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Top Offshore Centres Promise The OECD They Will Be Good Boys

Jeremy Hetherington-Gore,, London

20 June 2000

Six top offshore financial centres (aka tax havens) have written to the OECD promising to conform with international best standards of transparency and mutual assistance by 2005, in a bid to escape inclusion in the notorious 'bkacklist' due to be issued by FATF (Financial Action Task Force) next week.

The letters have been written by Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius and San Marino. The list due to be issued next week will not now be used as the basis for immediate sanctions, as was originally threatened by the OECD - instead, the countries included will be given a further year to 'clean up their acts' before a final list is drawn up in 2001 of centres facing international action.

US Treasury Secretary Lawrence Summers said the announcements were an 'important milestone' in the international effort to curb use of offshore subsidiaries, bank accounts and other arrangements to avoid taxes.

Said Summers on Monday: 'In today's global economy, it is vital that we put an end to international tax practices that encourage tax evasion and improper tax avoidance and that distort capital flows'.

The letters, written to a standard format, undertake that by the end of 2005 harmful tax practices will be eliminated, that international standards for fair tax competition, transparency and disclosure will be adopted and that no new 'harmful' tax practices will be adopted.

The letter from Bermudian Deputy Prime Minister Eugene Cox states: 'The government of Bermuda shares the concerns of the OECD about the global effects of harmful tax competition and would like to associate itself with that work'.

Bermuda has one of the better reputations in the offshore world, partly due to the fact that it never allowed foreign banks to come ashore, but concentrated on creating its own international banks. However, it is a major centre of world insurance activity, and its action in writing to the OECD may reflect concerns over the future of this highly lucrative business, which has recently come under attack from the US because of the transfer of US insurance companies to Bermuda in order to minimise US taxation. Those companies that are unable to move because of their high US-based reserves have lobbied the Treasury and the Congress to do something about the competition offered them by the companies that have 'escaped'.

Cyprus and Malta, both in the EU's waiting room, have already made clear their intention to move away from the more blatant types of 'offshore' activity, and it is no surprise that they would write to the OECD. The case of the Cayman Islands is more interesting: they have not had the best of reputations, although in fairness this may have more to do with the fact that with 500 foreign banks and $600bn of offshore deposits, some black sheep are inevitable. The islands themselves believe that their regulatory regime is fully up to world standards - but will the attractions of the Caymans survive any significant re-ordering of their offshore regime?


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