Offshore Financial Centre

Whilst there is no precise definition of what amounts to an Offshore Financial Centre (or OFC), the term is usually meant to refer to low-tax, lightly regulated jurisdictions which specialise in providing the corporate and commercial infrastructure to facilitate the use of those jurisdictions for the formation of offshore companies. Offshore Financial Centres are often (but not always) current or former British Colonies or Crown Dependencies, and often refer to themselves as offshore jurisdictions. The term Offshore Financial Centre is a neologism coined in the 1980s.[1]

The IMF considers the following to be characteristics of an Offshore Financial Centre:

* Jurisdictions that have relatively large numbers of financial institutions engaged primarily in business with non-residents;

* Financial systems with external assets and liabilities out of proportion to domestic financial intermediation designed to finance domestic economies; and

* Centres which provide some or all of the following services: low or zero taxation; moderate or light financial regulation; banking secrecy and anonymity.

Views of Offshore Financial Centres tend to be polarised. Proponents suggest that reputable offshore financial centres play a legitimate and integral role in international finance and trade, offering huge advantages in certain situations for both corporations and individuals, allowing legitimate risk management and financial planning. Critics argue that they drain tax from wealthy (and not so wealthy) nations, they are insufficiently regulated, and they facilitate illegal tax evasion, money laundering and to avoid legal risk by improperly employing the corporate veil. Proponents point to the tacit support of offshore centres by the governments of the United States (who promote offshore financial centres by the continuing use of the FSC) and United Kingdom (who actively promote offshore finance in Caribbean dependent territories to help them diversify their economies and to facilitate the British Eurobond market). OPIC, a U.S. government agency, when lending into countries with underdeveloped corporate law, often requires the borrower to form an offshore vehicle to facilitate the loan financing.

What is certainly true of offshore financial centres is that recently they have attracted a great deal more attention than in the past, and international initiatives spearheaded by the OECD, the FATF and the IMF have had a significant effect on the offshore finance industry.[2] A number of smaller, less regulated jurisdictions literally went to the wall, and closed up shop. Most of the principle offshore centres that remained considerably strengthened their internal regulations relating to money laundering and other key regulated activities.
List of main offshore financial centres

See also: List of offshore financial centres

There are a large number of Offshore Financial Centres (by some measures, there are more countries that are Offshore Financial Centres than not), but the following jurisdictions could be considered to be "market leading" jurisdictions for various reasons:

* Bahamas, which has a considerable number of registered vessels. The Bahamas used to be the dominant force in the offshore financial world, but fell from favour in 1970s after independence.[11]
* Bermuda, which is market leader for captive insurance, and also has a strong presence in offshore funds and aircraft registration.
* British Virgin Islands, which has the largest number of offshore companies.[12]
* Cayman Islands, which has the largest value of AUM in offshore funds, and is also the strongest presence in the U.S. securitisation market.
* Gibraltar, which, whilst not dominating the offshore market in any particular specialisation, retains a strong presence in most fields.
* Jersey, which is a dominant player in the European securitisation market and the European REIT market.
* Luxembourg, which is believed to be the largest offshore Eurobond issuer, although no official statistics confirm this.
* Panama, which is a significant international maritime centre. Although Panama (with Bermuda) was one of the earliest offshore corporate domiciles, Panama has not been a key market player in numbers of offshore incorporations since the late 1980s and early 1990s.[13]

Although there are many, many other offshore jurisdictions, some of which are relatively sophisticated (for example, Guernsey and the Isle of Man are particularly well developed and well regulated offshore centres, although they tend to be overshadowed by Jersey; and the offshore aircraft registration market, unusually, is not dominated by one jurisdiction but is fragmented amongst Bermuda, Cayman, Aruba, Netherlands Antilles and the Seychelles), those seven jurisdictions are generally considered to be the key market participants, and to possess the most sophisticated offshore infrastructure.

See also:The Golden Triangle