The off-shore financial centre idea


The announcement by the Minister of Finance in his 2008 Budget speech that the government was embarking on consultations on making the country into an off-shore financial centre must have taken those with whom he did not consult with considerable surprise. The Minister in his speech did recognise the country’s earlier experience with the concept, an experience that saw the advocate of the measure ending up in jail abroad. It is perhaps significant that at that time Guyana’s economy was in dire straits and the introduction of legislation to facilitate off-shore banking was at best no more than an experiment.

With debt write-offs and a change from a managed to a mainly market economy and the graduation from a Highly Indebted Poor Country (HIPC) to a lower-middle income country, much is new. But the announcement has been surprising nonetheless, being perhaps the only policy change in the entire budget speech. Although the Minister has announced consultations, Business Page today addresses the concept, the opportunities and the challenges, since from all accounts not many people have been consulted so far.


The ‘off-shore’ in the concept derives its name from the Channel Islands and the Isle of Man, just off the shores of England from which the wealthy sought to export their assets from the high-tax regime prevailing in the seventies on the mainland. While these islands continue to earn most of their income from the business, the major centre remains Switzerland, where bank secrecy was considered as sacred and impenetrable as the Da Vinci Code.

In the typical off-shore centre, operators with nothing but a member of staff or two and dealing mainly electronically, whether in opening accounts or in carrying out transactions all of which are designated in foreign currency, carry on the business often from a couple of rooms attached with modern telecommunication. The attraction of such centres, usually lies in:

1. low tax rates,

2. strict secrecy,

3. non-invasive legal, tax and oversight regulations,

4. protection of deposits and

5. insulation from the domestic political, social and economic conditions.

Those conditions by themselves in the post-9/11 world are hard to guarantee and the US in particular has been pressing with some success for a tightening of regulations and the relaxation of the secrecy rules. The result is that money of more dubious origin has been moving from the better regulated centres to the more questionable ones.

Caribbean centres

Despite the risks of being branded, many Caribbean countries have gone this route with varying degrees of success. Barbados and The Bahamas are perhaps the two most successful off-shore financial centres among Caricom countries, but competing with the US Virgin Islands and the Cayman Islands. At the lower level there are Antigua, Belize, Dominica, Montserrat, St Kitts-Nevis and St Vincent, all of which have off-shore banking legislation and which depend on the sector in varying degrees.

For Guyana to compete against its regional partners and the international giants of the industry however, it will have to overcome some uncomfortable truths at home and a negative image abroad. Some of the considerations associated with off-shore banking are embedded in the Guyana economic and social fabric. Off-shore banking is associated with tax evasion, the underground economy, money laundering, narco-trading and the Mafia.

With brutal frankness, the website of the US Embassy in Georgetown begins a 2007 report, “Guyana is a trans-shipment point for cocaine destined for North America, Europe, and the Caribbean,” pointing out that it has been ten years since there were any large domestic seizures, the last being in 1998 when a joint Guyanese/US operation confiscated 3,154 kilograms (kegs) of cocaine from a ship docked in Georgetown. The GOG announced no new drug policy initiatives in 2006. The 2008 International Narcotics Control Strategy Report was released yesterday, and its conclusions indicate that nothing much has changed.


Very directly the 2007 report noted that Guyana had not yet implemented its ambitious 2005-2009 National Drug Strategy Master Plan (NDSMP) launched in June 2005; the Financial Investigations Unit (FIU) remained handicapped by the lack of effective legislation to deal with money laundering. In this regard the Money Laundering (Prevention) Act, 2000 was never brought into operation and the draft of a new act has been circulated for comments.

Lax laws – among which must be the non-bank cambios legislation – are an invitation to international crime rings which have been growing in numbers and national origins and destinations. Where at one time the Mafia was thought of as Italian -Al Capone, Antonio Calderon and Salvatore Conterno – the fall of communism has unleashed a new brand of Mafia in Poland and the countries of Eastern Europe which are themselves dwarfed by the Russian Mafia which according to an article on the BBC website controls 40% of private business and 60% of state-owned enterprises through thousands of organised gangs. They now play a big role in Colombia and Israel and are suspected of being involved in the casino business in the Caribbean.


The moves to clamp down on poorly-regulated centres became pronounced in 2000 when in the space of two months a number of centres were labelled as “non-cooperative” by the Financial Stability Forum (FSF) in the context of global financial stability. Then on June 22, as “non-cooperative” by the Financial Action Task Force in the context of money laundering, and on June 26, as “Tax Havens” by the Organisation for Economic Co-operation and Development (OECD) in the context of tax competition. Among nine that were named twice in two months were three Caribbean countries – The Bahamas, St Kitts-Nevis, and St Vincent.

These led to calls for stricter controls of off-shore centres, which became more pronounced after the attack on the US in 2001. Defenders of off-shore banking see these as the work of the countries of the OECD which are concerned about competition rather than security and financial considerations.

Off-shore centres do have a number of advantages associated with the industry, not least of which is that there may be little else to choose from in terms of economic strategies as no doubt is the case with Niue and Nauru with populations of under 25,000 people. Whether these advantages translate into success is doubtful, just looking at some of the countries with which we are familiar.

Lawyers and accountants

Off-shore banking is also very attractive to lawyers and accountants who practically manage and make tons of money from the sector. From an employment perspective, however, it is even less than insignificant with business being largely conducted electronically. On the other hand their attraction to depositors may lie in the model where withholding tax is not charged on interest earned from deposits which can result in deposits being shifted from the commercial banks to their off-shore counterparts.

Guyana has double taxation treaties with Canada, the Caricom states and the UK, and a tax exchange information agreement with the USA, which all provide for the disclosure and sharing of information, and all of which may need to be reviewed in the proposed scheme of things. Given the US’s views of Guyana in relation to crime, that country may almost certainly want to ensure that there are sufficient safeguards in the regulation of off-shore businesses that may take away many of the advantages usually associated with the industry.


At present there is nothing to suggest that the Bank of Guyana is incapable of regulating the existing financial sector, although it has hardly done its job in relation to the New Building Society, and one wonders whether it is really in control of the non-bank cambios. It is likely that the off-shore business will come under its supervision requiring several changes to the Bank of Guyana Act and regulations. Again that may be seen as intrusive by potential operators. And can we hope to do all of this essentially with a minuscule Financial Intelligence Unit?

That this is the only policy issue identified by the Minister in his budget presentation must cause concern whether the government has any fresh ideas to deal with the challenges facing the major sectors of the economy or the taxpayers in the PAYE system and on whom the Budget now reveals has been placed additional tax burden.

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