French Get Agitated Over US 'Re-Evaluation' Of OECD Campaign

by Ulrika Lomas, Tax-news.com, Brussels

18 May 2001

After French Finance Minister Laurent Fabius earlier this week called on the US to continue its efforts in fighting tax evasion, the French Finance Ministry has warned that the new US stance - which has seen US Treasury Secretary Paul O'Neill attack the OECD's offshore 'harmful tax initiative' - could blast the whole OECD campaign out of the water. That's something blacklisted offshore financial centres would certainly welcome, but the very leitmotif of the French at the moment seems to be to latch onto anything remotely connected with tax havens and chip away at it.

We've seen it with Monaco, where the French came close to destroying their relationship with the principality. The French government has long been wagging its finger at Monaco; more over money-laundering than on specific tax issues, but the two are indissolubly linked. Then more recently we've had the PanEuroLife affair, which saw the French authorities actually detain the Luxembourg-based insurer's managing director, Jacques Drossaert. The crux of that affair is that the French Financial Research and Investigations Brigade (BRIF) suspects hundreds of French shopowners and small businesses of using PanEuroLife to evade tax and to filter suspect money out of France. Although it is the French side of PanEuroLife's operations which is under scrutiny, PanEuroLife is based in Luxembourg, and Luxembourg is a tax haven. Tax havens are France's bete-noire.... and the rest is self-explanatory.

So the French Finance Ministry must have felt pretty desolate when O'Neill stepped out and said that the US is against the OECD's programme in its current form and was re-evaluating its position in the the OECD working group that targets so-called "harmful tax practices."

This week's warning from a French Foreign Ministry spokesman came as top US trade and economic envoys met their counterparts from the 30 countries of the OECD in Paris. Reporters were told: 'France is particularly strongly attached to the work of the OECD to combat damaging tax practices. Given what we know at this stage about the US position, we want to clearly flag that unity among OECD members is vital to combating financial malpractice.'

President George Bush's chief economic adviser, Glenn Hubbard, said O'Neill's recent comments had been misconstrued, but failed also to say whether the OECD could continue to rely on the US for support. Hubbard told reporters at OECD headquarters that US policy was still being reviewed but that Washington wanted to make sure there was no attempt to discourage tax competition around the world: 'I think the interpretation that ... is most accurate of his remarks is simply that the focus should be on tax evasion and information sharing, not on tax competition per se,' he said.

But Laurent Fabius has the bit firmly between his teeth now. He was due to raise the subject of the US "change of heart" at an OECD meeting in Paris yesterday.

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