Independent Research shows Offshore Centres are much more Compliant than Onshore Counterparts

The accepted wisdom in most onshore jurisdictions is that offshore finance centres are hotbeds of crime and tax evasion, which turn a blind eye to nefarious practices and let criminals launder money without compunction.  It’s an easy jibe to make – offshore centres are, by-and-large, small places which generally lack the resources adequately to make their voices heard in opposition.  Add to that the fact that if you’re an onshore politician, it’s much easier to point the finger of blame for the collapse of the world economy on offshore centres rather than having to acknowledge that the root of the problem probably lies much closer to home, and you have a heady mix of anti-offshore rhetoric. 

The difficulty with the usual “he said” “she said” presentation of the arguments is that the parties on both sides almost invariably have a vested interest, or an entrenched position from which they make their arguments.  It is necessary, therefore, to take the arguments from both sides with a pinch of salt.  It is interesting therefore, to see some apparently genuinely independent research by a professor who specialises in offshore finance which has found that the offshore centres are in fact much more compliant in applying international money laundering regulations than many of their onshore counterparts.

According to CNS Business, Professor Jason Sharman of Griffith University in Australia, whose work focuses on offshore centres, wrote to thousands of service providers as if he was intending to set up a shell company to ascertain what types of identity would be requested by way of identity verification. Under the Financial Action Task Force’s Anti Money Laundering regulations, service providers should collect certified identity documents of the beneficial owners of the shell company.  Professor Sharman found that the 500 corporate service providers in offshore jurisdictions which he contacted were much more likely to be compliant and ask for all the ID documents, than their onshore counterparts.

The Professor singled the Cayman Islands and the Isle of Man out for particular praise, commenting that in all cases they had requested everything that the regulations require.  The US and the UK, however, were much less compliant.  He believes that, contrary to conventional wisdom, in reality when it comes to secrecy, OECD countries, and in particular Britain and the United States, are far worse offenders in relation to global standards mandating financial transparency than the small countries usually labelled as ‘tax havens’, and do a much worse job collecting information on the owners of shell companies than offshore financial centres.

This does not come as a great surprise to me.  I recall that in the course of my career, the only occasion on which I was opened a bank account for my company without being asked for any verification documentation whatsoever, was in the early 2000s when dealing with one of the major banks in the USA.   

People in glass houses should perhaps learn not to throw stones.