Owls And Sheep

Minerva, the Roman goddess of Wisdom, chose the owl as a symbol of sagacity. In describing philosophy as “the thought of the world [which] does not appear until reality has completed its formative process...", Hegel argued that clarity, and therefore wisdom, comes only after an event has run its course; as with a setting sun, so dusk follows and it is then that Minerva’s nocturnal owl, after biding its time, finally spreads its wings and flies away. It is an unfortunate fact of life, however, that some will not wait for the setting sun and reach decisions before the formative process, that Hegel mentions, is complete.

The sun has not set on this question: when is onshore accurately classified as offshore? This question came up in the book Offshore Financial Centres and the Law: Suspect Wealth in British Overseas Territories, written by Dr. Dominic Thomas-James and which I reviewed for IFC Media in November last year. I suspect that for some, the answer, as I wrote in my review, will take the Humpty Dumpty approach, as illustrated by Lewis Carroll’s Through the Looking-Glass: '“When I use a word,” Humpty Dumpty said in rather a scornful tone, “it means just what I choose it to mean – neither more nor less”'. Politics aside, we have already seen this proposition applied by governments and a miscellany of bureaucrats when defining a ‘tax haven’, let alone the conundrum that offshore and onshore definitions already present. George Orwell, a renowned realist, wrote in his 1946 essay, In Front of Your Nose: "To see what is in front of one's nose requires a constant struggle". 76 years later, it is still the case for some people as far as I am concerned.

A large dollop of hypocrisy can be added to Humpty Dumpty's semantic manipulation. A grand example of this can be found in the explosive exposé called “The Pandora Papers” which only confirmed what Thomas-James had written before the exposé came to light. The author points a finger at the United States of America and other developed nations. He concludes, for example,  that South Dakota, together with several other US states, turn out to be “offshore havens” by virtue of meeting the standard criteria due to lax laws. Timothy Noah, writing for the New Republic (New York) on 6th October last year, took a harsher tone when he connected South Dakota with offshore dealings in the wake of the Pandora Papers scandal. Described as a repository for secret, hidden wealth, and the leading tax haven in the US, he goes on to call the state "a paradise for kleptocrats and other wealthy lowlifes" and a "moral sewer". Strong stuff.

Long gone are the days when business offshore meant just that: islands surrounded by sea, just like offshore oil drilling rigs found in the Gulf of Mexico. This popular misconception, for prejudicial motives, is encouraged to this day by many members of the Organisation for Economic Co-operation and Development, and although I accept that one may be in a constant struggle with what is in front of one's nose, it should not detract one from the fact that those living in glass houses should not be throwing stones irresponsibly. The Pandora disclosures only reinforce this and doubtless future revelations will prove to be just as exasperating.

The Tomato Test

So, whether classified as being either onshore or offshore, when is a jurisdiction a ‘tax haven’? It depends on who is using the words, although I personally apply the tomato test. Getting down to brass tacks, whether you pronounce "tomato" differently in New York to how you do in London (two international financial centres with sins to answer for), the fruit still looks and tastes the same. Shakespeare in his play, Romeo and Juliet, enquired: "What is a name? That which we call a rose by any other name would smell as sweet". What was true centuries ago is still true today. To suggest that the words "offshore tax havens" can be strictly, and narrowly, defined is to follow the example set by Lewis Carroll’s rotund manifestation of pomposity.

Recently, we have seen the European Union in particular turn up the heat and launch an assault on those jurisdictions which it has identified (selectively, I should say) as offshore ‘tax havens’, believing them to be centres of secrecy with common-law trusts often being the prime suspect. No matter the temptation, I will not travel the well-worn path of detailing the blatant display of ignorance on the EU’s part concerning such matters; their basic understanding, for example, of how a common law trust functions drives one to distraction. Not enough EU regulators (if at all) have glanced at, let alone read, studies such as professor DWM Waters’ book, published in 1995 by the Hague Academy of International Law, entitled The Institution of the Trust in Civil and Common Law.

If offshore trusts were not an invaluable, legitimate tool in global wealth structuring, my despair would not be so acute. The end result is that offshore practitioners confronting EU due diligence requirements are faced with complex and conflicting rules, with regulators seeking a clear path, in cases where there isn’t one, to a particular person’s door in order to satisfy beneficial ownership criteria. If a square peg has to be bashed into a round hole, so be it. That said, the EU is not the only culprit, and regulators, where common law prevails, can be equally challenging.

Those charged with regulating trust activity should be expected to know at least the necessary fundamentals. In a common law environment, you need to be able to grasp the fact that when you borrow a pen you hold it in trust for its owner. This may well be an abstract example, one which was given to me when I was studying trust law, but I soon realised just how much flows from this.

In an effort to find some answers, and always ready for a challenge - one which would provide invaluable experience and at the same time give me a deep insight into how some governments really view, and importantly, understand, offshore financial services - I put my private sector career on hold and took up a financial services posting in the Caribbean as a technical adviser cum regulator with the British Foreign, Commonwealth & Development Office in one of the United Kingdom's Overseas Territories. Not surprisingly, much of this commentary is tinged with cynicism.

For those who consider my judgment harsh and peppered with private-sector bias, I turn to a writer who summarised things far better than I ever could, the late W Somerset Maugham: “There is no need for the writer to eat a whole sheep to be able to tell you what mutton tastes like. It is enough if he eats a cutlet. But he should do that”. (A Writer’s Notebook, 1946). As a constant commentator on the subject of international financial centres, I would like to think that while I may not have consumed a whole sheep during my career, I did at least consume somewhat more than a cutlet.

At the end of the day, we must wait for the sun to set on the onshore/ offshore saga, but I feel sure that Minerva's owl has a very long time to wait before darkness descends and it can, at last, take flight.

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.