STEP Comments On OECD Transparency Drive

by Glen Shapiro, LawAndTax-News.com, New York

13 June 2006

The Society of Trust and Estate Practitioners has argued this week that US states are undermining an initiative by the Organisation for Cooperation and Development (OECD) to track global financial data.

By continuing to incorporate anonymously-owned US companies for foreigners, the states are ignoring new international "transparency" standards even while their government demands that other countries adopt them, the Society argued.

The OECD's recently issued report, "Tax-Cooperation: Towards a Level Playing Field", looked at how 82 countries collect and exchange tax information. The report was undertaken following complaints from small finance centres about OECD countries demanding onerous data tracking obligations they were unwilling to implement at home.

According to STEP, the OECD report showed that most small countries with international finance centres have put in place mechanisms which enhance transparency and exchange of information for tax purposes. But US states such as Delaware, Nevada and Wyoming still fall far short of what the OECD is demanding of small countries in terms of transparency and exchange of information.

In April 2006, a report by the US Senate’s General Accounting Office (GAO) stated: “Most states do not require ownership information at the time a company is formed and while most states require corporations and limited liability companies to file annual or biennial reports, few states require ownership information on these reports.”

The report also noted that most law enforcement officials interviewed by the GAO had said they had closed cases “that reached dead ends because of the lack of US company ownership information”.

Richard Hay, Co-Chairman of the International Committee of the Society of Trust & Estate Practitioners, announced that:

"The OECD's bid to end harmful tax practices cannot just be for the little people in the global economy. If companies with secret ownership merely migrate out of small finance centres and into the US, what is the point of the OECD's project?"

“The US General Accounting Office has complained that criminals are increasingly using anonymous tax-free US companies to conceal their identity and illicit activity. Virtually every US state still permits foreigners to establish such companies, even while the OECD, backed by the US federal government, has hunted them to near-extinction elsewhere".

Mr Hay went on to add:

“As the smaller jurisdictions meet or exceed regulatory standards in the larger countries, discrimination against the smaller competitors looks increasingly inequitable. Indeed, the OECD report states that financial centres that meet the new transparency standards should be fully integrated into the international financial system.”

“If the US federal government is unable to commit its states because of the constitutional division of powers, then the states should be asked to commit directly, just as the British overseas territories and crown dependencies have done."

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