US Treasury Secretary Questioned By Senate Panel Over Tax Havens

by Mike Godfrey, Tax-News.com, Washington

19 July 2001

US Treasury Secretary Paul O'Neill needs to clarify the country's position on tax havens, said leading Democrat Senator Carl Levin, before a hearing yesterday of the Senate Governmental Affairs Investigations Subcommittee at which the Treasury Secretary testified on US support for the OECD's 'unfair tax competition' campaign, an initiative from which he has seemed over the past few months to be distancing himself.

In a statement issued before the hearing, Senator Levin said: 'There have been some signals that were taken by people around the globe as meaning that we were not going to go after these tax havens. On the other hand there were recent signals that yes we are.The point is where the administration is in principle.'

Mr Levin, who heads the Committee, said earlier this week that the panel hoped to clear up once and for all whether Washington supports the imposition of sanctions on uncooperative countries.

Paul O'Neill told the hearing that the US would focus on gaining co-operation from the tax haven jurisdictions for information sharing. He pledged that the US would agree treaties within a year to share tax information with at least half of the 35 countries identified as tax havens by the Organisation for Economic Co-operation and Development. He added he did not favour the use of sanctions except in extreme cases. Such a threat from large countries against small ones "is, by its nature, highly coercive", he said, and should be used "truly as (a) measure of last resort".

Mr O'Neill said that the administration would also support legislation favoured by the previous Democratic administration of Bill Clinton that would give the US new tools to punish countries that do not co-operate in fighting money laundering and tax fraud.

In sometimes quite sharp exchanges with Senator Levin, the Treasury Secretary said that recent efforts to control money laundering have largely failed and promised that he would achieve "real progress" both domestically and internationally. He said that the Treasury department is reviewing the costs of implementing domestic anti-money laundering programmes, and that the administration could be far more efficient in pursuing such crimes.

So far, the rhetoric of the Bush administration has raised concerns that it would weaken US support for international efforts to curb money laundering and tax evasion. At the same hearing, the chief New York prosecutor on financial crimes told the committee that offshore tax havens posed a growing problem that threatened the integrity of the US taxation system. Robert Morgenthau, Manhattan district attorney, said law enforcement officials were prosecuting only a small fraction of the tax fraud and other crimes facilitated by those havens. In the Cayman Islands alone, he said, more than $800bn was on deposit, nearly one-fifth as much as all dollar deposits in the US.

"What is all this money doing offshore? It is not there because of the sunshine and beaches," Mr Morgenthau told the committee. "To be blunt, it is there because those who put it there want a free ride; depositors, investors, banks and businessmen want to avoid or evade laws, regulations and taxes in their home country."

Mr O'Neill said that the administration plans shortly to publish its 2001 money-laundering strategy, which would focus on prosecuting high-impact cases.

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