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Don't make international financial centres the scapegoat

Sunday 28 March 2010 - by Richard Hay

 Stikeman Elliott LLP international tax principal Richard Hay argues that so-called tax havens have been given a rough ride in the wake of the crisis despite having robust regulation in place

Globalisation has fuelled an unprecedented leap in world prosperity, doubling world GDP in a single generation. Lowered trade barriers have fostered a globally accessible market, with dramatic improvements in standards of living for both rich and poor countries.

Will plans for expanding regulation of financial services undermine the foundations for this success?

Enthusiasm for big, successful, ideas has a tendency to overshoot, just like investor sentiment for stock markets. The recent financial crisis has prompted a review of the conservative policy consensus which favoured deregulation and globalisation as the twin engines of world growth over the last 30 years.

Domestic politicians and their supranational agencies such as the G-20, International Monetary Fund and the Organisation for Economic Co-operation and Development are riding a tsunami of public opinion seeking change. Recasting the regulatory architecture for financial markets is at the top of the G20 agenda.

The world's tax havens (now termed "small international financial centres" or "SIFCs" in modern IMF parlance) have been singled out for special attention by policymakers.



Despite the prevalence of a perception amongst politicians and the general public that low regulatory standards in SIFCs contributed to the recent financial chaos, the consensus view of technically informed observers (such as the IMF and the Financial Action Task Force) is that the best of such centres (including, for example, Singapore, Hong Kong and many of the British Crown Dependencies and Overseas Territories) have regulation at the leading edge of international standards. If this is true, why are SIFCs so consistently maligned in the mainstream media?

Lazy stereotypes on SIFCs persist. Such stereotypes do not reflect the now pervasive culture in the world's leading financial centres for rejection of tax evading clients who bring trouble in their wake.

Professional probity and high standards of rigorously enforced regulation are the norm in the leading SIFCs following ten years of hegemony for "global" regulatory standards proposed by supranational agencies including the FATF, the OECD and the IMF.


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