Offshore Jurisdictions Will Agree To US Anti-Terrorist Demands

by Justin Gorringe, Tax-News.com, London

26 September 2001

Monday's call by the US for financial institutions world-wide to freeze the assets of named terror-linked individuals and groups has met with broad support, although many countries have said that pending new legislation at national or international level (through the United Nations) they can only comply by using roundabout methods.

The UK, for instance, has no power to order banks to freeze accounts directly; but it asked financial institutions to report suspect accounts to their financial regulators, who in most cases could recommend or order freezing under supervisory regimes. At the UK's prompting, G7 finance ministers yesterday considered a new United Nations resolution that would stiffen sanctions against financial centres failing to comply with transparency and information-exchange guidelines.

France and Italy both said that they had ample powers to implement the US executive order, but Spain said it was waiting for guidance from the EU, and that only a court could require accounts to be frozen.

Among offshore jurisdictions, Jersey said it would comply with the US demands, although like the UK it has to work via its regulatory authority. "Jersey should be in a position to meet the demands of the US because one can find ways of doing so," said Richard Pratt, director-general of the Jersey Financial Services Commission. Switzerland said it certainly had the apparatus to find and freeze accounts as long as there was evidence of criminal activity. The Swiss Banking Association said while the 27 names on the US list could undoubtedly be backed by sufficient evidence, it would be another matter if thousands of accounts were added to the US list. "We can't allow fishing expeditions," the association intoned.

European Union officials interpreted the US President's action as support for the Union's campaign against offshore jurisdictions, even though the executive order didn't mention them specifically. An EU official said 'the heat was now on them. This has been long overdue'. For some time, he added, most European finance ministers had wanted to end the privileges of tax havens but such measures would not have been effective if the US did not back them. 'Politically it is now going to be very difficult to defend the continuation of tax havens, no matter where they are in Europe,' said another official.

This lip-smacking on the part of EU officials is expected, but doesn't yet mean much. Most offshore jurisdictions by now have banking transparency and exchange of information regimes that are as good as or in many cases better than those in onshore countries. Swiss-based UBS, a world leader in private banking, yesterday said: 'We have developed a highly sophisticated set of 'Know Your Customer' rules which mean we should always be in a position to inform the authorities of any suspicious movement of funds."

"There is no distinction really to be drawn between the offshore and the onshore world," said Colin Powell, chairman of the Offshore Group of Banking Supervisors, which represents 19 offshore centres, including the Channel Islands, the Cayman Islands and the Bahamas. "We are all working to the same standards and we all have, generally speaking, the same legislation in place."

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