An Offshore Financial Center - Essay Example

Several offshore jurisdictions offered banking licenses to institutions with relatively little scrutiny, however, this has changed dramatically as international initiatives have largely stopped this practice, and now very few banks will be issued licenses. Bahamas for example has 301 licensed banks whereas the British Virgin Islands only has 7.
            Offshore banking has countless rewards, ranging from low to no taxation, to greater privacy and anonymous accounts, as well as protection against financial instability. With that being said, I would like to emphasize what these banks also offer. Offshore banking has aided terrorists by laundering their financial resources, allowing them to fund terrorist activities that are partially impossible to detect. It also highlighted the collapse of the company Enron, where the company used offshore banks to avoid paying millions of dollars in US Tax.

Offshore financial centers have very significant reasons for their existence. These financial resources provide financial services; these financial services can be divided into three broad groups: (i) Private investments, (ii) Asset protection, and (iii) Estate planning (Higgins, 2000).

Private investments are a significant part of offshore financial centers. In private investments, investments are handled and managed to reduce potential tax liabilities. Additionally, private investments are done to increase the protection which is granted or provided under the legal confidentiality provisions.

Asset protection comes with the use of international jurisdiction. In this category, with the help of international jurisdiction, the residence of the client is separated; and asset protection helps protect the income and assets from political, legal, and fiscal risks.

Estate planning is about assets and their administration. In estate planning, most assets, all types of assets, are properly administrated with the help of legal and fiscal jurisdictions (Higgins, 2000).

With the help of financial institutions; like, international business corporations (IBCs), insurance companies, mutual funds, offshore corporations, and some of the recent gaming companies, a large and huge amount of funds are deposited in OFCs. With these available funds, different types of investments are made to generate some economic and financial contributions to the economy.

 Little work has been done to understand and determine the role and contribution of offshore banking in the creation and generation of employment and employment opportunities. It is the creation and availability of employment opportunities by the OFCs that provide the importance and significance of offshore banks as far as their role in the development of the economy is concerned. Any sector is valued and measured in the economy based on its contribution to the economy. Mostly, there are two ways in which this contribution is measured and analyzed: One, is the monetary contribution of offshore banking. This means the amount of tax paid by the offshore banks in the economy determines and measures its value for the economy. There is another contribution given and provided by the offshore banks. That is economic- creation and generation of employment opportunities.  Various examples are available that indicate and highlight that offshore banks are licensed. After getting a license, they established various branches in different parts of the world. A large amount of investment has been made to make offshore banking functional and useful. But, their physical and geographic presence is not up to a considerable level; they lack a sufficient amount of labor and other necessary staff.

The emergence of offshore banking does not have much effect on unemployment and underemployment.  As a result, the problem of unemployment and underemployment has not received any level of pressure to reduce its current level of the figure. This means that the emergence and presence of offshore banking have not helped reduce or decrease the level of unemployment and under-employment. Rather, another problem has appeared. Globally, there are no precise and relevant statistical data and information about the employment offered by offshore banking in the different economies of the world. Pretty limited employment figures are available in many different countries of the world. There is no precise and true record of wages available to properly and truly represent the existing situation of the real contribution of offshore banking for generating the number of employment opportunities. This piece of information can be validated by the example of the more recent data of employment generated by the OFCs, which provides the account as in 2000 that 100, 940, and 2500 persons were employed in Dominica, Bahamas, and Antigua and Barbuda respectively.

An offshore banking center is an additional provision of financial services. These financial services are mostly given and provided by banks and other financial institutions. Most of the time, the regulatory national and international bodies provide a functional mechanism. This functional mechanism suggests and guides their daily routine of financial and non-financial activities. More recently, there are many new situations have emerged which clearly and significantly highlight either no control or a minimum amount of surveillance placed on the offshore banking centers. Due to this minimum level of surveillance, various and numerous cases of money laundering, and funding to terrorists and terrorist organizations have appeared. In the case of money laundering, money is illegally transferred from one place to another place. In this illegal transfer of money, offshore banking centers were either used for this purpose or indirectly involved to carry out the process of money laundering. Additionally, the use of offshore banking centers cannot be underestimated. Read More