The Hidden Wealth of Nations: Unraveling the Offshore World

From the sun-soaked beaches of Bermuda to the vaults of Switzerland, the offshore world is a hidden playground for conglomerates, governments, and the ultra-wealthy. Some tax havens are well-known, while others maintain lower profiles. Protections for trusts in Nevis, foundations in Liechtenstein, and Malta’s crypto-friendly climate are a few examples of the vehicles on offer to transport and safeguard wealth. Trillions of dollars flow through this network of offshore jurisdictions annually, many historically linked to the City of London and the British Commonwealth.

The vast majority of people operate within traditional financial systems, while a small but influential group obscures wealth from public oversight. Research from the Brookings Institution confirms that a “non-negligible amount of offshore wealth is connected to a small number of political elites (so-called politically-exposed persons).” Just as these offshore jurisdictions offer varied protections, recent revelations like the Panama, Paradise, and Pandora Papers have exposed the breadth of individuals, ranging from public servants to sports stars, with vast sums of money stashed offshore.

Despite differences in appearance and geography, offshore jurisdictions are united by the global flow of capital. The International Monetary Fund (IMF) describes the core function of offshore finance as “the provision of financial services by banks and other agents to non-residents.” In contrast to national financial centers, where banks and stock exchanges primarily serve domestic markets, countries with small domestic financial sectors rely on offshore business to boost their economies. International financial centers (IFCs) can provide much-needed income, create jobs, and bolster government revenue through licensing fees and other regulatory frameworks. In Dubai, one of the world’s most prominent IFCs, there are independent courts with English common law and justices hailing from Australia, England, Scotland, and Wales.

Offshore jurisdictions have long been scrutinized in international investigations due to alleged involvement in money laundering, tax evasion, and other financial crimes. Notably, even before the invasion of Ukraine, Russian bankers were already using IFCs to evade sanctions and transfer funds outside of Russia. While it is true that IFCs can enable illicit finance, they also fulfill legitimate functions in the global financial system. Corporations benefit from robust legal protections, streamlined regulatory requirements, and legal tax breaks under international law. The Bank for International Settlements (BIS), based in Basel, Switzerland, holds that IFCs are jurisdictions where laws, regulations, and tax rates are carefully crafted to attract capital.

Within the borders of nations exist what Canadian historian Quinn Slobodian describes as “unusual legal spaces, anomalous territories, and peculiar jurisdictions.” These include “city-states, havens, enclaves, free ports, high-tech parks, and innovation hubs.” More than 5,000 of these zones exist globally, including ambitious projects such as NEOM in Saudi Arabia and New Songdo City in South Korea. Their growth is driven not only by the desire to reduce taxes, but also by the strategic creation of jurisdictions that offer a variety of desirable conditions, appealing to those with the resources, insight, and positioning to choose.

How Captives Made Bermuda an Insurance Hub

Bermuda’s insurance and reinsurance sectors manage US$1.6 trillion in assets and write gross premiums totaling approximately US$268 billion annually. With an estimated 670 captive insurance entities, it ranks as a prominent offshore jurisdiction alongside Vermont and the Cayman Islands. These three jurisdictions host around one-third of the world’s estimated 6,000 captives—insurance companies established by corporations or groups to self-insure against risks. Bermuda has become a significant provider of catastrophe insurance for US companies and individuals. In the 1980s, when US companies struggled to obtain excess liability insurance, Bermuda responded by forming new companies specializing in these offerings. The market expanded further after Hurricane Andrew in 1992 and the September 11 terrorist attacks. In 2021, the United States accounted for more than 60 percent of Bermuda’s long-term insurers’ reserves, with Hong Kong as the second-largest recipient.

Bermuda’s appeal lies in its reputation as a “well-regulated, experienced, and capital-efficient” jurisdiction. The Bermuda Business Development Agency advertises the island as a compliant jurisdiction for EU and US regulations that also drives innovation in the insurance market. Its regulatory framework is supervised by the Bermuda Monetary Authority, which develops risk-based financial regulations and supervises the island’s banks, funds, insurance companies, and digital asset businesses. In a recent internal report, the Monetary Authority emphasized that growth in the long-term insurance market has been driven by demand for reinsurance to manage exposure, balance sheet volatility, and capital management—concerns particularly rooted in an aging population and challenging economic conditions.

Despite Bermuda’s success as an insurance hub, the island nation with a population of 65,000 grapples with a high cost of living and a “significant departure of talent.” An estimated one-third of the population lives in poverty, further exacerbated by the lack of growth in non-financial industries.

Hedge Funds Thrive in the Cayman Islands

The Cayman Islands’ tax neutrality, proximity to the United States, and extensive financial expertise have established the country as the leading hub for hedge funds, with a staggering 85 percent of the world’s hedge funds domiciled there. There are no capital gains, income, profit, or corporate taxes, nor any restrictions on the investment strategies of funds. It is therefore unsurprising that a highly leveraged and ultimately bailed-out hedge fund called Long Term Capital Management established its base there. The Cayman Islands Monetary Authority (CIMA) regulates these funds, and the number of private funds increased by eight percent in 2022. Of these funds, 700 originated from the United States. Hedge fund managers are not required to reside in the Cayman Islands, adding flexibility for international fund managers, particularly those in New York, due to the Islands’ proximity to the United States.

Several factors contribute to the Cayman Islands’ attractiveness as a domicile for hedge funds. The legal system is rooted in English common law, and the Islands are home to a large number of qualified financial and legal professionals who provide expert services to international clients. While funds require a minimum initial investment of US$100,000 per investor and must undergo annual audits by one of approximately 50 Cayman-approved auditors, they can be formed on the same day as filing. In October 2023, the Cayman Islands were further bolstered when they were removed from the Financial Action Task Force’s “increased monitoring” list.

Switzerland Remains a Safe Haven for Wealth

Switzerland has long been synonymous with wealth management, with storied banks like Rothschild & Co. and UBS serving high-net-worth individuals for centuries from the lakes of Zurich and Geneva. In Switzerland, wealth managers “construct and manage large, complex international structures involving banks, tax havens, trusts and foundations, wills, law and accounting, corporations, share and bond portfolios, insurance products, and much more.” The country’s appeal lies in its financial strength, political stability, international competitiveness, and global connectivity—qualities UBS advertises as critical for attracting wealth.

Switzerland’s wealth growth in 2023 was mostly driven by clients from the Middle East and Western Europe. The country is projected to capture between 15 and 20 percent of new cross-border wealth created by 2028, despite growing competition from financial hubs like Singapore, Hong Kong, and the United Arab Emirates. These and other emerging centers are heavily investing in trendy sectors such as artificial intelligence, asset digitization, and wealth migration, forcing Swiss wealth managers to innovate. To remain competitive, Swiss private banks are expanding their presence in the Middle East with a particular focus on Dubai and Abu Dhabi. The migration of wealthy individuals from Russia, India, and China has further prompted Swiss banks like Edmond de Rothschild, Julius Baer, and UBS to scale their operations in the Persian Gulf.

In addition to traditional wealth management, Switzerland is a major player in luxury asset management. The Geneva Freeport, which houses over 1.2 million pieces of art, is one of the most renowned storage facilities for high-value assets, including works by Picasso, Warhol, and Van Gogh. These freeports offer tax advantages and anonymity for collectors. David Segal wrote in The New York Times that “Swiss freeports could hold as much as 100 billion Swiss francs worth of goods” and that their role in global finance is akin to the role the Cayman Islands play in offshore banking. Although some measures have been taken to crack down on looted art and illicit goods stored in freeports, they remain a central pillar in the world of luxury asset management and continue to grow both in Switzerland and internationally. In 2014, the Geneva Freeport expanded by 10,000 square meters, and similar freeports have emerged in places like Singapore, Monaco, Luxembourg, and Delaware.

Panama Dominates Global Maritime Trade

Panama has earned a reputation as the world’s leading shipping registry. Only recently surpassed by Liberia in 2024, Panama had more vessels flying its flag than any other country for 20 years straight. By the end of 2023, Panama’s registry accounted for 8,540 vessels—representing about 16 percent of the global merchant fleet—and was growing at a rate of 2.9 percent annually. This registry far outpaces those from the world’s largest economies, namely China and the United States. It allows ships to be registered by individuals or entities of any nationality and imposes no restrictions on the age of the vessels registered. Combined with the status of Panama’s registry as one of the cheapest ways to register a ship, this flexibility has made Panama’s “flag of convenience” particularly attractive to international shipowners, along with the country’s proximity to major global shipping routes.

Unsurprisingly, Panama’s registry has faced scrutiny. Under international maritime law, every merchant ship must be registered with a “flag state,” which is responsible for inspecting the ship, investigating accidents, and ensuring compliance with international regulations. Critics of Panama’s registry argue that it has been linked to human rights abuses, safety negligence, and corruption. In 2023, several ships flying the Panamanian flag had their registrations revoked due to connections with North Korea.

To address these concerns and improve efficiency, Panama has taken steps to modernize its registry. In July 2024, the General Directorate of the Public Registry of Ship Ownership at the Panama Maritime Authority (PMA) introduced new measures to streamline the registration process for shipowners worldwide. These updates include the digital processing of key documents such as mortgages and property titles, which are now available in both Spanish and English.

Closing Thoughts on The Future of Offshore Finance

The offshore world remains a significant force in the global economy, supporting both legitimate business activities and, at times, controversial or illicit financial practices. It is uncertain how successful international reform efforts will be in targeting such jurisdictions. Meanwhile, geopolitical shifts and technological advancements—such as the influence of emerging BRICS economies and the rise of cryptocurrency—are challenging traditional regulatory frameworks. As global instability grows and populous democracies face a multitude of challenges, offshore finance may become even more prominent, providing an alternative for those seeking stability and flexibility.