STEP And ITIO Issue Study Critical Of OECD

Tax-News.com, London

07 August 2002

The International Tax and Investment Organisation (ITIO), formed by a number of offshore jurisdictions during their defence against the OECD's 'unfair tax competition' initiative in 2001, and STEP, The Society of Trust and Estate Practitioners, have issued a study that casts the OECD's own members as equally or more guilty of lack of transparency than the jurisdictions they attacked.

The new study warns that, by overlooking its own member states, the Organisation for Economic Cooperation and Development (OECD), representing the world's 30 richest countries, is failing to tackle effectively the use of corporate entities for illicit purposes.

The study, "Towards a Level Playing Field", issued yesterday, reveals that, by focusing on finance centres in smaller and developing countries, the OECD is ignoring potential problems in much larger OECD finance centres and corporate domiciles. OECD countries control most of the global trade in financial services for
non-residents.

"Towards a Level Playing Field" includes a comprehensive review of the regulation of corporations, trusts and limited partnerships in fifteen OECD and non-OECD countries. This is the first time that such directly comparable information has been made available.

In a joint statement, ITIO and STEP noted, "Our report is intended as a constructive contribution to the corporate vehicles debate. It takes a broader view than the OECD and compares OECD members with non-members. The results may surprise those who think the OECD has nothing to learn from smaller countries."

Deborah Drummond, ITIO report coordinator, commented, "This demonstrates the need for a level playing field approach to standards. Unless the OECD agrees to take a look at its own members, the picture will remain incomplete and the very real danger of the misuse of corporate vehicles will remain."

Colin Sharp, STEP Worldwide Chairman, added, "We pledge to work together with the OECD in fulfilling international obligations to deny any safe haven for terrorists, money launderers and those who undertake serious criminal activity. But unless the OECD consults properly with the finance services industry, its efforts could actually increase the risk of unlawful activity going undetected in major financial centres. Jobs may also be lost as potentially flawed regulation increases business costs in both OECD and non-OECD states alike."

Richard Hay, who headed a Stikeman Elliott team that worked on the study, said, "OECD proposals could further fuel the erosion of personal financial privacy through the indiscriminate collection and collation of financial data, most of which relates to legitimate and lawful activity."

In November 2001, an OECD report, "Behind the Corporate Veil: Using Corporate Entities for Illicit Purposes", called on governments and regulatory authorities to ensure they were able to obtain information on the beneficial ownership and control of "corporate vehicles" in order to combat their misuse for illicit purposes. The report has proved influential and is being actively used by other international bodies. However, it has two major failings: it was prepared without the participation of countries outside the OECD; and it focuses on corporate vehicles in non-OECD countries while largely ignoring those in OECD countries which are vulnerable to misuse, such as Delaware limited liability companies and trusts administered in Switzerland.

The International Tax and Investment Organisation (ITIO) is a grouping of small and developing economies (SDEs) set up in March 2001 to help SDEs respond to global tax and investment challenges. It explicitly considers the development implications of these challenges. Members comprise Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Cook Islands, Malaysia, St Kitts & Nevis, St Lucia, Turks & Caicos and Vanuatu. The Commonwealth Secretariat, Pacific Islands Forum Secretariat and CARICOM Secretariat have observer status.

The Society of Trust and Estate Practitioners (STEP) is the professional body for the trust and estate profession worldwide. STEP members come from the legal, accountancy, corporate trust, banking, insurance and related professions, and are involved at all levels in the planning, creation and management of, and accounting for, trusts and estates, executorship, administration and related taxes. STEP has over 8,000 Members in leading finance centers in OECD and non-OECD countries alike.

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