US State Dept. Acts Against FATF 15, Attacks Offshore E-Commerce

Mike Godfrey, Tax-news.com, Washington

11 July 2000

The US Department of State is energetically pursuing its campaign against 'offshore'. Yesterday it published details of 'advisories' issued last week against the FATF 15, and Larry Summers, US Treasury secretary, speaking in Washington to the Inter-American Center of Tax Administrators, warned that offshore e-commerce and encryption technology allowed businesses to use the Internet to escape the tax net.

Mr Summers said that it was easy for e-commerce companies to operate from jurisdictions that were unwilling to share taxpayer information, selling their goods worldwide 'without any scrutiny from international tax agencies'. The US government would work with other nations to develop procedures to prevent the internet from becoming an offshore tax haven,

"Tax administration can and should provide an environment in which e-commerce can flourish," Mr Summers said, "while at the same time ensuring the internet does not become a tax haven that undermines the revenues that allow public service to function normally."

While confirming that the administration would reject new taxes aimed specifically at web transactions, Mr Summers said the Clinton administration wanted the Organisation for Economic Co-operation and Development to come up with a consensus on how to handle internet taxes, including a way of avoiding double taxation on e-commerce transactions.

"Tax rules and tax administration should be neutral and non-discriminatory between e-commerce and non-internet transactions," he said. "Policymakers can apply existing tax principles to e-commerce, based upon international consensus on the application of those principles."

The Clinton administration was pushing legislation that would require reporting of payments to "identified tax havens", Mr Summers said, as well as measures that would force banks based in those havens to meet more rigorous requirements than banks based elsewhere if they want to become "qualified intermediaries" under US regulations.

The Department of State last week issued 'advisories' aimed at all 15 of the offshore jurisdictions listed by the Financial Action Task Force two weeks ago as having inadequate defences against money-laundering.

The text of the Department's announcement:

Text: Treasury Dept. Fact Sheet on Money Laundering
(15 countries subject to extra scrutiny by U.S. banks)

The U.S. Department of the Treasury has issued advisories asking U.S.
financial institutions to give extra scrutiny to transactions with 15
countries that fail to cooperate in the international fight against
money laundering.

In a July 8 fact sheet, Treasury said the advisories, prepared in
collaboration with other Group of Seven (G-7) partners, are not
sanctions. The G-7 countries will consider taking measures against
those countries that continue not to cooperate, it added.

The fact sheet said each advisory will remain in effect until the
identified country brings its policy against money laundering into
line with international standards.

Following is the text of the fact sheet:

(begin text)

FACT SHEET ON MONEY LAUNDERING ADVISORIES
July 8, 2000

Today, the U.S. joined our G-7 partners in announcing the issuance of
Advisories to our domestic financial institutions. As detailed in each
Advisory, these Advisories call upon financial institutions to apply
enhanced scrutiny to transactions involving 15 nations whose
counter-money laundering systems we have found to be deficient. These
same 15 nations were identified last month by the Financial Action
Task Force as being non-cooperative in the international fight against
money laundering. This coordinated, multilateral response to
international money laundering is a landmark step that reflects a new
international commitment to curb financial abuse around the world.

The Advisories that we are issuing are intended to notify our domestic
financial institutions of money laundering risks that they face in the
identified jurisdictions, and to protect our financial systems from
the corrupting influence of money laundering. The jurisdictions that
are the subject of Advisories are as follows:

Bahamas, Cayman Islands, Cook Islands, Dominica, Israel, Lebanon,
Liechtenstein, Marshall Islands, Nauru, Niue, Panama, Philippines,
Russia, St. Kitts and Nevis, St. Vincent and the Grenadines.

Each Advisory issued by the United States is based on an independent
review the U.S. undertook of each identified country's domestic
counter-money laundering regime, and each Advisory is tailored to the
individual country -- both regarding the description of the problem
and the actions that financial institutions are called upon to
undertake.

Each Advisory will remain in effect until the identified country takes
concrete steps to bring its counter-money laundering regime into
compliance with international standards. At that time, we will revise
or rescind the Advisory, as appropriate. With regard to those
jurisdictions that continue to refuse to join the international fight
against money laundering, we will begin to consider taking
multilateral countermeasures in coordination with our G-7 allies --
including the possibility of conditioning or restricting financial
transactions with those jurisdictions as well as the support they
receive from the international financial institutions.

These Advisories are not sanctions, and it is not our intent to
curtail legitimate business with any of the identified jurisdictions.
It is, however, our goal to curtail the access to our financial
systems that international money launderers have gained through
inadequate counter-money laundering regimes in other countries. We
hope that our actions will encourage all the jurisdictions concerned
to take appropriate and urgent steps to improve their anti-money
laundering regimes. Along with others in the G-7, we attach importance
to maintaining an ongoing dialogue with identified countries and
territories and, where appropriate, providing technical assistance to
help them bring their anti-money laundering regimes into compliance
with international standards.

Taken together with recent actions by the Financial Stability Forum
(categorizing offshore financial centers according to their perceived
quality of supervision and degree of regulatory cooperation) and the
OECD [Organization for Economic Cooperation and Development] (cracking
down on harmful tax competition) FATF's action reflects a new
international commitment to curb financial abuse around the world.
These measures are crucial steps in the effort to ensure that global
mobility of capital remains a strong positive force for economic
growth and prosperity worldwide.

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