Bank secrecy, illicit money and offshore financial centers

Abstract

This paper discusses the effects of pressure policies on offshore financial centers as well as their ability to enforce the compliance of those centers with anti-money laundering regulations. Offshore banks can be encouraged to comply with rigorous monitoring of an investor's identity and the origin of his/her funds when pressure creates a sufficiently high risk of reputational harm to the investor. We show that such pressure policies harm both offshore and onshore investors and can benefit both the bank industry and tax administrations. We show that social optimal pressure policies are dichotomous decisions between no pressure at all and a pressure great enough to persuade offshore banks to comply. The delegation of pressure policies to onshore tax institutions may be inefficient. Deeper financial integration fosters compliance by the offshore center.

Bank secrecy in offshore centres and capital flows: Does blacklisting matter?

“…The economics of the stigma effect is analyzed in depth in Picard and Pieretti (2011), who focus on the incentives that banks located in a BLC have for complying with the AML/CFT regulation. The blacklisting practice is interpreted as an international pressure policy on the BLC bank and the stigma effect holds anytime the pressure policy is strong enough.…”

Stability and cooperative solution in stochastic games

“…In this context, Pierre M Picard and Patrice Pieretti 16 discussed the winners and losers of such policies and showed that they may increase aggregate profits and tax revenues, although their implementation on an onshore institution may be inefficient. Arnaud Bourgain, Patrice Pieretti and Skerdilajda Zanaj 17 argued that tax planning strategies may undermine or at least reduce the benefits from removing banking secrecy and showed that solely targeting the abolition of banking secrecy may not be enough.…”

Lobbying and the international fight against tax havens

“…Wilson () argues more generally why competition for mobile capital can be welfare‐improving. Rose and Spiegel () find that offshore financial centers can have procompetitive effects on onshore monopolists, and Picard and Pieretti () find positive effects for institutional competition.…”

“…Onshore pressure policies, that is, blacklisting and “naming and shaming,” are additional tools in the fight against tax havens and have also been discussed by other authors. Picard and Pieretti () look at pressure conditions under which offshore financial centers voluntarily comply to monitor their investment. A more general point is made by Elsayyad and Konrad ().…”