Offshore Centers Look Back, Forward In Uncertain Times
We talk to industry figures in various IFCs in Europe to ask how international pressures and the global pandemic have shaped business and strategy.
Since the pandemic broke out at the start of 2020, it has upended how financial services operate, hastening the use of digital technology to cope with canceled flights and enforced remote working. And one select group involved in all this turmoil is the world’s club of international financial centers.
Islands and mini-states have been havens of stability, often enjoying high vaccination rates that have won plaudits from the locals. (The UAE and Malta, to give two cases, both achieved high rates.) On the flipside, the charms of an island or Alpine village can fade if one cannot leave it for months to see family, friends and important business contacts. HNW individuals who planned on using an offshore hub as a place to stay for a few weeks in the sun must hunker down for a whole year or more.
As the crisis dragged on, many IFCs kept heads below the parapet, although from time to time news broke of how well, or not, they were ranked for business, clean money laundering records, and the like. In its annual report on global wealth, Boston Consultant Group said that in 2020, rankings of “leading cross-border” centers were, in descending order of size of money: Switzerland, Hong Kong, Singapore, the US, the Channel Islands and Isle of Man, the United Arab Emirates, the UK mainland, Luxembourg, Monaco, and Liechtenstein. In 2025, BCG predicts the following ranking: Hong Kong, Switzerland, Singapore, the US, the UAE, the Channel Islands and Isle of Man, the UK mainland, Luxembourg, Monaco, and Liechtenstein. As of 2020, Switzerland had $2.4 trillion of wealth.
Pandemic or no pandemic, pressure on IFCs to behave hasn’t gone away, although it should be noted that worries about intra-government data exchange haven’t faded either, given issues such as cybersecurity attacks on government revenue departments. The tax and regulatory climate for offshore centers isn't getting easier. An overwhelming majority (97 per cent) of private wealth professionals think that governments are stepping up efforts to tax offshore wealth and plug the economic hole caused by the global pandemic. According to research by Intertrust Group published in April, more than half (56 per cent) think that this is an “extremely likely" scenario. And yesterday, the International Consortium of Investigative Journalists published another large trove of data leaks affecting multiple offshore locations.
Furthermore, the impact of the pandemic has coincided with Brexit, and further afield, from G20 calls for a minimum global corporation tax rate of 15 per cent. Jurisdictions such as Jersey, Guernsey and the Isle of Man have had to figure out the often uncertain task of how to exploit the situation without falling foul of bigger neighbors. In another twist, Mainland China’s crackdown on Hong Kong, the former UK colony, has prompted wealthy Hong Kongers to relocate their assets and families. Places such as Switzerland, the UK and Dubai, among others, stand to benefit.
As far as this news organization can tell, a number of IFCs appear to be setting the pace, judging by how they have managed to keep off “blacklists” or “graylists” of jurisdictions deemed to be slow, poor or both in complying with tax information exchange, AML controls and other behaviors.
Some jurisdictions appear to have come out of the pandemic in good shape, showing good governance and responsiveness, Andrew Morriss, professor, Bush School of Government & Public Service and School of Law, Texas A&M University, told this publication. General competence is very important and valued by the industry. “These places are like `hotels for money’,” Morriss said, noting that when one stays in a smart hotel, staff pay attention to small details, which makes guests confident that the bigger details will also be handled well.
One IFC that appears to have quite a “halo” is Jersey, the Crown Dependency. It isn’t on the FATF list of countries deemed as having AML deficiencies; it is no longer on the “Primary Concern” list of the US State Department. There aren’t any sanctions against it. Jersey isn’t on the EU’s list of non-cooperative jurisdictions for tax purposes.
Other places have not done so well. Malta, for example, has been put on the FATF “graylist” for AML purposes, a fact that this EU member state and ex-British colony must address quickly. Cyprus, to give another case, has mothballed its “golden visa” regime.
Some – but not all – IFCs’ promoters appear to want to go on roadshows, such as the case with Malta and the Isle of Man, along with Jersey and Luxembourg. In the case of Switzerland, the nation does not have a sort of promotional "finance Switzerland," although policymakers in Berne have been talking to their peers in London, for example, to bolster financial links.
The state of play
This news service spoke to a number of groups to take the temperature.
“Travel restrictions have had a positive impact on movement to the Isle of Man,” Janine Cubbon, head of Private Wealth, Suntera, at its Isle of Man office, said. “It’s refocused decision-making to be more about ‘where do I want to be based if travel is restricted?’”
“The Isle of Man has seen increased global recognition as somewhere people want to live as a result. Lifestyle, security, quality health and education, a strong economy, a strong sense of social responsibility and supportive local infrastructure all play their part. The rollout of a swift vaccination program to ensure the island’s borders can open and accommodate freedom of travel for the masses has also been key,” Cubbon said.
Paul Hunter, group head of family office services, Crestbridge, was asked how the IFC value proposition holds up in today’s world.
“Generally, clients actively seek stability and certainty, and we’ve been seeing that now for some years, in the aftermath of the global financial crisis, Brexit and now the pandemic. For some years, though, we’ve had a focus on the US as a growth market for our family office services business. It’s a strategically important growth market not only because of the impact of the pandemic but because of the long-term rate of growth in certain regional markets within the US, the increasingly global nature of the US private client landscape, and the prevalence of an industry that is still growing in maturity in terms of its cross-border, non-domestic capabilities,” Hunter said.
“It’s why we’ve bolstered our footprint in the US over recent years and why we launched a joint venture with Willow Street to create Crestbridge Fiduciary in 2020. The unsettled political and economic landscape in the US over recent years has certainly enabled us to introduce internationally-dynamic families in the US to solutions across our own network, as part of their search for certainty and peace of mind, and we fully expect that trend to continue.”
Daniel Channing, a Jersey-based colleague of Hunter at Crestbridge in its family offices business, was asked what IFCs must do to stay relevant.
“Top of the list has to be a commitment to service quality. If an IFC can demonstrate high standards of service and a workforce that is driven to achieving client-focused work, then that really is the differentiator in a world where clients are increasingly seeking quality,” Channing said.
“Stemming from that, ready access to a deep pool of specialist knowledge is really important. Families are in our experience moving into increasingly niche, new areas, and exploring new markets, and being able to service that need is vital. ESG and sustainable finance, or digital assets are cases in point. Clients will increasingly look at an IFC’s capabilities, aspirations and vision in areas such as these.
“Third, a tried and tested regulatory and legislative environment is critical. IFCs that can show that they have case law that has been tested in practice, and seeing an IFC’s commitment to maintaining a strong regulatory framework will give clients confidence in its maturity helping them to navigate an increasingly complex web of international regulation, reporting requirements and disclosure,” he continued.
“Fourth, digital acumen. All research points to the fact that the next gen is going to be immersed in a digital first environment, and IFCs that support them need to show that they are aligned with that - from digital adoption and digital infrastructure, to digital innovation and fintech development, all these things add up to create a digital-first environment that is going to resonate with clients in the long-term.
“And finally, choice of structures. Having an armory of structures that have a track record of delivering on client objectives is key, as clients become increasingly focused on specific investment or life outcomes from their wealth planning – whether that’s asset protection, generating returns, legacy planning, making philanthropic donations or establishing impact-focused schemes, having a range of robust, familiar, tested structures will become more and more important,” he said.
Deidree Bain, managing director, Bahamas office at Suntera, said: "There is a huge variance in how IFCs have been affected. Smaller jurisdictions have seen an influx in new residents who have a perception that these smaller countries have managed the pandemic well in comparison to some larger cities. Large cities and population centers look very different from their pre-COVID days.”
Certain places appear to be doing well, at least according to anecdotal reports. Hawksford, a provider of corporate, private client and funds services, said people across the world have asked about moving businesses to Jersey.
“It is a very exciting time for us in Jersey,” said David Carswell, Hawksford director and head of Corporate Services in Jersey. “Jersey is a highly reputable, well-regulated jurisdiction. In the past, some may have felt this worked against us but with a growing number of traditional financial centers being added to gray lists and watch lists, attention is turning to Jersey as a trustworthy destination for businesses."
Professor Morriss, quoted above, said some jurisdictions haven't handled the pandemic and its restrictions particularly well, raising questions about governance more generally.
Referring to the Cayman Islands and certain other Caribbean centers, Morriss noted that their strict, and long quarantine requirements as of the time of writing were a blow to their status as convenient cross-border locations. “It has rather killed the 'we are one hour from Miami’ point," he said.
In the Cayman Islands, fully vaccinated travelers who arrive at the IFC on or after 22 September and who produce a vaccine document must be quaranteed for seven days with a negative day eight exit quarantine PCR test.
If certain offshore centers remain closed or impose tight controls, it is going to drive business elsewhere, professor Morriss said.
The use of Zoom and other platforms, and greater use of such digital channels, is going to change the kind of “sales pitches” that offshore centers use to encourage business. In the past, they have often promoted the tourist/lifestyle angles, but that is less potent if it is harder to physically get to such places, he continued.
“Faced with a crisis, most of these places [IFCs] have not given noticeably smarter responses to it than the UK or US,” professor Morriss said. “These places in the past have sold us on the line of being smart regulators….but the pandemic has made you question it for some jurisdictions.”