Niue Fears For Offshore Industry As US Imposes Sanctions On Banking

Mary Swire, Tax-news.com, Hong Kong

02 February 2001

Niue, the tiny Pacific island which was included on the OECD's list of so-called "harmful" tax havens last year, has been dealt a blow by the US, which has just imposed sanctions on banking in the island, citing the country's links to Latin American tax haven operations.

Niue's Prime Minister, Sani Lakatani, has long tried to protect his nation from the battering ram of the G7 countries, spearheaded by the OECD and its tax haven initiative and the FATF's anti-money laundering crusade. The international banking centre in Niue is a fledgling industry which really only started in 1997, and naturally Mr Lakatani is keen to uphold its reputation. The Niue authorities have always insisted that it has in place legislative and regulatory measures designed for the proper regulation and monitoring of the international banking industry.

Yet this insistence was not enough to stop the US imposing sanctions. At a Pacific leaders' summit meeting this week, Mr Lakatani reacted to the news, saying: 'This is a brutal blow; it was a lifeline, and they have cut that line to the people of Niue.' The action appears to have wider regional implications, as Niue uses the New Zealand dollar and the US sanctions also apply to Niuean bank accounts in Australia and New Zealand.
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Another Pacific nation, Nauru, has been accused by the US of letting US$70bn of suspect money from Russia pass through its banking system. Two years ago Nauru, together with Palau and Vanuatu, incurred the wrath of the US, which imposed sanctions following an investigation into how the Russian mafia had laundered money through the Bank of New York and Nauru.

Niue is under immense pressure to close six offshore banks which operate in Australia, but Mr Lakatani said that to do that would be 'like cutting the throat of Niue'. The main bone of contention as far as the US State Department is concerned is the fact that Panamanian law firm Mossack Fonseca & Co was appointed by the Niuean government to manage the International Business Companies Registry and to promote Niue as an ideal jurisdiction for the registration of IBCs. In a money-laundering report, the State Department questions the "awkward sharing arrangements" with the law firm, whose financial contribution makes up a large part of Niue's revenues, and warned that Niue's operation was ideal for money laundering.

So the upshot is that US banks are now refusing to action transfers of money to Niue. It's a move that has seriously rankled the Prime Minister, who charged: 'Our small nation has been kicked in the stomach by the powerful nations of the world.....a very little money goes a long way in Niue.'

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