Offshore

Offshore Centres Look Back, Forward In Uncertain Times

Tom Burroughes, Group Editor, London, 4 October 2021

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We talk to industry figures in various IFCs in Europe to ask how international pressures and the global pandemic have shaped business and strategy.

Since the pandemic broke out at the start of 2020, it has upended how financial services operate, hastening the use of digital technology to cope with cancelled flights and enforced remote working. And one select group involved in all this turmoil is the world’s club of international financial centres.

Islands and mini-states have been havens of stability, often enjoying high vaccination rates that have won plaudits from the locals. (The UAE and Malta, to give two cases, both achieved high rates.) On the flipside, the charms of an island or Alpine village can fade if one cannot leave it for months to see family, friends and important business contacts. HNW individuals who planned on using an offshore hub as a place to stay for a few weeks in the sun must hunker down for a whole year or more. 

As the crisis dragged on, many IFCs kept heads below the parapet, although from time to time news broke of how well, or not, they were ranked for business, clean money laundering records, and the like. In its annual report on global wealth, Boston Consultant Group said that in 2020, rankings of “leading cross-border” centres were, in descending order of size of money: Switzerland, Hong Kong, Singapore, the US, the Channel Islands and Isle of Man, the United Arab Emirates, the UK mainland, Luxembourg, Monaco, and Liechtenstein. In 2025, BCG predicts the following ranking: Hong Kong, Switzerland, Singapore, the US, the UAE, the Channel Islands and Isle of Man, the UK mainland, Luxembourg, Monaco, and Liechtenstein. As of 2020, Switzerland had $2.4 trillion of wealth.

Pandemic or no pandemic, pressures on IFCs to behave hasn’t gone away, although it should be noted that worries about intra-government data exchange haven’t faded either, given issues such as cybersecurity attacks on government revenue departments. The tax and regulatory climate for offshore centres isn't getting easier. An overwhelming majority (97 per cent) of private wealth professionals think that governments are stepping up efforts to tax offshore wealth and plug the economic hole caused by the global pandemic. According to research by Intertrust Group published in April, more than half (56 per cent) think that this is an “extremely likely" scenario. And yesterday, the International Consortium of Investigative Journalists published another large trove of data leaks affecting multiple offshore locations. 

Furthermore, the impact of the pandemic has coincided with Brexit, and further afield, from G20 calls for a minimum global corporation tax rate of 15 per cent. Jurisdictions such as Jersey, Guernsey and the Isle of Man have had to figure out the often uncertain task of how to exploit the situation without falling foul of bigger neighbours. In another twist, Mainland China’s crackdown on Hong Kong, the former UK colony, has prompted wealthy Hong Kongers to relocate their assets and families. Places such as Switzerland, the UK and Dubai, among others, stand to benefit.

As far as this news organisation can tell, a number of IFCs appear to be setting the pace, judging by how they have managed to keep off “blacklists” or “greylists” of jurisdictions deemed to be slow, poor or both in complying with tax information exchange, AML controls and other behaviours. 

Some jurisdictions appear to have come out of the pandemic in good shape, showing good governance and responsiveness, Andrew Morriss, professor, Bush School of Government & Public Service and School of Law, Texas A&M University, told this publication. General competence is very important and valued by the industry. “These places are like `hotels for money’,” Morriss said, noting that when one stays in a smart hotel, staff pay attention to small details, which makes guests confident that the bigger details will also be handled well.

One IFC that appears to have quite a “halo” is Jersey, the Crown Dependency. It isn’t on the FATF list of countries deemed as having AML deficiencies; it is no longer on the “Primary Concern” list of the US State Department. There aren’t any sanctions against it. Jersey isn’t on the EU’s list of non-cooperative jurisdictions for tax purposes.

Other places have not done so well. Malta, for example, has been put on the FATF “greylist” for AML purposes, a fact that this EU member state and ex-British colony must address quickly. Cyprus, to give another case, has mothballed its “golden visa” regime.

Some – but not all – IFCs’ promoters appear to want to go on roadshows, such as the case with Malta and the Isle of Man, along with Jersey and Luxembourg. In the case of Switzerland, the nation does not have a sort of promotional "finance Switzerland," although policymakers in Berne have been talking to their peers in London, for example, to bolster financial links. 

The state of play
This news service spoke to a number of groups to take the temperature.

“Travel restrictions have had a positive impact on movement to the Isle of Man,” Janine Cubbon, head of Private Wealth, Suntera, at its Isle of Man office, said. “It’s refocused decision-making to be more about ‘where do I want to be based if travel is restricted?’”

“The Isle of Man has seen increased global recognition as somewhere people want to live as a result. Lifestyle, security, quality health and education, a strong economy, a strong sense of social responsibility and supportive local infrastructure all play their part. The rollout of a swift vaccination programme to ensure the island’s borders can open and accommodate freedom of travel for the masses has also been key,” Cubbon said. 

Paul Hunter, group head of family office services, Crestbridge, was asked how the IFC value proposition holds up in today’s world. 

“Generally, clients actively seek stability and certainty, and we’ve been seeing that now for some years, in the aftermath of the global financial crisis, Brexit and now the pandemic. For some years, though, we’ve had a focus on the US as a growth market for our family office services business. It’s a strategically important growth market not only because of the impact of the pandemic but because of the long-term rate of growth in certain regional markets within the US, the increasingly global nature of the US private client landscape, and the prevalence of an industry that is still growing in maturity in terms of its cross-border, non-domestic capabilities,” Hunter said. 

“It’s why we’ve bolstered our footprint in the US over recent years and why we launched a joint venture with Willow Street to create Crestbridge Fiduciary in 2020. The unsettled political and economic landscape in the US over recent years has certainly enabled us to introduce internationally-dynamic families in the US to solutions across our own network, as part of their search for certainty and peace of mind, and we fully expect that trend to continue.”
 

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