Business Intelligence

Bank Secrecy, Illicit Money And Offshore Financial Centers

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Executive Summary

This paper discusses the effects of pressure policies on offshore financial centers as well as their ability to enforce the compliance of those centers with anti-money laundering regulations. Offshore banks can be encouraged to comply with rigorous monitoring of an investor's identity and the origin of his/her funds when pressure creates a sufficiently high risk of reputational harm to the investor. The authors show that such pressure policies harm both offshore and onshore investors and can benefit both the bank industry and tax administrations. They show that social optimal pressure policies are dichotomous decisions between no pressures at all and a pressure great enough to persuade offshore banks to comply.

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