Tangled offshore webs they weave

ChecksRisks Analysts
Feb 29, 2020
2 min read

The ownership of offshore financial centers (OFCs) is shrouded in webs of secrecy. However, experts can unravel geographic patterns in the flows of offshore stashes.

Dublin (top), conduit and Nicosia, sink.

AN offshore jurisdiction provide financial services for nonresidents on a scale that is not in line with the real size of its domestic economy. These jurisdictions are also known as Offshore Financial Centers (OFCs). The IMF defines an OFC as a place that meets three criteria — low or zero taxation, loose financial regulation, and bank secrecy. Many OFCs have procedures that make it almost impossible to find the ultimate beneficial owner (UBO), the other registrars, the funds, or the parent companies of a registered entity.

Apple had more than $250 billion parked offshore at the end of 2017. This would have been taxed at 24.6 percent if it were stored onshore in the USA. Instead, their offshore stash was taxed at 15.5 percent, saving them $22.75 billion.

In July 2017, four academic researchers compiled a set of data on 98.3 million offshore companies. The researchers identified patterns linking the places that stored offshore funds. They define two types of OFC, which they named "sink" and "conduit."

Sink OFC: This is the ultimate offshore destination of a stash of money, its resting place. It is at the “retrieving end” of the transfer process. Luxembourg is a typical sink OFC.

Conduit OFC: This is an offshore jurisdiction that is as a transfer point between the original source and a sink OFC. Netherlands is a conduit OFC.

The pattern of transferring funds is simple — original source >> conduit OFC >> sink OFC.

CORPNET website

This website details the research on this topic carried out by the CORPNET research group. The researchers, based at the University of Amsterdam, aim to understand global networks of corporate control. The site has a full and weighted ranking of OFC “sinks” versus “conduits”.

Typical OFC patterns

The graphics below show the patterns found in tracing offshore funds.