Thanks to the investigations and coverages done by the International media toward money laundering, tax evasion, and everything else in between, the International banking sector is always in the spotlight. Alas, the media almost always portrays offshore banking as a service used by criminals and wrong-doers.
In reality, offshore banking exists due to the necessities in the International trades. Thus, there's no reason that it's considered illegal.
If that's the case, then why offshore banking is so misunderstood?
1. Play by The Local Rules
The thing with offshore banking is that it's governed by the laws and regulations of a particular jurisdiction. Some offshore jurisdictions happen to impose tax laws that are pretty much 'normal' to the citizens but often considered as 'favorable' (read: on the lower side, even zero) by asset holders who are the citizens of high-taxation jurisdictions like the USA.
The low taxation is not for no reason, obviously. It is typically purposed for attracting foreign direct investments in that particular region. Offshore jurisdictions offer an efficient allocation of capital, which allows foreign investors to avoid getting double or triple taxation.
Unfortunately, some people and organizations see these attractive attributes as opportunities to stash their funds obtained illegally (i.e. through illicit activities, money laundering, etc.) And those activities often involve an astronomical amount of money. For example, according to some studies, crime and drug groups top the list of beneficiaries who use offshore banking for illegal activities, amounting from $800 billion to $1 trillion annually.
2. Anonymity is the Two-edged Sword
Some offshore banking jurisdictions - and their agents - offer top-notch anonymity to their clients. This is a significant perk of offshore banking, which, unfortunately, can be used for both legal and illegal activities.
Research reveals that citizens of some financially unstable and oil-rich countries have stashed over $7 Trillion in tax havens corresponding to roughly 10% of the world GDP while multinationals in the form of shell companies are denoted with a figure of $12 Trillion - which adds to almost 40% of all foreign direct investment globally. The true figure is nearly impossible to determine, really, simply because the funds move in the financial systems anonymously.
Companies like Mossack Fonseca in the Panama Paper leak are accused as the culprits facilitating such transactions, making use of the available loopholes in the law systems - e.g. financial information secrecy - to help clients stash their wealth and evade/avoid taxes offshore.
Due to the lack of transparency, the media make use of it as the opportunity for creating content that's attractive to read (and share on social media), driving public opinions, and even fake.
3. If You Can't Control it, Condemn it
This seems to be the mantra of many 'onshore' countries - if you can't control the flow of money, just condemn the facilitators - in this case, offshore financial centers or OFC - as the culprit for all the 'missing' money in the world.
The reality is far from that.
According to Economist Daniel J. Mitchell, offshore jurisdictions are simply intermediaries - those are never the source nor final destination of financial flows. Everyone can use the jurisdictions for any purposes - legal or illegal. This makes controlling the flow of funds nearly impossible.
So, what do the 'onshore' governments do? Condemn those OFCs. Hence the end of privacy in Switzerland and many other offshore jurisdictions - regardless of the fact that they are in fact better than the 'onshore counterparts in terms of economic/political stability and clients' fund safety.
All of those are spectacular news pieces, and the media rarely think twice to make those headlines, especially when new data/information leaks happen.
Takeaway
Regardless of the negative publicity, those who understand the value offered by offshore banks - and offshore jurisdictions in general - will always seek ways to protect their assets using such arrangements.
Let's conclude: An attack on tax havens is indeed an attack on globalization. Globalization questions the conventional economic model that's focused on geographical boundaries, which are nearly obsolete. In today's financial activities that are no longer confined to geographical locations, it's only logical to use services provided by offshore jurisdictions.
It's time for the media to report based on true evidence, seeing things from two sides of the story fairly. Focusing on the illegal activities related to offshore banking doesn't serve the general public well; it doesn't serve offshore jurisdictions the well-deserved justice.
NOV
2020
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