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 Under Secretary for Political Affairs > Bureau of International Narcotics and Law Enforcement Affairs > Remarks, Press Releases, Fact Sheets, Newsletters, Reports > Narcotics Control Reports > 2003 INCSR (issued March 1, 2004) > Part II: Money Laundering and Financial Crimes > INCSR (HTML format)
Offshore Financial Centers

International Narcotics Control Strategy Report
Bureau of International Narcotics and Law Enforcement Affairs
March 2004

The pressure exerted on the offshore financial centers (OFCs) to comply with anti-money laundering standards continued to yield positive results in 2003. Since the beginning of the Financial Action Task Force's (FATF) Non-Cooperative Countries and Territories (NCCT) exercise in 2000, FATF has identified 23 jurisdictions as NCCTs. Sixteen of the NCCTs have either been OFCs or jurisdictions that offer services commonly associated with OFCs. As of December 31, 2003, however, of the nine remaining NCCT jurisdictions, only three offered offshore financial services: Cook Islands, Guatemala and Nauru. All three have made significant progress in remedying FATF-identified deficiencies. The Cook Islands established a financial intelligence unit; Guatemala strengthened its licensing, registration and regulatory procedures for its offshore banks; and, Nauru reportedly canceled the licenses of its nearly 400 shell banks. The USA PATRIOT Act provision that prohibits transactions (directly or indirectly) between U.S. financial institutions and foreign shell banks played a key role in Nauru's decision to cancel the licenses of shell banks in its jurisdiction and, undoubtedly, was a major factor contributing to the decrease noted globally in the number of offshore banks.

While there are well-regulated OFCs, located primarily in the larger, wealthier jurisdictions offering offshore financial services, the primary attraction of the offshore sector remains the frequent existence of legal frameworks designed to obscure the identity of beneficial owners, to promote regulatory and supervisory arbitrage, and to provide mitigation or evasion of home-country tax regimes. In the majority of OFCs a wide range of regulations normally imposed on onshore banks are not applicable. In many OFCs, banks with minimal or no capital requirements can be formed, registered and their ownership placed in the hands of nominee directors via the Internet. Often, there are few, if any, disclosure requirements and bank transactions are free of exchange and interest rate restrictions.

Some OFCs offer the ability to form and maintain a variety legal entities such as international business companies (IBCs), "exempt" companies, trusts, investment funds and insurance companies. To maintain the anonymity of the true beneficial owner of these entities, many are formed with nominee directors, nominee officeholders and nominee shareholders. When combined with the use of bearer shares (shares that do not name the owner, rather, ownership is based on physical possession) and "mini-trusts") instruments used to further insulate the beneficial owner while bridging the ownership and management of the corporate entity), IBCs can present impenetrable barriers to law enforcement. The continued selling of "economic citizenship," (passports sold to foreigners who promises to invest in the country) if improperly controlled, creates yet another impediment to law enforcement., as frequently the purchaser of such as a passport can also purchase a new name on the new passport.

Since 2002, the International Monetary Fund (IMF) has conducted assessments of nearly 40 offshore financial sectors. A progress report on the ongoing assessments completed in July 2003 concludes that, in general, supervisory and regulatory regimes need to be strengthened. In many regimes, the technical skills required to effectively supervise compliance with anti-money laundering/counterterrorist financing rules are lacking, as is the ability to address increasingly complex financial instruments. The IMF notes that regulation of banks in the OFCs is generally stronger than the regulation of insurance sectors, while in the securities business, about two-thirds of the assessed OFCs have implemented adequate principles relating to information sharing and cross-border cooperation. The IMF concludes that, in general, many of the assessed OFCs lack effective compliance programs—frequently because of inadequate legislation or lack of resources. The IMF study also concludes that compliance with recommendations regarding terrorist financing is weaker than that regarding money laundering recommendations.1

1International Monetary Fund, "Offshore Financial Centers, The Assessment Program: A Progress Report and the Future of the Program" July 2003. The report is located on the IMF's website.

As global use of the Internet continues to expand, so too does the ability of criminals to instantaneously transfer funds, providing further opportunities for poorly regulated OFCs to increase their customer bases. The Internet also provides criminals additional opportunities to engage in the placement and layering of illicitly gained funds as well as providing terrorist organizations the opportunity to elude law enforcement efforts to interdict funds.

Internet gaming executed via the use of credit cards and offshore banks represents yet another powerful vehicle for criminals to launder funds from illicit sources as well as to evade taxes. Virtual casinos can be extremely profitable for governments that sell the licenses but that exert inadequate controls, and may, in fact, share in the operator's profits. In 2003, 30 OFCs were observed on the Internet as having virtual gambling sites—more than doubling the number of OFCs reported to have Internet gambling sites in 2002. These sites represent a particularly difficult problem for law enforcement, as the Internet server frequently is located in a country other than the country that has licensed the website.

While the USA PATRIOT Act has had a dramatic impact in reducing the number of shell banks globally, and more OFCs appear to be strengthening their regulatory capacity, the lack of transparency that characterizes the offshore sector makes OFCs attractive places for those who want to hide the movement of their funds. At a time when criminal and terrorist organizations threaten political and economic stability, concerted efforts to effectively supervise and regulate OFCs are essential.

Explanatory Notes—Offshore Financial Services Table

Public information regarding offshore financial centers (OFCs) can be difficult to obtain. Industry publications, discussions with regulators of the OFCs, foreign government finance officials, embassy reports, analyses from United States Government (USG) agencies, international organizations, and secondary sources provided the data for the table.

Excluded are jurisdictions that provide low or no taxes to individuals but offer no other services or products normally associated with the offshore financial service sector. Also excluded are jurisdictions that have established OFCs but for which the USG has little or no information regarding the operations of the OFC. Within most categories presented on the table, the designations Y and N are used to denote the existence (Y) or the nonexistence (N) of the entity or service in a specific jurisdiction. Where there is no information regarding specific categories, or available information is inconclusive, the corresponding cells on the chart are left blank. In some categories, symbols other than, or in addition to, a Y or N are used. Explanations for additional symbols are provided below.

Explanations of the categories themselves are either provided in the preceding text, are considered to be self-evident, or are provided below.

Category Designations—Offshore Financial Services Table

Offshore Banks: The number is provided if known. A Y indicates that although a jurisdiction that offers offshore financial services (OFC) licenses offshore banks, the number of such banks is not known. An N indicates that no offshore banks are known to be licensed in the jurisdiction. A blank cell indicates no or inconclusive information regarding whether offshore banks are offered within the OFC.

Trust and Management Companies: These are companies that provide fiduciary services, as well as serving as marketing agents, representatives, lawyers, accountants, trustees, nominee shareholders, directors, and officers of international business companies.

International Business Companies (IBCs) & Restricted Companies: Numbers are provided when known and public; in many cases, the numbers are significantly underreported. A P indicates that the jurisdiction does not publicize the number of IBCs registered within it.

Bearer Shares: Share certificates can be issued without the name of the beneficial owner. A Y indicates that the OFC offers bearer shares; an N indicates that it does not; and a blank cell indicates that the USG does not know if bearer shares are offered within the OFC.

Asset Protection Trusts (APTs): Trusts that protect assets from civil judgment. A Y indicates that the OFC offers APTs; an N indicates that it does not; and a blank cell indicates no or inconclusive information regarding whether APTs are offered within the OFC.

Insurance and Re-insurance Company Formation: A Y indicates that the OFC allows formation of insurance and re-insurance companies; an N indicates that it does not; and a blank cell indicates no or inconclusive information regarding whether insurance and re-insurance companies are allowed within the OFC.

Sells "Economic Citizenship": A Y indicates that the OFC sells economic citizenships; an N indicates that it does not; and a blank cell indicates no or inconclusive information regarding whether the OFC sells economic citizenships.

Internet Gaming: Licenses granted by jurisdictions that enable grantees to establish "virtual casinos" on the Internet, in which customers can pay via credit card. A Y indicates that the OFC licenses Internet gaming; an N indicates that it does not; and a blank cell indicates no or inconclusive information regarding whether Internet gaming is offered within the OFC.

Criminalized Drug Money Laundering: A D indicates that the OFC has a law criminalizing narcotics-related money laundering only. A BD indicates that crimes other than those related to narcotics are considered to be predicate crimes for money laundering in the OFC. An N indicates that there is no legislation criminalizing money laundering in the OFC.

Financial Action Task Force (FATF) Non-Cooperative Exercise: This column provides the FATF finding. NC indicates the jurisdiction was determined to be noncooperative; R indicates that the jurisdiction was reviewed and was not identified as noncooperative; a blank cell indicates that the jurisdiction was not reviewed. RM indicates that FATF removed the jurisdiction from the NCCT list.

Membership in International Organizations: This cell lists the multinational organizations that have been formed to combat money laundering and/or to establish a sound supervisory regime in which the OFC participates.


Offshore Financial Services Table

Jurisdictions
Offshore Banks
Trust & Manage-ment Companies

IBCs/
Exempt and/or Restricted Companies
Bearer Shares
Asset Protection Trusts
Insurance and Re-insurance
Sells Economic Citizenship
Internet Gaming

Criminalized Drug Money Laundering (D)
& Beyond Drugs (BD)
FATF Noncooper-
ative Exercise

Membership in International Organizations (A,C,CE,F,O,OC, I, S)

The Americas

Anguilla

2

Y

3,041

Y

Y

Y

N

Y

BD

    

C, IO1

Antigua and Barbuda

15

Y

13,500

N

Y

Y

N

Y

BD

R

C, OC

Aruba

2

Y

4,320

Y

N

Y

N

N

BD

   

C, F, O, IO, EG

Bahamas

301

Y

47,040

N

Y

Y

N

Y

BD

RM

C, O,OC, I, S, EG

Barbados

56

Y

4,673

N

Y

Y

N

N

BD

   

C, O, OC, S, EG

Belize

8

Y

22,425

Y

Y

Y

N

Y

BD

R

C, OC, IO

Bermuda

N

Y

13,337

N

Y

Y

N

N

BD

R

C, O, EG

British Virgin Islands

13

Y

360,000

N

Y

Y

N

N

BD

R

C, EG

Cayman Islands

580

Y

30,000

N

Y

Y

N

Y

BD

RM

C, O, I, EG

Costa Rica

8

Y

Y

N

N

 

N

Y

BD

R

C, OC, S, EG

Dominica

1

Y

8,601

N

Y

Y

Y

Y

BD

RM

C, OC

Grenada

2

Y

2,293

N

Y

Y

N

Y

BD

RM

C, OC

Guatemala

13

N

 

Y

N

  

 

Y

BD

NC

OC

Montserrat

11

    

22

Y

  

N

N

N

BD

    

C

Netherlands Antilles

39

Y

18,750

Y

N

 

N

Y

BD

    

C, EG,O, I

Panama

34

Y

370,000

Y

Y

Y

N

Y

BD

RM

C, O, OC, S, EG

St. Kitts & Nevis

1

Y

13,800

Y

Y

N

Y

Y

BD

RM

C, OC

(St. Kitts)

N

Y

450

   

 

 

 

 

  

  

  

(Nevis)

1

Y

17,000

   

 

 

 

 

  

  

   

St. Lucia

2

Y

1,052

N

Y

Y

N

Y

BD

R

C, OC

St. Vincent & The Grenadines

10

Y

6,342

N

Y

Y

N

Y

BD

RM

C, OC, EG

Turks and Caicos

8

Y

13,952

N

Y

Y

N

Y

BD

R

C, I

Uruguay

12

N

Y

Y

N

Y

N

N

BD

R

OC, S

Europe

Andorra

   

  

  

  

  

  

  

  

  

  

   

Cyprus

29

Y

57,600

N

Y

Y

N

Y

BD

R

CE, O, S, EG

Gibraltar

18

Y

8,464

Y

Y

Y

N

Y

BD

R

O, I

Guernsey2

65

Y

16,340

N

N

Y

N

N

BD

R

O, I, S, EG

Alderney

N

Y

455

  

N

 

N

Y

  

 

 

Sark

N

Y

  

  

N

 

N

N

 

 

  

Hungary

N

N

600

Y

N

N

N

Y

BD

RM

CE, EG

Ireland

Y

Y

400

N

N

Y

N

Y

BD

 

F, S, EG

Isle of Man

57

Y

Y

Y

N

Y

N

Y

BD

R

O, I, S, EG

Jersey

Y

Y

30,000

N

N

Y

N

N

BD

R

O, I, S, EG

Latvia

N

N

Y

N

N

N

N

 

BD

 

CE, EG

Liechtenstein

17

Y

75,000

Y

N

Y

N

Y

BD

RM

CE, EG

Luxembourg

200

Y

68,000

Y

N

Y

N

N

BD

 

F, S, EG

Malta

N

Y

101

N

N

Y

N

N

BD

R

CE, S

Monaco

N

Y

Y

N

   

N

N

BD

R

EG

Switzerland

500

Y

Y

Y

N

    

N

N

BD

 

F, S, EG

"Turkish Republic of No. Cyprus"

33

N

54

   

N

N

N

N

D

     

    

Africa & Middle East

Botswana

1

Y

N

N

  

  

  

N

  

  

E

Bahrain

52

Y

Y

N

N

N

N

 

BD

    

O, S

Liberia

   

     

Y

Y

Y

    

N

Y

N

     

  

Mauritius

11

Y

10,700

Y

Y

 

N

Y

N

R

E, O, S

Madeira (Portugal)

27

Y

6,500

N

N

Y

N

N

BD

  

  

Seychelles

Y

  

4,800

Y

Y

Y

N

Y

BD

R

E

Tunisia

12

  

1,200

N

N

  

N

N

N

  

S

Asia

Brunei

     

   

370

N

  

Y

  

  

BD

  

A

Hong Kong

Y

  

500,000

  

N

Y

N

N

BD

  

A, F, O, EG

Labuan (Malaysia)

54

Y

4,000

N

Y

Y

N

N

BD

   

A, I, O, S, EG

Macau

Y

  

Y

  

N

Y

N

N

BD

  

A, O

Singapore

50

N

Y

N

N

Y

N

N

BD

  

A, F,O, S, EG

Pacific

Cook Islands

25

Y

1,200

Y

Y

Y

N

Y

BD

NC

A

Marshall Islands

N

Y

4,000

Y

N

N

N

N

BD

RM

A, EG

Nauru

Y

Y

Y

Y

N

Y

Y

N

N

NC

    

Niue

N

N

9,220

Y

Y

N

N

N

BD

RM

A

Samoa

8

Y

7,553

Y

Y

Y

N

N

BD

R

A, IO

Vanuatu

55

Y

2,500

Y

N

Y

N

Y

BD

R

A, O, EG

1A = Asia/Pacific Group; C = Caribbean Financial Action Task Force; CE = Council of Europe Select Committee on Money Laundering; E = Eastern and Southern Africa Anti-Money Laundering Group; EG = The Egmont Group; F = Financial Action Task Force; I = Offshore Group of Insurance Supervisors (OGIS); IO = Observer to the OGIS; O = Offshore Group of Banking Supervisors; OC = OAS/Inter-American Drug Abuse Control Commission; S = International Organization of Security Commissioners.

2Guernsey, Jersey, the Isle of Man, Hong Kong, Liechtenstein, Luxembourg and Switzerland are unique. Residents are able to avail themselves of many OFC services and products normally reserved for nonresidents.

 

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