Grey matters

Olivier De Wulf, “A Critical Examination of the International Regulation of Offshore Financial Centres,” SSRN (13 March, 2009) available at


This paper examines the literature on offshore financial centres and multilateral efforts at limiting competition. It concludes that, without strong enforcement capacities from the very beginning, the multilateral approach is vulnerable to bilateralism. The paper proposes several solutions, including the creation of a unique international body dealing with all issues raised by OFCs, or the adoption of a “unitary taxation” system or a “Financial Transparency Index.” The solution could also be the base on a multilateral agreement for the exchange of tax-relevant information. The information shared would help to target tax evasion, illegal trafficking and money-laundering. Finally, the international community needs to adopt a more global approach to the issue of OFCs including all countries and not only developed countries, and transversal, including taxation, corruption and instability.

CFR comment:

This University of Aberdeen School of Law student dissertation surveys multinational regulatory efforts aimed at offshore financial centres has a useful bibliography of the academic literature. The dissertation itself primarily summarises the literature, depending heavily on proposals by the Tax Justice Network and papers by OFC-critic, Lancaster University Law School Prof. Sol Picciotto, and does not offer a substantial critique of the sources. The primary policy recommendation is for “a more global approach to the issue of OFCs including all countries that would focus on “taxation, corruption and instability.” The paper is worth skimming for a sense of the anti-OFC literature and for the bibliography.

Ajay Khorana, Henri Servaes and Peter Tufano, “Mutual Fund Fees Around the World,” The Review of Financial Studies 22(3): 1279-1310 (2009). Available for purchase (US$50) at


Using a new database, the authors study fees charged by 46,580 mutual fund classes offered for sale in 18 countries, which account for about 86 per cent of the world fund industry in 2002. They examine management fees, total expense ratios and total shareholder costs (including load charges). Fees vary substantially across funds and from country to country. To explain these differences, the authors consider fund, sponsor, and national characteristics. Fees differ by investment objectives: larger funds and fund complexes charge lower fees; fees are higher for funds distributed in more countries and funds domiciled in certain offshore locations (especially when selling into countries levying higher taxes). Substantial cross-country differences persist even after controlling for these variables. These remaining differences can be explained by a variety of factors, the most robust of which is that fund fees are lower in countries with stronger investor protection.

CFR comment:

This paper provides a valuable overview of the mutual funds industry, including funds domiciled in Bermuda, Cayman, Guernsey, Isle of Man, and Jersey as well as in a variety of onshore jurisdictions. The analysis yields some interesting results: (1) offshore domiciled funds (except for Luxembourg domiciled funds) have higher fees than onshore domiciled funds; (2) all else equal, fees are lower in countries “where judicial systems are superior, where there are regulations requiring an independent custodian,” and where funds must obtain some types of regulatory approvals; and (3) fees are lower where funds are domiciled in countries with higher per capita GDP, more educated population, older and smaller fund industry, and a less concentrated banking sector. These results suggest that regulation can add value in some instances and that maintaining a high quality legal system has benefits for consumers.

Previous articleGraph: Correlation of Oil and the Dollar
Next articleEntering a year of uncertainty and opportunity
Andrew P. Morriss

Andrew P. Morriss, Chairman, is the D. Paul Jones, Jr. & Charlene Angelich Jones – Compass Bank Endowed Chair of Law at the University of Alabama School of Law. He was formerly the H. Ross & Helen Workman Professor of Law and Business at the University of Illinois,Urbana-Champaign. He received his A.B. from Princeton University, his J.D. and M.Pub.Aff. from the University of Texas at Austin, and his Ph.D. (Economics) from the Massachusetts Institute of Technology. He is a Research Fellow of the N.Y.U. Center for Labor and Employment Law,and a Senior Fellow of the Institute for Energy Research, Washington,D.C., as well as a regular visiting faculty memberat the Universidad Francisco Marroquín,Guatemala. He is the author or coauthor of more than 50 scholarly articles, books, and bookchapters, including Regulation by Litigation (Yale Univ. Press 2008) (with Bruce Yandle and Andrew Dorchak), and is the editor of Offshore Financial Centers and Regulatory Competition (American Enterprise Institute Press 2010).

T. +1 (216) 272 9187
    +1 (217) 244 3449
E. [email protected] 

LinkedIn: Andrew Morriss
Twitter: @andy_morriss
Research: See my research on SSRN
Blog: Offshore Green

University of Alabama

The University of Alabama is a student-centered research university and an academic community united in its commitment to enhancing the quality of life for all Alabamians.

Founded in 1831 as Alabama's first public college, The University of Alabama is dedicated to excellence in teaching, research and service. We provide a creative, nurturing campus environment where our students can become the best individuals possible, can learn from the best and brightest faculty, and can make a positive difference in the community, the state and the world.

The University of Alabama family has always expected great things. After all, we are our state’s flagship university — the Capstone of higher education.

The University of Alabama will be the university of choice for the best and brightest students in Alabama and a university of choice for all other students who seek exceptional educational opportunities. The University of Alabama will be a student-centered research university and an academic community united in its commitment to enhancing the quality of life for all Alabamians.


The University of Alabama School of Law
101 Paul W. Bryant Drive
East Tuscaloosa,
AL 35487

T: +1 (216) 272 9187, +1 (217) 244 3449
E: [email protected]