Towards a Convergence of Regulatory and Supervisory Modalities of Offshore and Onshore Banking Sectors in the OECS Sub‐Region
| Pages | 384-394 |
| DOI | https://doi.org/10.1108/eb027288 |
| Published date | 01 February 2001 |
| Date | 01 February 2001 |
| Author | Nand C. Bardouille |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control — Vol. 4 No. 4
Towards a Convergence of Regulatory and
Supervisory Modalities of Offshore and Onshore
Banking Sectors in the OECS Sub-Region
Nand C. Bardouille
AN INTRODUCTORY ANALYSIS OF
THE OFFSHORE SECTOR MODALITY
A primer on the offshore sector
An offshore sector makes reference to financial ser-
vices and non-financial services frameworks in a
country/territory. Clientele who make use of these
services are non-residents of the given jurisdiction.
In these service frameworks assets can be diverted
to,
and business/financial affairs conducted in, an
environment where a package of favourable regula-
tory incentives are in place to benefit clients who
would ordinarily not be privy to such regulatory
regimes in onshore jurisdictions. These regulatory
incentives typically comprise incorporation mechan-
isms as regards commercial holding companies or
overseas subsidiaries in client-friendly fiscal and
exchange control environments.
Offshore frameworks are not new to the Carib-
bean; some island offshore jurisdictions have been in
place, in one form or another, for over 50 years.
The sector has proven to be very important econom-
ically as a major revenue-generating agent, especially
in the first-tier jurisdictions, in the Caribbean.1 There
are approximately 70 offshore financial centres
worldwide; the size of the global offshore services
industry ranges from $5trn to $6trn and the
offshore centres of the Caribbean command
approximately a third of this money.2
Offshore financial services are offered within the
ambit of offshore financial centres that function as
financial market intermediaries.3 These centres are
categorised as either (1) primary, (2) secondary, or
(3) booking centres. This typology reflects the
degree to which value-added activities take place
at the level of a given offshore jurisdiction
itself.
The lowend of the value-added chain encompasses
booking activity, for example related to IBC regis-
tration/incorporation. Offshore booking centres, in
this regard, serve as platforms where 'shell
branches' of international financial institutions
record their financial transactions. However, in
addition to low-end market transactions, activities
in these centres also extend to those in the highend
of the market such as international banking and
insurance companies.
The principal international offshore financial
centre is London, which, relatively speaking, offers
a full-service environment and in this regard the
most advanced array of services. The distinguishing
features of such an offshore sector are sophisticated
settlement and payments systems, typically not in
place in secondary offshore centres — that deal prin-
cipally in intermediate funds and employ limited
financial activities that are very specialised — because
of the absence of financial autonomy. These juris-
dictions are found in Central America (eg Panama),
the Middle East (eg Bahrain) and South East Asia
(eg Singapore and Hong Kong) for example. The
Caribbean is where offshore booking centres are
typically based and they serve as registries for finan-
cial transactions conducted and managed in other
jurisdictions.4 However, offshore booking centres
are most widely recognised for their anonymity
and tax planning uses where certain accounting
procedures are employed to minimise tax burdens
'legally' through tax avoidance. This is accomplished
through flexible tax regulatory regimes not otherwise
provided in onshore financial systems. A centre
typically provides 'reduced regulatory environments
and . . . provides . . . favorable treatment of tax, with
the possibility of lower taxes. The tax aspects may be
governed entirely by domestic legislation or a combi-
nation of such legislation and tax treaties. The tax
benefits include reduced tax, low tax or special tax
privileges. Sometimes there is no tax at all, usually
in relation to foreign income or in respect of certain
specified business activities.'5 Tax regimes, in this
context, also work to minimise tax liabilities and
advance the confidentiality imperatives typically
provided by a tax haven.6
It is precisely because of the perceived need for
flexible tax frameworks that the offshore concept
was born. However, the emergence of offshore
Journal of Money Laundering Control
Vol.
4,
No.
4,
2000,
pp.
384-394
© Henry Stewart Publications
ISSN 1363-5201
Page 384
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