This post concludes a mini-series on the invisibilized power of trusts in modern financial capitalism. Read the rests of the posts here.
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In mainstream American discourse, offshore financial centers are generally conceived of as sources of scandal. For example, the Panama Papers, the Pandora Papers, and the Paradise Papers revealed companies and wealthy individuals concealing their assets and attempting to avoid or minimize taxation. In their recent posts, both Jed Kroncke and Allison Tait highlight one misleading feature of this standard narrative: landlocked U.S. states, like South Dakota, Wyoming, and Nevada, have been at the cutting edge of trust law reform, creating legal environments that allow the ultra-rich to shield their wealth from scrutiny and preserve it from taxation. Other scholars, likewise, have skillfully pushed back against the prevailing narrative of offshore financial centers as incorrigible tax havens. In what follows, however, I want to offer a different kind of corrective: offshore financial law, I argue, plays an important role in promoting freedom in some post-colonial jurisdictions.
There is arguably a relationship between offshore financial activity and a type of decolonization effort in these jurisdictions. This is not decolonization in the formal sense—by way of political sovereignty. It is decolonization in a practical sense—where historically subordinated Black and Brown communities can govern without certain colonial era or neo-colonial oversight because of their economic independence. Indeed, offshore financial law can be a tool for greater internal self-governance when used effectively. The challenge, as I argue in my recent article, Corporate Law as Decolonization, is to conceptualize this legal environment from the perspective of historically subordinated communities.
Consider the case of the well-known offshore financial centers of Bermuda, the British Virgin Islands, and the Cayman Islands, all of which are territories of the United Kingdom. These island jurisdictions are not legally sovereign but enjoy a form of practical sovereignty—comprising immense internal autonomy and high-standards of living—that parallel, if not exceed, the experiences of some of their Caribbean neighbors who gained sovereignty decades ago. For these and other small post-colonial jurisdictions, the options for economic development are not plentiful—often limited to tourism or materials, such as sugar or bauxite. As I have explained elsewhere, the provision of offshore financial services may be an optimal economic development strategy, given the limited industrial capacity of these jurisdictions and the need to diversify from being solely producers of raw materials for wealthy prior colonial controllers. Indeed, the capacities of these jurisdictions were intentionally limited by their colonizers who required them to specialize in sectors that benefited the colonizing country, rather than the colony. This dynamic has changed in the post-colonial era.
Bermuda, the British Virgin Islands, and the Cayman Islands are known for their attractive offshore financial laws and specialized commercial courts, as well as the ease with which entities can incorporate. As Christopher Bruner and William Moon have each written about, the sophistication of these jurisdictions in crafting corporate and financial law has incentivized international investment. And the income generated from offshore corporate and financial law activities have made them some of the wealthiest jurisdictions in the Northern Atlantic and Caribbean regions—far above their small island neighbors.
In the decades following the 1960s in the Caribbean, many of the newly sovereign countries, including Guyana, Jamaica, and Trinidad and Tobago, did not experience similar economic growth, and thus were unable to provide similarly high standards of living for their populations. These decades were also politically turbulent: Jamaica experienced political violence and struggled with sovereign debt (in the 1970s and 1980s), Trinidad and Tobago witnessed an attempted coup (1970), and Guyana suffered an actual coup (1979).
Bermuda, the British Virgin Islands, and the Cayman Islands had a different trajectory. As territories of the United Kingdom, what they lacked, and continue to lack, in terms of sovereignty, they have compensated for by way of enhanced autonomy. Instead of pursuing political independence in the 1960s, 1970s, and 1980s like their neighbors, they made the choice to remain politically associated with the United Kingdom. They each have constitutions, albeit approved by the United Kingdom, that officially provide them with limited local governance autonomy. In practice, this autonomy has been expanded because the United Kingdom is not economically responsible for this subset of territories. Indeed, because they generate significant revenue from their offshore sector, they are no longer eligible for regular economic intervention from the United Kingdom. For example, Bermuda’s per capita gross domestic and consumer purchasing power is one of the highest in the world.
This financial independence has significant implications for the relationship between the territories and the United Kingdom (and is quite an achievement for a small jurisdiction with a history of slavery). Akin to a commercial creditor-debtor relationship, the extension of funds by a country to a territory is typically accompanied with some oversight of the territory’s operations to ensure that those funds are being appropriately utilized. When funds are not forthcoming, the oversight becomes less necessary. For example, while the United Kingdom, through its governors in each territory, has the right to intervene in specific aspects of local governance, they are unlikely to do so. Instead, they seek to collaborate with local elected officials. In other words, by inviting corporations to their shores, these territories have become less reliant on foreign credit, which allows for a greater partnership with the United Kingdom and less oversight.
It bears noting that poorer former colonies have historically had less of a partnership with wealthier countries—some of which were their prior colonial controllers. Instead, these countries occupied a subordinate status and struggled for self-determination. The case of the 1980s Washington Consensus model and the international implementation of neoclassical economics reminds us of the struggles that many of these countries faced in an effort to chart their own domestic policies while complying with “structural adjustment” requirements.
Bermuda, the British Virgin Islands, and the Cayman Islands are constantly innovating in financial law, including trust legislation, to remain globally competitive and, thereby, maintain their economic independence and internal practical autonomy. In the case of Bermuda, policymakers are driven to work with the corporate and financial sectors to determine the kinds of rules that can be beneficial and efficient to corporate entitles, especially regarding the insurance industry—where Bermuda is considered a world leader. British Virgin Islands achieves similar ends by working closely with its Financial Services Commission, which oversees its financial services sector.
Even if we entertain the idea that financial law is potentially freedom-promoting in offshore financial centers, such as Bermuda, the British Virgin Islands, and the Cayman Islands, one potential concern is that the wealth generated by these industries will not be shared fairly among the populations in these jurisdictions. Do such gains accrue to a cross-section of the society or only elites?
Accepting that economic inequality is prevalent among many wealthy countries, including the United States, a few things are apparent where it concerns the policies of the governments and private sector leaders in Bermuda, the British Virgin Islands, and the Cayman Islands. First, there is some interest in effectively deploying the wealth earned throughout each society. For example, in Bermuda, there have been efforts to ensure that residents have an opportunity for “employ[ment] and training” and that there is always a “pipeline of local talent” available to participate in the offshore sector. The insurance sector, specifically, provides scholarships to Bermudians seeking to pursue higher education.
Second, there are positive spillover effects from the offshore legal framework on the larger society. For example, the growth of high-quality specialized commercial courts crafted to resolve disputes from the offshore sector has served as a model for local courts to follow in terms of structure and effective operation, which has relieved the heavy caseloads that the traditional court system endured. The latter achievement has paved the way for litigants across the society to gain greater access to the court system.
In short, the wealth generated form the offshore financial sector has made possible a variety of public goods, as well as economic and legal opportunities, that would otherwise not exist. And, while there may not be perfect income equality in wealthy offshore jurisdictions, arguably, the standard of living and quality of life are better in these places than they would have been if their offshore sectors did not exist. Of course, there is the question of the cost of this achievement to other countries. This is undoubtedly an important area of exploration, but it bears noting that the perspective and goals of colonies and historically subordinated communities are rarely considered in this discourse.
It is worth stressing that not all post-colonial offshore financial centers have effectively used financial law to achieve increased internal autonomy. Indeed, jurisdictions such as Anguilla, Montserrat, and Turks and Caicos have not been as economically successful as Bermuda, the British Virgin Islands, and the Cayman Islands. For a variety of reasons, ranging from poor institutional investments, limited state capacity, and public corruption, some offshore financial center cannot lay claim to social and political benefits of the offshore sector.
My goal is not to argue that offshore financial law is a panacea for growth and development in all post-colonial offshore financial centers, nor to ignore the potential for capture by wealthy elites, or the harms to other countries. Instead, I seek to raise awareness of the complex economic sociology at play where it concerns the offshore finance environment in some smaller post-colonial jurisdictions. I also seek to elucidate the political economy of law and development at work in some of these jurisdictions, as well as the innovative journey to autonomy that some historically subordinated jurisdictions have undertaken.
