ICIJ’s “Offshore Leaks” investigation has created a “crisis of confidence” for tax havens, damaging the offshore industry’s bottom line and its prospects for growth, a new report by a leading offshore services firm says.
“The damage caused by the International Consortium of Investigative Journalists getting its hands on a cache of 2.5 million records detailing the offshore assets of people should not be underestimated,” Hong Kong-based Offshore Incorporations Limited says. “The scandal has created a crisis of confidence in the industry.”
Most of the accountants and other offshore professionals that the company, known by the acronym OIL, surveyed for its report said that ICIJ’s stories have reduced demand for offshore financial vehicles or prompted clients to move their business from one haven to another.
It has been a tough year for offshore havens thanks to ICIJ’s revelations and efforts by the G20 club of rich nations and other international bodies to crack down on offshore-enabled money laundering and tax dodging.
The offshore operatives who shared their views with OIL, though, have a solution to the growing controversy surrounding their industry – more lobbying and better public relations.
OIL surveyed more than 200 bankers, consultants and lawyers active in the offshore industry to learn the extent of the damage and their views on how it can best be repaired. Their findings in full, with ICIJ's annotations, are available here.
These are four key takeaways from OIL’s “Offshore 2020” report:
· ICIJ’s Offshore Leaks investigation was very bad for business
Just a year ago, a similar report by OIL found that the outlook for the offshore industry was bright. Steady growth was on the horizon, it said. This optimistic forecast was shattered by the publication of ICIJ’s investigation, which revealed the offshore activities of prominent politicians and business leaders around the world as well as fraudsters, Ponzi schemers and criminals.
Among the 228 offshore industry participants interviewed for OIL’s report, more than three quarters said the leaks to ICIJ have affected the demand for offshore vehicles. 46 percent of those surveyed said it had caused demand to shift between offshore jurisdictions while overall demand remained the same, while 38 percent said that Offshore Leaks had reduced demand for offshore vehicles overall. Just 16 percent said that the investigation had caused no change to the demand for offshore products.
· The problem is about public relations
“The primary challenge currently facing the industry concerns its public image,” OIL writes. The title of the first section of its report drives home the message: “The Big Picture – A Public Relations Problem.”
OIL laments that the recent revelations have led politicians and the public to question the integrity of offshore finance. It acknowledges the merit of efforts to clean up the system and calls for greater transparency, but states firmly that the problem does not lie with the services offered by the industry.
“The political debate on offshore financial services has become an unseemly morality war,” OIL admonishes. “What the industry faces is not so much a material challenge based on quality of service as a public relations problem.”
· Regulation is not the solution
To figure out how best to combat the negative publicity, OIL asked its survey respondents how the industry could best enhance its public image. The results were decisive: public relations was by far the leading response, followed by lobbying in second place.
Transparency came in fifth, followed by professionalism in tenth place. The least popular response, which came in last among all solutions suggested by survey participants, was addressing the problem through regulation.
· Offshore centers of the world, unite!
OIL says offshore businesses need to unite behind a single lobby group so can better represent their interests.
“The next step is creating a single and strong association to represent the industry in discussions with international decision-making bodies such as the OECD,” OIL writes. “A single platform equates to a louder and clearer voice.”
Last week, ICIJ examined six of the lobby groups that are currently working to prevent or water down offshore reforms. OIL noted that previous attempts to unite these efforts were like “herding cats” due to the competing agendas among numerous offshore jurisdictions. Nonetheless, OIL suggested that the International Financial Center Forum – described in ICIJ’s “Lobbyists for the Havens” story – is the likeliest candidate to lead the offshore industry’s lobbying efforts.
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