Proponents of offshore jurisdictions point out that these centers play a legitimate role in the international capital market, as they enable risk management, financial planning, and can improve market efficiency.
Accordingly, Masciandaro (2006) shows that the probability to be an offshore jurisdiction is increasing in proportion to the degree of political stability and is negatively affected by crime level.
Critics of offshore jurisdictions maintain that soft regulation and anonymity can be exploited for illegal purposes, such as money laundering, terrorist financing, and tax evasion (see, e.g., Alworth and Masciandaro, 2004).
Examples often cited by these critics are financial scandals that occurred in early 2000s, and, in particular, the Enron and Parmalat cases. Using special purpose vehicles placed in offshore jurisdictions these companies could manipulate financial statements.
In recent years, international initiatives, such as the Financial Stability Forum (FSF) and the Financial Action Task Force (FACF), were undertaken to promote financial stability and enable information sharing. Moreover, since September 11, 2001, stricter rules aimed at scrutinizing United Nations embargoed persons have been implemented to prevent terrorist organizations from exploiting offshore jurisdictions.