Can offshore financial centers be used for money laundering? Please explain how and under what circumstances?
Offshore Financial Centers (OFCs) and Money Laundering
Offshore Financial Centers (OFCs) are avenues that host monetary operations that are alienated from the main regulation units such as nations by geography and legislation, or as fields whose monetary sectors account for significant and inconsistent split of its domestic market. According to Sigler et al. (2019), in the field of private banking, it is essential to reveal the activities of offshore financial centers whose operational intent is sternly for the rationale of confidentiality and secrecy. OFCs offer services for organizations or individuals that desire to eradicate any type of transparency from their monetary operations. Masciandaro (2017) indicates that OFCs are often located in an unfamiliar land, either landlocked or bordered by water. The objectives of OFCs are to conceal information from watchdogs and the judicial system of an autonomous country. This paper explains whether offshore financial centers can be utilized for money laundering by explaining how and in what situations. The role of an OFC is to afford monetary confidentiality, limited rules, and a tax haven, unhampered access to accounts, and security for any alterations in the political schemes.
According to Masciandaro (2017), OFCs play a significant part in the entire money laundering procedure. Considering the placement stage, the most practical technique associated with money laundry is smuggling of funds offshore using banks or financial institutions. Campbell (2019) indicates that OFCs are often used by drug lords or criminal organizations to conceal their financial operations and evade taxation. Placing funds in offshore financial centers incorporate the utilization of forged or fraudulent customs credentials, exploitation of securities, products, distant trade transactions and misuse of the global airlines payment schemes. Immediately the criminal proceeds are placed in an OFC, extra confidentiality is attained by passing the funds through more than one laundering series such as sending money beyond different nations and banking them in various accounts and legitimate businesses (Sigler et al., 2019). OFCs play a significant role in this phase, given that banks in OFCs guarantee banking confidentiality and protection of their client’s information by using completely unidentified accounts, client’s account protected by any legal representative, accounts of conjured recipients, and secure secret accounts. According to Campbell (2019), funds swindled by criminal organizations are often deposited using a wire transactions or check to the account of an OFCs’ undisclosed owner.
Offshore Financial Centers (OFCs) attract different entities including criminal organizations due their assurance of both anonymity and the probability of tax evasion. Although OFCs have different advantages including confidentiality, tax savings, transfer of possessions to heirs, possessions protections and accumulation of wealth, they significantly contribute to the increase in money laundering. For instance, criminal organizations use OFCs to conceal their identity and avoid taxation. This often encourages unlawful money transactions, investment operations, and insurance schemes, and illegal international cartels and co-operative financial operations.
Campbell, A. (2019). The impact of international policy initiatives against money laundering, terrorist financing and tax evasion on offshore financial centres in the Caribbean (Doctoral dissertation, Universidad de Salamanca). https://dialnet.unirioja.es/servlet/tesis?codigo=256012
Masciandaro, D. (Ed.). (2017). Global financial crime: terrorism, money laundering and offshore centres. Taylor & Francis. https://books.google.co.ke/books?hl=en&lr=&id=yTcrDwAAQBAJ&oi=fnd&pg=PP1&dq=offshore+financial+centres&ots=Hx6J4gRcsD&sig=7xmi6RxeniutvEbu5HMRxi86Vfc&redir_esc=y#v=onepage&q=offshore%20financial%20centres&f=false
Sigler, T., Martinus, K., Iacopini, I., & Derudder, B. (2019). The role of tax havens and offshore financial centres in shaping corporate geographies: an industry sector perspective. Regional Studies. https://www.tandfonline.com/doi/10.1080/00343404.2019.1602257