IV - TAX EVASION, GLOBAL MONEY, AND CAPITAL MARKET BANKING

Summary

The largest proportion of all foreign bank presences is not for participation in the local retail or the international service markets. Foreign banks exist for two main reasons: the evasion of domestic taxes and regulations, and the participation in global money and capital markets. It is a striking characteristic of banks in this type of business that they are often found in the upper floors of office buildings and have only very small areas for servicing customers through tellers and other typical retail banking facilities.

During the 1960s there developed so-called paper banking centres. These are typically located on small islands with sovereign governments, such as Bermuda and the Cayman Islands. Favourable legislation encouraged foreign banks to open “brass plate” offices, which establish nothing but a legal presence there. A foreign bank would buy a licence for as little as $20,000 a year, hire a lawyer, and rent a postal box. Local lawyers represent many banks in this fashion and signify their commitment by attaching brass plates with the banks' names outside their offices. From this practice stems the name of the undertakings.

Banks keep separate books on their paper centre operations in their domestic offices. One advantage of doing this has been that the business escapes certain domestic regulations and taxes. It also assures depositors and lenders anonymity from domestic legal and taxation authorities, which the banks cannot offer otherwise. The growth of this business has been curtailed sharply by legislation in the major industrial countries, especially the United States, which deliberately was aimed at closing these tax-havens for ordinary business and the refuge possibilities for criminal dealings. Of course, it is not possible to legislate away all such activities, but the relative importance of paper centres has declined since the early 1970s.

Euro and Asian Currency Markets

The main business of multinational banks now consists of participation in global money and capital markets functioning in all of the traditional major industrial cities of the world such as New York, London, Paris, Frankfurt, Zurich, Milan, Tokyo, and Montreal.