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OFFSHORE BLACKLIST DiSCUSSION
The issue is actually burning for
too many people, their businesses and hard earned monies:
we mean, the recent blacklists of OECD,
Forum (FSF), and
Financial Action Task Force on Money Laundering (FATF).
Actually any existing
Offshore Financial Center (OFCs) can be found at least
in one of the lists.
Now, let's have a brief historical and background overview
of the ill-famed documents in respect to each of the above
three international organizations.
The OECD blacklist of tax havens is a result of the mandate
given by Ministers in April 1998. The organization was eager
to stop erosion of tax bases and corresponding revenue of
its member countries.
Two reports were issued since then: Harmful Tax Competition:
An Emerging Global Issue (the "1998 Report") and
Towards Global Tax Co-operation (the "2000 Report").
To put it plainly the focus of both reports was: (1) to
determine the tax loopholes inside of the member countries
and tax competitors in the outer world and (2) to find the
ways to mend the loopholes and eliminate the tax competitors
The OECD point of view is that the most of evil is dwelling
in OFCs ("tax havens") owing to the following
exempts for non-residents: zero or minimal taxation, provision
of strict confidentiality to the investors or beneficial
owners of offshore vehicles. What's the way out? A very
simple one: tax havens must comply with the instructions
of OECD or be punished by, presumably, economical and political
sanctions (hopefully, not by commandos!). The reports contain
direct threats to use so-called "defensive measures"
in case of non-compliance.
The Financial Stability Forum (FSF)
In March of 2000, the FSF Working Group on OFCs issued a
report where it outlined their principal features and influence
on global financial stability.
Though the report alleges that OFCs "do not appear
to have been a major causal factor in the creation of systemic
financial problems", it strongly suggests to continue
the work on urging of tax havens to enhance regulation of
financial services and cooperation with supervisors from
Later, in May of 2000 the FSF issued the list of OFCs where
the tax havens were broken down in three groups: the first
group was considered the best in terms of regulation and
supervision, while the third one being the worst.
Financial Action Task Force on Money Laundering (FATF)
In June of 2000 the FATF issued its own "roll of honor"
where it listed the countries non-cooperative in the fight
laundering. The majority of them are OFCs again.
Despite of impetuous declarations of some tax havens to
fulfill the demands of the above organizations, there is
growing dissent and begrudging as within offshore world
as among some influental Western politicians and international
organizations. By some estimates, more than 50% of world
money is in offshore: who'll let them slip away for nothing?
Now, just three true-to-life illustrations:
1. There is no consensus inside of OECD on the issue: Luxemburg
and Switzerland absented from the 1998 Report.
2. The British Commonwealth Secretary-General Don McKinnon
severely criticized the OECD blacklisting. Says Don McKinnon
(about OFCs): "Now these countries face potentially
devastating effects to their economies as a result of the
new OECD proposal".
3. Dick Armey, Republican Majority leader in the US House
of Representatives wrote a letter to Treasury Department
Secretary where he bluntly demanded to stop supporting OECD
recent anti-offshore initiatives. Says Dick Armey: "Mr.
Secretary, I hope you are not committing the United States
to actions that are unlikely to receive the approval of
Congress..I urge you to summarily and immediately reject
this policy and I look forward to learning the actions you
plan to stop the OECD from moving forward."
Arriving to conclusions
The FSF initiatives will find more comprehension with tax
havens; moreover the FSF declared that there are highly
reputable OFCs, and legitimate ways of making one's business
offshore exist. Some OFCs may sacrifice confidentiality
aspects of their offshore legislation and become more susceptible
to inquiries of foreign authorities. On the other hand,
offshore services are "the pillars of a state"
in a typical tax haven, and it would be an economical suicide
to level them down considerably.
Oh, yes, many things are changing owing to the above intergovernmental
efforts, some successful practices will be gone forever,
some new ones are inevitably emerging, but it's apparently
impossible to "forbid" offshore as a lawful way
of conducting business and/or attaining of one's
tax planning or
asset protection goals. Nobody as well can kill competition
in any field: it's the essence of life itself; nobody is
able to turn the tide of capital flows streaming in the
direction of lower taxes and minimum regulation.
The point is and will always be that money makes freedom,
and freedom makes money!
February 01, 2001
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