Investment Treaties, Offshore Finance, and the Resource Curse

Questions of how best to understand offshore financial centers (“OFCs”)—countries that have low or zero tax rates, strong banking secrecy regulation, and easy-to-form legal entities—and what, if anything, the international community should do about them remain fixed on the agenda of national and international discourse. This Essay seeks to provide a new theoretical perspective on tax havens and applies this perspective to the cross-border legal regimes that govern international investment. This new analytical framework sees offshore financial centers as countries that are victims of the “resource curse,” as that term is described in economic development literature. Often physically small, isolated islands with scant natural resources, OFCs lack any true commodity to exchange in the global marketplace. As a result, OFCs have transformed their legal systems into a resource, “selling” their favorable laws to businesses and individuals in exchange for corporate registration costs and money management fees as a means of gaining revenue for the state and its inhabitants. Applying this framework to international investment law yields new insights into why countries enter into bilateral investment treaties and how the true social costs of international investment should be understood.