An Offshore Business

Offshore financial centres are often (but not always) current or former British Colonies or Crown Dependencies, and often refer to themselves simply as offshore jurisdictions.

The term is fluid to a certain extent, and it has been remarked more than once that whether a financial centre is characterized as "offshore" is really a question of degree.

The IMF considers the following to be characteristics of an offshore financial centre:

* Jurisdictions that have relatively large numbers of financial institutions engaged primarily in business with non-residents;
* Financial systems with external assets and liabilities out of proportion to domestic financial intermediation designed to finance domestic economies; and
* Centres which provide some or all of the following services: low or zero taxation; moderate or light financial regulation; banking secrecy and anonymity.

Views of offshore financial centres tend to be polarised. Proponents suggest that reputable offshore financial centres play a legitimate and integral role in international finance and trade, offering huge advantages in certain situations for both corporations and individuals, allowing legitimate risk management and financial planning.

Critics argue that they drain tax from wealthy (and not so wealthy) nations, are insufficiently regulated, and facilitate illegal activities such as tax evasion and money laundering while avoiding legal risk under corporate veil.

Proponents point to the tacit support of offshore centres by the governments of the United States (who promote offshore financial centres by the continuing use of the FSC) and United Kingdom (who actively promote offshore finance in Caribbean dependent territories to help them diversify their economies and to facilitate the British Eurobond market).

OPIC, a U.S. government agency, when lending into countries with underdeveloped corporate law, often requires the borrower to form an offshore vehicle to facilitate the loan financing. One could argue that US external aid statutorily cannot even take place without the formation of offshore entities.

What is certainly true of offshore financial centres is that recently they have attracted a great deal more attention than in the past, and international initiatives spearheaded by the OECD, the FATF and the IMF have had a significant effect on the offshore finance industry. A number of smaller, less regulated jurisdictions figuratively went to the wall, and closed up shop. Most of the principle offshore centres that remained considerably strengthened their internal regulations relating to money laundering and other key regulated activities. On 23 February 2007 The Economist published a survey of offshore financial centres; although the magazine had historically been very hostile towards OFCs, the report represented a shift towards a very much more benign view of the role of offshore finance, concluding: "...although international initiatives aimed at reducing financial crime are welcome, the broader concern over OFCs is overblown. Well-run jurisdictions of all sorts, whether nominally on- or offshore, are good for the global financial system.".

Resource: Answers