Offshore Investment - Arguments Against Offshore Investment

Arguments Against Offshore Investment

Reasons which have been advanced against offshore investment include:

• They bypass security exchange legislation put into place after the great depression (e.g., the U.S. Securities Act of 1933 and the Securities Exchange Act of 1934) to stabilize the word's economies and establish a fair marketplace. This increases the risk that the financial markets are not properly regulated, increasing the likelihood of bubbles and subsequent recessions.

• Ethically, it might be considered an abuse of national sovereignty by reducing transparency to regulators of financial transactions. Offshore investments reduce transparency, which abets illegal activities such as allowing investment firms to bypass their fiduciary responsibility and exploit their customers. As an example, it is alleged in a SEC-filed civil fraud suit that Goldman Sachs set up an "offshore deal in which a longtime client, the hedge fund Paulson & Co., helped select and then bet against the securities in the deal without telling investors of Paulson's role."

• It exploits the advantages created to earn wealth by a taxed economy while not paying its fair share of taxes in that economy. Wealth earned in one (taxed) economy is taken out of circulation (i.e., it cannot be taxed again when re-spent to provide services and infrastructure).

• It encourages Tax competition between states, provinces, countries, and regions in the way that the search for ever cheaper source of manual labor brings down wages everywhere.

• Offshore investments in poorly regulated tax havens may bypass sanctions against countries established to encourage conventions important to societies (e.g., UN sanctions for failure to adhere to nuclear nonproliferation treaties). This has the effect of undercutting the effectiveness of such sanctions.