Second-Order Effects from Global Financial Governance on ‘Offshore Europe’

The direct effect of efforts to constrain the offshore financial centres of the Caribbean (and elsewhere) over the past fifteen years are well recognised. In addition to the ‘harmful tax competition’ initiative of the Organisation for Economic Co-operation and Development (OECD) there have been several individual states pursuing direct action to minimise the influence of offshore tax regimes on their tax revenue collection. The financial crisis brought these issues once again to the top of the agenda for global economic governance meetings. For the small Caribbean financial centres with little voice in the formation of financial governance, the consequences of first-order and second-order effects are magnified across its financial sector and the employment it provides. This paper explores the lesser recognised second-order effects, and highlights the consequences that arise from financial governance action in other locations. For example, the decision by a number of international banks in Hong Kong to refuse to provide accounts to corporations registered in the British Virgin Islands over the risk of money laundering. More broadly there are the efforts to address non-taxation in the digital economy and the use of corporate entities registered in offshore locations in this multinational corporate structure. The challenges created for the Caribbean jurisdictions are additionally problematic when the solutions produced to overcome them not only must address local issues but at the same time satisfy the political desires of the metropolitan state (and behind it the political agenda of the European Union and its other Member States).