Latest update April 28th, 2026 12:30 AM
Peter paying for Paul
We all know that we are in the throes of a world financial crisis, right? We all know that it is the direct result of financial institutions responding to perverse incentives presented when regulatory controls were wiped out by the governments of the developed countries, right? We all know that the governments are vigorously reining in the miscreants, right? Wrong!
In addition to throwing trillions of dollars at the maverick institutions – More liquidity! More liquidity! – The governments of the developed world, led by the US and UK, have a silver bullet. At the G-20 meeting scheduled for April 2 (the day after All Fools’ Day) in London, to address the crisis, it appears that eliminating Offshore Banking, or “Tax Havens” as they are dubbed, will be on top of the agenda.
This is one of the most cynical moves at the global level ever unleashed, and we hope that China and India have the gumption to head off this diversion from the real issues of the day. While it makes good theatre for the US and UK to trumpet the billions of dollars that are siphoned from their economies through various stratagems that utilise offshore financial institutions, the developed countries ignore the reality that most of their objections can be addressed by changing their own internal tax and regulatory regimes. But it is easier to create scapegoats.
The essential problem is not that these offshore banking centres may be offering lower tax rates on corporations that are registered in their jurisdictions. After all, these corporations would have been paying taxes to the jurisdictions in which they produced or imported their goods to begin with.
The problem is one of secrecy: whether the corporations are enabled to engage in the multitudinous ways in which they can evade the taxes of their actual domiciles. These subterfuges include “transfer pricing”, etc.
The solution is to insist that their corporations should only be able to submit returns from jurisdictions that agree to share necessary information.
One major sticking point will be the case of Switzerland, where the whole concept of secrecy in banking to escape scrutiny, governmental or otherwise, originated and is maintained. While the countries that are routinely castigated and pilloried are small mini-states such as Cayman Islands (of Ugland House fame, with 18,000 registered corporations) and Barbados, Switzerland has over 60 per cent of funds that are secreted from sight.
Another objection is that practically all these “havens” are run by subsidiaries of the very mega-financial institutions that are receiving billion-dollar bailouts: it can most easily be stipulated that, as part of the agreement to receive bailout funds, their off-shore operations should be made transparent.
The most fundamental objection is one that the major countries have trumpeted as fundamental to their status as independent countries – tax sovereignty. No country will, or should, be forced to forego their right to establish whatever tax regime they desire. This is a fundamental tool in shaping their economic environment.
No one complains when developing countries are forced to give tax holidays to attract foreign investment (and shrinking their revenue base), so why complain when the shoe is on the other foot? Did not London itself become the centre of the derivative “weapons of financial destruction” because of its looser regulatory environment? Why no move to clamp down on regulatory arbitrage?
The bottom line is that the US and UK are picking on the micro-states, many of them in the Caribbean, that are in no position to fight back.
They do not have the deep pockets of those who are waxing lyrically about morality in global financing, while frittering away trillions of dollars of their taxpayers’ hard-earned dollars in a futile effort to prop up those who literally broke the bank to begin with.
Last year our Government announced that consultations would be initiated with a view towards introducing offshore banking here. We are not sure how far those consultations have proceeded, but would suggest caution in the present climate, where Peter is going to be forced to pay for Paul.
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