OECD Launches Renewed Attack On Offshore Jurisdictions

by Mike Godfrey, Tax-News.com, New York

18 October 2001

With anti-terrorist legislation winging its way through Congress, Washington's Centre for Freedom and Prosperity worries that anti-money-laundering language in the bills could be misused to attack offshore jurisdictions, and that the OECD is taking advantage of the current mood to launch a renewed attack on its targeted low-tax centres.

Dan Mitchell, Heritage Foundation Senior Fellow, and Chairman of the Centre, explains why the OECD still should be resisted:

The OECD has launched a desperate drive to get some low-tax jurisdictions to "commit." The Paris-based bureaucracy clearly wants to exploit the recent terror attacks, and is bullying jurisdictions to surrender their fiscal sovereignty. Before making any rash decisions, public sector and private sector leaders of persecuted jurisdictions should consider the following two points:

The United States position on so-called "harmful tax competition" has not changed. Yes, there is a danger that Congress will approve onerous new money laundering laws. It also is true that the proposed legislation contains anti-tax competition provisions. But these provisions are merely criteria that the Treasury Secretary can use – in consultation with other government officials – when determining whether a jurisdiction is of "primary money laundering concern." These provisions are very bad, but they are very bad because they would allow a left-wing extremist in that office to impose sanctions against low-tax countries. Larry Summers, who used to be Treasury Secretary during the Clinton Administration, would have abused these provisions because of his hostility to tax competition. Treasury Secretary O'Neill will not abuse these provisions. In other words, the fundamental strategy has not changed. The OECD's cartel will not succeed without full U.S. support, especially with regards to sanctions. That support did not exist before September 11 and it does not exist now.

Give full cooperation to criminal investigations, particularly the search for terrorist assets. The OECD must be greatly disappointed that the terrorists relied – perhaps exclusively – on the banking systems of G-7 countries and various Middle Eastern states. That is the good news. The bad news is that many people nonetheless are willing to accept the stereotype that low-tax countries shelter criminal money. My recent Heritage Foundation paper hopefully will clear up this misconception, and a forthcoming Center paper will provide additional evidence on this point. Low-tax jurisdictions can help by aggressively working to help investigate and prosecute crimes that violate the commonly shared laws of all civilized nations. At the risk of being repetitive, what we said one year ago is even more true today: Jurisdictions that consciously shelter the assets of murderers, drug runners, and terrorists should be sanctioned.

The OECD wants to seize momentum. We understand that Panama, BVI, Barbados, The Bahamas, and the Channel Islands have been targeted. As we have stated before, jurisdictions should confer with each other. This has several advantages. First, there is strength in numbers. It is easy for the bureaucrats to gang up on one jurisdiction. It is much harder for them to successfully bully several jurisdictions when they present a united front. The second advantage of communication is that it makes it harder for the OECD functionaries to lie. How many times, after all, has the OECD tried to trick a jurisdiction into surrendering by asserting that other jurisdictions were about to capitulate. In the last year, the OECD has spread rumors about The Bahamas, the Channel Islands, and Barbados (and these are just the ones we know about).

In conclusion, policy makers in the United States have not changed their mind on tax policy. Indeed, the terrorist attack is spurring additional tax cuts in America. These new reforms will make America's tax system even more competitive. The Heritage Foundation and the Center for Freedom and Prosperity, joined by some two dozen other major organizations, will be working to make sure that legislators continue to resist any and all efforts to undermine tax competition.

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