Markets, Offshore Sovereignty and Onshore Legitimacy

This paper considers the dilemmas associated with the regulation of offshore finance centres under conditions of late-modern capitalism and a world economy that is shaped increasingly by the pressures of globalisation. Since the early 1970s factors such as: rapid developments in information technology, liberalisation of exchange controls, the increasing dematerialisation of financial products, the end of the Cold War, the development of global financial conglomerates and the increasing inter-dependence of national economies has seen the finance sector evolve as possibly the most globalised component of the world economy. A concomitant of this globalising finance sector has been the emergence of a substantial number of offshore finance centres (OFCs) in many parts of the world. The rise of OFCs has produced many benefits for their host economies and for their clients. However, there are negative externalities associated with OFCs as well, with some openly branded as facilitators of money laundering, or as tax havens. In recent times the levels of international pressure upon OFCs, (many of whom are small island states or territories), has been growing. Many have been named and shamed and placed upon blacklists produced by international organisations such as the Organisation for Economic Cooperation and Development (OECD), the Financial Action Task Force (FATF) and the Financial Stability Forum (FSF). This paper utilises a theoretical paradigm that synthesises approaches grounded in legitimation, structuration theory, legal pluralism and the sociology of censure in order to examine some of the issues that arise from recent efforts by certain international organizations to influence the activities of OFCs in international financial markets. The conclusion reached is that it if external actors want to shape how the regulatory infrastructures of OFCs function, then it is essential that international or other external regulatory initiatives should take into account in a meaningful way: 1) the legitimate self-interest of both OFCs and major onshore finance centres; 2) how pursuit of market share and the influence of competition shape regulatory discourses; and 3) that the establishment of prevailing regulatory norms are fundamentally exercises in the social construction of legitimacy