Money Laundering, Terrorist Financing, and Tax Evasion : The Consequences of International Policy Initiatives on Financial Centres in the Caribbean Region

This book explains the consequences of global policy initiatives against money laundering, terrorist financing, and tax evasion on financial centres located in offshore jurisdictions in the Caribbean region. Adding to the existing literature by detailing international policy initiatives against money laundering and tax evasion from the early 1920s to date, this book examines the factors that have contributed to their gradual development over time, their role in contributing to money laundering, terrorist financing, and tax evasion, the international policy initiatives that came about to address these financial crimes, as well as the consequences of these policy initiatives on the legislative systems, institutions, offshore business sectors, and economies of these financial centres. Aretha Campbell has worked in the offshore financial services industry for the past 16 years and is a recent PhD graduate from the University of Salamanca, Spain in the area of Rule of Law and Global Governance. Her research interests center on financial global governance, transnational policy organizations, money laundering, terrorist financing, tax evasion, and offshore financial centres (OFCs) with a specific focus on the Caribbean region. She aims to find ways to mitigate the risks associated with money laundering, terrorist financing, and tax evasion in the Caribbean region, and to identify alternative means to further develop the offshore financial services industry with a view to strengthening their local economies. She is an adjunct course coordinator at the University of the West Indies Open Campus and an affiliated postdoctoral researcher at the University of Antwerp. Foreword Preface Acknowledgements Contents Abbreviations List of Tables 1 Introduction References 2 Offshore Financial Centres in the Caribbean 2.1 Part I: Introduction 2.2 The Bahamas 2.2.1 Background Information 2.2.2 Government Structure and Legal System 2.2.3 Domestic Economy 2.3 The Offshore Financial Sector in The Bahamas 2.3.1 Market Structure 2.3.2 Banking and Fiduciary Sector 2.3.3 Corporate Sector 2.3.4 Securities and Investments Sector 2.3.5 Insurance Sector 2.3.6 Stock Market 2.4 The AML/CFT Framework Prior to 2000 in The Bahamas 2.4.1 Transparency: Legal Systems and Institutional Measures 2.4.2 Preventive Measures 2.4.3 National and International Cooperation 2.5 The Legislative Regime to Counter Tax Evasion Prior to 2000 in The Bahamas 2.5.1 Transparency: Legal System and Institutional Measures 2.5.2 National and International Cooperation 2.6 The Cayman Islands 2.6.1 Background Information 2.6.2 Government Structure and Legal System 2.6.3 Domestic Economy 2.7 The Offshore Financial Sector in the Cayman Islands 2.7.1 Market Structure 2.7.2 Banking and Fiduciary Sector 2.7.3 Corporate Sector 2.7.4 Securities and Investments Sector 2.7.5 Insurance Sector 2.7.6 Stock Market 2.8 The AML/CFT Framework Prior to 2000 in the Cayman Islands 2.8.1 Transparency: Legal System and Institutional Measures 2.8.2 Preventive Measures 2.8.3 National and International Cooperation 2.9 The Legislative Framework to Counter Tax Evasion Prior to 2000 in the Cayman Islands 2.9.1 Transparency: Legal System and International Measures 2.9.2 National and International Cooperation 2.10 Conclusion 2.11 Part II: Introduction 2.12 Bermuda 2.12.1 Background Information 2.12.2 Government Structure and Legal System 2.12.3 Domestic Economy 2.13 The Offshore Financial Sector in Bermuda 2.13.1 Market Structure 2.13.2 Banking and Fiduciary Sector 2.13.3 Corporate Sector 2.13.4 Securities and Investments Sector 2.13.5 Insurance Sector 2.13.6 Stock Exchange 2.14 The AML/CFT Framework Prior to 2000 in Bermuda 2.14.1 Transparency: Legal System and Institutional Measures 2.14.2 Preventive Measures 2.14.3 National and International Cooperation 2.15 The Legislative Framework to Counter Tax Evasion Prior to 2000 in Bermuda 2.15.1 Transparency: Legal System and Institutional Measures 2.15.2 National and International Cooperation 2.16 The British Virgin Island 2.16.1 Background Information 2.16.2 Government Structure and Legal System 2.16.3 Domestic Economy 2.17 The Offshore Financial Sector in the BVI 2.17.1 Market Structure 2.18 Banking and Fiduciary Sector 2.18.1 Corporate Sector 2.18.2 Securities and Investments Sector 2.18.3 Insurance Sector 2.18.4 Stock Exchange 2.19 The AML/CFT Framework Prior to 2000 in the BVI 2.19.1 Transparency: Legal System and Institutional Measures 2.19.2 Preventive Measures 2.19.3 National and International Cooperation 2.20 The Legislative Framework to Counter Tax Evasion Prior to 2000 in the BVI 2.20.1 Transparency: Legal System and Institutional Measures 2.20.2 National and International Cooperation 2.21 Conclusion References 3 The Problems and Dimensions of Money Laundering and Terrorist Financing 3.1 Introduction 3.2 The Drug Epidemic 3.2.1 US Perspective 3.2.2 Europe Perspective 3.3 Money Laundering 3.3.1 Challenges of Money Laundering 3.4 Terrorist Financing 3.4.1 Challenges of Terrorist Financing 3.5 Effects of Globalization on Money Laundering and Terrorist Financing 3.5.1 The Banking System 3.5.2 Money Transfer Business and Alternative Remittance 3.5.3 The International Trade System 3.5.4 Third-Party Business Structures, Charities and Other Legal Entities 3.5.5 Retail Payment Systems and the ATM Network 3.5.5.1 Financial Products 3.5.5.2 Moveable Goods 3.5.5.3 Real Estate 3.5.6 Jurisdictional/Environmental Aspects 3.5.6.1 Variable Standards and Controls 3.5.6.2 Cash-Intensive Economies 3.5.6.3 Major Financial Centres, Tax Havens and Offshore Banking Centres 3.5.6.4 High-Risk and Conflict Zones 3.5.6.5 Jurisdiction with High Rates of Corruption 3.6 Incentives 3.6.1 The Drug Epidemic 3.6.2 Organized Transnational Crime Groups 3.6.2.1 Physical Harm 3.6.2.2 Social Harm 3.6.2.3 Environmental Harm 3.6.2.4 Economic Harm 3.6.2.5 Structural Harm 3.7 Responsibility 3.7.1 Financial Action Task Force 3.7.1.1 Setting Standards 3.7.1.2 Assessing the Progress of the Implementation of Its Standards 3.7.1.3 Monitoring High-Risk Non-cooperative Jurisdictions 3.7.1.4 Sector Studies 3.7.1.5 High-Risk Jurisdictions 3.7.2 Basel Committee on Banking Supervision 3.8 Conclusion References 4 The Problems and Dimensions of Tax Evasion 4.1 Introduction 4.2 Tax Evasion 4.3 Factors that Facilitate Tax Evasion 4.3.1 Factors that Negatively Impacts the Tax Payers’ Willingness to Pay Taxes 4.3.2 Difficulties Faced by Tax Administrators and the Courts to Enforce Tax Payments 4.4 Challenges of Tax Evasion 4.4.1 Globalization and Its Effects 4.4.2 Tax Havens 4.5 Incentives 4.5.1 Tax Evasion by Organized Criminals, Wealthy Individuals and Transnational Companies 4.5.2 Aggressive Tax Avoidance Schemes 4.5.3 Tax Competition Among States 4.5.4 Pressure by Lobbyist 4.5.5 The Existence of Offshore Financial Centres 4.6 Responsibility 4.6.1 The OECD 4.6.2 The Global Forum on Exchange of Information for Tax Purposes (the Global Forum) 4.7 Conclusion References 5 The International Solution to Money Laundering and Terrorist Financing 5.1 Introduction 5.2 The FATF’s Recommendations 5.2.1 Compel National Action to Increase Transparency 5.2.2 Backstop/Reinforce National Governance to Prevent Money Laundering and Terrorist Financing 5.2.3 Strengthen National Institutions to Increase International Cooperation 5.3 Conclusion References 6 International Solutions to Tax Evasion 6.1 Introduction 6.2 Exchange of Information on Request (EOIR) 6.2.1 Compel National Action to Increase Transparency 6.2.2 Backstop/Reinforce National Governance to Prevent Tax Evasion 6.2.3 Strengthen National Institutions to Increase International Cooperation 6.3 Common Reporting Standard (CRS) 6.3.1 Compel National Action to Increase Transparency 6.3.2 Backstop/Reinforce National Governance to Prevent Tax Evasion 6.3.3 Strengthen National Institutions to Increase International Cooperation 6.4 Policy Initiatives Instituted by the US and EU 6.4.1 US Foreign Account Tax Compliance Act (FATCA) 6.4.2 European Union Code of Conduct Group 6.5 Conclusion References 7 The Impact of International Policy Initiatives Against Money Laundering and Terrorist Financing on the Legislative Systems and Institutions of Offshore Financial Centres in the Caribbean 7.1 Introduction 7.2 International Policy Initiative 7.2.1 Forty Recommendations 7.3 The Bahamas 7.3.1 Transparency 7.3.2 Preventative measures 7.3.3 National and International Cooperation 7.4 The Cayman Islands 7.4.1 Transparency 7.4.2 Preventative measures 7.4.3 National and International Cooperation 7.5 Bermuda 7.5.1 Transparency 7.5.2 Preventative measures 7.5.3 National and International Cooperation 7.6 The BVI 7.6.1 Transparency 7.6.2 Preventative measures 7.6.3 National and International Cooperation 7.7 Comparative Analysis 7.7.1 Transparency 7.7.2 Preventative measures 7.7.3 National and International Cooperation 7.8 Comparative Analysis by Period 7.9 Conclusion References 8 The Impact of International Policy Initiatives Against Tax Evasion on the Legislative Systems and Institutions of Offshore Financial Centers in the Caribbean 8.1 Introduction 8.2 International Policy Initiatives 8.2.1 Exchange of Information on Request 8.2.2 Foreign Account Tax Compliance Act 8.2.3 Common Reporting Standard 8.2.4 EU Code of Conduct on Business Taxation 8.3 The Bahamas 8.3.1 Transparency 8.3.2 Preventative Measures 8.3.3 National and International Cooperation 8.4 The Cayman Islands 8.4.1 Transparency 8.4.2 Preventative Measures 8.4.3 National and International Cooperation 8.5 Bermuda 8.5.1 Transparency 8.5.2 Preventative Measures 8.5.3 National and International Cooperation 8.6 The BVI 8.6.1 Transparency 8.6.2 Preventative Measures 8.6.3 National and International Cooperation 8.7 Comparative Analysis 8.7.1 Tax Evasion 8.7.2 Transparency 8.7.3 Preventative Measures 8.7.4 National and International Cooperation 8.8 Comparative Analysis by Period 8.9 Conclusion References 9 The Consequences of Global Policy Initiatives Against Money Laundering, Terrorist Financing and Tax Evasion on Financial Centres in the Caribbean Region 9.1 Introduction 9.2 “Offshore” and the International Financial Ecosystem 9.3 The Impact of International Policy Initiatives 9.3.1 Banking and Fiduciary Services 9.3.1.1 The Bahamas 9.3.1.2 The Cayman Islands 9.3.1.3 Bermuda 9.3.1.4 The BVI 9.3.1.5 Region 9.3.2 Corporate Service Providers 9.3.2.1 The Bahamas 9.3.2.2 The Cayman Islands 9.3.2.3 Bermuda 9.3.2.4 The BVI 9.3.2.5 Region 9.3.3 Securities and Investment Services 9.3.3.1 The Bahamas 9.3.3.2 The Cayman Islands 9.3.3.3 Bermuda 9.3.3.4 The BVI 9.3.3.5 Region 9.3.4 Insurance Services 9.3.4.1 The Bahamas 9.3.4.2 The Cayman Islands 9.3.4.3 Bermuda 9.3.4.4 The BVI 9.3.4.5 Region 9.4 Impact of the Offshore Financial Sector on the Local Economies in the Caribbean Region 9.4.1 The Bahamas 9.4.2 The Cayman Islands 9.4.3 Bermuda 9.4.4 The BVI 9.4.5 Region 9.5 Comparative Analysis 9.5.1 The BVI 9.5.2 The Bahamas 9.5.3 The Cayman Islands 9.5.4 Bermuda 9.6 Summative Analysis 9.7 Conclusion References Index "520 This book explains the consequences of global policy initiatives against money laundering, terrorist financing, and tax evasion on financial centres located in offshore jurisdictions in the Caribbean region. Adding to the existing literature by detailing international policy initiatives against money laundering and tax evasion from the early 1920s to date, this book examines the factors that have contributed to their gradual development over time, their role in contributing to money laundering, terrorist financing, and tax evasion, the international policy initiatives that came about to address these financial crimes, as well as the consequences of these policy initiatives on the legislative systems, institutions, offshore business sectors, and economies of these financial centres"--Publisher's description