Even though the level playing field strategy has so far been successful in offsetting recent initiatives by the Organisation of Economic Cooperation and Development (OECD), this strategy has some pitfalls and could lead to offshore financial centers becoming redundant in the future, a well-known financial expert said Wednesday.
Rounding out the long list of speakers on the closing of the three-day STEP Caribbean conference, Gilbert Morris, executive director of The Landfall Centre said that although this strategy advanced by the Society of Trust and Estate Practitioners (STEP) and the International Tax and Investment Organisation (ITIO) in requesting a levelled playing field was a courageous one, this strategy assumed that the structure of the international community permitted smaller countries and jurisdictions to assert their equality on the basis of fairness and commitment to rule of law.
Examining the potential pitfalls he foresaw in the level-playing field strategy, Mr Morris said this approach could lead to a two pronged redundancy problem. He continued that in order to meet the challenges that would inevitably arise from a level-playing field a repositioning would be required of offshore financial centers.
“Whilst different countries have differing agendas and financial services models, I have not yet seen a single plan or proposal form any jurisdiction likely to be affected for the restyling or repositioning of their business platform that will meet the effects likely to be unleashed by a level-playing field strategy,” he said.
He further described the levelled playing field as doubled edged because while it provided financial centers with a means of fostering a stalemate against the OECD, he predicted that if every country in the world were to accept this levelled playing field principle consistent with OECD agenda, offshore financial centers would prove to be theoretically redundant.
“The level-playing field strategy never questions the legal or economic validity of the OECD’s programme,” Mr Morris said. “It merely states that if offshore jurisdictions must comply with it then onshore jurisdictions should comply.”
Another potential difficulty outlined by Mr Morris in the level-playing field strategy is the reality that it can do nothing to equalise the operational burdens of the United States PATRIOT Act.
“The Patriot Act has none of the problems of international law so implicit in the initiatives of the OECD/FATF/IRS/UN,” he said. “Its problems are more subtle and will show up in auxiliary practices derived from the precedent it sets”.
Delving further into the particulars of the Patriot Act, the well-noted economist said that it differs from OECD initiatives and the EU Directive in that it is not aimed externally at jurisdictions that are separate from where the initiatives emerged.
“The genius of the Patriot Act despite its obvious flaws is that it is directed at U.S. institutions,” Mr Morris said. “It disciplines and restructures the operations and models of overseas jurisdictions and institutions by creating access rules. The U.S. can do this because it is 4.7 per cent of the worlds population but consumes 47.5 per cent of the worlds production.”
Describing the rules of the Act as “organic, ominous and onerous,” Mr Morris said they increase the paper work associated with financial transactions, force institutions to over compensate in data collection and to regard every transaction as suspicious.
Referring to Section 352 of the Patriot Act, the Landfall’s executive director said this section has effectively made U.S. domestic institutions the official police agency for the world’s financial system.
Relating this development to the level-playing field strategy, Mr Morris said that because the Patriot Act is simply a law of the United States and not policy or part of a treaty in negotiations, offshore financial centers are left with no leveraged with which enact or enforce the level-playing field strategy.
Mr Morris identified four offshore financial centers: Switzerland, Singapore, Bermuda and the Cayman Islands, which he saw as poised to deal with the potential negative fall out of a level-playing field strategy.
The other jurisdictions he predicted would have a more difficult time because of their product offerings and service models. He predicted an even greater level of difficulty for jurisdictions that had mainly European citizens as clients.
He said that while he did not foresee a complete obliteration of financial services in these jurisdictions, he noted that should they survive, it would not be in a form they would have selected for themselves.
Martella Matthews, The Nassau Guardian
