Labuan IOFC: The Legal Environment and its Challenges

DOIhttps://doi.org/10.1108/eb025627
Pages251-258
Publication Date01 March 1993
AuthorTajudin BinIsa
SubjectAccounting & finance
Labuan IOFC: The Legal Environment and its
Challenges
Tajudin Bin Md Isa
Tajudin Bin Md Isa
is a serving police officer with the Royal
Malaysia Police and attached to the
commercial Crime Division, Royal
Malaysia Police Headquarters in Kuala
Lumpur.
ABSTRACT
To stimulate the financial sector further, the
Malaysian government has established an
International Offshore Financial Centre
(IOFC) on the island of Labuan. The setting-
up of the IOFC provides new challenges for
the enforcement community. Recent finan-
cial scandals involving offshore financial
centres have highlighted the need to pro-
tect the IOFC from crimes and financial
abuses and at the same time to ensure con-
fidentiality is adhered to. In the paper, the
Malaysian Offshore Banking Act 1990 is
examined. The Offshore Banking Act, under
certain conditions, allows a public officer to
gain access to banking information.
Stringent entry requirements are applied to
banks and businesses but the bottom line is
that bankers are expected to exercise
responsible banking and a high standard of
prudence.
The intention behind the establishment
by the Malaysian government of an
International Offshore Financial Centre
(IOFC) on the island of Labuan, close to
the coast of Borneo, is to stimulate the
financial sector further. A package of
incentives and privileges accorded to the
IOFC underlines the seriousness and
determination of the government in
achieving its objective of making the
IOFC the most competitive financial
centre in Asia by the turn of the century.
As the Asian market is a new pheno-
menon and the offshore industry is still
in its infancy, being strategically located
in the centre of the Asia-Pacific region
and close to many Asian capitals puts
Labuan in a good position to attract sur-
plus funds in the Asia-Pacific region
which offers immense economic oppor-
tunities in the years ahead.
The island's strongest attraction is the
possibility that it will replace Hong
Kong as a financial centre after 1997,
when the People's Republic of China
assumes sovereignty of the British
colony. Further, a climate of political
stability and the advantage of being in
the same time zone as Hong Kong and
Singapore add to the attractions of the
island as a viable international offshore
financial centre. At the beginning of
1993 there were 90 offshore companies
incorporated and registered in Labuan.
These include eight banks, two insur-
ance companies and 80 other businesses
operating in such areas as trading, asset
251

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