Strengthening the offshore defences against economic crime and abuse
| Date | 01 October 2003 |
| Pages | 387-391 |
| Published date | 01 October 2003 |
| DOI | https://doi.org/10.1108/13590790310808943 |
| Author | William Witherell |
| Subject Matter | Accounting & finance |
Strengthening the Oshore Defences against
Economic Crime and Abuse
William Witherell
INTRODUCTION
This paper reports on some recent activities in the
Organisation for Economic Cooperation and Devel-
opment (OECD)
1
that have as their objective
strengthening the defences against international
economic crime. It focuses on issues of particular
importance to oshore ®nancial centres. It ®rst
covers recent work related to the issue of obtaining
information on bene®cial ownership and control of
corporate entities and trusts. The issue, of course, is
not limited to oshore ®nancial centres, but it is
an important issue with respect to a number of
those centres. It then discusses OECD projects on
combating harmful tax practices.
FINANCIAL STABILITY FORUM AND
OFFSHORE FINANCIAL CENTRES
One of the initial acts of the Financial Stability Forum
(FSF) when it was convened in April 1999 was to set
up a Working Group on Oshore Financial Centres
(OFCs) to consider the signi®cance of OFCs in rela-
tion to ®nancial stability in all its aspects. More speci-
®cally, the Group was asked, `to evaluate the impact
on global ®nancial stability of the uses made by
market participants of ®nancial oshore centres, and
the progress made by such centres in enforcing inter-
national prudential standards and in complying with
cross-border information exchange agreements.'
2
The FSF Working Group on Oshore Financial
Centres reported back to the FSF in April of 2000
and its report was subsequently released to the
public.
3
The Group found that some OFCs are well
supervised and prepared to share information with
the authorities of other ®nancial centres, and to
cooperate internationally. But serious concern was
expressed about the quality of supervision in, and
degree of supervision provided by, some other OFCs.
Such concerns relate to two types of problems:
prudential concerns relating to de®ciencies in super-
vision and market integrity concerns which relate
to the eectiveness of international enforcement
eorts in respect of illicit activity and abusive
market behaviour.
The speci®c identi®ed shortcomings relating to
market integrity included:
Ð De®ciencies in cross-border cooperation on
eective information exchange, timely access to
information and the ability to verify it;
Ð The lack of due diligence with which ®nancial
institutions can be formed;
Ð The lack of available and timely information on
the bene®cial ownership of corporate vehicles.
With respect to the third point, it is important to
recognise that corporate vehicles or entities, including
corporations, trusts, foundations and partnerships
with limited liability characteristics, conduct a wide
variety of commercial activities and are the basis
for a broad range of entrepreneurial activities in
market-based economies.
4
However, despite the
important and legitimate roles these entities play in
the global economy, they may, under certain
conditions, be used for illicit purposes, including
money laundering, bribery and corruption, improper
insider dealings, illicit tax practices, ®nancing of
terrorist activities and other forms of illicit behaviour.
THE MISUSE OF CORPORATE
ENTITIES FOR ILLICIT PURPOSES
As a result of these concerns, in May 2000 the
Financial Stability Forum Working Group on O-
shore Financial Centres asked the OECD to explore
the issue of developing mechanisms to prevent the
misuse of corporate entities by ensuring that super-
visors and law enforcement authorities are able to
obtain information on the bene®cial ownership and
control of corporate entities and to share that infor-
mation with foreign authorities. The resulting
report, published last autumn,
5
was welcomed by
both the OECD Ministers and the G7 Finance
Ministers, who noted its potential to contribute to
eorts to ®ght money laundering. The report is
now feeding directly into the work of the FATF
and the OECD work on tax havens as well as
OECD's work on corruption and bribery.
Page 387
Journal of Financial Crime Ð Vol. 10 No. 4
Journal of Financial Crime
Vol.10,No. 4,2003,pp. 387 ±391
#HenryStewart Publications
ISSN 1359-0790
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