OFCs are out: bring back the term tax havens

Posted on

The FT has reported that:

The distinction between "offshore" and "onshore" financial centres has been dropped by the International Monetary Fund, 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.

Curious: you'll note that in the third paragraph the IMF can't get used to the fact that OFCs no longer exist, because it still refers to them. So do others noted in the report. In which case they clearly still do exist.

In fact, what this change represents is recognition of the fact that the 40 or so tax havens involved never were OFCs. The IMF has, I suggest, realised that all along they were tax havens, and no other word will do to describe them. This reflects the definition of tax havens and OFCs that I offer in TJN's submission to the Treasury Select Committee where I say:

Tax havens are places that create legislation designed to assist persons - real or legal - to avoid the regulatory obligations imposed upon them in the place where they undertake the substance of their economic transactions

and

Offshore financial centres are not the same as tax havens. OFCs are the commercial communities hosted by tax havens which exploit the structures that can be created using the tax haven's legislation for the benefit of those resident elsewhere.

If it is still using the term OFC, and it looks like it is, then this is the context I suggest, and the move is welcome because it allows the shift in emphasis in regulation that we are calling for to happen. It's true, the tax havens are now regulated, by and large. But the need now is for that regulation to be imposed on the OFCs. The IMF knows that is not happening. The IMF has cleared the decks for a change in terminology. That change will allow the attack on the abuse led by the accountants, lawyers and bankers of the world to begin in earnest.

It's not a moment too soon.