Is the offshore financial industry a fraud?

Legal Floris LLC

Offshore financial centers are sometimes referred to as tax havens. This description may apply to some jurisdictions but is not always correct. As a variant to Foreign Direct Investment, several countries open their corporate registry for international entrepreneurs who may or may not conduct business activities locally. Those very businesses who use the administrative infrastructure of the jurisdiction just to incorporate and maintain local substance and presence may qualify for an appealing tax exempt status. Even though such fiscal status is bound by distinct rules, criticasters often designate these jurisdictions as impermissible tax havens.

Globalization and advances in (financial) technology have furthered the use of offshore financial centers as a conduit in global value chains. Especially where end-products contain components manufactured in different parts of the world. The growth of the virtual environment and location independent work furthered this idea. Yet, a common complaint is the lack of transparency in combination with bank secrecy results in a toxic cocktail for deliberate misconduct and to hide criminal activities.

Like any jurisdiction, both lawful and honest corporate behavior is overshadowed by abusive and illegal misconduct. In most offshore jurisdictions, local company law that is furthered by the administrative and corporate organization of the corporate registry allow for advanced privacy of directors, shareholders and beneficiaries of a company. This is advantageous for people who wish to shield their ownership but can also be misused by people with sly thoughts.

The assumption that the offshore financial industry is a fraud is incorrect. Yet, the corporate framework in many jurisdictions that are considered offshore attract alongside honest and legitimate business people also obscure foreign market players. It is the latter group that draws negative attention to the industry and contribute to a specific image. This image is further by public misunderstanding about unfair tax practices and inequality. Yet, most business incorporated in offshore financial centers provide traditional and reliable services to the global community.

Fraud is a deliberate and wrongful act for financial or personal gain of the wrongdoer. The offshore financial industry has a strong focus towards non-resident and internationally operating business professionals. In most countries offshore companies are treated as any foreign company. This means that extra attention is given to corporate ownership and activities, whilst supporting evidence must often be provided for specific transactions.

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