Offshore Financial Centers -- The Role of the IMF

Offshore Banking and Financial Centers

Offshore Financial Centers (OFCs):
Note for the IMF Executive Board

Prepared by the Monetary and Exchange Affairs Department

In consultation with other Departments

June 29, 2001

I. Introduction and Background
II. Offshore Financial Centers (OFCs) Missions To Date
III. Plans for Future Assessments
IV. The Outreach Program on Statistics
V. Publication And Transmission To Interested Parties
VI. Conclusion
  1. Other Activities Impinging on OFCs



I. Introduction and Background

1. In July 2000, the Board asked Fund staff to extend financial sector work to include Offshore Financial Centers (OFCs) through a voluntary program of assessments, ranging from self-assessments to participation in comprehensive FSAPs. The Board's conclusions are in BUFF/00/98 of July 14, 2000. The staff papers for the Board were subsequently posted on the Fund website.1

2. At the same time, the Board concluded that statistics relating to Offshore Financial Centers are currently often inadequate for monitoring and analysis, and asked the Fund staff, in close cooperation with the jurisdictions concerned and with other international fora, to intensify efforts to develop more comprehensive coverage.

3. A report for information was provided to the Board in February 2001 (SM/01/43). This note updates that report. In addition it seeks Board approval for putting this report on the Fund website for information.

II. Offshore Financial Centers (OFCs) Missions To Date

4. Virtually all OFCs sent representatives to the outreach meetings in September 2000. The following 19 OFCs have been the subject of individual, MAE-led, OFC missions up to the end of June 2001: Andorra, Aruba, Bermuda, Cook Islands, Cyprus, Dominica, Gibraltar, Grenada, Labuan, Marshall Islands, Monaco, Netherlands Antilles, Panama, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Samoa, The Bahamas, and Vanuatu. All of these jurisdictions have endorsed the aims of the Fund's initiative, of raising OFC supervisory standards to international levels, and of increasing the flow of statistics.

5. These initial missions, mostly a few days in length, were intended to help both the authorities and the Fund staff prepare the next steps, and to get the jurisdictions started on the process of self-assessment. The missions were mostly led by MAE staff and most included LEG staff and some included outside experts.

6. The missions found that some OFC s were keen to begin with an assisted self-assessment, and an opportunity to make changes, to both legislation and to supervision, before embarking on a Fund-led assessment under Module 2 or 3 of the OFC program. Many jurisdictions are involved in intensive work to update legislation and increase supervisory resources, with some OFCs asking for technical assistance. MAE is advising on the appropriate expert, usually from outside the Fund. Decisions on technical assistance take account of the availability of Fund resources in the budget, other claims on resources and on the priority of the assessment. Many jurisdictions, often with limited resources, are also responding to the FATF and OECD initiatives, and some have referred to "assessment fatigue."

7. For these reasons, the initial development of the Fund program has taken longer than expected, although it is now close to its programmed level. Overall, the three year program of Fund assessments is likely to be somewhat backend loaded. The demand for technical assistance is greater than foreseen. In some OFCs financial regulation and supervision is weak. As a result, the financial system is vulnerable and there is a need to improve the regulatory and supervisory system and to bring it up to international standards. The vulnerabilities extend beyond the traditional areas of banking and insurance to international business companies and trusts whose importance has been expanding. The vulnerabilities are, to a large extent, related to "know-your-customer" issues. Many OFCs do not possess the resources to carry out the needed improvements. Several have received long-term technical assistance from the Fund for financial sector supervision and in some cases additional technical assistance is being requested. Because of the demand from a variety of sources there is a shortage of expertise available to provide the kind of assistance needed. The staff will continue to be flexible, in terms of timing and type of assessment, in response to the needs of OFCs.

8. Three Fund-led Module 2 missions have been completed: Cyprus, Panama, and Gibraltar. The final report on Cyprus is with the authorities. The other two reports are in draft. The authorities in each of these jurisdictions have indicated an interest in publication.

9. Module 1, self-assessments, are in the process of being prepared by a number of OFCs, including the following: Andorra, Antigua and Barbuda, Aruba, Dominica, Grenada, Netherlands Antilles, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines and the Bahamas. In addition, KPMG reports on the following six U.K. Overseas Territories were published in October 2000: Anguilla, Bermuda, British Virgin Islands (BVI), Cayman Islands, Montserrat, and Turks and Caicos.

III. Plans for Future Assessments

10. Staff are planning, subject to the agreement of the authorities, further OFC missions in the remainder of calendar 2001, to include the following:

  • At least four more Module 2 assessments, provisionally to include: Andorra, Aruba, Macao, and the Netherlands Antilles; and

  • Visits to Anguilla, Antigua and Barbuda, Belize, BVI, Cayman Islands, Dominica, Grenada, Mauritius, Montserrat, Seychelles, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Turks and Caicos Islands. These visits are designed to discuss and evaluate progress in raising standards, and in particular to discuss recommendations arising from self-assessments, Fund assessments, or outside assessments. The staff plan to visit the six Eastern Caribbean Central Bank (ECCB) countries 2 in order to discuss the progress of work on the self-assessments and the recommendations on changes needed, including plans for Fund-led, Module 2, assessments in advance of a possible FSAP next year. On the group of U.K. Overseas Territories reported on by KPMG in October 2000, the staff plan to conduct assessments once the recommendations accepted from KPMG reports have been implemented: this process is planned to get under way in 2002.

11. In addition, the FSAP schedule for the next year includes Singapore, Switzerland, and Barbados.

12. The work on OFCs is being developed in consultation with other relevant bodies, such as offshore supervisory groupings. This cooperation is designed to foster understanding of the Fund program among supervisors; to ensure Fund staff is aware of the latest work by supervisors, for example on regulations; to reduce the burden on OFCs, by avoiding duplication of assessments; and to allow Fund-led missions to make good use of supervisory experts from cooperating institutions, including some from OFCs.


Table 1. Summary Table of Progress in OFC Assessments

As of the end of June 2001


Planned July-Dec 2001

Staff visits



18 1

Module 1 2


10 in process


Module 2

3 visits completed
(1 report finalized)
(2 in draft)


4 before the end of 2001

1 Visits include those related to follow-up on Module 1s and preparation for Module 2s.
2 In addition, comprehensive assessments by outside experts have been undertaken on Guernsey, Isle of Man, and Guernsey (the Edwards report), and on the six U.K. Overseas Territories (the KPMG report)


IV. The Outreach Program on Statistics

13. Fund statistics staff are helping jurisdictions improve their statistics, primarily by encouraging them to participate fully in international statistical collections especially of balances of payments, but also by helping them improve their national macroeconomic statistics. On the international front, the objective is comprehensive participation in the Fund's Coordinated Portfolio Investment Survey (CPIS) and in the BIS reporting system on international banking. In addition to banking, the CPIS in OFCs covers insurance companies and mutual funds. In response to the Managing Director's invitations to 27 offshore jurisdictions with significant external positions, most have agreed to participate, while others 3 are still engaged in discussions on reporting issues with their private sector players. Thus far, none of the those offshore jurisdictions that expressed an initial interest has declined to participate. This high measure of cooperation reflects in part the Fund's outreach program, which has included visits to Aruba, Bahamas, Bahrain, Bermuda, Cayman Islands, Gibraltar, Guernsey, Hong Kong SAR, Jersey, Luxembourg, Malaysia-Labuan, Mauritius, the Netherlands Antilles, Singapore, and Switzerland, and which also included a seminar for OFCs that was hosted by the Cayman Islands Monetary Authority. A second seminar in this outreach program will be held to discuss the more general macroeconomic statistical needs of OFCs. The seminars have been arranged with financial assistance from Japan.

V. Publication And Transmission To Interested Parties

14. In 2000, the FSF published a report on OFCs and a listing by three categories in terms of perceived supervisory strengths. The FSF will be reviewing the progress of their recommendations, including the assessment role of the Fund, at their meeting in September 2001, and have requested Fund staff—represented on the FSF by the First Deputy Managing Director and Mr. Ingves—to provide information on the role of the Fund thus far.

VI. Conclusion

15. The Fund's initiative for OFCs, covering both financial sector supervision and statistics, is well under way. Many jurisdictions, as a result of the increased focus on offshore financial activities in the recent past, are in the process of revising legislation and regulations and putting in place extra supervisory resources. In many cases, this process builds on a detailed assessment such as those carried out by KPMG on the six U.K. Overseas Territories. This process of raising standards of financial supervision takes time: conducting an assessment, reaching decisions on recommendations, passing new laws, recruiting new staff, and fully implementing the changes. There is an ongoing effort by Fund staff to persuade jurisdictions that timely independent assessments by Fund-led teams are helpful in achieving the common aims; in principle, this has been generally acceptable to OFCs, with jurisdictions considering the timing that suits them best.

16. Despite the difficulties in the start-up phase noted above, the program is close to its planned level. The Board Paper on OFCs, (SM/00/136), envisaged some 12 or so assessments—Modules 1, 2 and 3—taking place in the first year of the OFC program. By the end of calendar 2001, a little over 12 months from the start of the program in Fall 2000, it seems likely that some seven Module 2 assessments will have been completed, and at least as many Module 1 assessments.

17. Staff plans to report to the Board again on progress under the OFC initiative by end-2001.

Other Activities Impinging on OFCs

18. The Financial Action Task Force (FATF) published in June 2000 a list of 15 non-cooperative jurisdictions, from the standpoint of willingness to cooperate with FATF, on the basis of a FATF list of criteria. The FATF meeting in June 2001 reviewed that list, removing four jurisdictions (all OFCs), welcoming progress in seven jurisdictions, and adding six more to the list of non-cooperative countries and territories (NCCTs).

19. The OECD's work on "harmful tax practices" led to the publication in June 2000 of a list of 35 jurisdictions identified as tax havens. A meeting in Barbados in January 7-8, 2001, between the OECD and a number of developing countries, including OFCs, led to the setting up of a task force to find mutually agreed rules for the operation of "tax havens." A meeting is due to take place in July, 2001 to consider next steps.

20. The Financial Stability Forum (FSF), which published a report in April 2000 on Offshore Financial Centers and Financial Supervision, and a report in May 2000, which categorized OFCs into three groups, plans to discuss developments with regard to OFCs at their September 2001 meeting, including the work being done by the Fund.

21. In a study commissioned by the U.K. Government and the Overseas Territories (OTs), KPMG published, in October 2000, a report on financial supervision in each of the six U.K. OTs.4 The six OTs published early in 2001 their response to the reports, with a view to implementing the main changes later in 2001.

2 Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines.
3 BVI and Cayman Islands.
4 These reports are available on the web at:


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