Craig Boise and Prof Andrew P. Morriss (Financial Times, 3 December 2008)
Sir, Your analysis of offshore financial centres (“Harbours of resentment”, Analysis, December 1) makes three important errors.
First, you repeat the silly claim by the Organisation for Economic Co-operation and Development that the current financial crisis has “brutally exposed the risks inherent in small countries with large financial sectors”.
As anyone who has read the FT’s coverage of the financial crisis would know, its roots lie not in Grand Cayman or the Isle of Man but in New York and London. If there has been any “brutal exposure” it is of the inadequacies of the US and European Union oversight of their financial systems.
Second, your article suggests that Cayman and others “thrived” because the second half of the 20th century was “free-wheeling”. Nonsense. Cayman and the other top offshore financial centres all have more rigorous anti-money laundering regulatory regimes than the US or any member of the EU. Our research into OFCs has consistently shown that they have better legal tools and tougher standards than do most onshore jurisdictions.
Third, while institutions in OFCs may well have $6,000bn on their books, that money is not sitting in safe deposit boxes in Grand Cayman or Jersey. It is invested in assets located virtually everywhere else. Indeed, it is the US and the EU that benefit most from foreign direct investment channelled through OFCs. Blocking these capital inflows in the midst of a liquidity crisis would be folly.
We have together taken dozens of US law students to study the Caymanian legal system, interviewed professionals throughout the offshore world, and conducted research into the history and current status of several of the largest OFCs. Our teaching and research have shown us both the importance of OFCs to the functioning of onshore economies and the high standards prevalent among the more reputable OFCs.
Attacking the offshore sector may be politically popular in Paris, London and Washington, but it has nothing to do with resolving the global financial crisis.
Associate Professor of Law,
Case Western Reserve University,
Cleveland, OH, US
Andrew P. Morriss, H. Ross & Helen Workman,
Professor of Law and Business,
University of Illinois,
Champaign, IL, US