Onshores not willing or able to compete – just like in any game – start playing dirty.

The media has well covered the significant negative publicity that Offshore Financial Centres (OFCs or offshores) have received. The Dark Knight’s shooting in Hong Kong is one example where the SAR features as the dodgy offshore centre where gangsters hide their dirty money.

Although the part Hong Kong plays is about as real as Batman himself, it’s an idea popularized by media, pop culture and politicians. This negative reputation weaseled its way into reality without substantial challenge from offshores rebelling against being given a bad name – at least up until now.

Problems with the financial system have little to do with havens, but it’s much easier for onshores to deflect the part they played in the crisis by employing a witch hunt. The OECD defines a tax haven not as having a competitive tax rate, but refusing “to provide information to foreign tax authorities.”

The idea that offshores are shady jurisdictions that must be policed is gaining ground and has substantial backing from G20 countries like France, Germany, the United Kingdom, and the United States. At the G20 Summit, U.K. Prime Minister Gordon Brown said, “For the first time we are on the verge of an agreement which will mean that every country that was previously a tax haven will have to exchange tax information on request …we will get agreement at this summit.” Signifying increased competition between offshores and onshores for revenue and underlining a lack of respect of offshore sovereignty, onshores have been acting as bullies with their unchecked demands.

In reality, the onshores which lack the competitive environments to attract business seek a bigger cut of revenue. In a bid to regain tax revenue, onshores not willing or able to compete – just like in any game – start playing dirty. This is where the name calling and unchecked demands come into play in order to bolster onshore interests.

Jurisdictions which do not share tax information are labeled “uncooperative” and punished with blacklists and/or sanctions. Some “uncooperative” jurisdictions aren’t allowing themselves to be victimized, they are fighting back or refusing compliance – but not Hong Kong.

Hong Kong received attention once the financial centre was threatened to be placed on the blacklist for not sharing tax information. Hong Kong’s tax law only allows tax information to be collected for domestic use. If Hong Kong was to accept new agreements to share information internationally, it would need to change its tax law first. Hong Kong would also have to add – and fund – another division in its Inland Revenue Department. Of course, the OEC D hasn’t offered to help offset the costs the Hong Kong taxpayer incurs to fund a brand new department to serve non-domestic, international onshore interests. For Hong Kong, it’s a lose-lose situation.

Hong Kong hasn’t been blacklisted before; the SAR has been considered but Big Brother is known to have acted as the deterrent. Even still, Chief Executive Donald Tsang has “ordered” that the bill changing the tax law be introduced to the Legislative Council. Nearly all of Hong Kong’s legislators are in favor of kowtowing to onshore demands.

Where other jurisdictions are retaliating, seeking to balance onshores’ unchecked demands, Hong Kong has its tail between its legs. Mainland must be proud.