An International Finance Centres expert has called on offshore jurisdictions like the Isle of Man to work harder to promote the positive contribution they make to the global economy.
International Finance Centres Forum Consultant Naomi Lawton warned much more work is needed to counter the attacks from G8 governments, as well as from Non-Governmental Organisations who blame offshore IFCs for the poverty of developing nations.
Naomi was speaking at the 2014 Spring Seminar of Appleby Isle of Man, held at the Manx Museum in front of an audience of over 80 invited public and private sector guests. She said there are substantive and compelling arguments to demonstrate that offshore IFCs significantly benefit economies around the world. Jurisdictions should therefore work together to proactively promote that positive message.
She said there is a popular misconception that offshore IFCs are somehow malign. “Onshore” politicians have used IFCs as an “ideal scapegoat” and a channel for public mistrust of the financial services industry caused by the banking collapse.
This attitude has been adopted by the media, as well as by politically well-connected and well-funded NGOs conducting charitable work in developing nations. These NGOs, Naomi said, have made ‘ridiculous and unsubstantiated claims’ about the negative impact of offshore IFCs, but are listened to because of the emotive subject matter and the lack of visibility of arguments to the contrary.
Naomi said the empirical evidence clearly demonstrates that far from preventing investment in developing nations, offshore IFCs promote such investment. They allow assets to be pooled in politically stable and well-regulated jurisdictions and then invested onwards. Investors, she said, are otherwise unwilling to invest directly into emerging economies because of the instability and the lack of regulation.
Additionally, the research of Professor James Hines of the University of Michigan shows foreign investment in offshore jurisdictions impacts positively on neighbouring nations, increasing trade, assisting GDP growth and creating onshore jobs.
Her presentation also tackled the perception of offshore jurisdictions lacking transparency and sufficient regulation. She pointed to a study by Michael Findley, Daniel Nielson and Jason Sharman which tested the observation of transparency regulations in 182 countries by asking more than 3,700 CSPs to create shell companies.
Contrary to the popular perception, offshore IFCs demonstrated a much better compliance rate than other nations, such as the US. In fact, the Isle of Man recorded a 95% compliance rate, while in the US, of the 1,722 entities tested, just 10 required notarised documentation as required under FATF regulations.
Naomi said: ‘The political theme of the day is that transparency is missing, we know this from reading the press. In fact IFCs are market leaders in transparency and are significantly ahead the rest of the world.
‘The perception there is a lack of transparency could not be more flawed. It is three times harder to evade compliance in offshore jurisdictions.’
She called on the audience to do more to proactively promote the positive messages, and for jurisdictions to put aside rivalries to unite in the face of a common enemy.
Naomi said: ‘The positive contributions of IFCs are complex and not entirely understood. If a myth is to be debunked, positive action is required.
‘We need to rebut the allegations that IFCs, including the Isle of Man, are somehow bad for the world economy.
‘Developing economies need investment, but investors tend to be unwilling to invest into politically unstable countries where there is little regulation and no comprehensive legal system. IFCs provide a conduit for that much-needed investment to be accessed through a jurisdiction with a stable government and well-regulated industry. We need to promote that IFCs feature sophisticated legal systems and very high calibre personnel. This gives significant comfort to investors, actually promoting investment in developing economies rather than preventing it.’
Naomi said the IFC Forum is working to address the misconceptions and highlight the potential damage to the world economy some regulation under consideration, such as the imposition of public registers of beneficial ownership, could have. However, she said it is ‘astounding’ that no one else is making the case.
She added that the fear of engaging with the media, the NGOs and critical jurisdictions must be shaken off, and offshore IFCS, at both private and public sector levels, should proactively engage in promoting the positive and substantive case for IFCs and counter the ignorance and popular misconceptions which are otherwise unchallenged.
She added: ‘All stakeholders need to stand up and promote the IFCs. To a large extent this is a PR battle. We need to get out there, man up, and make our case.’
John Shimmin, Minister for the Isle of Man Department of Economic Development, also outlined Vision 2020, the Government’s plan for continuing to diversify and grow the economy. He explained how the Island must cope with shifting patterns in how it earns and spends its money and focus more energy on areas which will promote employment, income and economic stability. Vision 2020 is divided into eight focus areas, and Mr Shimmin said it is a living project which requires hard work by both government and the private sector to deliver, for example in the provision of training and education to supply the employment needs of the future.
Although there is much work to do, Mr Shimmin said he is optimistic about the Island’s financial future.
Sean Dowling, Managing Partner of Appleby (Isle of Man) LLC, said the fourth Appleby Spring Seminar had raised some very important issues.
He added: ‘I’m grateful to the Minister and Naomi for their time and for giving us such fascinating presentations. It is clear the threat of popular misconceptions about offshore IFCs cannot simply be ignored and we must work together, as stakeholders in the Isle of Man as well as across jurisdictions to challenge the myths and correct the ignorance.
‘It is heartening to hear the Minister is positive about the Island’s prospects, but again it is vital for everyone with an interest in the future prosperity of the Isle of Man to work together and in partnership with the Government to achieve these ambitions.
‘I’d like to once again thank our speakers, as well as our guests for attending.’