Governing the Offshore: Non-Independent Caribbean Jurisdictions, the EU and the International

• Author: William Vlcek
• Pages: 98-118

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Governing the Offshore –

Non-Independent Caribbean

Jurisdictions,

the EU and the International

This chapter extends research on offshore financial centres (OFCs)

located in the sovereign states to their non-self-governing or semi-

sovereign neighbours in the Caribbean (Vlcek, forthcoming).1 Similar

to the sovereign state, the non-independent jurisdiction is subject to a

variety of international financial regulatory initiatives, some of which

may be mediated by the metropolitan state. Consequently, for the case

of most of the non-independent Caribbean, financial sector regulation

is a mixture of global governance initiatives to regulate and stabilise

international finance combined with multilateral initiatives specific to

the member states of the European Union (EU). These are in turn

downloaded to the non-independent Caribbean jurisdictions.

In this chapter governance is understood to be the rules, regulations,

policies and procedures, and industry-standard best practices used to

structure and organise the environment in which we conduct business

and go about our everyday lives. To attach the modifier ‘global’ to this

concept is to broaden the scope of governance by introducing

multilaterally-produced rules, regulations, and standards for conducting

business between or within multiple jurisdictions (Scholte, 2005, 140-

146). Global financial governance is intended to facilitate smooth

market operation between jurisdictions while it assures the systemic

safety of assets (in particular, foreign investment). Concerns for the

safety of foreign investment/assets often originate from the developed

world (admittedly the source of much of the foreign direct investment,

FDI) and involve fears of expropriation by state authorities as much as

they attempt to alleviate the effects of bad judgement on the part of

investors speculating in emerging markets.2 In addition to mundane

WILLIAM VLCEK

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fiduciary activities, global financial governance also has been shaped as

part of national/international efforts against organised crime, terrorism

and corporate malfeasance. Recent attempts to tackle criminality in

the financial system have created what Nikos Passas called the ‘regulatory

tsunami’, the extensive increase and diversity of international

conventions, standards and best practices to be imposed on financial

institutions (Passas, 2006, 321). Increased regulation and surveillance

in the financial system is not constrained by the form or size of the

transaction and is equally applicable to the informal methods used by

migrants to send remittances home as it is to the large capital movements

of multinational corporations (Vlcek, 2008b). A final point to keep in

mind about governance is that it is subjected to the influence of national

legal origins as much as it is guided by international standards and

recommended practices (Glaeser and Shleifer, 2002; La Porta et al.,

2004). For the case of the jurisdictions discussed below, most developed

from an English common law tradition, which influenced the methods

and techniques chosen to implement and enforce regulations.

This chapter is structured in three main sections, with the next

section providing a consideration of one example of regional governance

through an assessment of the Caribbean jurisdictions’ experience with

the EU’s Savings Tax Directive. The territories of the Caribbean

associated with a European state were forced to cooperate with the

Directive, which established a taxpayer information exchange

requirement for EU member states, their associated or dependent

territories and selected third party jurisdictions. The second section

moves to the international level and considers an OECD report

promoting the need for international governance to regulate

international business companies (IBCs). An IBC is a corporation

registered by a citizen of one state under the laws of a different

jurisdiction, very often an OFC, and used to own assets or to undertake

business in either the first jurisdiction or a third. The concluding section

provides an analysis of the challenges and opportunities confronting

the non-independent Caribbean regarding global financial governance.

Recognise that the discussion provided in this chapter will be brief

because it considers only two topics in global financial governance

involving the Caribbean. The regulatory tsunami consists of a variety

of standards and codes that are used to assess the financial sector of an

offshore jurisdiction under the International Monetary Fund’s Offshore