No one would deny that OFCs suffer from a negative image despite their tremendous success over the past two decades. Those who work within the industry or are familiar with the various jurisdictions know that this negative image actually bears little relation to reality.
Nonetheless this image problem is an important factor in assessing the future viability of offshore centres and how OFCs address it collectively and individually can make a material difference in their battle for sustainability.
The reputational challenge faced by OFCs can be broken into three onshore-based perceptions. The first is that offshore centers facilitate tax evasion and criminal activity. The second is that offshore centers add no economic value to the global economy and in particular the source country of their clients. And the third is that OFCs can in fact cause some instability in the global financial system.
The practical implications arising from these perceptions for OFCs is that a) clients may become less attracted/”wary” of doing business in OFCs and b) that government officials and other key decision makers based onshore increase their efforts to introduce harmful domestic legislation which are not in the best economic interest of OFCs.
Working for the public good?
As is the case with addressing international regulatory challenges, a combined effort by OFCs could go some way toward improving the general image of the offshore world. This would be in the interest of the ‘public good’ among OFCs, but given the history of cooperation on mutual matters (or lack thereof) it is unlikely that this will occur anytime soon.
At the same time, it would be naïve to expect a significant dent in the current general perception even if OFCs could pool a significant amount of resources towards the common good.
What is a more likely scenario going forward is that each jurisdiction will have to find smarter ways to fight this battle on an individual basis with the sole objective of protecting their industry.
Focus for the future
Regardless of whether OFCs work together towards the general image concerns, each jurisdiction still has a lot of work to do to address the impact of these perceptions on their respective financial services industries.
In this case resources are best utilised to alter perceptions among specific target audiences in say the US or UK. There is little point spending large amounts of OFC public sector resources trying to impact a deeply rooted set of perceptions among the wider onshore public.
These perceptions are perpetuated by onshore media almost exclusively for the purpose of entertaining readers and movie goers. To use an example, it would be almost inconceivable that the obligatory line in the next James Bond film would suggest that the bad guy’s money is wired to an account in Idaho: that clearly does not ring with movie goers.
And for this reason we can expect such references to be made to the Cayman Islands, Switzerland, Bahamas etc for a very long time to come. Its not the movie producers business to worry about how a one liner in his blockbuster may impact or perpetuate the perceptions of a particular jurisdiction; so OFCs have to accept this reality of today’s world and get on with finding other ways to address the image problem.
A targeted approach, however, could reap some benefits because changing the perceptions of a key policy maker onshore is far more important than trying to ‘educate’ the general public in his/her country.
In my opinion, this means that the future reputation of each individual jurisdiction hinges partly on their ability to be successful in communicating key messages to the following three target groups:
- Technical and political personnel in the main international and governmental organisations such as the OECD, IMF etc
- Technical personnel in Ministry of Finance or Treasury particularly in the major source markets of the respective jurisdictions.
- Occassionally, key personnel in the most influential media organisations onshore (FT, NY Times etc)
The messages to be crafted should address the three key perceptions mentioned earlier, but one in particular, would be especially effective and this relates to the positive role that OFCs play in the world economy and the value added to clients.
Once technocrats gain a true appreciation of role of the structuring and services provided by OFC’s and how this relates directly to employment and other benefits to OECD based economies, they may incorporate this new insight into their assessment of OFCS.
We would then expect this to filter (at least partially) into the advice given to, and the thinking of, political leaders in these countries.
OFCs that take their communications role in the future seriously are more likely to face a more cooperative approach when trying to gain access to their major source markets. This is all of course subject to the potential political influences onshore that will occur in those countries, whereby policy decisions are made by OECD countries which reflect political/competitive goals rather than the objective advice which may be given by their technocrats.
Interaction with the media
Traditionally, OFCs have ignored the media campaign waged against them in the hope that it would not have a significant negative impact on business. But a major change has taken place across jurisdictions in recent years with the use of marketing and public relations bodies and an increase in public sector funding of such initiatives.
There is a clear recognition that maintaining a financial centre that is commercially successful will depend not just upon good regulation, but also on how that centre is perceived internationally. It is painful to witness millions of dollars of limited resources being devoted to improving a regulatory regime while simultaneously that jurisdiction in question has an unjustifiable image of a 1970s financial world.
Reputable OFCs have already carried out the large expenditures and have finally realised that the public relations war is just as important as implementing regulations that preserve the offshore financial world's integrity. They must now do much more if they are to make an appropriately sized dent into an outdated, tarnished image.
Messaging requires underlying integrity
If the preconceptions of modern day pirates, palm trees and brass plated institutions is the main fuel for the 'mystique' and hence entertainment value of the offshore world, then educating onshore media about the realities of OFCs must be a high priority. In many OFCs, authorities and even the private sector remain suspicious of representatives from the international media.
For the most part this is because they have been stung at least once by stories in OECD-based broadsheets that find it hard not to take the free ride to entertainment value that links to an OFC gives to a financial story.
But as unwarranted as that approach may be, one could hardly argue against their rationale. After all how many movies have we watched that entertains us but bear almost no relation to reality?
The only way to get to the heart of the problem is take away the entertainment value. For some jurisdictions this will be easy, because they will be able to demonstrate the integrity of their financial centres by meeting international regulatory standards or illustrating their positive economic role.
For others, this attempt will amount to no more than a superficial public relations exercise unless, for example, their systems can be proven to stand up to proper international regulatory scrutiny. In other words only those OFCs with a genuine story to tell will see success in the future.
OFCs face a perception issue within the wider communities onshore which is fuelled by mass media. And while it remains important to make factual corrections and respond sometimes to newspaper articles and blogs, the future of OFCs would be better served with a more targeted approach to managing a jurisdiction’s image.
This will require more education of key stakeholders onshore. For certain this will not be as easy as placing an advert in a publication; but it would likely be a lot more effective.
Those jurisdictions that take this more direct approach to education and awareness of what they do and how they contribute positively to their source markets and the rest of the world, will likely receive less of an uphill battle. This has to be worth something.