Evolving Networks: Information Exchange’s Reshaping of Global Finance
Abstract
This article challenges the characterization of international financial centers (IFCs), often called “tax havens,” as enablers of tax evasion and money laundering. Drawing on an extensive analysis of tax treaties, regulatory statutes, and historical literature, we explore the evolution of the global information exchange network, its impact on integrating IFCs into the global financial system, and the resulting curtailment of their use for illicit purposes. The expansion of treaties, from Mutual Legal Assistance Treaties (MLATs) to Tax Information Exchange Agreements (TIEAs) and multilateral frameworks like the OECD’s Common Reporting Standard (CRS), has significantly limited the potential for secrecy-driven financial activities across all jurisdictions around the world. We also examine the regulatory transformations within IFCs generated in part by these standards, highlighting the rise of licensing systems, independent regulatory bodies, and compliance-driven practices. By focusing on how the regulatory and treaty networks have evolved to restrict financial opacity and facilitate international cooperation, we show that reputable IFCs today function no less than larger onshore centers as compliant financial hubs rather than as enablers of financial misconduct. This nuanced view suggests that the global financial architecture, while imperfect, has come a long way to create value and to increase resiliency by disrupting the use of “sunny places” by “shady people.”