Offshore Finance and State Power

Abstract

Abstract Offshore financial centres such as Luxembourg, the Cayman Islands, or the City of London provide non-residents with a legal framework that is strong on property rights and soft on taxation and regulation. Building on a historical-institutionalist comparison of Britain, Germany, Brazil, and Mexico, Offshore Finance and State Power asks how these offshore financial services affect the power of the state to finance its political goals. It looks into the mechanics—how does it work?—and the outcome of this effect—is it enhancing or limiting state power? Combining a concept analysis with empirical data from descriptive banking statistics and qualitative expert interviews, the book finds that economic actors go offshore to create money more than to hide it. Legal offshore banking trumps tax planning or money laundering in its impact on state power. Offshore Finance and State Power also reveals that the outcome of that impact on state power is not straightforward. Offshore finance limits state power by transmitting the volatility of unregulated offshore banking into the domestic economy. Counterintuitively, however, offshore finance can also enhance state power. It provides governments with an extraterritorial vehicle to cover up political conflicts over how to finance the state and mitigate class conflict. To which extent a state can put offshore finances at its own service, depends on a country’s domestic elite constellation and the tax and bank bargains they have forged throughout history.