ROUND TABLE: Offshore Funds Won't Go Begging After Nauru

Where Will Offshore Money Go Now that the Pacific Island of Nauru Has Tightened Its Laws?

The most interesting development is the appearance of an offshore zone in Montenegro. I say interesting because it's precisely for commercial banks and financial institutions. And what makes it so attractive is the relaxation of the state's laws for registering there. It may not be a textbook example of an offshore zone, but it's nevertheless an interesting region. And a lot of professionals are currently working on the possibilities connected to Montenegro.

In addition, Russian banks are making another attempt to break onto international markets in order to attract more revenues. It's all still just in the planning stages, but the Dutch Antilles and Ireland, for example, are going to see it as a way to generate new tax revenues, although not necessarily in their offshore zones. In Ireland, it won't necessarily be Dublin or Shannon, since they lose their offshore status in 2005. In spite of the reduced benefits to working there, I predict the banks will still use these countries. The Central Bank's instruction has of course erected a series of obstacles to all of this. But Montenegro is missing from the Central Bank's black list, which is why I place it in the first place. The Baltics are also an option, Estonia for example, but that's already the next phase.

Gennady Meshcheryakov

Financial Markets Manager

Arthur Andersen

In my opinion, the tightening of Nauru's laws will have practically no effect on Russian offshore business. There is a huge number of other offshore zones and tax havens, in the Bahamas and Panama for example. As everyone knows, the best way to stop illegal capital flight or tax evasion is not to impose restrictions, but to change the economic conditions for domestic companies so that the tax burden is equal to the costs of doing business offshore. It gives a completely different perspective if one sees this event as the outcome of British and U.S. policy in their fight against offshore business. The Nauru example may suggest that in their fight Western politicians have finally put their words into action. However, I think offshore business is indestructible because the desire to pay less or not at all will always exist.

Alexander Korchagin

Analytical Director

Prospekt Investment Company

They'll no doubt find some other offshore country. It's hard to imagine they'd immediately pack up and return to Russia. There are a lot of attractive offshore zones in the world. And while many national governments have tried to put an end to the practice, nothing significant has ever come of it. Most likely, offshore zones will continue to occupy their own special niche on the world economy. Closing Nauru could make it a little more difficult to launder money, and it might become a little more expensive, but they'll find some acceptable way to get it done. There are a lot of candidates out there. I think it might be the Bahamas or the Virgin Islands. After Nauru, theirs are the most lenient laws.

Vladimir Detinich

Analysis and Financial Investments Director

Olma Investment Fund

The Seychelles are most likely. After Nauru, they have the most relaxed legislation. It's for that very reason that serious Western banks like the Swiss have completely refused to work with the Seychelles. ... The Bahamas, Belize and the Virgin Islands are also offering themselves as offshore countries now.

Of course, the United States may apply some pressure and demand tighter legislation here. But what kind of pressure can you apply when it's a question of billions of dollars? There's money to be made. It's all about supply and demand, and no attempt to thwart it will succeed.

I don't believe this fight has anything to do with principles or ideology. It's more a battle of interests. Besides, it's futile to fight against offshore zones, just like the case with gambling. Everyone seems so set against it, but each quietly does it anyway.

Vladimir Proshin

Analytical Director

NIKoil Investment Bank Group

Source: Vedomosti