MODULE 7 – Offshore Centers
The history, evolution and functions of offshore financial centers (OFCs) will be discussed in this
In the process, we will discuss the significance of the cultural and demographic impact on
establishing offshore centers in different geographic areas and regions.
We will touch upon the
regulation of offshore centers by domestic and international authorities.
You will be introduced to the
process of managing risks when operating OFCs.
And finally, you will be introduced to several OFCs
around the globe.
Upon successful completion of this module, the student should be able to:
• Articulate the operation of OFCs.
• Examine the cultural and societal influences in the establishment of OFCs.
• List the components of the risk management process in establishing and operating
• Examine the role of the regulators of OFCs.
• Summarize the operations of some OFCs.
n the world of private banking, it is imperative that we mention the operations of financial
centers whose operational design is strictly for the purpose of secrecy and confidentiality.
provide services to entities that wish to eliminate any form of transparency from their financial
and economic activities.
OFCs are usually located in a foreign land, either surrounded by water
or landlocked, and the main objective of these centers is to hide financial information from
regulators, and the court system.
This financial information could be lawful or unlawful.
further information, please see Footnote #1
The role of OFCs is to be the custodian of funds legally or illegally deposited into their care.
Therefore, the more regulatory agencies know about an OFC’s activity, the quicker any risky
transactions can be detected, which can help international monetary cooperation to be free of any
illegal financial influences.
Also, obtaining information concerning OFCs’ financial dealings
can assist regulatory agencies in cooperatively improving the scrutiny, inspection and
examination of OFCs’ financial transactions.
OFCs are also used by developing nations with
debt obligations, capital flight and currency fluctuations in order to reduce or conceal financial
The operation of OFCs can negatively impact the international capital market if
the secrecy and confidentiality veil financial information from capital market operatives.
further information, please see Footnote #2
The function of an OFC is to provide financial privacy, limited regulation, a tax haven,
unrestricted access to accounts, and protection from any changes in the political system.
Historically, the first financial center to be considered “offshore” was located in the Channel
Islands, which were a distance from Great Britain’s shores.
A large percentage of OFCs are
located in relatively small nations surrounded by water, although the most important OFCs are in
landlocked countries such as Switzerland.
Even though many OFCs’ financial activities are legal