IMF set to end offshore 'stigma'
Vanessa Houlder | Friday, 18 July 2008
THE distinction between "offshore" and "onshore" financial centres has been dropped by the International Monetary Fund (IMF), in a victory for more than 40 small countries that complained they had been unfairly stigmatised in the fight against financial crime.
The IMF said the distinction between on- and offshore centres "had been blurred by globalisation", which had increased the range of cross-border transactions in many countries, as well as the launch of new financial centres catering to non-residents in countries such as Botswana, Brunei, Dubai and Uruguay.
A desire to "eliminate the need to maintain a potentially discriminatory list of OFC jurisdictions" was one justification for its decision to merge its monitoring of OFCs and the financial sector, it said in a public information notice last week.
It reported concern "about the stigma that attaches to the OFC label" and said "adopting a unified approach would blunt concerns that jurisdictions are being unduly targeted".
The IMF said it would now adopt a more uniform and risk-based approach to financial sector surveillance. It will focus on a small number of jurisdictions - Bermuda, Cayman Islands, Jersey, Guernsey, the Isle of Man, Panama, Labuan (Malaysia), the Bahamas, and possibly the British Virgin Islands - which account for the large majority of offshore activity.
The IMF said the absence of objective criteria for defining an OFC "makes it difficult to draw the line in a credible manner". Past criteria have included orienting business primarily to non-residents and low or zero tax rates. The difficulties were underlined by an IMF paper last year in which the UK was classified as an OFC using a definition based on the ratio of net financial services exports to gross domestic product.
The Society of Trust and Estate Practitioners, which represents many advisors operating in OFCs, said it welcomed the end of "discriminatory stigmatisation" of OFCs.
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The IMF said the distinction between on- and offshore centres "had been blurred by globalisation", which had increased the range of cross-border transactions in many countries, as well as the launch of new financial centres catering to non-residents in countries such as Botswana, Brunei, Dubai and Uruguay.
A desire to "eliminate the need to maintain a potentially discriminatory list of OFC jurisdictions" was one justification for its decision to merge its monitoring of OFCs and the financial sector, it said in a public information notice last week.
It reported concern "about the stigma that attaches to the OFC label" and said "adopting a unified approach would blunt concerns that jurisdictions are being unduly targeted".
The IMF said it would now adopt a more uniform and risk-based approach to financial sector surveillance. It will focus on a small number of jurisdictions - Bermuda, Cayman Islands, Jersey, Guernsey, the Isle of Man, Panama, Labuan (Malaysia), the Bahamas, and possibly the British Virgin Islands - which account for the large majority of offshore activity.
The IMF said the absence of objective criteria for defining an OFC "makes it difficult to draw the line in a credible manner". Past criteria have included orienting business primarily to non-residents and low or zero tax rates. The difficulties were underlined by an IMF paper last year in which the UK was classified as an OFC using a definition based on the ratio of net financial services exports to gross domestic product.
The Society of Trust and Estate Practitioners, which represents many advisors operating in OFCs, said it welcomed the end of "discriminatory stigmatisation" of OFCs.
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