In defence of offshore

Responding to a piece on FT.com Prof Boise and Prof Morris experts in the field dispel some myths regarding offshore financial centres and defend Cayman’s position. Harbours of resentment makes three important errors they write and CNS has reproduced the letter below.

First, you repeat the OECD’s silly claim that the current financial crisis has “brutally exposed the risks inherent in small countries with large financial sectors.” As anyone who has read the FT’s coverage of the financial crisis would know, its roots lie not in Grand Cayman or the Isle of Man but in New York and London.

 If there has been any “brutal exposure” it is of the inadequacies of the U.S. and E.U. oversight of their financial systems.  Second, your piece suggests that Cayman and others “thrived” because the second half of the twentieth century was “free-wheeling.” Nonsense. Cayman and the other top OFCs all have more rigorous anti-money laundering regulatory regimes than the U.S. or any member of the E.U.  Our research into offshore financial centers has consistently shown that OFCs have better legal tools and tougher standards than do most onshore jurisdictions.

Third, while institutions in OFCs may well have $6,000bn on their books that money is not sitting in safe deposit boxes in Grand Cayman or Jersey. It is invested in assets located virtually everywhere else. Indeed, it is the U.S. and E.U. that benefit most from foreign direct investment channelled through OFCs.  Blocking these capital inflows in the midst of a liquidity crisis would be folly.

We have together taken dozens of U.S. law students to study the Caymanian legal system, interviewed professionals throughout the offshore world, and conducted research into the history and current status of several of the largest OFCs.

Our teaching and research have shown us both the importance of OFCs to the functioning of onshore economies and the high standards prevalent among the more reputable OFCs. Attacking the offshore sector may be politically popular in Paris, London, and Washington, but it has nothing to do with resolving the global financial crisis.

Craig Boise is Associate Professor of Law at Case Western Reserve University Cleveland, OH and Andrew P. Morriss H. Ross & Helen Workman Professor of Law and Business Professor, Institute for Government and Public Affairs University of Illinois Champaign, IL 61820