Sunday, December 3, 2017

Tyler Cowen: Offshore Banking Guards Against Tyranny

By Tyler Cowen

Confidential, offshore banking is hardly a popular institution. It’s often seen a stand-in for rampant wealth inequality, secrecy and, in some cases, tax avoidance or evasion, even when the money is placed overseas legally. The Panama Papers and Paradise Papers, both large troves of leaked documents about overseas accounts, were considered scandalous, even though the financial institutions involved are legitimate, and many of the accounts haven’t been connected with legal wrongdoing in any way.

Given this background, I’d like to speak up for offshore banking as a significant protection against tyranny and unjust autocracy. It’s not just that many offshore financial institutions, such as hedge funds registered in the Cayman Islands, are entirely legal, but also that the practice of hiding wealth overseas has its upside.

Consider recent developments in Saudi Arabia. In a series of remarkable events, the Saudi government has taken many of the kingdom’s wealthiest individuals hostage in Riyadh hotels, including the Ritz-Carlton, and is negotiating with them for their release.
According to some reports, the government is asking for up to 70 percent of their wealth, to raise hundreds of billions of dollars. Presumably if they turn the wealth over, they will be given their freedom. On Tuesday, one of the most senior detained royals, Prince Miteb bin Abdullah, was released after agreeing to pay a $1 billion settlement.

This is a matter of internal Saudi politics, and I’m not suggesting you need to have definite views as to which factions are in the right or wrong. Still, this is a disturbing series of events. From the vantage point of Western liberalism, individuals should be free from arbitrary confiscations of their wealth, connected to threats against their life and liberty, even if those individuals didn’t earn all of that wealth justly or honestly. There is even a “takings clause” built into the U.S. Constitution. On top of these moral issues, such confiscations may scare off foreign investment and slow progress toward the rule of law.

Wealthy Saudis might have been surprised by these particular events, but they knew that their property rights were never fully secure. So many of them placed, or perhaps hid, some of their wealth in offshore banking. In essence, those accounts make it harder for autocratic governments to confiscate resources from their citizens. That in turn limits the potential for tyranny.

Read the rest here.

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