Treasure island or desert island? Offshore finance and economic development in small island economies: The case of Labuan

At present there are over sixty jurisdictions worldwide that offer a variety of facilities for tax evasion and offshore financial services. One such centre is the Malaysian island of Labuan. For many years an economic backwater, in 1991 the Malaysian government adopted a strategy to develop the island as a 'premier' OFC in the Asia-Pacific region. From the beginning Labuan was envisaged as a well regulated OFC, aiming to attract both business from the world's leading international banks and legitimate funds rather than those from more dubious sources. Furthermore, to distinguish itself from competitors Labuan also sought to develop as an IOFC that also specialised in offshore Islamic banking. This article sets out to explore two questions. First, has the development of the Labuan International Offshore Financial Centre over the past nine years been a success? And secondly how appropriate is the promotion of offshore financial services to a small island economy? It works with primary data collected during a research trip to Labuan in 1997 and facsimile and e-mail communication with bankers and regulators in the OFC thereafter.