Not all offshore financial centres are the same

Of course, captives are no longer set up for tax reasons, at least, not primarily, and most of the leading domiciles have passed all sorts of rigorous scrutiny in the form of various international reviews and investigations. So when Panama is in the headlines being described as a notorious tax haven, and words such as tax evasion, money-laundering, and criminal behaviour are being bandied around, it’s no surprise that the leading captive domiciles have been quick to distance themselves.

Bermuda, for example, has slammed what it calls “recent reporting on the ‘Panama Papers’ which perpetuates the myth that all offshore financial centres are the same.” It points out: “Bermuda is different. While there may be businesses, service providers and lax regulatory environments around the world that enable illegal tax evasion, Bermuda is not one of them.”

It points to its “extremely positive global reputation built on transparency, compliance and cooperation, ” and the fact that “the EU provided a strong endorsement of Bermuda’s robust, mature, and proficient regulatory environment by awarding equivalency with its own EU Solvency II regime. Bermuda is one of just two non-EU countries to be awarded that distinction.”

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It concludes: “Homogenising ‘offshore’ and dumping all international financial centres into one bucket synonymous with immoral, illegal and nefarious activity is inaccurate and ill-informed.”

This is true of most of the captive domiciles around the world. Nevertheless, the Panama Papers are just part of a growing focus on offshore finance which will increasingly throw the spotlight on domiciles and inevitably on the captive insurance sector. The need for transparency and openness has never been greater when it comes to the legitimate use of this old, established risk management and risk transfer mechanism. With the emphasis firmly on risk management and risk transfer, rather than on tax efficiency.