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.”