Caribbean International Finance Industry: Why and what politics matter
From Stabroek News
Don D. Marshall is Senior Research Fellow at the Sir Arthur Lewis Institute of Social and Economic Studies at the Cave Hill, Barbados, Campus of the University of the West Indies
To engage in a re-reading of Caribbean offshore financial centres (OFCs) is to encourage difficult dialogues. For over 30 years, Caribbean policy officials – in the Bahamas, Barbados, Antigua, St. Lucia, St. Vincent and the Grenadines as well as in Bermuda, Cayman Islands and Tortola in the British Virgin Islands – have been forced to undertake perennial reforms framed by regulatory authorities of the North while being sneered at in the bargain. This is an aspect of the intellectual smugness and arrogance of the global finance industry that goes un-noticed. This state of affairs is ultimately about sovereignty, imperialism and contradictions within neo-liberal globalisation but it requires careful peeling back of layers of international social influence and social relations within and across the international financial architecture (IFA).
Let us engage a thought experiment. We are aware of the common view of offshore financial centres (OFCs): They operate to serve a non-resident clientele of high net worth individuals and multinational companies with relatively little benefit to host governments and populations; they function as a lair for hiding ill-gotten gains; they are a way of escaping tax authorities; they facilitate harmful tax practices; and their very existence ensures opacity in international finance. This is the dominant and `official’ language of global elite actors within, for example, the Organisation for Economic Cooperation and Development (OECD), the US State Department, conservative think tanks such as the Heritage Foundation and Centre for Freedom and Prosperity, and news outlets such as Offshore Alert and Tax Justice Network.
Suppose we encourage a different optic through which to situate Caribbean international financial centres, or OFCs within the operations of global finance. To start, globalisation is about capital flows. The dramatic evolution of global finance in the last three decades has seen intensified competition among the world’s major cities to become prominent control centres of global financial flows – flows that are the twin effects of capital mobility and capital tax competition. Of equal and related significance is the competition for sustaining a share of the worldwide market for financial services and products. This ranges from the sale of shareholder value packages inclusive of registered trademarks, implementation and incentive packages and `guides to action’ by consultancy firms and individuals, to the offer of an equally complex variety of financial services by onshore and offshore financial centres. Many OFCs are located in the so-called ‘underdeveloped’ countries and regions. Others such as Guernsey, Jersey and Isle of Man (UK) and offshore private banking and trust services in places like Colorado, Nevada and Delaware (US) are supported and influenced by host, core countries with developed capital and financial markets. If it can be argued that OFCs decentre the core/periphery dichotomy because these serve as conduits for multinationals to access the global economy, the point is reinforced by the nature of the competition for international business that has witnessed the emergence of active `onshore-offshores’ located in the USA, Japan and Ireland. `Onshore-offshore’ centres refer to countries that establish a separate regulatory and tax regime for non-residents or international financial activities that are inaccessible to the host resident population. These specifically refer to International Business Facilities (IBFs) in New York, Dublin and Tokyo. IBFs issue licenses to foreign banks to establish branches in an environment of reduced regulatory costs and lower taxes. This activity directly mimics or shadows OFC style incentives to non-residents, while escaping the highly stigmatised classification that attaches to the Caribbean.
From the vantage point of the Caribbean region, globalisation is experienced as late-imperial travel culture. This occurs through a process of flows of money, tourists and international business activities that include ship-chartering, shipping registers, aircraft-basing, reinsurance, film-making, mining and oil production, project development, property development, cross-border equipment leasing, writers’ royalties and so on. Since the 1990s these flows have been attended by re-regulations zealously designed by international financial organisations to fix, tame and/or secure financial stability. Oxfam, Tax Justice Network and other agencies claim that trillions of dollars passes through or resides in Caribbean OFCs as they seek to address the spectre of crimes against international finance. Caribbean policy officials commit to the growth of the international business sector for the annual fees, and in some cases, the corporate taxes that can be gained while implementing transparency reforms and information exchange agreements to appease critics and sceptics in core countries and international governance agencies. Where the Financial Action Task Force has sought cover by way of tax information exchange, core governments have singularly sought to police. Recent legislation in Canada that requires greater tax disclosures, and the USA’s Foreign Account Tax Compliance Act (FATCA) enacted in 2010 requiring foreign banks to report and disclose U.S. interests in foreign financial institutions represent efforts to tackle tax evasion. Altogether these measures feature compliance costs for Caribbean OFCs to undertake. This is producing a paradox for capital evidenced for example by resistance by US big business to FATCA as it restricts market choice, freedom of the investor and unsettles private property ownership rights.
These contradictions are often missed in analysis about the future of the Caribbean finance industry. Caribbean OFCs have become a special point of entanglement in the alignment of core Western interests in establishing the mobility rights of capital, tracking terrorist finance, and penalising tax evasion. The
confidentiality protections of the offshore jurisdiction conflict with major onshore extra-jurisdictional tax and money laundering investigations, despite the record of compliance with information exchange agreements, the signing of mutual legal assistance treaties and so on. International law cannot sanction the undermining of key neoliberal principles: freedom of the investor, the right of a sovereign country to determine its tax policy, and some banking confidentiality for its clients. Caribbean policy officials in this instance have to defend these principles if they are to maintain the competitive advantage of their financial centres.
Discourses of sleaze and disparagement cling to the Caribbean, central European and Pacific operations where these best apply to the grey world of global finance proper. Certainly a variety of mechanisms for privatising and anonymising money exists in the City of London, New York indeed within the seamless contiguous whole of the global financial nexus of offshore and onshore. The issue of who facilitates capital flight, money laundering, tax evasion or who is/are its worse perpetrator/s does not rest singularly with any of the geographies of global capitalism; it is an excrescence of freely mobile capital and the different tax systems among states in the world system.
There remains however no straightforward North-South reading of the world of financial centres. But an abiding dualism persists. Financial centres exist to further enhance capital’s mobility and efficiency gains. But it requires of host governments, juridical affirmation, infrastructural and legislative support, and effective human resource planning.
Such state support is uneven across the offshore world, but crucially Western officials remain the sole arbiters of the question of legitimate or illegitimate practices among OFCs. This is why it is crucial to reclaim the political as OFCs present no unified front. Certainly onshore-offshores escape the glare of scrutiny as these are covered in the self-privileging discourse of Western officials in the IFA interaction structure.
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