On my vacation this summer I finally got some time left to spend with my horses. One day when I was out riding in the deep woods I started to think about an article I read in a magazine the day before. It was about Offshore Banking, which is well known in the business scene.

As we all are aware of, most governments regulate the degree of financial activity in a foreign currency that can take place. This has encouraged the growth of what is generally referred to as offshore banking, the given name to financial transactions when a foreign firm borrows foreign currencies. The primary motivation of offshore banking is avoiding regulation. Governments do not normally regulate banking activity that does not affect their domestic markets, so countries that have historically allowed unregulated foreign banking activity have become the main centres of offshore banking. Many tropical islands, such as Caymans, the Bahamas, and the Netherlands Antilles have become the centres of much of the offshore banking activity, although countries such as Luxembourg and Switzerland also have provided many of the same services.

Although transactions are officially “booked” through the offshore centres, most of the activity is on paper or via telex only; most of the capital never reaches the remote locales. Since the offshore centres often have been avoiding taxes on income earned abroad, these centres are often referred to as “tax havens”. The centres can shield income from taxes because capital can be held unknown to the owner’s home country tax authorities. For the most part, these “Wild West” days of international finance are over, and it is generally no longer possible to shield income in tax havens. But according to the article, a new trend seems to have come over us. It’s going to be interesting to see what happens. Will governments join forces to stop it?