draining development.pdf - Khazar University

Tax Havens and Illicit Flows 343cific term, because it is precisely the legal system that is the locus of thespecific actions.The emphasis on secrecy is necessary, Murphy argues, so that nonresidentscan take advantage of favorable changes in the jurisdiction’s legalframework with the confidence that they will not fall foul of the legalsystem in the place where they reside. There are thus two key characteristicsthat define a secrecy jurisdiction:• “The secrecy jurisdiction creates regulation that they know is primarilyof benefit and use to those not resident in their geographical domain”• “The creation of a deliberate, and legally backed, veil of secrecy thatensures that those from outside the jurisdiction making use of itsregulation cannot be identified to be doing so.” (Murphy 2008, 6) 2By focusing on what makes them attractive, the secrecy jurisdictionconcept therefore relies, above all, on an assessment of the comparativeadvantage of the jurisdictions in question. The route the secrecy jurisdictionshave chosen to attract (the declaration of) foreign economic orfinancial activity is the provision of relatively favorable terms to users. Ineffect, this indicates a reliance on regulatory arbitrage (potentially, butnot necessarily including tax regulation). 3 Because some arbitrage isinevitable in the absence of comprehensive global standards, this alsoruns the risk of excessive breadth; the damaging element relates to arbitragethat is effective because it frustrates the intentions behind regulatorystandards in other jurisdictions in regard to activities that remainsubstantially in those other jurisdictions.Criteria and approachesThe success of attempts to identify the jurisdictions of concern has beenmixed. Table 11A.1 reproduces a set of lists compiled by Murphy inchapter 9. 4 The table outlines most of the main efforts by academics andinstitutions over the last 30 years. For the most part, these have drawn ondefinitions that, while generally made explicit, lack a basis in objective,measurable criteria.To consider how such criteria might be created and applied, it is usefulto start with Zoromé (2007). Having established key characteristicsof OFCs, Zoromé proposes a definition, as follows: “an OFC is a countryor jurisdiction that provides financial services to nonresidents on a scale