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The Times They Are a-Changin'

We are a baker's dozen years into the new millennium and we have seen quite a bit transpire: equity markets were shattered, rebuilt, and put on stilts again, Presidents have come and gone, but one thing that has not changed is the scrutiny on offshore finances. Aided greatly by the current U.S. election, and Republican-party challenger Mitt Romney’s much publicised use of OFC's (Offshore Financial Centres), have helped put the spotlight on the sector and associated regions.

While it is almost cliché to focus on the perceived negatives of OFC’s, because they are simply not understood, 2012 alone has seen many less publicised events take place around the region and the globe, which are indeed positive.

Anguilla, which does not levy personal or corporate income taxes, has been thriving since 2002 when it was removed from an international list of territories said to be uncooperative in the fight against money laundering, and is benefiting from recently joining the TIEA or Tax Information Exchange Agreement circle, with 24 other countries, with India.

Anguilla, is not the only Caribbean country solidifying its stance in the TIEA arena, agreements with the British Virgin Islands (BVI), Barbados, The Bahamas and Panama are already in discussion and expected to settle soon.

Continuing to work together in a team format, and taking steps to fortify themselves, leading OFCs – like the Cayman Islands and the BVI – continue to make positive headway. These smaller, more nimble business centres are gaining the attention of places like Latin America as a desirable alternative to the big guys on-shore. Size is also a selling factor in the ‘regulator-regulatee’ discussion, as institutions in these offshore economies often have better access to regulators and can facilitate more fluid discussions. The Cayman Islands continues to be a leader when it comes to offshore mutual funds, with now approximately 10,000 funds domiciled in Cayman. The BVI is the second largest offshore jurisdiction for funds, with close to 3,000.

2012 has certainly been the year of rules and regulation as countries search for ways to either scrutinise their citizens or protect the ways that have kept them successful. A selection of salacious mandates are on the burners, not the least of which are initiatives like Dodd Frank and the Basel III Accord. Oversight bodies are churning out white paper after white paper in search of decreasing systematic and institutional risk, putting those with reasonable appetites for risk on watch, as they wait for the inevitable. Specifically within the discussion of Basel III, in the more progressive OFC’s, such as the Cayman Islands, they already have risk mitigation tools in place over and above Basel II. In this, should the island choose not to adopt Basel III, their institutions are at no more risk than those that do – Cayman is prepared with more stringent rules and even higher capital requirements.

With much being made of the ‘massive Chinese slowdown’ and its negative impact on the globe – OFC’s continue to grind this year into a positive. Another example of breaking the mould would be Dominica – primarily known for being a tourist attraction. Currently in discussions to expand their airport capabilities to allow more visitors, Dominica recently refined their banking rules and set up their own financial intelligence unit. This has gotten them back on track and added to the list of solid global OFC’s.

Nevis is another location that recently introduced new legislation to safely incorporate companies, offer banking and trust services. While Nevis was removed from the Organisation for Economic Co-operation and Development (OECD) black list a dozen years ago, it has recently thrust itself on the offshore financing stage by strengthening its internal rules and controls.

While 2012 has come and almost gone, it represents a microcosm of the last several years – and will lay the groundwork for many years to come. OFC’s continue to persevere in an ever-changing world of rules and regulation, rising to each challenge, and as long as the countries that represent them and the investors that utilise them respect and understand the system, while remaining nimble, they will continue to be a very important component of global finance.


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