Offshore Banking Secrecy: Myth or Reality?
| Published date | 01 February 1998 |
| Pages | 316-318 |
| Date | 01 February 1998 |
| DOI | https://doi.org/10.1108/eb027155 |
| Author | Peter D. Maynard |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control —
Vol.
1 No. 4
Offshore Banking Secrecy: Myth or Reality?
Peter D. Maynard
There is no such thing as absolute bank secrecy,
even in the offshore environment. Bank secrecy is
a matter of degree, and ultimately is a myth rather
than an absolute reality. A convenient typology is:
'no-tax' havens, eg the Bahamas, Bermuda,
Cayman and Turks and Caicos Islands; and Mow-
tax' havens, which include most of the other coun-
tries in the region, such as Barbados.
Common features of the so-called 'no-tax'
havens and some 'low-tax' havens are:
— no disclosure of bank accounts and transactions;
— no or minimal reporting requirements;
— no currency control;
— competitive prices for financial services;
— no tax treaties;
— no income, capital gains, estate or gift taxes on
either residents or non-residents.
Confidence in the institutions and confidentiality
of information are vital to the integrity of any
banking system. The regulatory authorities in
off-
shore centres have no interest in harbouring dirty
money. For example, BCCI in the Bahamas was
closed down long before BCCI was closed in the
UK. (Banks are used for a host of legitimate pur-
poses,
and governments and third parties are not
entitled to rummage whimsically through the legi-
timate affairs of customers. Hence, a balance has to
be struck between secrecy and disclosure, and the
courts have been quite willing to decide boldly in
favour of either.)
Many misconceptions have arisen about access
to information in offshore banks. But access to the
information can be gained throughout the Carib-
bean for drug offences, serious crimes, money
laundering and even civil matters such as insolven-
cies.
This paper focuses on the latter civil matters
to some extent. The law and practice of financial
institutions in offshore centres has undergone a
very profound change over the past two decades.
The explosion of drug trafficking in the 1980s
was a serious threat to political and economic
stability, to the rule of law and to the integrity of
the global financial system. The existing criminal
law was inadequate, and it became necessary for
financial institutions to cooperate with law
enforcement even beyond their traditional role as
bankers. Since the early 1980s Caribbean and Cen-
tral American banks have adopted codes of con-
duct containing the highest international standards
of due diligence even before some of the
developed countries.
The UN Drugs Convention requires that bank
secrecy should not be an obstacle to international
cooperation. At the national level, the countries of
the Caribbean and Central American region have
been front runners in the early establishment of
money-laundering legislation, such that practically
every country has a money-laundering act on the
books and is favourably evaluated through the
Caribbean Financial Action Task Force.
In a number of unreported cases, a good insight
is gained about the law and attitudes in inter-
national financial centres.
Tournier v National Provincial and Union
Bank of England1
The
locus classicus
of bank confidentiality law is the
celebrated dictum of Bankes LJ, in Tournier v
National Provincial and Union Bank of England,
which itself indicates that the banker's duty of
confidentiality is not an absolute duty but a quali-
fied duty.
On the limits and qualifications of the contrac-
tual duty of secrecy in the relation of banker and
customer, Bankes LJ listed four qualifications
where the banker may disclose the customer's
banking information:
(a) where disclosure is under compulsion by
law
(b) where there is a duty to the public to dis-
close
(c) where the interests of the bank require dis-
closure and
(d) where the disclosure is made by the express
or implied consent of the customer.
As other offshore financial centres, the Bahamas
has enacted specific legislation: s. 10 of the Banks
and Companies Regulation Act (Ch. 287) and s. 19
Page 316
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