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Teflon
Secrecy in Teflon international international
financial centres financial
centres
Peter Yeoh
School of Law, Social Sciences and Communications,
University of Wolverhampton, Wolverhampton, UK 777
Received 16 March 2017
Accepted 30 March 2017
Abstract
Purpose – This paper aims to examine tax leakages in secrecy financial centres.
Design/methodology/approach – This qualitative study relies on primary data from relevant statutes
and secondary data from the public domain and in particular academic sources. The study makes concurrent
use of the case study approach.
Findings – The study reinforces existing suggestions that tax evasion is significantly widespread from
advanced to emerging economies. It also suggests serious enforcement difficulties because of light-touch
surveillance among competing tax havens and financial professionals. Further, while relevant laws are in
place to deal with illicit activities, enhanced transparency is needed to quell the problem and, in this instance,
public access to beneficial owner data such as exemplified by UK’s public registry approach. The US Foreign
Account Tax Compliance Act is proving to be effective, and similar expectations are raised for the equivalent
the Organisation for Economic Co-Operation and Development initiative from 2017 onwards.
Research limitations/implications – The paper is constrained with the general limitations associated
with qualitative studies. These are, however, mitigated by triangulations of perspectives and so on.
Practical implications – The findings have implications for policymakers and the business community.
Social implications – The findings could help to narrow inequality gaps between and within economies.
Originality/value – The paper combines insights from high-profile cases with those from academic
sources. The analysis is also undertaken from the combined perspectives of law, economics and accounting. It
also focuses in secrecy issues in both offshore and onshore financial centres.
Keywords OECD, Tax, FATCA, Panama, Secretive havens, Tax havens
Paper type Viewpoint

1. Introduction
Secrecy of sorts (Shaxson, 2016a) is usually equated with offshore financial centres (OFCs),
international financial centres or tax havens. These are usually small, low-tax jurisdictions
well-resourced to provide corporate and commercial services to non-residents through
offshore corporations and offshore funds investments. Almost half of all international
lending and deposits are accounted for by OFCs and with approximately half of these
doubling up as tax havens (Palan, 2012). Most OFCs do not profile themselves as tax havens,
as these are linked to suggestions of tax avoidance or illegal tax evasions that could attract
civil or criminal sanctions. In practice though a lot are perceived as such. Tax havens,
nevertheless, are not necessarily engaged with tax evasions. There are all kinds of offshore
and inshore havens, from the more common tax havens to secrecy jurisdictions and even
crime havens (Shaxson, 2016a; Zucman, 2016).
There are as yet no standard or universal definitions for OFCs or tax havens, though the International Journal of Law and
Management
Bank of International Settlements and the Organisation for Economic Co-Operation and Vol. 60 No. 3, 2018
pp. 777-797
Development (OECD) take almost equivalent positions where these are concerned. OFCs are © Emerald Publishing Limited
1754-243X
estimated to account for almost 30 per cent of global share of foreign direct investments DOI 10.1108/IJLMA-03-2017-0060
IJLMA (FDIs) (Palan et al., 2012). One good working definition suggests that tax havens are
60,3 countries and territories that offer low tax rates and favourable regulatory policies to foreign
investors (Hines, 2010). Extending from this perspective and taking various species of tax
havens into account, Panama could be said to be a foreign source exempt haven, meaning on
account of its territorial tax systems only local derived income is collected. This provides a
suitable incentive for transfer price adjustment seeking to reallocate taxable income away
778 from high-tax jurisdictions (Hadnum, 2013; Hines, 2010).
The corporate service that is normally been provided by the legal profession has
increasingly been subject to commoditization, owing to its low level of complexity. It is as
such manned by non-legal personnel to contain costs (Susskind, 2010), but this option
carries significant risks. Tax havens such as Panama minimize such risks through the use of
quality control assurance and skilled compliance executives, but are still criticized by
international development agencies that are averse towards the employment and abuse shell
companies contributing to illicit activities (Sanjur, 2016) such as found in the 2001 Enron
scandal.
Hence, it is not unusual for corporate vehicles to be employed for illicit purposes via
transfer price manipulation and so on (Collier, 2013; Reuter, 2012). International cooperation
to curb this resulted in the formation of the Financial Action Task Force (FATF) in 1989
over concerns of money laundering and financial terrorism. FATF issued a set of 40
internationally endorsed recommendations setting out minimum standards of action for
implementation in each jurisdiction in accordance with its current legislations that was last
updated in 2012 [Association of Certified Anti-Money Laundering Specialists (ACAMS),
2012]. In 2000, the FATF generated a list of non-cooperative jurisdictions with the aim of
singling out those with vulnerable financial systems and weak anti-money laundering and
counter-finance of terrorism regulations. This casts jurisdictions like Panama as non-
cooperative until 2001 (ACAMS, 2012).
In the context of the shaming strategy used by the FATF, Panama became included in
the grey list as a consequence of its lax anti-money laundering provisions and deficient
enforcements but managed to get off this categorization in February 2016, the month before
the Panama Papers leak, because of the jurisdiction’s serious commitment towards
implementing additional anti-money laundering provisions (FATF, 2016). This suggests
that the jurisdiction strategically opted for cooperation to mitigate reputation risks. It
achieved this by strengthening its legislation with a slew of measures including
strengthening the notion of money laundering, immobilization of bearer shares, together
with a raft of institutional regulatory structures imposing obligations to financial and non-
financial institutions to know their employees and customers, and customer due diligence
(CDD) procedures and so on (Sanjur, 2016). These resulted, of course, in higher compliance
costs raising questions over the financial viability for such kinds of services, but provided
accessible information for the identification of the ultimate beneficial owners, as names of
officers and directors of corporate vehicles have to be provided in the public registry. Still,
secrecy could be achieved through the offer of nominee services in the jurisdiction.
There are contrasting views on the functions of tax havens as OFCs. From the
Euromarkets perspective, OFCs are simply the locations where trading in non-resident hard
currencies like British pounds, Swiss franc, Deutsche mark and euro take place, but the
majority of the world’s OFCs transact in both resident and non-resident currencies. The
latter tends to show a high proportion of non-resident transactions in proportion to resident
transactions. They became the financial equivalent of the export processing zone serving
primarily non-residents (Zorome, 2007). Offshore finance took root when the Bank of
England treated particular kinds of transactions between non-resident parties in foreign
currency as if not happening in London but elsewhere even though transacted there. These Teflon
transactions ended up in a new un-regulated space otherwise known as offshore financial international
markets (Burn, 2005).
These centres, therefore, escaped nearly all kinds of supervision and frequently taxation
financial
as well as the unintended consequence. The relatively unregulated London market attracted centres
interests from US multinational corporations (MNCs) and US global banks with many
establishing large diverse banks of sorts in London, capable of competing in most aspects of
finance to circumvent some of the more stringent aspects of US bank regulations (Palan, 779
2012). Banks from other advanced economies then followed closely initially in London, but
soon because of high operating costs, they began seeking alternative cheaper and equally
attractive regulatory sites (free of exchange controls, reserve requirements and interest rate
ceilings) in time zones convenient to their New York operations. This orientation helps to
expand OFCs’ activities into the Caribbean OFCs, especially by smaller US banks and others
(Sylla, 2002). In turn, the UK banks disadvantaged by higher tax burdens began to have
offshoots in the British crown territories like the Channel Islands and the Cayman. The USA
responded by allowing more restrictive forms of offshore markets in the USA, known as
International Banking Facilities to minimize the size and growth of the offshore shell
branches of US banks, simultaneously giving US-based banks and their offshore customers
with lower costs of funds (Moffett and Stonehill, 1989). Other Asian financial capitals soon
followed this regulatory-lite haven model.
The initially regulatory-lite haven feature in some OFCs soon combined with competitive
tax advantages. The UK and some of its former colonies operate in one band accounting for
some 38.3 per cent of all outstanding international loans and deposits in 2009 (BIS), while the
other comprised mid-sized European states known for their welfare features but doubling up
as tax havens and include the Benelux countries, Belgium, the Netherlands, Luxembourg,
Ireland and Switzerland. They accounted for about 14.9 per cent of all outstanding loans and
deposits much similar to that for the USA for the same year. UK-style OFCs focus more on
trades in corporate assets like stocks, bonds, bank claims and other esoteric debt
instruments, while the European centres specialize in intangibles like trademarks and brand
names. Eventually, these evolved into international financial services centres specializing in
one of the other or in some cases doing both and especially as magnets for FDIs. This
eventually channelled FDIs through a complex web of subsidiaries sited in different tax
havens, with each serving as conduits from which finance circulates with the primary
purpose of shifting tax (Steward, 2005).
The disturbing problem with tax havens operating as OFCs are not about its efficiencies,
but more about their complexities and opaqueness. Although decent estimates of aggregate
financial flows moving across these jurisdictions are available, not much is known at the
micro-level even by the financial operators themselves. By its nature, tax havens tend to be
secrecy jurisdictions where regulations are intentionally designed for the primary benefit
and use of those not resident there, in other words, regulations created to undermine the
legislations or regulations of other jurisdictions. Secrecy jurisdictions also have deliberate
legally backed veil of secrecy shielding the identities of those making use of its regulatory
system and the capacity to move money around without too many questions asked. Taking
these features into account, some kind of financial secrecy index could be constructed. On
the basis of this perspective of tax havens, the leading ones in the world comprised
representations from both advanced and emerging economies and with representations
from West and East (Murphy, 2010). This would imply the need for combined global efforts
to tame the excesses of tax havens despite leading OFCs giving assurances in terms of
financial auditing, surveying and regulation. Tax havens that are small jurisdictions in
IJLMA particular lacked the essential resources to do proper jobs, while the bigger jurisdictions
60,3 might have to review their taxation policies.
OECD and other advanced economies were particularly worried that their tax coffers
could be significantly hurt with profits and incomes shifting to tax havens offering
delightful low or no tax burdens; so much so that on 27-28 April 1998, they pressured tax
havens to adopt a standard package of tax, financial and banking regulations to avoid the
780 race to the bottom between themselves (OECD, 1998). The internationally agreed tax
standard provides for full exchange of information in all tax matters irrespective of domestic
tax interest requirement or bank secrecy for tax purposes including extensive safeguards to
protect the confidentiality of the information exchange. The OECD also provides progress
reports on jurisdictions and tax havens that have substantially implemented the standard,
those that have committed but not yet implemented the standard, and those that have not
committed to the standard. Thus, the OECD, therefore, hoisted soft global regulations on tax
havens from the late 1990 onwards.
The OECD identified tax havens on the basis of four key factors. These refer to no or
nominal tax on relevant income, lack of effective exchange of information, lack of
transparency and lack of substantial activities. To avoid being listed as uncooperative tax
havens, jurisdictions satisfying these criteria are only requested to make commitments to
implement the principles of transparency and exchange of information for tax purposes.
Forty-one jurisdictions were identified as having met the tax haven criteria in June 2000. All
but three of these (Andorra, Monaco and Liechtenstein) made commitments to implement
transparency and effective exchange of information and are not deemed to be uncooperative
jurisdictions by the OECD. In May 2009, even these three were removed from the
uncooperative list. All major financial centres have endorsed the OECD standards (Owens,
2009).
Global concerns continue. This is because approximately US$21-US$32 trillion of
financial assets were estimated to be stashed offshore, with the European Union (EU) losing
about US$1 trillion annually to tax dodgers, the USA losing an estimated US$185 billion
annually, and the developing world losing about US$200 billion annually (Tyrala, 2015).
Then, in 2015, the Panama Papers comprising 11.5 million documents were leaked from the
database of the world’s fourth largest offshore law firm, Mossack Fonseca (Obermayer and
Obermaier, 2016). These detailed the financial and lawyer–client data of more than 214,488
offshore entities connected to more than 200 countries and territories [The International
Consortium of Investigative Journalists (ICIJ), 2016]. The economic and legal implications of
the Panama Papers would be examined next.

2. Implications of the Panama Papers

At the onset, it needs emphasizing that the Panama Paper leaks though stunning are not the
first nor would it be the last of its kind. Prior to this, there were at least five other major tax
leaks globally and shortly subsequent to this another broke out in another tax haven (Oei
and Ring, 2018). The Panama Papers revealed how the affluent and politically powerful
leveraged on the use of offshore tax havens including 12 national leaders and some 143
politicians, their families and close associates from around the world. The public disclosures
of these documents generated national security implications. These include abrupt regime
change and probably future political instability, as the revelations powerfully narrate illicit
gains derived from global corruption (Trautman, 2017).
However, not all people using tax havens are necessarily doing so illegally, but the
corrupt, criminals and money launderers exploit their applications. The size of the leak was
unprecedented, but the tactics allegedly used by the law firm for its clientele were neither
new nor surprising. This includes the use of anonymous shell companies and the failure of Teflon
governments to require lawyers, corporate-service companies and banks to gather international
beneficial-ownership data on clientele. This facilitated the way for dirty money to flow
across the world virtually unhindered (Iyengar, 2016). Mossack Fonseca defended its
financial
conduct, arguing that they complied with anti-money laundering laws and carried out the centres
required due diligence on its clientele. Hence, they further argued that they could not be held
accountable for failings by intermediaries, including banks, law firms and accountants
(Harding, 2016). However, the heads and founders of Mossack Fonseca at the centre of the 781
Panama Papers have been refused bail subsequent to their arrests by police in Panama.
They are now being charged with alleged economic crime in the form of money laundering
(Garside, 2017).
Importantly, the economic impacts of the leaks are profound. Developing and emerging
economies lost about US$7.8 trillion in cash from 2004 to 2013 because of the kinds of
mechanisms allegedly employed and perfected in such scams (Kar and Spanjers, 2015). Illicit
outflows are increasing at a rate of 6.5 per cent, almost double the rate of global gross
domestic product growth. Studies also show that about 1,100 public-listed firms from
around the world have exposures to major tax havens used by Mossack Fonseca. These
firms lost approximately US$230 billion in market capitalization, with about US$200 million
per firm on average (Nickisch, 2016). The impact is not one-directional, but a sum total of the
firms being potentially punished, being potentially less able to save taxes but also the
improvements in these firms’ transparency like the reduction in potential stealing. This,
however, does not necessarily imply the end of tax havens, but more likely that investors
expect regulatory punishment and a slight reduction in the more aggressive kinds of tax
avoidance (Nickisch, 2016). Importantly, the Panama Papers case study highlights the
vulnerability of wealth management services from specialized global bank divisions to
money laundering. Insights from this case supports the suggestions that rather than create
new laws and policies to deal with the problem, initiatives should focus on supporting
effective implementation and promoting enhanced cross-border and inter-agency
cooperation on tax and financial crimes (Esoimeme, 2016).
The growing Panama Papers scandals serve notice to financial services firms that they
cannot be complacent about their obligations to ascertain beneficial ownership, knowing
their customers and the undertaking of due diligence on all of their business associates.
Many economies across the world have launched investigations of possible financial
wrongdoings by the highly affluent and politically powerful. Questions have been raised
again on whether such needed functions are carried out by professional and financial
services firms located in tax havens as suggested by the Panama Papers (DiMauro, 2016).
The leaks provide fresh impetus for regulatory scrutiny over the role of financial institutions
in facilitating the designing of offshore companies, and the consequential risks of tax
evasion and money laundering.
The Panama Paper leaks generated divergent global responses (Oei and Ring, 2018).
Australia, France, The Netherlands, Canada, the USA, UK, Germany, Indonesia, Denmark,
Pakistan, Singapore, South Africa, Taiwan and Thailand announced intentions to
investigate. The then Prime Minister of Iceland resigned, while France put Panama back to
its list of tax havens. China censored internet referencing its elites implicated in the leak,
while Russia denied involvements of Putin’s associates. Panama itself signed on to the
Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MCAA)
besides agreeing to commit to the OECD’s common reporting standards (CRS) on
information exchange. It also released its recommendations for enhanced transparency of its
financial and legal systems. The incident has also induced greater attention on the
IJLMA importance of transparency pertaining to beneficial ownership of offshore entities (Oei and
60,3 Ring, 2018). Various jurisdictions like Germany, UK, Australia and New Zealand started
announcing steps to register beneficial ownership of offshore trusts and other entities.
Within the USA, attention was drawn to Nevada, WY, NV and other US states which do
not mandate the disclosure of a company’s beneficial ownership. This further raises
questions on US position with regard to tax havens (Kasperkevic, 2016; Reily, 2016). The G-5
782 countries agreed to develop a global multilateral system for automatic exchange of
beneficial ownership information. They indicated their intentions to their G20 counterparts
(Osborne, 2016). The EU adopted a proposal for full public access to beneficial ownership
registries for particular legal entities (European Council, 2016).
But, in particular, competition authorities in various jurisdictions demanded banks
involved to disclose information about their transactions with shell companies and
individuals named in the Panama Papers. The US Department of Financial Services for
instance on 20 April 2016 ordered 13 banks to release information on their dealings with
Mossack Fonseca and details on whether their employees were involved with the said law
firm in setting up the connected shell companies. A new set of US regulations when
approved would compel businesses to disclose more information about their owners
including application of the CDD rule. The CDD rule envisaged to come into effect in May
2018 requires banks to verify the identity of ultimate beneficial owners, develop adequate
risk profiles of their clientele, and undertake regular monitoring to report suspicious
transactions and to ensure that customer information is regularly updated. These
authorities expanded beyond their interest in Panama to include a wider debate on banking
secrecy rules that enabled financial crimes and the way in which tax havens are run (Rajan,
2016). The Mexican tax authority, for instance, widened the scope of inquiry to include
asking banking regulators to share details about local clients involved in transactions in no
less than 100 jurisdictions.
The high-profile Panama Papers incident spotlighted the complicated corporate
structures and lack of transparency over the ultimate owners of offshore accounts that
enable beneficiaries to conceal their wealth and illegally profit from tax havens. The UK in
this respect quickly stepped-up its efforts to crack down on tax evasion. It created a public
registry on company ownership to trace the ultimate owners of British firms (Rajan, 2016).
This led other advanced economies like Australia to follow quickly likewise. Australia is
also considering imposing a requirement on Australian firms with foreign branches or
subsidiaries to evaluate gaps in anti-money laundering and terrorism financing regimes
between overseas jurisdictions and those domestic. Various countries were also stirred to
explore opportunities for collective action to combat money laundering and tax evasion and
tax avoidance. In the EU where the disastrous impacts of the 2007-2009 global financial
crisis (GFC) still linger, there is low public tolerance for tax evasion or avoidance by the
affluent. This is demonstrated by the EU proposal to draw up a list of tax havens and jointly
issue sanctions against them. The EU has also set up an inquiry committee of 65 members
into the Panama Papers to investigate the alleged failures by some member states to impose
relevant penalties under EU laws on money laundering, tax evasion and tax avoidance.
The prospects for serious investigations of money laundering, tax evasion and flouting
of international economic sanctions loom large. In the USA, the Department of Justice has
been investigating people evading taxes since the 2007 GFC including entities that have
assisted them to conceal their wealth in offshore accounts. This current event has expanded
their scope of coverage. The US Treasury in this connection is also pressing hard on US
corporations that allow themselves to be acquired by foreign firms to avoid US taxes
(Foroohar and Vella, 2016). Further disclosures and analysis by the Consortium of
Investigative Journalists in the future could provide further support for enhanced levels of Teflon
criminal investigations across many jurisdictions. international
These developments and more suggest that the financial services industry might see
regulatory reforms because of the revelations from the Panama Papers. Compliance
financial
procedures which commenced in the immediate aftermath of the GFC could be enhanced or centres
even set in new directions. In brief, financial services would henceforth need to monitor
regulatory changes across multiple jurisdictions. Implementing current and fresh measures
are likely to increase compliance costs for them and impact consumer practices with 783
additional information requirements for opening of bank accounts from foreign nationals.
When regulators compel banks to share additional information on links with jurisdictions
known to have opaque tax and ownership laws, it suggests that banks could be enhanced by
pressures to break their code of silence to help with investigations. Those institutions
investing in enhancing due diligence procedures could be better placed for future regulatory
scrutiny. In this connection, progress on the anonymous whistle-blower’s cooperation with
law enforcement agencies have to be monitored, as this would be pivotal to any future
criminal investigations. In turn, the outcomes of potential criminal probes could shape the
dialogue over wider concerns like banking secrecy laws and drive the direction of future
regulatory changes (Rajan, 2016).
At the more global level, the Panama Papers brings attention again to OECD’s ongoing
monitoring initiatives on tax havens. Owing to complaints that its adopted criteria were
weak and ineffective, the OECD criteria for assessing non-cooperative jurisdictions under a
fresh G20/OECD proposal would now have to satisfy two of three criteria to avoid
blacklisting. These refer to a jurisdiction being rated as largely compliant by the OECD’s
Global Forum; a jurisdiction committing to adopt automatic information exchange or the
CRS and putting this in practice by 2018; and a jurisdiction becoming a signatory to the
MCAA, or having a sufficiently broad exchange network providing for exchange of
information on request and automatic exchange of information. The Tax Justice Network
(TJN) sees loopholes in this current set of criteria as these appear to identify small weak
players as the miscreants and whitewashed the big players (Knowbel et al., 2016).
In any case as of 2016, 80 states have signed the MCAA, 54 have pledged to start sharing
information in 2017, while 26 others would follow suit in 2018. All member states of the EU
have signed the MCAA and would start sharing information in 2017, other than Austria
which would do so the year after. The earlier 2011 EU directive on enhanced administrative
cooperation in taxation was amended to enable compliance to the OECD’s uniform standard
of automatic exchange of information or CRS. This arrangement was deemed far superior
than the previous exchange of information on request that was inadequate for curbing tax
evasion even though the majority of targeted uncooperative jurisdictions signed some 800
tax treaties since 2009 (Johannesen and Zucman, 2014).
Resolving tax evasion problems in tax havens might require independent external
auditing of these jurisdictions (Palan, 2012), the sooner the better for the global financial
system. This is to avoid the kind of crisis seen in the 2007-2009 GFC, where shadow banking
activities operated by special-purpose vehicles in many tax havens operated to accentuate
the problem. Arguably, OFCs an integral part of financial globalization, with the support of
global professional intermediaries play key roles in tax avoidance/evasion, money
laundering, capital flight, regulation degradation, and instability and economic
underdevelopment with alarming consequences for people across the world (Sikka, 2003).
But, for the highly affluent communities, some MNCs, and so on, they are appealing because
these jurisdictions provide a range of taxation levels for selection and tremendous privacies
as they have strong privacy legislations in place that are conducive for assets protection
IJLMA purposes (Botis, 2014). Hedge funds in particular domicile in the Cayman Islands not
60,3 necessarily to avoid tax but for its quality of legislation, stability and absence of intrusive
regulation. Thus, tax havens are here to stay, warts if any.
The relatively stable situation for international financial reporting cooperation was
nevertheless rudely jolted by the release of the Panama Papers. The event as alluded to
earlier led to calls for re-examination of reporting and operating standards for tax havens in
784 particular. The Panama case provides implications for pending tax treaties, Bank Secrecy
Act reforms, the Foreign Account Tax Compliance Act (FATCA), beneficial ownership
disclosures, anti-money laundering initiatives and more (Trautman, 2017). It is, however,
simplistic to assume that all persons linked to the Panama Papers leak are tax evaders and
money launderers, as many could be seeking tax efficiency rather than money laundering. It
is also unbalanced to focus only on the deficiencies in Panama, as the jurisdiction is just one
kink in the entire chain where many other tax havens (both inshore and offshore) could be
involved (Sanjur, 2016).
Leaks such as these, serve important functions in tax law and policymaking on cross-
jurisdictions issues that could lead to positive enforcement outcomes in some situations. They
spotlight disparities between different constituencies of taxpayers, compel governments to
address rules and practices historically favourable to elites, help curb corruption and evasion
by public officials and the highly affluent, discourage tax evasion and stimulate political
impetus for new laws and enforcement actions (Oei and Ring, 2018). Conversely, leaks could
also enable leakers, hackers, media groups and other interests, undue control over government
enforcement agendas. Also, time lags and inefficiencies in the flow of information within and
between jurisdictions might impede its usefulness to governments that could contribute to
reactionary poorly designed laws resulting in reductions in social welfare in their aftermaths.
Hence, the question is not simply how governments could apply information from leaks to
sanction bad behaviours, make decisions and construct laws. Rather, the question is how the
actions and responses of leakers, private citizens, governments and the media collaborate to
induce particular policy outcomes, and how these outcomes should be evaluated, supported or
resisted (Oei and Ring, 2018).
The subsequent sections of this paper would, however, be confined only to the
examination of disclosure and related policies in the two leading financial services
jurisdiction in the world, namely, the US and the UK and for interesting reasons. The paper
would end with some concluding remarks.

3. Tax havens: the US perspective

There are huge controversies over the tax haven phenomenon in the USA. Like most advanced
economies in the world, for many decades, tax dodging havens are perceived to be linked to
small less affluent jurisdictions in various emerging economies where financial reporting laws
are said to be less stringent and hence the raison d’etre for their prevalence in these areas.
Moreover, these are also low infrastructural cost regimes where global financial services
including tax services could be carried out competitively (Sharman, 2006). This is the general
perception. As it turns out, one of the least recognized facts about the global offshore industry
is that much of it is not undertaken offshore and that, for instance, the USA (and the UK) have
operated as among the world’s largest “offshore” financial destinations (Swanson, 2016).
Commentators argue that offshore is not so much about destination but a set of competences
that include ensuring secrecy, tax minimization, assets management, security and access for
the highly affluent from anywhere in the world (Henry, 2012).
Research suggests that the usual tax haven suspects were far less permissive in offering
shell companies than Nevada, DE, MT, SD, WY and New York (Findley et al., 2012).
Untraceable shell companies are said to be the most important mechanism of providing Teflon
financial secrecy to those with bad intentions. The US appears relatively attractive as a tax and international
secrecy haven because it has not signed on a new global disclosure standard that is compelling
anonymous companies to reveal their owners around the world. This puts parts of the USA as
financial
among the most lenient and secure destinations for the wealth of the global affluent (Swanson, centres
2016). The international community has mandated that competent authorities have to pierce
the corporate veil to find beneficial owners and controllers of these shell companies, yet the
effectiveness of this policy measure is little known (Findley et al., 2012). 785
Shell companies are not necessarily employed with bad intentions, such as when used to
temporarily conceal the development of a new product until commercialization or for
diminishing the risk of kidnapping. But, people and corporations with bad intentions could
be using them for hiding wealth from tax authorities, financing terrorism, concealing
fraudulent schemes or for the laundering of illicit gains (Findley, Nielson & Sharman). The
US businesses are generally legally prohibited from knowingly assisting customers to avoid
taxes, services for privacy and secrecy with few questions asked are not necessarily
unavailable (Gooch, 2014). Such shell companies are said to be linked to various nefarious
activities, and most damning is their facilitation by corporate service providers (Drucker,
2016; Story and Saul, 2015; Gooch, 2014). In this respect, Clearing House, a trade group of the
largest banks in the USA recently lobbied Congress to prevent 50 states from allowing the
anonymous ownership of companies (Wack, 2017). When approved, this could help lighten
their regulatory burden for dealing with money laundering and related threats.
Subsequent to the 2002 Enron debacle and the subsequent 2007-2009 GFC, advanced
economies led a crackdown on global tax havens to recover revenue and mitigate rising
inequality. The USA implemented FATCA to go after US tax cheats. This legislation
required financial firms across the world to report accounts held by US citizens to the US
Internal Revenue Service or contemplate eviction from the financially profitable US financial
system. The emergence of the Intergovernmental Agreement (IGA) under FATCA in 2012
led to considerations of similar protocols for cross-border tax tracking.
The OECD of 34 advanced economies with the concurrence of the G8, G20, Global Forum
and the EU led to the use of IGA Model One as an effective means for implementing FATC-
like protocol on a cross-border basis. This impacted some 90 jurisdictions that further led to
the Standard for Automatic Exchange of Financial Information on Tax Matters or the CRS.
Reporting along this format is to take effect in 2016 with continued implementation through
2017 and 2018. This is envisaged to be a huge reporting burden as financial institutions
under this are to undertake due diligence on underlying clientele and collect and collate vast
amounts of data. To ease the regulatory burdens, the appropriate use of technology
platforms could be helpful here (Moss, 2016).
Only less than a handful refused to approve them and these include Bahrain, Vanuatu
and, importantly, the USA. Like the history of the international accounting standards, the
USA relied on its equivalent rules and opted instead to have bilateral agreements with other
nations. In the meantime, the USA is not giving the kind of data it is requesting from
European economies. This provided further incentives for financial firms to migrate their
businesses to the USA. This presented a huge obstacle to international collaborations when
cracking down on tax havens operating with bad intensions (TJN, 2015).
Thus far, the Panama Papers have not disclosed names of US politicians or other wealthy
people other than 211 people with US addresses owning companies identified in the Panama
Papers who might not necessarily be US citizens. This raises further questions about the
destination of the estimated US$150 billion in potential US tax revenues believed to have
migrated to offshore tax schemes annually as suggested by a 2014 Senate subcommittee
IJLMA report (Fusion, 2016). Commentators from civil society organizations (CSOs) like the TJN
60,3 have suggested that US people might not need to go to Panama, as the country has an
onshore haven industry that is as secretive as elsewhere such as found in Wyoming, DE and
Nevada. Though US people were some of the pioneering users of offshore schemes way back
in the 1970s, their needs could be satisfied by many US states offering equivalent services.
An interesting aspect of the Panama Papers is that Mossack Fonseca runs a subsidiary
786 that creates US offshore corporations in Nevada. There are serious concerns that this
suggested onshore haven behaviours in the US could undermine the country’s tax
compliance and tax citizenship. Some further suggests that data on American involvements
could surface when there are involvements in stock fraud, stock manipulations and
questionable hedge fund operations. This happened, for instance, in the 2001 Enron scandal.
Global Witness and other CSOs are continuously agitating for equivalent US legislations,
while some Congressional members have made preliminary starts for legislation calling for
all shell companies registered in the USA to report their real owners known otherwise as
beneficial owners. Some US states though are providing stiff oppositions to these efforts, as
they are more concern about the loss of tax revenues and burden of additional regulations.
Nevertheless, the US Treasury has drafted in response a CDD final rule, proposed beneficial
ownership legislation, and proposed regulations pertaining to foreign-owned single-member
limited liability companies (LLCs) so as to deal effectively with tax evasion, money laundering
and other illicit financial activities (Godfrey, 2016). The Treasury explains that these initiatives
target key points of access to the international financial system when businesses open accounts
at financial institutions, when businesses are formed or when business ownership is
transferred, and when foreign-owned US businesses seek to evade taxes.
The CDD final rules would henceforth require financial institutions including banks,
brokers, or dealers in securities, mutual funds, futures commission merchants and commodities
brokers to gather and verify the personal information of the beneficial owners who own, control
and profit from businesses when those businesses open accounts (US Department of the
Treasury, 2016). The three requirements pertain to identification and verification of the
businesses’ beneficial owners, comprehension of the nature and purpose of customer
relationships to develop customer risk profiles, and undertaking ongoing monitoring to identify
and report suspicious transactions and on a risk basis to maintain and update customer
information. Pertaining to the requirement to obtain beneficial ownership information, financial
institutions would have to identify and verify the identity of any individual owning 25 per cent
or more of a legal entity, and an individual who controls the legal entity.
The Treasury has notified Congress that the proposed beneficial ownership legislation
would require companies to know and report adequate and accurate beneficial ownership
information at the time of incorporation to ensure the availability of such information to US
law enforcement agencies (Lew, 2016). Businesses incorporated within the USA would be
required to file beneficial ownership information with the Treasury. Failures to comply
would attract penalties. The proposed regulations would also require foreign-owned
“disregarded entities” including foreign-owned single-member LLCs to obtain tax
identification numbers within the Inland Revenue Services (IRS) to help curb possible tax
avoidance. In general, the US federal tax system has very strong reporting information
requirements for most kinds of legal entities formed in the USA, which it could share with
other tax authorities. This excludes, however, a narrow confine of foreign-owned US entities,
usually single member LLCs or disregarded entities that have no obligations to report
information to the IRS or to get tax identification numbers. These entities could be used to
shield foreign owners of non-US assets or non-US bank accounts.
 The finalization of these regulations would enable the IRS to ascertain whether there is any Teflon
tax liability, and if so, the extent, and to share information with other tax authorities. international
Businesses worldwide might have to take the above developments seriously. For instance, in
February 2014, the USA examined whether a European bank helped US citizens hide as much
financial
as US$10 billion in assets from the IRS. The bank concerned pleaded guilty, paid a US$2.6 centres
billion fine and pledged to help identify US accounts not declared to the IRS (Trefis Team,
2014). A more current 2016 incident found a US citizen with dual citizenship admitting to using
offshore accounts to hide US$200 million. The individual a retired professor agreed to pay a US 787
civil penalty of US$100 million and was also sentenced to a seven-month jail term for
conspiring to defraud the IRS (Voreacos, 2016). These are good examples of US aggressive
enforcement efforts against financial institutions and other market participants who it believes
have been assisting US persons to hide money in offshore accounts.
Hence, the USA, from its perspective, is not participating, with good reasons in the
OECD’s global automatic information for bank data (Wood, 2016). With FATCA running,
the US IRS is actually swapping taxpayer data reciprocally with other economies but would
only engage in this with foreign jurisdictions meeting its stringent safeguard, privacy and
technical standards. More than 100 nations have agreed to comply with FATCA for fear of
being shut off from the lucrative US financial markets. The legislation requires foreign
banks to disclose Americans with accounts over US$50,000. Offshore account holders have
also been warned by the IRS to disclose before being caught with penalties but lighter
arrangements are provided for non-wilful violations in its long-running Offshore Voluntary
Disclosure Program.

4. The United Kingdom position

The regulatory trend in European countries in lifting the veil of the type pf secrecy shell
companies create culminated with the fourth anti-money laundering directive (AMLD)
wherein member states would be setting up company registries that could be available to
law enforcement agencies and to people with legitimate interest like the media by special
request. This AMLD published in the EU Official Journal on 5 June 2015 formalized the
FATF standards. This was updated in October 2016 to help fight money laundering, tax
crimes and terrorist financing. The new rules would make it easier to trace transfers of
funds (European Parliament, 2015). EU member states have two years to transpose the
Directive and accompanying Funds Transfer Regulation into national law, amending or
replacing prevailing legislations and regulations as necessary. The UK is currently seeking
consultation on the matter and has issued a discussion paper [Department for Business,
Energy, & Industrial Strategy (DBEIS), 2016].
The AMLD for the first time require EU member states to maintain central registers of
information on the ultimate beneficial owners of corporate and other legal entities including
trusts. A beneficial owner actually owns or control a company and its activities and
ultimately authorizes transactions, irrespective of whether such ownership is exercised
directly or by proxy. The 4th AMLD would also require banks, auditors, lawyers, real estate
agent and casinos, including others to be more vigilant about suspicious transactions of
their clientele. Special measures are also in place to deal with politically exposed persons
meaning people at a higher than usual risk of corruption due to the political positions they
hold like heads of state, member of government, supreme court judges and members of
parliament including their family members.
Although EU’s capacity to imposed sanctions could be constrained by its limited
competence in tax policy, the initiation of the financial transaction tax suggests that EU
member states are willing to collaborate in international tax issues via the enhanced
IJLMA cooperation procedure even when unanimity is lacking. The need to boost EU’s power in
60,3 international tax governance is crucial in view of the lack of USA’s commitment to
reciprocate information sharing. Mainstream opinions are sceptical about the extent to
which the model 1 FATCA-IGAs legally binds the USA to reciprocity. This is shown by the
refusal of the USA to sign to the OECD’s multilateral treaty. The Panama Papers suggest
the EU has much to gain from guaranteeing reciprocity in information sharing with the USA
788 (Vermeiren and Lips, 2016).
The UK and in particular the City of London from way back in the 1980s was at the
centre of a great, secretive financial web cast across the world, with individual havens
facilitating money and business from nearby jurisdictions and fed them up to the City
(Brooks, 2013; Shaxson, 2012). Cross-border multinationals and global banks are said to
route significant transactions via Caribbean havens, whose UK firms would facilitate these
to the City. The web’s inner ring comprised the Crown dependencies of Jersey, Guernsey
and the Isle of Man with focus on European business. The next ring hosts British Overseas
Territories like the Cayman Islands and Bermuda and similar to the Crown dependencies
they are controlled by Britain in many ways but with enough political gap to enable Britain
to deny involvements when things do not go right. The outer ring host assortment of havens
like Mauritius, Bahamas and Hong Kong.
Commentators argue the City could qualify as a tax haven owing to its position as a semi-
alien entity running partly free from Britain as exemplified by the Cayman Islands, and as
the hub of a global network of tax havens draining offshore trillions from around the world
or routing to London (Shaxson, 2011). Aside from those in the City, most MNCs have
offshore subsidiaries. Barclays, RBS and Lloyds have some 550 offshore subsidiaries
(Shaxson, 2011). This is not just about tax, as banks and others go offshore to escape
particular financial regulations and grow faster as a consequence to becomes a big part of
the Too Big to Fail narrative.
But, at least five myths persist about the apparent benefits of offshore tax havens for
those that stash their wealth there and for the havens themselves (Shaxson, 2016b). First,
tax havens are said to protect vulnerable people against despotic governments, unjust laws
and political turmoil. The Panama Papers suggest offshore accounts linked with several
dictators and members of oppressive regimes from around the world but few linked to
ordinary citizens. Second, tax havens are perceived as good for high-tax nations as they help
to discourage regulations that slow down domestic economies. This is debunked by the fact
that well-established high-tax economies like Sweden, Denmark and Finland enjoy
relatively better economic growth and human development outcomes than their lower-tax
counterparts to support suggestion that stealthily undermining the tax base from offshore is
a poor recipe for prosperity. Third, other than Switzerland, most tax havens are small
tropical islands. On the contrary, DE and Nevada in the USA allow shell companies with
unidentified owners thereby providing cover for foreign cash, while Britain is associated
with a network of the world’s largest havens from the Cayman Islands to Bermuda and
Jersey. Fourth, being a tax haven makes a country wealthy. On the contrary, wealth flows to
countries that are rich and stable and the reason why tax havens are rich countries. The
trickle down from offshore finance also flows primarily to foreign expatriates and those few
highly skilled locals. Fifth, lowering corporate taxes enables nations to compete with tax
havens. Tax cuts domestically do not persuade corporations as shown in the USA to ease up
on tax avoidance, as there are always more lucrative shelters abroad. The main reason is not
high taxes but the plethora of havens, loopholes and advisers. Moreover, corporate tax cuts
tend to attract the wrong kinds of investments like profit-shifting activities with no real
benefits to the broader economy. The answer rather is not tax cuts but cracking down on tax Teflon
havens, which the UK appears now to be showing leadership. international
While rhetoric is inspiring, it is not easy to crack down on the sprawling and many-
layered system of tax haven and offshore secrecy. Well-intended initiatives are neutralized
financial
by highly skilled and resourced offshore enablers like accounting firms, law firms, corporate centres
formation agents and trust companies and global banks targeting loopholes (Shaxson,
2016c). The Panama Papers suggest how the Panamanian law firm collaborated with some
of the world’s largest banks designing thousands of offshore companies that dodged tax and 789
law enforcement agencies worldwide. There are nevertheless various ways to put pressure
on the private infrastructure of enablers, as exemplified by FATCA that imposes a 30 per
cent tax on payments originating in the USA to any financial institution that fail to comply
with US anti-tax haven initiative. Most jurisdictions as a result share data with the US, as
they do not wish to be shut out of the lucrative US markets. Unfortunately, for now, the US
has yet to agree to share data with the OECD scheme modelled on FATCA other than
through bilateral arrangements. On a global basis, the EU only has the kind of clout to help
resolve the issue (Shaxson, 2016b).
A former British leader in 2013 urged Britain’s overseas territories including the British
Virgin Islands to work together to fight against tax evasion and offshore secrecy (Wintour
and Watt, 2013). Britain announced the launching of a new central register that would
ensure all the true owners of shadowy shell companies to be declared to the tax authorities.
The country also asked G8 leaders including the US President and German Prime Minister
to sign up to a new set of core principles on tax. The preliminary plan was to confine the
release of such hitherto unavailable data to UK tax authorities but could evolve to a public
phase where other major economies move in tangent.
Unbeknown to this former political leader, his late father used a family investment fund
to be managed and conducted that it does not become resident in the UK for UK taxation
purposes. This case shows how deeply offshore secrecy is tied to the lives of politicians and
financial elites around the globe. The contributions of such financial centres as important
economic growth engines for many economies have perpetuated their continued existence
because of their usefulness to financial elites (Obermayer et al., 2016). Still, the G8 Summit in
the UK in 2013 and subsequent G20 meetings in the same year achieved creditable progress
against financial secrecy. These events gave the OECD a mandate for three subsequent
OECD action initiatives.
First, the OECD was mandated to ensure that MNCs provide transparency about where
they made their profits as now they have to provide country-by-country data reporting to
tax agencies (Shaxson, 2016d). Second, the OECD’s CRS goes into effect in 2017, making it
harder for residents of a given country to conceal their offshore income from the domestic
tax agencies. The immediate agenda in connection with this would involve the challenge of
including developing economies and non-cooperative jurisdictions like the Panama. Third, a
public register of the owners and beneficiaries of incorporated companies was
operationalized from June 2016 onwards. This met partial success as the UK resisted
equivalent transparency for trusts and foundations and the Crown dependencies. These are
conventionally an important part of secrecy in English law havens. This development
provided the French and Austrians with the excuse to refuse to support company ownership
transparency. The UK might need to review its position, as its network is one of the single
biggest player in global financial secrecy (Shaxson, 2016d).
In the meantime, the UK in line with the emerging need for enhanced disclosures on
beneficial owners designed a public registry for companies. This enables people to freely
identify the beneficial owners of all British companies [Department for Business Innovation
IJLMA & Skills (BIS), 2016]. The UK people with significant control register became effective in 11
60,3 April 2016 [Department for Business Innovation & Skills (BIS), 2016]. This requires UK
businesses to produce, keep and maintain a public registry of people with significant control
over that business. This means, henceforth, in most instances, it would be possible to
identify individuals who beneficially owned UK real estate held by UK companies.
The UK on 8 July 2016 released the world’s first fully open register of beneficial
790 ownership. This dataset could disclose who really owns UK companies, simultaneously
making it harder for people with ill-gotten gains to hide their wealth. This would thus enable
CSOs to know who they are dealing with when addressing civil and environmental rights
and for law enforcement agencies to have early detection of tax evasion and money
laundering. The maiden release showed 28,076 beneficial owners on record with some over
22,595 companies filing information on at least one beneficial owner. Interestingly, almost
3,000 companies listed their beneficial owner as a company with a tax haven address, a
submission not allowed by the reporting rules (Palmer and Leon, 2016).
In terms of ranking on the basis of numbers for each kind of haven, Jersey comes on top,
followed by the British Virgin Islands, Channel Islands, Isle of Man, Guernsey, Hong Kong,
Gibraltar, Singapore, Bermuda and Malta. Seventy-six beneficial owners share the same name
and birth dates as someone on the US sanctions list, making it necessary to verify whether
these are actually the same people (Palmer and Leon, 2016). Most of the beneficial owners
appear to be from the UK, followed by a number from European countries, India and China. A
comparative analysis of named beneficial owners of particular companies with the listed
beneficial owners suggests that over 300 beneficial owners appeared not to have already been
listed as directors of those companies (Leon, 2016). This further suggests that some companies
are filing genuinely new information not contained within their previous filings. The ability to
compare directors and beneficial owners because of the new data is now enhanced.
There were, nevertheless, some imperfections in data quality (Leon, 2016). There are issues
with the free text nature of the field, meaning some people submitted “British” and others “UK”.
There were also data entering issues pertaining to birth dates and confusions over legal person
and individual person. The maiden dataset also suggests some 14 per cent of companies appear
not to have reported a single beneficial owner. About 14.1 per cent of companies did not publish
data on any beneficial owner. Reasons provided for this varied from there being no beneficial
owner (amounting to 85.9 per cent of the statements submitted) to the beneficial owner being
identified but not responding to communications from Companies House (amounting to 8.8 per
cent of the statements submitted). This has been attributed to the reason that probably no one
individual met any of the criteria for being a beneficial owner, that is, owning 25 per cent of
shares or exercising significant control over the company. Longer time data sets are necessary
to establish whether this has been employed as the route some companies used to avoid
disclosing. To improve on the quality of the dataset gathered, Companies House have already
initiated some steps to directly engage developers in data release, like establishing a forum for
discussion and support.
Beneficial owner data release is hugely important and the UK and its Crown
dependencies have activated a significant and necessary first step. This nevertheless
requires complementation with people linked to financial crimes and their enablers
brought to book rather than continuing to avoid any meaningful consequences for their
actions (Ryder, 2017). This perspective is collaborated by revelations of tax avoidance
in the Panama Papers. While technically legal in many situations, this does not
necessarily make it acceptable. It is important that financial institutions and their
professionals are seen to operate with integrity in the widest sense (Alexander, 2016). In
connection with this, the required standard of proof required in English courts have on
the whole been a barrier that few have manage to overcome. The alternative as adopted Teflon
in the USA as early as the 1930s is to simply create liability for failing to prevent international
particular kinds of misconduct occurring. This is now being addressed in some ways by
the new Criminal Finance Bill 2016 [House of Lords (HL), 2017]. Here, the state provides
financial
for a new criminal offence of corporate failure to prevent tax evasion or the facilitation centres
of tax evasion. The scope of the criminal law is significantly widened by this legislation
as section 166 creates an offence of failing to give notice of liability to income or capital
gains tax, failing to provide a tax return, or failing to provide an accurate return
791
relating to offshore wealth and assets (Rider, 2017). The director of the Serious Fraud
Office claims that without such an offence, the current legal regime actually gives
senior management an incentive to disassociate themselves from what is occurring in
their business. When this new bill comes in force, facilitators and enablers involved in
tax havens would henceforth have to tread wisely.

5. Reforms of international tax laws

Tax experts suggest that initial revelations by the Panama Papers barely scratch the
surface. It is also not just about corruption or organized crime, hugely important these might
be, but just how unequal the world and law have been, with the rich under more
accommodating regime and the poor something else. Tax avoidance accentuates the vast
global gap in wealth and income between the poor and the affluent. Concealing vast sums of
wealth from taxation enables the wealthy to stay affluent and avoid policies meant to help
the poor. Offshore accounts deprived opportunities for those seeking progress, as they are
paying taxes to bridge the gap the rich do not pay when they shelter their assets overseas.
More than US$7.5 trillion is estimated to be concealed in offshore tax havens, with
approximately US$6 trillion never taxed at all (Zucman, 2016). The Boston Consulting
Group’s 2014 Global Wealth Report estimated that US$8.9 trillion or some 6 per cent of
global wealth was booked offshore and that this could rise to US$12.4 trillion in 2018. The
TJN suggests about US$32 trillion located untaxed or lightly taxed in secrecy jurisdictions
around the globe. To resolve effectively, the inequality issue such and related forms of tax
dodging have to go.
The use of tax havens to conceal wealth legally and illegally have grown significantly
since the 1980s because of changes in financial regulations and technological advancements.
The Panama Papers preliminary revelations suggest that offshore financial institutions
have provided insufficient attention to international anti-money laundering regulations.
Asking various jurisdictions to apply and monitor the regulations appear to be inadequate
as many financial and professional institutions have profited immensely from servicing tax
evaders and even criminals and in many instances do not even try to ascertain the initial
owners of shell companies. Subsequent to the 2007 GFC, FATCA in the USA as alluded to
earlier has achieved much, with many other countries now attempting to do the same thing.
Many countries have agreed from 2017 to 2018 to participate in the automatic exchange of
bank information framework designed by the OECD.
These laws might not be enough as the Panama Papers have shown clear evidence that
many of the 100,000 shell companies in Panama and the British Virgin Islands have engaged
in illegal activities. Zucman, a high-profile tax expert suggests that there should be
immediate international sanctions against jurisdictions for hosting such vast amounts of
such financial activities and that the sanctions should remain until they are able to prove
that they have correctly identified all the initial owners of all the companies incorporated in
their territories. This kind of sanction-centred approach is required to change the incentive
IJLMA and behaviours of the countries and the firms and the people involved in this business
60,3 (Nelson, 2016).
Zucman further suggests the creation of financial registries (Nelson, 2016). The Panama
shell companies and Swiss bank accounts are not necessarily invested only in these two
jurisdictions but also in New York and London. This justifies the creation of financial registries
of wealth and recording the owners of wealth so as to dent effectively money laundering and
792 tax evasion offences. There are now land and real estate registries that could be built upon for
enhanced transparency. The recent public registry for properties in the UK appears to be a step
in the right direction though it could be improved further. Useful insights for future purposes
could be gained by studying the data behind those people using tax amnesties in some
countries. This way the world could have a better feel of who evades taxes, how the prevalence
of tax evasions varies by income or wealth group, and the reasons for this.
Indeed, to solve this global issue, global solutions should not create loopholes by excluding
countries say for instance from the OECD’s automatic exchange of financial information
(Golden, 2015). This is to avoid having a two-tiered system with some countries exchanging
information regularly and those with fewer resources provide more of the same banking
secrecy. Facilitators and enablers in tax haven and those onshore should be discouraged from
pushing the limits by undertaking increasingly risky and quasi-legal activities. With greater
transparency being the norm and practice, complex secrecy structures would no longer
be employed (Golden, 2015). International financial services whether offered onshore or
offshore should strive and be provided with a wider corporate base of business. This could
reduce the competitive need to offer enhanced secrecy that contributes to illegal activities.
Meanwhile, the quest for a fully transparent international banking system should continue and
more so for those financial and professional institutions operating offshore.

6. Conclusions
International financial centres have been around for a long while. They accelerated in terms
of number and economic significance from the 1980s onwards. They offer in general quality
international business and financial services for MNCs and highly affluent individuals. But,
they grew and compete with one another not only on this basis but also in terms of more
cost-effective infrastructures, lower tax considerations as well as, but very importantly,
secrecy. Gradually they competed more as tax and secrecy havens. This became appealing
not only to businesses and financial and political elites but also to those profiting from illicit
activities and, therefore, in particular for those engaging in tax evasion, money laundering
and other related crimes.
Critics have argued that on moral grounds, it is also not good for these offshore havens
and facilitating or financially enabling institutions like those offering corporate services to
help in the perpetuation of tax avoidance schemes even when legally not wrong.
Governments in these jurisdictions have struggled between getting the economic gains from
such international financial havens and risk reputation for being linked to possible illegal
activities. International classifications differentiating good and bad tax havens have put
most governments on guard against being tainted as bad. Still the secrecy business went on
despite critics claiming serious leakages and, hence, erosion of national tax bases. The
preliminary analysis of the Panama Papers showed how legal and other facilitators help
high-profile politicians, highly affluent individuals, MNCs and other corporations to conceal
wealth and avoid and evade tax. This systematic problem of tax evasion accentuated the
excesses of global financial institutions and their enablers. The use of taxpayers’ money to
bailout these institutions drove governments in part to implement painful austerity
measures. To mitigate the painful financial adjustments, governments in Europe and
elsewhere began looking seriously at recouping the huge lost tax revenues. The USA via Teflon
FATCA is finding some success. The OECD and other participating nations are expecting international
their equivalent measures from 2017 onwards to achieve significant results in terms of
deterring potential tax leakages and recouping those illegally gone underground.
financial
Other measures like the beneficial owner public registry exercise maidenly launched by the centres
UK raised hopes that concrete measures have been taken to enhance corporate transparency
with significant tax implications. More of such and related measures have been called for to
combat financial secrecy in international OFCs and other jurisdictions. Laws have also been
793
strengthened to deal with those facilitating and enabling such secrecy activities.
As mentioned, the UK for its part has done much in denting illicit activities in OFCs
especially in calling for enhanced transparency of financial dealings and in particular the
need to address beneficial owner data not only in the UK but also in its Crown dependencies
as well. The FATCA in the USA is running commendably, but much more could be perhaps
achieved when the USA extends reciprocity rights to OECD and the EU rather than on a
piecemeal nation to nation basis. Also, very recently, trade groups representing big banks
have lobbied Congress for stricter implementation of the beneficial owner data rule in 50 US
states. Finally, global problems such as those posed by international financial havens have
to be resolved by global solutions. This means all economic blocs and nations would gain
from guaranteeing reciprocity in financial information sharing between one another, and
probably only through such united coordinated efforts that the world can end the business
of secrecy in financial transactions.

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About the author

Peter Yeoh, LLB, LLM, BECONS, MBA, PHD (Law), is an Honorary Research Fellow at the School of
Law, Social Sciences and Communications, University of Wolverhampton. His works have been
published in several peer-reviewed law journals and as chapters in several business law-related
books. Peter Yeoh can be contacted at: peyo5678@yahoo.com

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