According to the Glossary of Terms Part III of the Guide to the International Banking Statistics, Bank for International Settlements, Basel, Switzerland, 2000: “Offshore banking centers is an expression used to describe countries with banking sectors dealing primarily with non-residents and/or in foreign currency on a scale out of proportion to the size of the host economy.”
There are also some useful definitions of the offshore banking centers in the International Monetary Fund “Background Paper on Offshore Financial Centers” prepared by the Monetary and Exchange Affairs Department, June 23, 2000. Actually there are several definitions in this specialized paper.
In largo sensu an offshore banking center is a financial center where offshore activities take place i.e. the provision of financial services by banks to non-residents.
In stricto sensu an offshore banking center is a center where the financial activities are “offshore on both sides of the balance sheet, (that is the counterparties of the majority of financial institutions liabilities and assets are non-residents), where the transactions are initiated elsewhere, and where the majority of the institutions involved are controlled by non-residents.”
The last definition would include first of all offshore banking centers which provide the following basic services namely low or even zero taxation, flexible and light financial regulations and bank secrecy and a high level of confidentiality. Also here we can place the jurisdictions that have relatively large numbers of banks engaged primarily in business with non-residents. However offshore banking is not limited to above mentioned examples.
According to the definition of the Financial Stability Forum contained in the “Report of the Working Group on Offshore Financial Centres”, 5 April 2000, offshore banking centers or more generically called offshore financial centers can be perceived as “jurisdictions that attract a high level of non-resident activity.” It is important to draw attention to the fact that traditionally, the term has implied some or all of the following elements (but of course not all offshore financial centers operate in such a way):”low or no taxes on business or investment income; no withholding taxes; light and flexible supervisory regimes; flexible use of trusts and other special corporate vehicles; no need for financial institutions and/or corporate structures to have physical presence; an inappropriately of high level of confidentiality based on impenetrable secrecy law; unavailability of similar incentives to residents.”
Overall such centers target mainly non-resident clients and thus the volume of non-resident business drastically exceeds that of the resident business.
Comments on this entry are closed.