Don’t bank on it

Pim Opinion

Brass plate banks have the potential to become a major nuisance. For while several Pacific islands are home to offshore banks and fund operators who don’t cheat, there are others who are less scrupulous.

As this month’s report makes clear, the difficulty arises over the comparative ease with which some countries grant bank licences without any knowledge of the end user’s bona tides.

That the region can be touted around the world by people out for a fast buck as a place where money can be channeled with no questions asked is unfortunate.

The tax haven islands have the sovereign right to formulate their own banking laws. And having done so, they then have the duty to police them effectively. And while the fees those countries receive from transactions is a valuable aid to development, they receive little or nothing from the shell bank scams.

Despite that, there could be difficulties with banking secrecy laws when law enforcers, even from friendly nations, seek evidence to bring such people to book.

And although all banks benefit equally from the secrecy provisions, those houses with reputations to protect would be the last to complain if the shell operators found the main chance restricted.

The problem may be lack of awareness or, in some cases, lack of experience in dealing with silver-tongued manipulators, but something needs to be done to protect unwary investors wherever they may be.

The United States, with its awsome banking regula tions and vast experience of sorting the honest bankers from the rest, could play a vital role in helping island governments secrecy laws notwithstanding to continue to draw revenue from banking licences without simply exporting trouble to other countries.

At present that’s what can happen. A banking licence in the South Pacific can be the means whereby innocent people in a far part of the globe are cheated out of their life savings. It needn’t be so easy for the scalpers if the right kind of discretion is applied when granting the licence.

As the island nations develop their financial sectors they become hosts to ever more sophisticated proce dures and operators. This presents outstanding opportu nities for island citizens to be trained by masters of modern finance and many have seized that opportunity.

The downside, however, is that this level of sophistica tion has not always been matched by a training effort in the means of retaining the honest financiers while barring the cheats.

There is a real risk that the South Pacific could as a result be saddled with an unsavoury reputation in the financial world, much to the detriment of the reputable companies who pay their way in the host country and who take their training responsibilities seriously. They might be tempted to take their business elsewhere.

It hasn’t happened yet, but if things get out of hand the result could be a net outflow of capital from the region.

For example, it’s not hard to imagine aid donors feeling less than comfortable in committing funds to nations who harbour corporate identities who are suspected or convicted of fleecing their own citizens.

A tiny proportion of that aid money could profitably be spent on finding ways of protecting the real banks as a source of revenue while kicking out the fly-by-nights who provide little if any benefit to the host country anyway.

If a South Pacific bank licence comes to be seen around the world, rightly or wrongly, as a licence to dodge other countries’ laws, this can do nothing but harm.