Bank Secrecy in Offshore Centres and Capital Flows: Does Blacklisting Matter?

55 Pages Posted: 9 May 2016 Last revised: 26 May 2016

See all articles by Olga Balakina

Olga Balakina

Leibniz Institute for Financial Research SAFE

Angelo D'Andrea

Bank of Italy - Research Department

Donato Masciandaro

Bocconi University - Department of Economics; Bocconi University - Department of Economics (ECO)

Date Written: May 1, 2016

Abstract

This study analyses cross‐border capital flows in order to verify the existence and direction of the effect of the soft regulation promoted by international organizations against banking secrecy which characterized the so called tax and financial heavens. This effect is called in the literature Stigma Effect but both the existence and the direction of the stigma effect are far from being obvious. The international capital flows can simply neglect the relevance of the blacklisting, or worst, the attractiveness of banking secrecy can produce a race to the bottom: the desire to elude more transparent regulation can sensibly influence the capital movements. We test whether being included and later excluded from the FATF blacklist is an effective measure that influences countries’ cross‐border capital flows. Using annual panel data for the period 1996‐2014, we apply our framework to 126 countries worldwide. We find evidence that in general the stigma effect does not exist.

Keywords: bank secrecy, offshore centres, international capital flows, name and shame regulation, money laundering

JEL Classification: F21, K42

Suggested Citation

Balakina, Olga and D'Andrea, Angelo and Masciandaro, Donato, Bank Secrecy in Offshore Centres and Capital Flows: Does Blacklisting Matter? (May 1, 2016). BAFFI CAREFIN Centre Research Paper No. 2016-20, Available at SSRN: https://ssrn.com/abstract=2777380 or http://dx.doi.org/10.2139/ssrn.2777380

Olga Balakina

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Angelo D'Andrea

Bank of Italy - Research Department ( email )

Via Nazionale 91
00184 Roma
Italy

Donato Masciandaro (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Bocconi University - Department of Economics (ECO) ( email )

Via Gobbi 5
Milan, 20136
Italy

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