Secrecy Jurisdictions

Organization for Economic Co-operation and Development: The OECD brings together the governments of countries committed to democracy and the market economy from around the world. Established in 1961 it has developed a particular role with regard to tax related issues where it has established most of the rules with regard to information exchange now in use, the most commonly used models for double tax agreements and Tax Information Exchange Agreements and has played a significant role in the attack on tax havens / secrecy jurisdictions. It has, however, been criticised for being a ‘rich country club’ and for being too lenient on its own members.

The Forum is part of the work of the OECD’s Centre for Tax Policy and Administration, but with particular emphasis on negotiation, application and interpretation of tax treaties, transfer pricing and effective exchange of information between tax administrations.

Off balance sheet usually refers to an asset and its associated debt or financing activity which have been excluded from inclusion in the balance sheet of a company. Leasing arrangements are amongst the most common off balance sheet arrangements, although accounting standards are meant to have tackled this issue in theory if not in practice. Other arrangements can include whole subsidiaries excluded from consolidation because they are ‘orphan entities’ or contingent liabilities such as letters of credit, derivatives, futures, swaps and other complex financial instruments.

There is no agreed definition of offshore. It can only be described. The term has often been used to describe any jurisdiction (regardless of whether they are islands) which provides tax and regulatory privileges or advantages, generally to companies, trusts and bank account holders on condition that they do not conduct active business affairs within that jurisdiction.In its 2008 report ‘Creating Turmoil’ the Tax Justice Network tackled this issue. It suggested that offshore does not describe geography. It most certainly does not refer to island locations. The term ‘offshore’ refers to the location of the customers of an offshore financial centre i.e. those people the tax haven / secrecy jurisdiction intended should make use of the structures they permit under their law. What characterises these customers is that they are not in the tax haven where the OFC is located. They are ‘elsewhere’ i.e. they are located in another jurisdiction. This concept was first recognised in London, and as far as the UK was concerned that ‘elsewhere’ was always ‘offshore’. The term stuck, even when the geography to which it originally related had little or no meaning.What this amounts to is the following: an offshore transaction is recorded in one place (a secrecy jurisdiction) on behalf of parties who are actually elsewhere. Those transactions might have the legal form of taking place in the tax haven in which they are recorded. The reality is that their substance, and benefit, occurs elsewhere. The term ‘offshore’ does, as a result, describe a disconnect between the place where a transaction is recorded and the place where its economic substance occurs. It is for this reason that the world’s secrecy jurisdictions were able to say that the economic crisis that developed from 2007 onwards was not of their creation. By definition that had to be true. Nothing recorded in an OFC actually takes place there. In consequence those secrecy jurisdictions that host OFCs can fairly claim they are not responsible for what is recorded in the OFC for it always takes place elsewhere.

The supply of banking services from an offshore financial centre located in a secrecy jurisdiction to customers who are not located in the jurisdiction.

Although most tax havens are Offshore Finance Centres (OFCs) the terms are not synonymous. Tax havens are defined by their offering low or minimal rates of tax to non-residents but may or may not host a range of financial services providers. An OFC actually hosts a functional financial services centre, including branches or subsidiaries of major international banks. States and microstates that host tax havens and OFCs generally dislike both terms, preferring to use the term International Finance Centres.See also ‘secrecy providers’.

(OFC-AP): The offshore financial centre (OFC) program was launched by the IMF in July 2000 to address potential vulnerabilities in financial systems by identifying gaps in supervision and improving the coverage of statistics on the activities of OFCs in financial markets. The assessment component of the program focuses on jurisdictions with significant financial activity and few previous assessments of standards, subject to the agreement of the jurisdiction, while the statistical component has concentrated on extending the coverage of the Coordinated Portfolio Investment Survey (CPIS).44 jurisdictions were assessed in the first round of the program. Reports for most were published. The second round of reviews is now in progress.The weakness of the program is that it focuses on systems, not their application. As such a jurisdiction scores well in the program for having the right legislation in place. The actual application of that legislation has to date not been subject to review. As a consequence it is not clear what contribution the program has really made in achieving its objectives, although vast amounts of legislation have been produced.

Offshore Group of Banking Supervisors: The OGBS says its aims are:· to allow members to identify and discuss issues of mutual interest, establish an identity of purpose and share knowledge and experiences;· to participate with relevant international organisations in setting and promoting the implementation of international standards for cross-border banking supervision, and for combating money laundering/terrorist financing;· to encourage members to apply high standards of supervision based on internationally accepted principles;· to promote a general raising of standards among member jurisdictions through a peer group approach and mutual independent evaluation;· to agree and promote a positive, constructive and coordinated response to the approaches made by other supervisory authorities for assistance in the effective consolidated supervision of international banks;· to promote the adoption of a Statement of Best Practice for trust and company service providers.To be a member a jurisdiction must have:· A clear commitment is made to the Basel Committee on Banking Supervision’s Core Principles;· A clear commitment is made to the 40 Recommendations of the Financial Action Task Force on money laundering, and the 9 Special Recommendations of the Task Force on terrorist financing; · The necessary legislation and administration to put these commitments into effect is in place or in early prospect;· There is evidence of either a satisfactory track record of translating the commitments into effect or a detailed plan for doing so within a reasonable time frame;· The commitments are entered into with the knowledge and support of the relevant political authority.In 2009 the members are Aruba, Bahamas, Barbados, Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Jersey, Labuan, Macau, Mauritius, Netherlands Antilles, Panama, Samoa and Vanuatu whilst Antigua-Barbuda and the Cook Islands have observer status.

Offshore Group of Insurance Supervisors: This organisation consists of insurance regulators and supervisors from offshore jurisdictions. The formal objects of the organisation are to provide mechanisms and forums whereby insurance supervisors from jurisdictions concerned with offshore insurance business may discuss areas of mutual interest and concern and formulate appropriate policies; to provide assistance and encouragement to appropriate non member jurisdictions to establish regimes for the supervision of offshore insurance business at least to standards equivalent to those of the Group; to represent the interests of the Group at international forums and to promote the proper supervision of offshore insurance business

Companies that are created by a parent organisation that are deliberately structured by that parent entity so that they are off balance sheet so that the assets or liabilities that they own are excluded from inclusion in its own balance sheet. A common way to engineer this is to create a company to which the off balance sheet assets and liabilities are transferred which is owned by a charitable trust and which is therefore neither under the ownership nor control of the parent entity. This is why it is described as an orphan; it has become parentless whilst being dependent.