Offshore Financial Centres Continue to Resist OECD Pressure

by Julio Godoy

Paris, 4 Mar 2001 (IPS) - - According to the Organisation for Economic Co-operation and  Development (OECD), off-shore financial centres are really ‘tax havens” that  offer illegal shelter to tax dodgers and those with dirty drug money to launder.

The targeted states and jurisdictions say they are legitimate financial centres  and while they agree on the need for international action to eliminate so called  “harmful tax competition and practices” this should be done within the framework  of the United Nations and not though direct OECD pressure on small states.

There are also increasing public indications the OECD position may not continue  to receive US backing as the some right-wingers among the Republicans in the US  have begun a campaign to influence the administration of President George W.  Bush to withdraw US support for the OECD against the low- tax havens. The new US  administration has not officially taken any position.

Despite meetings and contacts there are no clear signs that the dispute is near  resolution. The latest setback came at a meeting that the 29-member OECD held in Paris on  Thursday and Friday with representatives of the Commonwealth Working Group.

The members of the Commonwealth Working Group are Antigua and Barbuda, Malaysia, Malta, British Virgin Islands, Vanuatu, Cook Islands and the Caricom Secretariat. On the OECD side at the meetings are Australia, France,  Ireland, Japan,  the United  Kingdom, and the OECD secretariat.

All of them are considered by the OECD to offer refuge to international capital  fleeing from heavy tax burdens in their countries of origin.

The OECD has been trying for the past two years to set international rules to  reduce tax competition between its members and the off shore financial centres.

In June 2000 the Paris-based organisation listed 35 countries or jurisdictions  as tax havens, including such well known off shore financial centres as The  Cayman Islands, Bermuda, the Bahamas, Cyprus, Isle of Man, the English Channel  Islands of Guernsey and Jersey, and San Marino.

According to the OECD, a “tax haven” is a jurisdiction where no tax rates or  only nominal ones exist, and which lacks transparency, effective exchange of  information and where no demands are made about substantial economic activities  that may justify the incoming capital flows.

These characteristics also constitute, in OECD’s eyes, “harmful tax practices”  and should be eliminated. The organisation would like the so-called tax havens  to commit themselves to put in practice the principles of transparency,  non-discrimination and effective exchange of information.

The latest meeting with the most important off shore centres, which form the so  called Commonwealth Working Group, followed one in January in Barbados, which  also ended without agreement.

“The climate in Barbados was very tense, with no signs of co-operation,” a  participant of the meeting told IPS and the meeting was a replay of the issues  that divide the parties.

According to sources close to the participants, representatives of the Commonwealth Working Group taking part in the meeting used harsh expressions  against the OECD.

At the meeting in Paris, participants included Owen Arthur, Prime Minister of  Barbados, Tony Hilton, Australia’s Ambassador to the OECD, and ministers, senior  finance and tax officials from 13 countries or associated territories, as well  as representatives of the Commonwealth Secretariat, the OECD Secretariat, and  the Caribbean Community Secretariat.

No new meeting has been scheduled, though the parties decided to continue  discussions through telephone and other forms of electronic communications.

Especially, the off shore financial centres reject discussing the subject only  with the OECD. They would prefer a multilateral framework such as the United  Nations.

“The OECD considers that a bilateral forum is a meaningful way of discussing  harmful tax competition,” Nicholas Bray, spokesman for the organisation told  IPS.  “Multilateralism has, in this case, very clear limits since it would include in  the negotiation countries that have nothing to do with the subject,” he added.  “Therefore we should not take the dialogue into a forum such as the United  Nations.”

The Caribbean countries included in the OECD list of tax havens have recently  received support from right wing members of the US Republican Party.

In a letter addressed to Paul O’Neill, new US Secretary of Treasury, influential  Republicans described the OECD initiative as “misguided and fundamentally  inconsistent with the market-based principles we both share.” Letters in similar  terms and praising low taxes as motor of prosperity signed by extreme right wing  Senators Jesse Helms and Judd Gregg began circulating in Washington two weeks  ago.

The OECD has been confronting similar difficulties ever since it began its  campaign two years ago against so-called “harmful tax competition” as some of  these offshore centres accused the OECD of mishandling its own investigation on  the subject.

Although the Paris-based organisation affirms that its investigation was  “extensive and transparent”, financial authorities at the English Channel  Islands of Guernsey and Jersey called the process “unsatisfactory and  meaningless.”

Other critics disagree with the overall OECD objective. “That there are now so  many tax havens on earth is a direct consequence of the promotion of flexibility  and deregulation in all economic activities made by the OECD for decades,”  said François Chesnais, professor of Financial Economics at the University of  Villetaneuse, near Paris.

Chesnais told IPS, “the OECD pretends that low taxes, flexibility and competition are the panacea for all economic situations. The organisation has  also been claiming that all markets should be deregulated, and that free  competition promotes universal welfare.”

“Now these very same principles are supposed to be illegitimate for the small  countries that profit from financial globalisation,” he added.

But Chesnais also said that the development of financial globalisation over the  past 20 years, and the activities of the financial off shore centres go hand in  hand with the illegal laundering of money coming from criminal activities.

“A recent estimation put the amount of dirty money being laundered around the  world in some one thousand billion dollars per year. This estimation seems to me  realistic,” Chesnais added.

However, he warned that not all dirty money is laundered in the off shore  financial centres. “A substantial amount of this money is being washed in the  USA and in Europe.”