Offshore financial centres received
rare support at a Westminster Hall debate last month over their role in the
international financial system.
Conservative MP Mark Field stated
that the recent debate over international financial centres demonstrated “a
fundamental lack of understanding of their function and the benefits they
provide to the wider global economy”.
“As international organisations and
major governments seek to understand the cause of the global financial crisis,
small international financial centres (IFCs) have repeatedly endured political
attacks and misguided criticism,” Mr. Field said.
“From pejorative sniping about
their being tax havens for avaricious bankers to allegations that they provide
secrecy jurisdictions for shady figures in the international business community
and are in part to blame for shortcomings in the financial markets, the debate
over the role of small IFCs has been, to date, remarkably one-sided.”
Echoing the findings of the 2009
Foot Review of the UK’s relationship with its Crown Dependencies and Overseas
Territories, the MP for Cities of London and Westminster noted a mutually
beneficial relationship between the City of London and many Crown Dependencies
and Overseas Territories, illustrated “by the massive capital flows between the
two which aid market liquidity and investment in the UK”.
Given that the UK had experienced a
credit crunch in the past and may be facing another one in the light of
sovereign default concerns in Europe, Mr. Field said the “free movement [of
capital flows] and liquidity provided by IFCs is key”.
“That case needs to be made
robustly at a time when others are dismissive of offshore financial centres.”
Greater understanding called for
Mr. Field called for a greater
understanding of the role and proven benefits provided by small international
financial centres as part of the City of London’s transaction chain and went on
to “dispel some of the myths that surround such centres”.
“In reality, many of the smallest
IFCs are able to provide a stable, well regulated and neutral jurisdiction
through which to facilitate international and cross-border business,” he said.
Small IFCs played an important role
in helping to allocate capital efficiently and acted as “important financial
intermediaries”, matching the capital provided by savers in one country with
the investment needs of borrowers in another.
Mr. Field argued that investments
channelled into small IFCs will in turn provide liquidity, further investment
opportunities, ensure access to capital markets for businesses and investors
and thus contribute to economic growth in the developed and developing world.
He also said that IFCs were not to blame for the financial crises and rejected
the notion that IFCs engaged in harmful tax practices.
A worrying trend
Referring to the review of the
zero-10 tax regimes in the Isle of Man and Jersey by the EU Code of Conduct
Group, Mr. Field said that “recent attacks on the zero-10 tax regimes reveal a
worrying trend, in which the sovereignty of independent states to set their own
tax rates is undermined and high-tax countries seek to export their high tax
rates around the world”.
He emphasized that tax competition
needed to be redefined and new policy initiatives needed to protect the
principle of tax sovereignty.
The UK’s Financial Secretary to the
Treasury Mark Hoban said Mr. Field was right to highlight the UK’s particular
interest in this area as the Crown dependencies and offshore territories that
have a link with the UK represent half the top 30 offshore financial centres.
Mr. Hoban concurred with most of
the points raised by Mr. Field.
“I recognise the importance of the
role that offshore financial centres can play. They are an important
contributor to the City of London. They provide services to UK citizens,
whether at home or abroad,” Mr. Hoban said. “However, it is vital that they
comply with the highest international standards on tax transparency and dealing
with terrorism financing and money laundering. Adhering to those standards
would be the best safeguard for their future prosperity.”
Cayman Finance Chairman Anthony
Travers, commenting in an email exchange with the Governor’s Office circulated
by the financial services industry body, said Mr. Hoban’s comments were those
of “someone uncertain of the true position” and simply restated “a conventional
mantra which misses the truth of the matter”.
Mr. Travers said the standard of
transparency and anti-money laundering regulations in the Cayman Islands was
superior to that in almost all of the G20 jurisdictions and noted that the
Cayman Islands adopted proactive tax reporting with EU members when many in the
EU did not.
However, Mr. Travers agreed that
these exchanges were a step in the right direction, as “the typical comment
about the Cayman Islands from members of both UK Houses has historically been
woefully inaccurate and has perpetuated a great deal of unfortunate
Walkers Managing Partner Grant
Stein, commenting on behalf of the IFC Forum, a nonprofit organisation formed
by major offshore law firms with the goal of informing public debate on the
role of IFCs, also welcomed the debate and the government’s response.
“It is encouraging to see that the
UK government is taking a more evidence-based look at the role of small IFCs,”
he said. “We are also pleased to see
that there is growing recognition among law makers in the major economies of
the positive role that the small IFCs play in the global economy and the
contribution which these small IFCs make to the economies of many of the G20
and other countries.”