Offshore Financial Centres in the Caribbean: Prospects in a New Environment

Abstract

This paper reviews the development of offshore financial activities in the English‐speaking Caribbean islands and takes stock of the size of these sectors today, and analyses the future prospects. A number of Caribbean jurisdictions are market leaders in the offshore products they offer and have identified the growth of this sector as a development strategy. Established centres in the Bahamas, Barbados and Cayman Islands have managed to become global players and have generated sizeable gains in employment and income. However, in view of the heightened concerns by the international community about money laundering and more recently, terrorist financing, the costs of compliance and risks to countries of having or establishing offshore sectors have risen considerably. This is particularly relevant to the newer entrants, with significant regulatory differences from international standards. The paper assesses the risks, benefits and costs of compliance with international best practices for established and newer offshore jurisdictions. The paper asks the questions whether offshore jurisdictions constitute a sustainable development strategy and concludes that for nascent jurisdictions, the gains are very small.

Byways and Highways of Direct Investment: China and the Offshore World

“…While these crude figures might suggest a decline in the size of the banking industry, the overall financial services sector (banking, insurance, investment and holding companies, credit-providing firms, and other financial services companies) continued to provide 5 per cent of Hong Kong's total employment along with "16 per cent of GDP at factor cost" (Census and Statistics Department 2008: FC2). These figures on the location of the Hong Kong financial sector in the Hong Kong economy are comparable to those from a sampling of Caribbean OFCs (Vlcek 2007;Williams, Suss, and Mendis 2005).…”

Offshore Financial Operations, Development Strategy or Neo-liberal Illusion? The case of the First International Bank of Grenada

“…If we accept the old adage that capital follows capital, then we understand that where there is an opportunity to optimally increase the present wealth, capital will flow there to. Williams, Suss and Mendis (2005) outline three of these functions to include private investment that "minimise potential tax liabilities" (Williams, Suss andMendis 2005:1174) under the protection of secrecy. A second function is asset protection and the third is estate planning (Williams, Suss and Medis 2001).…”

“…Thomas (1988) refers to offshore centres along with tourism as new poles of growth against the background of a declining agricultural sector that in the case of Grenada had been the mainstay of the economy. The drawbacks of the tourist sector exemplified by its vulnerability to storms, competition from newcomers into the industry (Williams, Suss andMendis 2005:1173) and demand fickleness of the tourist sector. Furthermore, the requirements of often large inputs of scarce foreign capital for investment in the sector and the lack of viable alternatives based in the manufacturing give a special brilliance to the appeal for promoting offshore financial centres (Williams, Suss and Mendis 2005).…”

“…The drawbacks of the tourist sector exemplified by its vulnerability to storms, competition from newcomers into the industry (Williams, Suss andMendis 2005:1173) and demand fickleness of the tourist sector. Furthermore, the requirements of often large inputs of scarce foreign capital for investment in the sector and the lack of viable alternatives based in the manufacturing give a special brilliance to the appeal for promoting offshore financial centres (Williams, Suss and Mendis 2005). Offshore financial centres (OFCs) seem to offer a welcome alternative for quick monetary gains in terms of tax income and fees to the government as well as employment for skilled people in commerce (clerks, accountants and lawyers) without much investment of the host country's own capital.…”

Bank secrecy, illicit money and offshore financial centers

“…Williams et al (2005Williams et al ( , p. 1180, "taking the estimated cost of complying with international standards into accounts reduces the overall revenues by about 0.3 per cent of GDP." Those costs can be so high that only the o¤shore tax revenues from criminal investors are not able to cover them.So let the o¤shore jurisdiction's cost of setting up an international …nancial center be given by K > F N .…”