The annus horribilis of 2008 brought home to offshore financial centres big and small the fact that they were as vulnerable as ever to the bully tactics that bruised economic powers tend to deploy after they have taken a knock. Hence the protestations of Obama and Brown (echoed in quick succession by Sarkozy, Merkel and others) about tax havens and the need to teach them a lesson. The anti-offshore rhetoric mounted in the lead-up to the G20 Summit in April 2009, with reform of offshore jurisdictions being promised in many quarters.

The outcome? Why, an OECD list of course, this time ranking countries according to the extent to which they had implemented the OECD’s tax information exchange standard. Those countries having at least 12 tax information exchange agreements (TIEAs) compliant with the OECD standard were considered to have `substantially implemented´ it, whilst those countries falling short of 12 but otherwise showing willing were considered to have `committed´ to it. Then there were those countries that had not demonstrated any commitment to it. In effect, the OECD had white-, grey- and black-listed the selected countries. The US, UK, France and Germany were amongst the inhabitants of the white list, alongside some surprise entrants like China, Russia and South Africa (one can only guess the backstage political wrangling it must have taken to get them there). The black list of baddies was populated by Costa Rica, Uruguay, Malaysia and the Philippines. The grey list of dawdlers, split intriguingly between what the OECD asserted were `tax havens´ and `other financial centres´, included the world’s leading offshore hedge fund domiciles, the Cayman Islands and the British Virgin Islands.

At the time of the G20 Summit, there was a real anxiety that offshore financial centres (OFCs) should be part of a global solution to a global crisis and not permitted to remain aloof, and this anxiety found expression in traditionally the easiest means of exerting pressure on OFCs: compliance in matters relating to sharing of tax information. Fair enough? Well, almost. The exercise tellingly ignored two basic truths: first, that OFCs were not central to the financial crisis; secondly, that many of the OFCs being impugned already had in place significant TIEAs and other forms of cooperation treaties. More significantly, the exercise was tangential to the central thrust of the G20 Summit, namely that financial institutions (including hedge funds) needed better regulation.

In this departure one may detect the real agenda of the OECD’s political masters. Their financial services regulators have failed. Global recession has ensued. GDP and tax revenues have fallen, and growth is either negative or weak. OFCs are perceived as boltholes in which taxable monies can be secreted by wealthy individuals and institutions. Stigmatising them as ‘tax havens’ is both an easy piece of scapegoatism and a vote-winner for economically and politically embattled governments. This response relies on some flawed premises. This article looks at four of them.

1. OFCs are objectionable because they are low- or zero- tax jurisdictions