What the heck is happening in the Cayman Islands? That is a question often asked in relation to corporate tax. This week, for example, the OECD called for an end to the loopholes that let global companies cut their tax bills in places like the British overseas territory.
As the debate bubbles on, there is another facet of globalisation that merits more discussion: the financial flows associated with offshore centres, particularly between banks and non-bank entities. Until recently, this activity seemed like a mystery wrapped in an enigma for investors. Yes, regulators have long published data about the onshore activities of regulated banks. But there was little information available about the financial flows around non-banks, least of all when they were based in murky offshore locations.
This is starting to change. One reason is that the Financial Stability Board, a Basel-based entity created in the aftermath of the 2008 crisis, has now been publishing data about non-banks (or “shadow banks”, as they are popularly known) for nearly a decade. Last month the Bank for International Settlements also started publishing data on cross-border financial flows between banks and non-banks — even for opaque offshore centres.