Bermuda

‘Bankers on the beach’: IMF officials say OFCs are luring tax evaders


By added on 15/06/2011

Two members of the International Monetary Fund (IMF) have published a report entitled ‘Bankers on the Beach’, looking into financial flows to OFCs and their potential for economic growth.

Maria Gonzalez, the IMF’s resident representative to Argentina and Uruguay, and Alfred Schipke, division chief in the IMF’s Western hemisphere department, said that OFCs have come under increased scrutiny in recent years with divided opinions on whether their activities are a source of growth and a legitimate area for economic diversification or a reflection of the problems of tax evasion and money laundering caused by a lack of transparency and regulation.

Leading the way for tighter regulation have been the Financial Stability Board, the Financial Action Task Force, and the Organisation for Economic Co-operation and Development.

The authors said that in order to attract business, OFCs tended to offer low or zero taxation schemes, which to some extent allow for better resource allocation, but on the other hand they were cost competitive due to frequently operating under “relatively weaker regulatory and supervisory financial standards” set by the host jurisdictions, translating into low administrative and operating costs which may not be consistent with international standards.

They went on to say that OFCs’ attractive financial and tax features has enabled them to capture a large and growing part of the global financial flows, with 40 countries and territories hosting OFCs holding assets and liabilities of about US$5 trillion at the end of 2009, with those in the Caribbean accounting for more than half of all OFC financial transactions. Bermuda itself makes up 17.3 per cent of those financial flows coming into the Caribbean region.

“The 2008-09 global economic crisis renewed the debate on OFCs and the perception that they too must abide by the rules,” they wrote. “As policy makers become increasingly aware that financial regulatory loopholes can undermine the stability of the global financial system, there has been a push to ensure that OFCs adhere to international standards.

“As in the case of onshore Ponzi schemes in G-20 countries, there are also prominent examples of financial scams operated through OFCs raising awareness about the need to strengthen regulatory systems operating in OFCs.

“In addition, policymakers in advanced economies have been trying to address their growing fiscal challenges by closing legal loopholes that facilitate tax evasion, including a variety of mechanisms that rely on OFCs.”