After Guernsey, the Gambia? The smallest country in mainland Africa, a sliver on the west coast with a population of 1.8m, is trying to turn itself into an offshore financial centre. Central to the strategy is a state-of-the-art online corporate registry, offering quick and cheap incorporation of the types of secretive companies and trusts that drive financial investigators to distraction.
It is a counter-intuitive move at a time when offshore hubs are under fire from big economies that accuse them of aiding tax evasion or worse. But the idea of becoming a tax haven “will always loom large” for small states with few other options for economic development, says Jason Sharman of Griffith University in Australia. The Gambia’s economy is fairly open but still heavily dependent on tourism and peanuts.
With Britain cranking up pressure on its dependencies in the Caribbean and the English Channel, some of their customers will seek new homes offshore. And the overall market is proving resilient: after dipping in 2007-08, demand for offshore vehicles is back near pre-crisis levels in many jurisdictions, according to Appleby, a law firm.
The Gambia is not the only African country to take an interest. An attempt led by Barclays to develop Ghana into an offshore banking hub foundered in 2011 when the government, spooked by a warning from the OECD, declined to pass the required regulations. Tiny Anjouan, an island in the Indian Ocean, dabbled briefly with shell banks. Kenya is working with TheCityUK, which helps London’s financial district forge alliances, to set up an “International Financial Centre” (offshore centres’ preferred label for their activities) in Nairobi. TheCityUK is also in talks with Dubai, Istanbul and Moscow. Liberia is a successful shipping flag of convenience, although its registry is run from Virginia.
The Gambian registry already has “several hundred” companies, says Charlotte Pawar, a manager. But it will need many thousands to be considered a success, a tall order in a bitterly competitive market. Although it is easy to copy other places’ laws and product offerings (the Gambia’s resemble those of Mauritius), gaining traction is a struggle without the right network of tax treaties and the backing of the big corporate-service providers that buy offshore firms in bulk from favoured jurisdictions, for resale to law firms and individuals.
These sponsors are hard to impress. Only four of the many jurisdictions that have tried to enter the market since the late 1980s have proved really successful: Mauritius, the Seychelles, Belize and Samoa. The largest mass incorporator, Hong Kong-based Offshore Incorporations Limited, apparently has no plans to start selling Gambian vehicles. It could be a while before financial shells displace those around the country’s peanuts as a source of economic value
Offshore finance: Trawling for business, Economist, Aug. 24, at 65