Regulatory Arbitrage in the Post-Compliance Era

The narrative of the last fifteen years has been the death of regulatory arbitrage. FATCA, BEPS, CRS, and the ever-widening perimeter of substance rules were supposed to render the offshore holding company inert and the strategic jurisdiction meaningless.

The narrative was wrong. What has actually happened is that the surface-level arbitrage has closed while the deeper arbitrage has become more valuable. Two companies with identical documented structures can experience wildly different regulatory outcomes depending on the quality of the relationships their counsel holds with the authorities involved. Compliance has become the ticket to the room. What happens in the room is a different discipline.

For mid-market operators, this shift has two practical consequences. First, the choice of advisor is no longer primarily about technical competence, the technical competence is now table stakes. It is about which advisor has the standing to have the conversation. Second, the calculation of jurisdictional cost is no longer about the tax rate. It is about the aggregate friction of operating in a jurisdiction where you are known, versus a jurisdiction where you are not.

The old arbitrage was zero-sum: what one client saved, the treasury lost. The new arbitrage is not. When a licence is granted in eight weeks instead of eighteen months, no one has been shorted. The relationship simply produced a better outcome than the process could have on its own.

This is the environment in which our practice operates. We take it as a given that the compliance is done properly. What our clients pay for is the layer above it.