An article in today’s edition of Sri Lanka’s Mirror newspaper draws attention to that island’s plans to develop an offshore financial centre in Colombo. According to the article the proposal is modelled on the Dubai International Financial Centre, a notorious centre for moneylaundering and illicit financial flows.
Now this doesn’t come as a complete surprise since earlier this year the UK Government website posted an article (‘UK supports the development of Sri Lankan Financial Services industry’) citing a speech in Colombo by the Lord Mayor of the City of London (London’s financial centre) and offering UK support:
We all have a role to play in building the future of our global industry – and we in the CISI and the UK want to support the development of the Sri Lankan Financial Services Industry.
How soon before Colombo follows London’s path and succumbs to the Finance Curse?
As the Mirror article makes clear, the Sri Lankan government is still at the stage of considering this idea, but we would respectfully suggest they think again and abandon the proposal.
Firstly, Dubai is not exactly a model than any responsible government should aim to pursue. In the devastating words of journalist Misha Glenny:
“Dubai had become so useful for terrorists, the superrich, the United States, dictators, Russian oligarchs, celebrities, Europe, and gangsters that if it did not exist, the global élites would have to invent it.”
Read more about Dubai’s role as a secrecy jurisdiction here.
Second, the island of Jersey, which is also mentioned in the Mirror article, was an early entrant into the tax haven-led development model, and as the Guardian newspaper recently disclosed, Jersey’s race to the bottom trajectory has not served it well.
Finally, any new entrant to the ultra-competitive market for offshore financial services will find itself competing against established players all engaged in a similar race to the bottom dynamic. It is unlikely that Colombo will attract anything other than tax evading portfolio flows – very often the proceeds from corrupt and criminal activity – and offshore booking activity by multinational companies seeking to shift profits from other countries. Any benefits to local people are likely to be significantly outweighed by the pitfalls, as this blogger discussed in a recent lecture.
The author of the Mirror article suggests that the government consults with experts before proceeding further: TJN would be delighted to advise.
P.S. The article also notes the Sri Lankan government’s announcement of a tax amnesty for individual’s and corporations holding money offshore:
The Finance Minister in a recent statement has announced that Sri Lankans who have financial assets abroad will be able to transfer such assets to Sri Lanka without any questions asked by giving an amnesty for such individuals or other corporate entities.
Creating a tax haven facility in Colombo is highly likely to make it far easier for political and business elites to offshore their wealth and evade taxes. Just saying.