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Martin Kenney: Academics skew picture of BVI and other Offshore Financial Centers

In July new research from the University of Amsterdam looking at Offshore Financial Centers claimed to expose the “five largest value conduits in the [offshore] world” — the Netherlands, the United Kingdom, Switzerland, Singapore and Ireland.

A variety of impressive-looking graphs and diagrams applied an apparently anti-capitalist critique, with the opening sentence — Public outcry over tax havens has increased in recent years — providing some clue about the intended direction of the piece.

The authors — J. Garcia-Bernardo, J. Fichtner, F.W. Takes and E.M. Heemskerk — then provided a politically-oriented slant that effectively bemoaned the rights and responsibilities of businesses to try and minimize their tax liabilities.

The authors acknowledged, grudgingly, that multinational offshore companies were “….popular instruments for multinational corporations to (legally) reduce their tax bill.” Apple is cited as an example (Apple uses a combination of subsidiaries in Ireland, the Netherlands and Bermuda to strongly reduce its tax payments in Europe to a stunning 0.005% in 2014”).

I cannot detect how or what Apple has done wrong. It has apparently used the best tax advisors to plot a route across Europe that lawfully minimises its tax liabilities; Apple’s directors have a fiduciary duty to aspire to lawfully achieve the highest profits possible.

We need to be careful what we wish for. If one puts too much pressure on multinational firms, these businesses will take their operations elsewhere. While those with an anti-capitalist agenda may see this as a moral victory, those who lose their jobs and livelihoods may not share those feelings.

The paper also uses another loaded term — “loophole.” There is no such thing as a loophole. Those who draft laws that allow companies to utilize tax efficient Offshore Financial Centers do so for a reason — otherwise they would amend those laws in question.

Describing legislation as a “loophole” implies some form of illicit interpretation. Loopholes are merely onshore tax policy choices. Onshore governments enable the proverbial Big Business to employ tax avoidance tactics. The more profitable a corporation gets, the more it is likely to expand, the more jobs it will create, the more taxes it will generate from those employees, and so on.

The paper’s “revelation” that since the financial crisis, “The EU and the OECD have increased pressure on tax avoidance, with modest effects” essentially makes my point. This perceived inactivity isn’t a result of ineffective government input. It’s because the respective governments see the bigger picture.

Those who object to the accumulation of private capital and profits make tax competition between jurisdictions an ethical dilemma. Governments are then forced to walk a populist tightrope between wanting to sound tough and being terrified of Big Business abandoning their shores for elsewhere. Let’s face it: the financial crisis was nine years ago. If onshore governments wanted to act firmly (and close the pejoratively described ‘loopholes’) they have had plenty of time to do so.

The article also alludes to a “lack of transparency” surrounding Offshore Financial Centers. But isn’t that the point of setting them up: to enable a degree of confidentiality?

Let me explain a common misnomer: namely that the BVI operates a “secret” offshore industry. I base my firm here. There is no secrecy. Yes, information is held confidentially. But the BVI has signed up to no fewer than 28 Tax Information Exchange Agreements. These agreements enable tax regulators from 28 countries around the world to access information that would be of case-specific investigative interest to their revenue enforcement regimes.

Confidential BVI company ownership information is available to law enforcement agencies across the globe, via a diplomatic Letter of Request to the Attorney General of the BVI. It is also available to lawyers such as myself, via application for a court disclosure order. Suddenly information does not appear that secret anymore. What the academics and news reporters mean when they criticise offshore jurisdictions is that they can’t access information at will — therefore there is “secrecy” (and in all likelihood a conspiracy) afoot.

The University of Amsterdam authors claim to have developed a “novel, data-driven approach” utilising “big data” to identify Offshore Financial Centers. Using such methods, they arrive at the conclusion that the BVI is the number one “sink OFC” contender. This is hardly a surprising result. It is already widely known that the BVI is the number one place to set up an offshore company.

I am all for academics trumpeting themselves having the answer to a complex problem. But it is not meaningful to spout the obvious and then pretend that you have detected what nobody else knew. Inventing new phraseology – “granular firm-level network data…,” “sink-OFCs” and conduit-OFCs” — is not particularly helpful, either. These are arguably superficial rhetorical devices.

Putting aside the new labels, this research tells us nothing new. Had the researchers been more thorough, there would surely have been specific mention of the United States and its “offshore” facilities in states such as Delaware and Nevada. Delaware has over 800,000 anonymously held companies. The BVI has very few.

(Ultimate Beneficial Owner identification documentation is now legally required to be collected and held by the registered agents of all 450,000 active BVI companies; whereas in Delaware no one is required to know or collect anything about the ownership of over 800,000 companies.)

In fact, there were very few references to American companies and individuals when the Panama Papers broke, despite the United States having some of the worst-regulated offshore facilities in the world. I know, because I have practical experience investigating and trying to obtain evidence from them. This Offshore Financial Centers research appears to have overlooked America. Could this self-described “novel” and “big-data” approach be flawed in that Delaware somehow went unnoticed?

Academia is an important institution. My respectful suggestion to the authors of this paper is to leave the ideology against the 1% outside of their work — otherwise it will permeate research and conclusions, leaving them tarnished with the hand of the subjective.


Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice based in the BVI and focused on multi-jurisdictional fraud and grand corruption cases |@MKSolicitors. He was recently selected as one of the Top 40 Thought Leaders of the Legal Profession  in 2017 by Who’s Who Legal International.

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  1. Author M. Kenney correctly identifies the United States as the largest tax haven country, measured in terms of the money that is transferred by foreigners to shell US corporations that are established in Delaware, Nevada and other few states. The following reports provide indicators of money-laundering activity by foreigners in the US.

    US Government Accountability Reports (GAO), available in

    GAO-01-120: Suspicious Banking Activities, Possible Money Laundering by U.S. Corporations Formed for Russian Entities.

    GAO-06-376: Company Formations, Minimal Ownership Information Is Collected and Available

    Report on Delaware as a US tax haven: Delaware US Corporate Secrecy Haven, available in

    PBS report on suspicious activity report of money laundering by Saudi Royal Family, available in

    Academics who want to include US in their investigations of money laundering can start with aggregate figures of capital flows, published by BIS, US Federal Reserve and US Treasury capital flows, to verify the enormous magnitude of capital flows that pour into US financial institutions. Money launderers and corporations prefer to invest in specific financial assets, like US Treasuries, because US Treasury does not know who owns them, and stocks that are heavily traded and whose ownership cannot be traced. Individuals also invest in US real estate in large cities, like NYC and San Francisco. Ultimate ownership in these US real investments is difficult to identify. See recent case in

  2. I accept the author's distinction between secret and confidential companies, especially as regards some US state regimes vs UK Overseas Territories like BVI.

    However, in practical terms this distinction only helps respond to concerns of abusive tax avoidance and tax evasion if the right people get to access registries of beneficial ownership information.

    If the Criminal Finance Act review requirement shows that BVI et al are responding quickly and effectively to UK law enforcement authority requests for this data, surely a 'private' source could be shared with firms under a legal AML regulatory obligation?

  3. I'll copy here my very quick (and full of typos) response in Twitter:

    (1/n) Let me respond. I find it surprising that he writes such an ideological piece to accuse us to be ideological, when we just took data and show some patterns. He only has three critiques. First is that BVI is not a secret jurisdiction. We do not say that in the paper.
    (2/3) Furthermore, as himself explains, information is only available at request, which can take several months. Using several layers in compliant OFCs, such as BVI, can delay investigations for years, as I am sure he's aware to. This is not a judgement, just a fact.
    (3/4) His main criticise is that we do not find Delaware. We explain in the paper that this is because we chose not to disaggregate the US. If you actually disaggregate them into States you find the following picture (this is newer data, and disaggregating has other problems)
    (4/4) His last critique is that the results are not new. Firstly, experts are only aware of a few jurisdictions, we study the global pattern. Secondly, the media response proved that OFC need more research. Please do write more papers showing the weight of different jurisdictions

    See here for the figure with Delaware disaggregated:

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