Hide and Seek: Offshore Financial Centers and Targeted Sanctions

The movement of capital across borders has never been easier, as evidenced by the recent proliferation of offshore financial services. But these services are a double-edged sword: while boosting economic efficiency, they can also facilitate illicit financial activity. In this paper, we discuss the symbiotic relationship between financial liberalization and the pursuit of financial anonymity by secrecy-seeking actors. We examine a hide-and-seek dynamic between governments increasing monitoring of international finance and actors seeking anonymity via offshore financial centers. Under what conditions can international financial monitoring have the unintended consequence of increasing the use of poorly regulated and opaque offshore financial services? We examine this dynamic in the context of US targeted sanctions. Using the Office of Foreign Asset Control’s Specially Designated Nationals data and the International Consortium of Investigative Journalists Offshore Leaks Database, we show that increases in US targeted sanctions provoke firms and individuals from targeted countries to seek low-supervision offshore financial centers.