agreements invariably require an exchange of value, and the sovereign context is no exception. If the OECD wishes to progress its project, it will need to facilitate the ‘full integration’ into the global economy promised to the non-members whose support it seeks. This will require attention to the existing tax, commercial, and regulatory barriers, which marginalise the traditional offshore centres seeking free trade in cross-border financial services. Without this, it is hard to imagine that non-member states will cheerfully assume the substantial costs of facilitating an agenda, which benefits OECD’s membership alone”[11].

Again, the problem here is the acceptance of a set of rules, which are inconsistent with constitutional democracy, particularly where these rules anticipate on-demand (automatic) information exchange. Put simply, there are no just means by which a constitutional democracy, with Privacy as a fundamental constitutional right, can agree to such initiatives, which seek to by-pass a ‘due process of law’.

There are two general points following the above, which exposes a failure to apprehend fully the demands of becoming a financial centre.

First, if the basis of our international system is the rule of law, a situation cannot exist through which we permit a selective system of rules, applicable to the many by the few, to prevent the many from doing what is being done by the few with impunity. One instance of that is the seeming deliberate confutation between “illegal tax evasion” and “legal tax avoidance”, which is was a distinction made in the OECD’s own Convention of 1960.

Second, what the Level Playing Field argument shows in particular, is the naiveté of adopting under duress, but with obsequious passion, what appears to be a limited capitulation to someone else’s demands, when in fact their total objective is one’s utter annihilation.

It seems as strange as it is estranging therefore, that the IFCs have not adopted a practice of negotiating Double Taxation Agreements, on terms consistent with Treaty Law, which is a direct antidote to forced tax harmonisation, whilst striking a balance with the relative benefits of tax income between countries engaged in legitimate tax competition.

In principle, the essential weakness of the Level Playing Field Report – unlike what is proposed as a founding principle for an OIFC - is that it is prepared to assist in the fostering of an unconstitutional system, so long as it is applied evenly. But the ostensible ‘evenness’ anticipated was already defeated in the very nature of what it purported to facilitate.

The Anti-Trade Imperative

An OIFC would serve, beyond what has been argued as its active purpose, a cautionary purpose as well. And as a cautionary proposition, much of what now passes for ‘International Standards’ since the OECD’s assault on IFCs, can be characterised as follows:

1. Unfair

2. Based upon hysterical speculation

3. Counter-productive

Unfairness

For the sake of perspective, we know that the G8’s (G20) countermeasures against jurisdictions offering financial services have been limited primarily to small post-Colonial island nations. What is not known widely is that these nations entered the financial services sector at the behest of Great Britain itself, as a means of limiting Britain’s financial obligations to these jurisdictions during its decline from empire.

Given Britain’s recent intemperate treatment of IFCs at successive G20 meetings, which are not merely British Overseas Territories, but are also global leaders in their sectors (Cayman in Funds; Bermuda in Insurance and BVI in Company Formations), it is surprising to see British officials, only weeks ago blushing wildly at the prospect of the establishment of a Turkish financial centre at Istanbul[12], offering British partnership to advance Turkey’s objectives in exactly the services they have tried to prevent or eliminate in the Overseas Territories.

It is for this reason and more that a trade basis for financial centres must be established to enact the legal structure of trade, providing not merely rules of operation, but an adjudicating structure in the case of disputes.

Moreover, aside from the unfairness of selective, anti-trade impositions, there is also the unfairness of characterisation; which has been used by the OECD/EU/G20/US, effectively to demonise small jurisdictions. If placed in the context of the 2008 (and continuing financial and economic crisis), the meltdown of the global financial system was in part precipitated by tax and regulatory arbitrage between London and New York.

Yet, at the G20 meeting in London 2009, Financial Centres came under especial scrutiny, by the very people who nearly destroyed the global financial system.

It was Gordon Brown himself, with his “light touch” regulations that set the foundations for the financial crisis in London. The UK lost Northern Rock bank, and found itself threatening an ally, in Iceland, branding the entire country as a terrorist state, for doing exactly what London had been doing all along. New York lost Bear Stearns, Lehman Brothers, nearly lost every other bank and effectively used taxpayer monies to protect those who destroyed the system, the effects of which lasts to this day, and the worst aspect of which still lie in an ominous abeyance.

Further, as has been reported in the Economist and elsewhere, Professor Jason Sharman of Griffiths University in Australia, in an attempt to test and compare the regulatory integrity of a variety of banking systems “tried to open anonymous shell companies and bank accounts 45 times across the world. These were successful in 17 cases, of which 13 were in OECD countries”[13].

This serves only to confirm an already metastasising corrosion in the international system, if only because non-OECD members could never regard the initiatives imposing strenuous demands upon them as either fair-minded or lawful.

So weary were developing world leaders in ensuring  - for obvious good reasons – that the G-20 nations did not displace blame for these catastrophic events that this fear of metropolitan hubris led former President of Brazil – Luiz Inacio Lula Da Silva – to make his (racially tinged) comment before the 2009 London G20 meeting, saying: “This is a crisis that was caused by people, white with blue eyes. And before the crisis they looked as if they knew everything about economics,” he said. “Once again the great part of the poor in the world that were still not yet [getting] their share of development that was caused by globalisation, they were the first ones to suffer.

“Since I am not acquainted with any black bankers, I can only say that this part of humanity that is the major victim of the world crisis, these people should pay for the crisis? I cannot accept that. If the G20 becomes a meeting just to set another meeting, we’ll be discredited and the crisis can deepen.[14]”

The essence of Lula’s concern is compelling: It is G20 nations that gave us words like: Long-term Capital, WorldCom, Enron, Madoff, Parmalat, RBC, London Whale and the LIBOR scandal, the outrage at which has been either absent or underwhelming, compared to the hyperventilating froth around small financial centres.

Yet, again, in the Global Financial Centres Index 2013, the following evidence of cognitive dissonance appears: “Offshore centres suffered significant reputational damage in 2008 and 2009”[15]. In the very midst of the crisis caused by the failure of their agencies for years on end with the world reeling from the impacts of their failures of regulation, oversight and having failed to punish those whom they facilitated in these stupendous acts of misfeasance, the G20 meetings were consumed[16] by feckless evangelism about the risks of offshore centres.

Hysteria

The G-20 – by its own claims - is responsible for over 75 per cent of total financial services in the world. Yet, somehow, it has become bewitched by its own speculations about the impacts of IFCs. Sundry speculants said in 2000 that the US lost US$3 billion in tax revenues. Then the number rose to US$30 billion, then US$70 billion, then US$150 billion and US$400 billion. Today, the number is US$32 trillion. And it seems that serious people take these speculations seriously.

Let’s put some facts right, for the sake of clarity:

• First, it is true to say that US bank liabilities owed to foreigners registers at US$1.5 trillion through the Caribbean (equal to US bank liabilities to Europeans)[17].

• Second, there is no foreign money ‘soaking away’ in IFCs, avoiding the home country taxman.

• Third, IFCs – particularly in the Caribbean - are ‘pass-through’ jurisdictions. That is, funds registered through the Caribbean are invested – nearly 80 per cent of it – in US securities, or are in US banks, financing debts, deficits, household and student loans.

Therefore, when we speak of IFCs in general, we are speaking about an ‘exchange’ between Caribbean IFCs and US banks and capital markets: Let us assume that the speculants are half right concerning the volume of tax revenues aforesaid. Still, it would not be so simple to speak of deposits own by foreigners as ‘hidden’ in the Caribbean, which raises several questions:

• Would the US prefer inward investment flows or some speculative marginal sum of tax revenue?

• Surly even if that is so, there is an intellectual argument about, whether those funds ought to be declared.

• The question is for the US, would those funds be invested, if declared?

• What IFCs should know and seek to know, is what is the impact of the funds registered in their jurisdictions on US economic performance.

Plainly, Americans are not savers[18]. Yet, American banks hold over 80 per cent of global savings, which are structured largely through IFCs[19]. The failure of IFCs to have a complete technical understanding of this practical impact of their sector, supported by peer-reviewed research, makes it easy to redefine them as having a purely negative impact.

Counter productivity

The large nation strategy of ‘divide and conquer’ will prove self-defeating. When we consider the role of IFCs, their capacity for Capital Aggregation, as a situs for Trade Finance, International Joint Ventures and Collective Investment Vehicles, together with the speed of regulatory support compared to larger systems and their relatively small populations, resulting in their ‘low direct tax’ systems, together with their incentives to be proficient and efficient, IFCs have a vital role in the global financial system. If between the FATCA Act and the G8 (G20), the current IFCs are diminished or destroyed, operations would simply migrate to countries with the power to resist, as was said previously.

China would have Shanghai, Macau and Hong Kong, which I think will eventually form an integrated troika. Russia would have its own financial centre (although I see problems in its structure already).

Abu Dhabi could become a counterweight to Dubai. (Although there are structural components I would like to see that would give it prestige in the region). Qatar (despite some fault-lines in its design and legal character) is already becoming the Cayman of the Middle East with better resources than Cayman to put itself at the centre of research and development on this sector).

India would tolerate Mauritius. Singapore would continue its rise and relevance as the best way to enter China or trade in the East. Panama - with its Canal - would continue to increase its influence as the most significant trade node in the Americas and a gateway to Brazil or Colombia.

Turkey’s new Centre can emerge because they have the right approach to domesticating their centre, and Cayman would only survive in connection with China, whilst Bermuda’s weaknesses would show more severely, but it could survive.

Almost all other centres would dry up. (Although, there is a vacuum for a financial centre in the Caribbean based on trade and infrastructure finance). The US would suffer a massive loss of both investment and tax revenues. Meanwhile, the new dominant centres would be connected to large states (Russia, China, Brazil, Turkey), the Middle East Centres standing alone; all would be able to resist impositions from the US and Europe, as they are now. This would lead to a period of ruthless tax and regulatory arbitrage. The initiatives which small centres have been forced to sign would be rendered useless and a condition of treacherous stalemate would pervade the global financial system.

Conclusion

There are only two general outcomes amidst the permutations of possibilities for International Financial Centres, particularly the small former post-colonial island states or Overseas Territories:

Either, IFCs organise and achieve a ‘balance of power’ between themselves and the larger nations – particularly America and Europe - on the basis of Constitutionality and the rule of law; which is the only scalable legal principle available to them.

Or, they are eliminated and nations with more strategic depth and relative power develop their own financial centres, and financial centres would thenceforth develop within a framework of a ‘balance of interests’, based on the relative powers of the nations where centres are domiciled.  

If we fail in the former case, the latter will become extant; with the effect that ‘garrison centres’ will evolve from defensive policies likely to be adopted by the remaining jurisdictions, relying more on their leverage options or relative powers, than the rule of law.

If such a prospect were to unfold, large nations would have themselves to blame owing to their tendency for blind self-serving overreach.

Smaller nations will also carry the blame that they never actually believed in an international system based on rules, and their constant capitulations is the clearest evidence they that they have no business in the financial services business.

 

[1]http://www.oas.org/legal/english/docs/Vienna%20Convention%20Treaties.htm

[2] http://www.imf.org/external/pubs/ft/aa/index.htm

[3] http://www.oecd.org/general/conventionontheorganisationforeconomicco-operationanddevelopment.htm

[4] http://www.oecd.org/general/conventionontheorganisationforeconomicco-operationanddevelopment.htm

[5] Foreign Account Tax Compliant Act (FATCA) was enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts as part of the HIRE Act 2010.  FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

[6] http://www.gov.tc/sites/default/files/TCI%20CONSTITUTION%20ORDER.pdf at Article 9:(1) Every person has the right to respect for his or her private and family life, his or her home and his or her correspondence, and except with his or her own consent, no person shall be subjected to the search of his or her person or his or her property or the entry by others on his or her premises. (2) Nothing in any law or done under its authority shall be held to contravene this section to the extent that it is reasonably justifiable in a democratic society— 13, (a) in the interests of defence, public safety, public order, public morality, public health, town and country planning, the development of mineral resources, or the development or utilisation of any other property in such a manner as to promote the public benefit; (b) for the purpose of protecting the rights and freedoms of other persons; (c) for the prevention or detection of offences against the criminal law or the customs law; (d) to enable an officer or agent of the Government, a local government authority or a body corporate established by law for a public purpose to enter on the premises of any person in order to inspect those premises or anything on them for the purpose of any tax, rate or due or in order to carry out work connected with any property that is lawfully on those premises and that belongs to the Government or that authority or body corporate, as the case may be; or (e) to authorise, for the purpose of enforcing the judgment or order of a court, the search of any person or property by order of a court or the entry on any premises by such order.

 

[7] Namely: The Bahamas, Barbados, Costa Rica, Antigua & Barbuda and Panama.

[8] Specifically: Bermuda, Cayman Islands, BVI, Turks and Caicos Islands and Anguilla.

[9] This foreign Policy point is important. Many centres have Ministers for Financial Services, but little or no concept that the primacy nexus in which they would have to operate internationally, is in the foreign policy arena.

[10] http://www.themoscowtimes.com/opinion/article/exposing-global-corruption-secrecy-and-lies/481200.html#ixzz2Vj9ip9Rq - Gavin Hayman is director of Campaigns at Global Witness -The Moscow Times 

[11] Tax Planning International Review: War of the (Offshore) Worlds: OECD Level Playing Field Report, Richard Hay, Stikeman Elliott, London, pp.6-7

[12] http://www.invest.gov.tr/en-US/infocenter/news/Pages/200313-istanbul-finance-center-gets-british-support.aspx

[13] The Economist, March 26^th 2009 – Haven Hypocrisy: Big economies are leaning on offshore tax havens. But greater abuse may be taking place at home. Unfortunately, the Economist has been surprisingly inconsistent in its views on this vexed question of IFCs.

[14] (http://www.independent.co.uk/news/world/politics/financial-crisis-caused-by-white-men-with-blue-eyes-1655354.html).

[15] ( http://www.zyen.com/images/GFCI_25March2013.pdf). Pp.26

[16] http://www.stefanopagliari.net/helleiner-pagliari_-_the.pdf

[17]http://www.federalreserve.gov/econresdata/releases/statbanksus/liabfor20130331.htm

[18] http://www.economist.com/blogs/freeexchange/2013/04/saving.

[19] http://www.bloomberg.com/news/2013-01-23/u-s-deposits-post-biggest-drop-since-9-11-as-fdic-ends-support.htm