Offshore structures have not disappeared — but they are transforming to survive amid the implementation of international financial transparency standards.
Development and evolution of offshores
Offshore business, in all likelihood, is as old as economic activity itself and the first systems of taxation. Economic historians note that even in ancient times, Rhodes and Delos competed by offering different port duty rates, while merchants trading with Athens avoided paying foreign trade taxes by unloading goods on nearby islands and then smuggling them into the polis.
In the Middle Ages, Flanders attracted foreign merchants by imposing minimal taxes. In the 18th century, entrepreneurs from the North American colonies avoided high British tariffs by conducting trade through Latin America.
According to researchers, one of the key milestones in offshore history was the decision by Geneva’s authorities in the 18th century to require the registration of banking transactions while simultaneously prohibiting the disclosure of client data.
The rise of offshores in the modern, classical sense began in the mid-20th century.
In 1964, the British colony in the Bahamas obtained internal self-government. The following year, it introduced a two-tier banking system: some banks operated domestically, while others served only foreign clients. Non-residents were allowed to establish their own banks in the Bahamas under a highly simplified procedure and to incorporate them into international holding structures.
In 1973, the Bahamas gained independence and continued to develop its offshore sector.
The real boom in offshore creation came in the 1970s. For newly independent states and overseas territories of former colonial empires — many lacking sufficient economic resources for full-scale independent development — the offshore business became a solution. They set minimal or zero tax rates for foreign investors, charging only fees for using offshore services.
Business owners from developed countries or nations rich in natural resources would register companies in offshore jurisdictions to avoid taxation where their commercial activities actually took place. By setting up an offshore company abroad, an entrepreneur could nominally become a “foreign investor” in their own country and thus be exempt from most local taxes. Technically, this was entirely legal. As a result, offshore or similar jurisdictions became major sources of nominal investment for certain states.
Strict confidentiality rules in offshore centers — which persisted until the 2000s — prevented national tax authorities from proving tax evasion. Offshore governments would not respond to foreign requests about the real owners of companies. In some cases, nominal owners were local agents hired under special contracts, whose names did not even appear in official registers..
Offshore schemes also became a tool for corrupt politicians seeking to “hide” funds obtained through abuse of office, organized crime, and even for terrorist groups. Through offshore structures, “dirty” money could be transformed into respectable investments.
Experts traditionally divided “tax havens” into three broad categories:
- Non-offshore jurisdictions – countries offering fiscal and other benefits to businesses. These included Switzerland, the United Kingdom, certain U.S. states, and in some cases Cyprus;
- Reputable offshore jurisdictions – usually developed countries or territories with corporate tax rates below 10%, “compromise” financial reporting standards, and a fairly high level of confidentiality. Examples include the British Crown Dependencies (Isle of Man, Jersey, Guernsey), Gibraltar, Hong Kong, and Ireland;
- Classic offshore jurisdictions – countries and territories with zero corporate tax and maximum confidentiality, such as many British Overseas Territories, Panama, Belize, and others.
According to international experts, offshore jurisdictions currently hold assets valued between USD 21 trillion and USD 32 trillion. The Tax Justice Network estimates that offshore schemes cost the world approximately USD 427 billion in lost tax revenues each year.
Crackdown on Offshore Structures
In the 1990s and 2000s, following global transformations linked to the collapse of the socialist bloc, the expansion of capitalist economies, and the rapid spread of corruption, offshore business experienced a surge. This forced many governments and international organizations to take measures aimed at minimizing related risks.
National legal systems in various countries began introducing special lists — “offshore,” “black,” and “grey” — identifying jurisdictions that did not provide tax information exchange. Companies registered in such jurisdictions were subject to heightened monitoring or faced restrictions on operations — from complete asset freezes to targeted bans, such as prohibitions on participating in public tenders. Bilateral agreements on tax information exchange and double taxation avoidance were also signed more frequently.
The greatest challenge to the offshore industry, however, came from international organizations. One of the most active is the Financial Action Task Force (FATF), which maintains its own “grey” and “black” lists. Inclusion in these lists can cause serious problems with attracting investment and conducting international payments. FATF does not target offshore jurisdictions per se, but rather those enabling money laundering and terrorist financing — although the methods it seeks to restrict often overlap with offshore practices.
One of FATF’s most problematic recommendations for offshore jurisdictions is Recommendation 24, which requires transparency and oversight of beneficial ownership. Disclosing the ultimate owners of businesses in special registers — and especially making such lists publicly available — renders offshore company registration pointless for many business owners.
The Organisation for Economic Co-operation and Development (OECD) also poses significant challenges to the offshore industry. As World Finance notes, two of its initiatives — the Common Reporting Standard (CRS) and the Global Minimum Tax (GMT) — “directly challenge the structure of offshore finance.”
Launched in 2014, CRS requires financial institutions to share information about the owners of foreign accounts within their jurisdiction. According to Tax Justice UK (TJUK), “CRS has reduced tax evasion not only by providing countries with data on foreign accounts, but also through its deterrent effect.”
Even the risk of being exposed pushes many companies to reveal who really owns them. But CRS still has gaps: some countries have not joined, and the U.S. uses its own system, FATCA, which doesn’t fully match CRS. The GMT also has limits — it only applies to multinational companies earning over €750 million a year.
Still, as World Finance notes, traditional offshore tax havens — once known for secrecy and safety for the super-rich — are losing ground under growing global oversight. With international tax reforms and transparency rules expanding, the world’s wealthiest are finding new ways to protect their assets.
How the offshore industry is changing today
Experts say that the offshore industry is not disappearing — it is adapting to the changes around it.
It is not so much that tax havens are vanishing, but rather that they no longer look or operate as they once did. The traditional model is being replaced by new, more flexible ways of managing capital. In this sense, “decline” is more evolution than extinction. History shows us one thing: where wealth flows, new solutions emerge
— as World Finance notes.
New strategies for tax optimization are emerging — from digital currencies and decentralized finance platforms to citizenship-by-investment programs and even private island projects. This is forcing traditional offshore centers to change rapidly.
УStricter regulations, greater political pressure, and the demand for transparency have become more pronounced, pushing the industry to adapt. Some changes push the limits of legality, while others raise complex ethical issues. But all point to the same fact: offshore wealth is not going away anytime soon — it is simply becoming more complex.
— World Finance writes.
One of the most talked-about trends today is Citizenship-by-Investment (CBI). In the past decade alone, about 100,000 passports have been issued under CBI schemes in the Eastern Caribbean.
Some experts are skeptical about how effective this mechanism really is — after all, in most countries, taxation depends on residency, not citizenship. In practice, however, things are more complicated.
Recent studies show that countries offering CBI programs have seen a sharp rise in cross-border deposits. Second passports are often used to bypass automatic tax information exchange, since in these cases taxation can be based on citizenship. Moreover, when a CBI country issues a passport, it begins to treat the person as its own citizen — including legally protecting their property rights.
If CBI is a political workaround, then decentralized finance (DeFi) is a technological one. Built on blockchain technology, DeFi platforms create a world where you can lend, borrow, trade, and invest without ever visiting a bank. No intermediaries, no paperwork — just code. In theory, it offers financial freedom, giving users full control and instant access to powerful tools
— World Finance notes.
Cryptocurrencies and DeFi platforms enable cross-border transactions that are difficult to track, regulate, or tax — especially when users rely on private wallets or anonymous profiles. However, skeptical experts point out that cash still performs these functions more effectively.
In practice, DeFi operates in a “grey zone”: transactions are hard to trace without linking them to a person’s identity, but once that link is established, the entire transaction history becomes visible. Around the world, mechanisms for controlling “digital money” are now being put in place.
The irony is that blockchain, known for its privacy, is also an immutable public ledger. Once a user’s identity is connected to it, the full history of their transactions is exposed. Cryptocurrency is not invisible — it is permanent. This duality could make DeFi either an effective tool for transparency or a way to uncover large-scale financial misconduct
— WF observes.
Another “alternative” offshore concept that could, in theory, gain traction is the purchase or artificial creation of private islands located outside any country’s exclusive economic zone. Attempts of this kind have been made for about 50 years, but so far they have ended in failure. Still, the current crisis in the traditional offshore industry could give the idea new life.
Ensuring that the wealthy and corporations pay their taxes requires a full set of measures: global tax information exchange, full transparency of beneficial ownership, public access to corporate reporting in all countries. International organizations are working in this direction, but much remains to be done.
As experts note that Tax havens and secrecy jurisdictions did not emerge overnight — and they will not disappear quickly. This process depends heavily on political will, especially from the Global South.
The United States adds another layer of unpredictability. Under President Donald Trump, it reduced corporate transparency and withdrew from talks on international tax cooperation.
The offshore system often adapts faster than the rules designed to restrict it. Even when regulations tighten, those seeking to protect their wealth will always look for the next loophole, jurisdiction, or digital workaround. Whether through decentralized finance or second passports, today’s strategies are harder to track and increasingly designed to remain within the law. In reality, it is not the intentions that have changed — only the methods. And if regulation does not keep pace, the gap between policy and practice will only widen
— World Finance concludes.
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