Offshore Financial Centers and Regulatory Competition »

Andrew P. Morriss is the H. Ross and Helen Workman Professor of Law and Business and professor at the Institute of Government and Public Affairs, University of Illinois, Urbana-Champaign.

Offshore financial centers (OFCs) have a troubled reputation for enabling tax evasion, money laundering, autocratic looting, and even the financing of terrorism-but they play an essential role in the world economy. Fears of criminal activity have prompted many onshore governments to restrict offshore competition, but over-regulating OFC activity presents a serious risk of destabilizing the global financial system. In Offshore Financial Centers and Regulatory Competition, a group of leading international law and finance experts argues that offshore jurisdictions have become key players in corporate finance and captive insurance markets. OFCs offer legal protections for financial privacy and provide regulatory competition to onshore jurisdictions, forcing national governments to evaluate and reform their own tax and regulatory policies. Offshore centers also help to streamline foreign direct investment and create growth opportunities for countries with weak financial systems by providing access to global capital and sophisticated courts. As the ongoing financial crisis produces new regulatory regimes aimed at eradicating money laundering and other white-collar crimes, Andrew P. Morriss and his coauthors contend that legitimate offshore competition must be allowed to flourish. OFCs are no longer the shady tax havens portrayed in popular media, and onshore governments must recognize and protect their important contributions to the global economy.

Introduction Andrew P. Morriss Morriss, Andrew P. 1

1 . Offshore Finance and Onshore Markets: Racing to the Bottom, or Moving Toward Efficient? Jonathan R. Macey Macey, Jonathan R. 8

The Critics and the Supporters of Offshore Competition 10

Modern Offshore Finance 13

A Review of the Controversy 17

Offshore Finance Benefits Onshore Regulatory Regimes and Investors 18

Public Choice: Sources of Opposition to Regulatory Competition 26

Conclusion 27

2 . The Legitimacy of the Offshore Financial Sector: A Legal Perspective Rose-Marie Belle Antoine Antoine, Rose-Marie Belle 30

The Context of Offshore Legal Rules 31

Tax Issues 33

Confidentiality 35

Offshore Trusts 39

Conflict of Laws 45

Copycat Support 47

Conclusion 48

3 . Regulating Tax Competition in Offshore Financial Centers Craig M. Boise Boise, Craig M. 50

International Income Taxation 51

Defining Tax Competition 53

Arguments for Regulating OFC Tax Competition 57

Arguments against Regulating OFC Tax Competition 61

Regulating International Tax Competition 66

Directions for the Future 69

4 . The International Monetary Fund and the Regulation of Offshore Centers Richard K. Gordon Gordon, Richard K. 74

The International Monetary Fund and Harmful Tax Practices 74

The IMF and Prudential Supervision 76

The IMF and Money Laundering and Terrorism Financing 88

Recent Developments 99

Some Conclusions 100

5 . The Role of Offshore Financial Centers in Regulatory Competition Andrew P. Morriss Morriss, Andrew P. 102

For What Do Jurisdictions Compete? 105

Competition among Jurisdictions 112

The Rise of Competition and the Role of Offshore jurisdictions 123

The Impact of Regulatory Competition 139

Conclusion 144

Notes 147

Index 185

About the Authors 197