Book Review: Offshore Financial Centres and the Law: Suspect Wealth in British Overseas Territories by Dr Dominic Thomas-James

Still, it was worth the wait, although for me the title is far too subtle because it reaches far beyond law and crime, making this book a revealing read for not only practitioners and regulators but also for those involved in public policy, economics and business. The author is a member of the Bar of England and Wales with both a criminological and international relations background and his trained mind has come to the fore in this scholarly and dispassionate study. It was of particular, personal interest because during the first period when the constitution of the Turks and Caicos Islands was suspended and the United Kingdom imposed direct rule due to public sector corruption allegations, I was sent out (1989-1992) by the Foreign and Commonwealth Office to establish, inter alia, a regulatory unit in charge of banking and other financial services controls.

The book is more remarkable for the fact that its author is an academic and has not been at the sharp end of wealth management as either an onshore or offshore practitioner. Based on my international experience as a financial services professional during a career that has found me living in several countries or islands, his forensic analysis of both the prejudices and complexities enveloping the offshore world is insightful, backed up by pertinent legal precedents.

Along the way he addresses the many myths and tells the real story of offshore finance. In the wake of October's explosive revelations by the International Consortium of Investigative Journalists, known as The Pandora Papers, this book could not be more timely. It is important to understand that the author - because of his balanced approach - makes it very clear that he is only an observer and because of that, he is more than ready to place blame where he thinks it lies. I have little doubt, therefore, that some of the text will prove to be uncomfortable reading for bureaucracies; less so practitioners.

The book has eight chapters and the approach, not surprisingly, is methodical. Chapter 1 provides an introduction with useful explanatory remarks, supplemented by very helpful background information and commentary. Chapter 2 deals in detail with suspect wealth, corruption, fraud, money laundering and the very prickly issue of tax avoidance and its dark side - tax evasion. The author illustrates how suspect wealth poses a real threat to financial markets and institutions with erudite reasoning (common throughout the text) and explores the varying attitudes toward illicit conduct, complemented by very good examples of relevant court cases. Chapter 3 focuses on offshore financial centres which are considered in some detail; of particular interest were the remarks about perceptions and the fine line between the letter versus the spirit of the law. The chapter also provides an introduction to the British Overseas Territories, serving as a preamble to Chapters 4, 5 and 6 which, respectively, highlight Bermuda, The Turks and Caicos Islands, and Anguilla. In those chapters, Bermuda's Paradise Papers and the charges of corruption levelled at former ministers in The Turks and Caicos Islands are a central theme whereas the need for constitutional and legislative reform is singled out in the case of Anguilla. Each island's economy, including legislative and regulatory issues, the future development of their respective financial centres and, in particular, necessary company law reform, are covered; but it becomes obvious from reading those three chapters that not only is each island at a different stage of development, each has unique issues to deal with, the only common factor being a backdrop of beaches and palm trees.

Nuanced Arguments

If Chapter 2 caught my attention, Chapters 7 and 8 were absorbing, addressing transparency, beneficial ownership registers, the right to privacy and the effect of misappropriated data from the Panama and Paradise Papers. The Pandora Papers, sensationally published since the book was printed, can be seen in a new light. The author applies his legal mind to his nuanced arguments in both chapters, especially the summation in Chapter 8. His microscopic examination of the subject has produced a balanced guide and I found him to be critical where warranted, but equally sympathetic where it was justified. That is one of the reasons why this book is a refreshing change to the (often) jaundiced and turgid text churned out usually by journalists whose barbed words are not supported by any involvement with the sharp end of wealth management.

A copy of this book should, firstly, be delivered to the British Foreign and Commonwealth Office, and then to those governments who have been particularly scathing in their criticism of offshore financial centres. It may be true that several British Overseas Territories are central to the industry but it is also true that they are only pieces in the jigsaw puzzle. Dr. Thomas-James makes this very clear during the course of the eight chapters despite the large amount of ground that has to be covered. Many of the issues he raises have equal application whether an international financial centre is perceived to be onshore or offshore, and because of this he has also produced a valuable guide for politicians and supranational bodies across the globe.

My own summation of this book, and the main points that I think it raises begins with the  three islands featured. They all show a willingness to co-operate and comply with international rules and regulations but they are constrained, in varying degrees, by problems that are not necessarily all of their making. They have different histories, traditions and (importantly) relations with the UK: at one extreme, the resentment felt towards Whitehall is scarcely disguised. And while the UK is right to be primarily concerned with the islands' stability and security, both sides need to accept the hurdles that must be jumped over because of one or more of the following: ignorance, self-interest, and different (and some hidden) agendas. It is not surprising that misunderstandings - some of them serious - arise. A lot of this takes place behind closed doors but the end result is that it produces a morass of confusion, contradiction and contention. It is little wonder that progress on several fronts has either been painfully slow or static.

Again, so much of the contents of the book applies to not only offshore but onshore financial centres, whether islands or not, and wherever they are located. The very loud message, however, is that one-size-fits-all is a spurious argument, which is no doubt why practicalities have often collided head-on with priorities set by, for instance, the European Union, whose expectations clash frequently with realities. There is a need to sweep away generalities and expose popularised myths, the essential tools for too many commentators and journalists who are usually the source of frequent polemical attacks on offshore financial centres.

Offshore Is A Misnomer

The author argues that the word “offshore” is a misnomer, and I could not agree more. As he says, Monaco, for example, is not “geographically offshore” (it is not alone) and yet it has the DNA of an offshore financial centre. This leads on to yet another misnomer: the thorny definition of a ‘tax haven.’ Different jurisdictions can offer legitimate tax savings in certain circumstances, so there are, for some, onshore and offshore ‘tax havens.’ The conclusion I draw from the book is that the traditional definition has had its time and should be consigned to the rubbish heap. Similarly, it is a fallacy to assume that the substantial share of money-laundering activity takes place offshore; to do so is to deny the fact that the leading money-laundering centres are all onshore, in what the author describes as “metropolitan jurisdictions,” the UK being a prime, but not the only, culprit. The British government, even so, is too quick to treat some Overseas Territories as whipping boys in the fight against illicit finance.

The subject matter of the book is very challenging and complex and the author is quick to point out that often the regulatory controls offshore are better than those to be found in developed economies - I would suggest that he is being far too lenient in his criticism. Importantly, a key observation made is that there is perhaps a lack of appreciation on the part of authorities that less developed offshore centres often do not have the same resources (lack of capital / infrastructure/ training) available to them that established, richer jurisdictions do. It therefore begs the question: is it reasonable to expect the same level of competency when faced with this handicap?

After reading the book I came to the grim conclusion that if global standardisation of transparency and money-laundering controls is the aim, it must surely be but a distant hope. Besides the fact that developed countries still need to reach a common consensus (Europe and America are classic examples), many of the standards, as Dr Thomas-James reminds us, are ill-defined and even when they are not, they are subject to frequent change or amendment. He reflects that, possibly, in some instances, the standards are deliberately left vague to allow for interpretation - verdant territory for lawyers and bureaucrats.

I can't help but think of Lewis Carroll’s character, Humpty Dumpty, in Through the Looking-Glass, who insists that he can make words mean whatever he wants them to mean. We know he is not alone. Humpty Dumpty would have had a field day juggling the "privacy" and "secrecy" balls, with the author appreciating the increasing difficulties of correctly applying such words in the case of offshore financial centres. What is the difference? It can sometimes simply boil down to cultural factors and he notes that there is no universal definition of corruption. As he observes, Scandinavian and some other societies would seem willing to have people's wealth exposed to public scrutiny, much like the blasé attitude towards public nudity frequently found in northern climes. This flies in the face of the sanctity of privacy, now recognised as a basic human right and which Dr Thomas-James emphasises. When a warranted investigation proves that a guilty party has intentionally hidden assets to avoid prosecution, then "secrecy" takes on a sinister meaning. But if an honest person seeks "privacy" and creates a structure offshore, wanting it, for example, to be kept confidential from certain family members, then he or she has every right to do so.

Then there is the terror of the blacklists on which offshore financial centres can find themselves listed, to the detriment of their economic welfare and reputation. Blacklists have proliferated in recent years because they have been seen as effective missiles to be fired by individual or blocs of countries. Unfortunately, the logic applied is often inconsistent, motivated sometimes by either or both politics and prejudice. Not surprisingly, the author notes that the EU, for example, has not traditionally applied equal zeal to blacklisting any of its own members. Tellingly, in an era when central registers of beneficial owners are looming over offshore financial centres, like the sword of Damocles, he comments that (at the time of writing) only six of the G20 countries had central registers; the common adoption of this rule at the EU level continues, predictably, to be protracted whereas this monolithic organisation issues compliance deadlines to all and sundry. However, it is obvious that the slow march towards international compliance - no matter how unevenly spread the commitment may be - is continuing.

The book is thought-provoking and questions 21^st-century western mores, where reasoning in general has sometimes been stretched beyond the contortions of a limbo dancer. The word “morals” is increasingly being heard, not just about taxes but about the practices in offshore financial centres. "It may be legal but is it moral?" is a constant cry. I am sure that the ICIJ in particular must see this question as manna from heaven, opening up not just a Pandora’s box of papers but also a cornucopia of conundrums and speculations which will doubtless encourage the mischievous among them. O temporal! O mores! Cicero, the Roman statesman and philosopher (106-43BC) is said to have expressed his frustration at the existing state of affairs in this way. Plus ç Change - it is why caution should be exercised by those quick to talk about "the new normal".

Readers, I dare say, who qualify as seasoned practitioners may feel a little exasperated when reading parts of the book, only because they have been making many of the same observations either vocally or in writing for such a long time.

Finally, if I had any criticism to make about this book, it would be that if the objective was to attract the widest readership possible, some of the very detailed text could have been left out without detracting from the quality of the analysis.

Derek Sambrook
Derek Sambrook is a member of the Society of Trust and Estate Practitioners in the United Kingdom and obtained the Trustee Diploma of the Institute of Bankers in South Africa in 1973, becoming a Fellow of the institute in 1996. He emigrated in 1977 from Rhodesia (now Zimbabwe) where he was branch manager of a trust company and continued his profession in North America (Miami), Europe (including London and the Channel Islands), and the Caribbean (including the Cayman Islands). He has lived in Panama since 1996 where he is the Managing Director of Topaz Services, S.A. (www.trustservices.net), a Panamanian financial services company. He was Treasurer of the British Chamber of Commerce Panama for several years. Mr Sambrook‘s regulatory experience began in the corporate division of the Rhodesian (now Zimbabwe) Ministry of Justice (1965-1970) and subsequently he was appointed by the British government (1989-1992) as the first Bank, Trust Company and Insurance Regulator in the Turks & Caicos Islands, British West Indies; he established a regulatory body and drafted trust and insurance laws, banking and other regulations including licensing guidelines. As a direct result of his innovative captive insurance law, the Turks & Caicos Islands at the end of his contract had more than 5,000 producer-owned reinsurance companies and was the leading domicile in the world for this service. During his tenure he was also an affiliated member of the Latin American and Caribbean Banking Commission and Chairman of the government’s Offshore Financial Services Committee. He was a columnist for a leading United Kingdom offshore financial journal for over 15 years. His newsletter, Offshore Pilot Quarterly, has been published since 1997. In 2021 he celebrated 50 years in the trustee profession.