Intelligence
Report / Service
The World Of Offshore And Its Future
PART I: The Rich Countries'
Attack on Offshore Jurisdictions: How and Why it Happened
- the 66 'harmful tax practices'
of the EU Code of Conduct Committee;
- the Financial Stability Forum's
16 jurisdictions which could threaten global financial stability;
- the FATF's 15 unco-operative
jurisdictions;
- the OECD's 31 countries with
'unfair tax competition'
- the EU withholding tax row
and the campaign against banking secrecy - France takes
on the EU presidency - the OECD's Paris meeting;
- the US divided - the administration's
anti-offshore agenda badly dented by a Republican Congress
Extract:
Why Did It Happen?
Nobody supposes that it's
a coincidence that the EU, the OECD and the G7 all happened
to attack the world of offshore in the same year. In fact,
the roots of what happened in the year 2000 and in the period
since lie some years back. In the most general sense, one
can say that the left-wing ascendancy in most of the world's
key economic powers that developed during the late 1990's
led to the development of a common agenda among G7 and EU
finance ministers which resulted in a series of initiatives
with a common purpose.
OECD Building, Paris
The EU's Code of Conduct
Committee
Dawn Primarolo, UK Paymaster
General and Chair of the EU Code of Conduct Committee First
off the plate was the EU, which on 28th February 2000 decided
to make public the results of the Primarolo Code of Conduct
Committee on business taxation. The Committee was established
in 1997 when the ill-fated 'tax package' was launched, including
the proposal for a harmonised EU withholding tax which was
finally transmogrified into an information exchange plan at
the EU Feira summit in 2000, and implemented on 1st July,
2005.
The Code of Conduct Committee
examined hundreds of tax measures across the Community, finally
listing 66 of them to which it gave a 'positive evaluation'
as being harmful. At its session of 28 February 2000 the Ecofin
Council decided to make this report accessible to the public
'without taking any position on its content'.
The 66 measures are listed
in Annex 1.
As can be seen from the list,
the Primarolo report should be seen more as an attack on what
were conceived as the excesses of corporate international
tax planning, rather than exclusively an attack against 'offshore'.
Several years later, most of the practices listed in 'Primarolo'
have been resolved by negotiation between the EU and Member
States. In many cases they remain in force, although diluted
in their effect, and often with 'grandfather' periods for
existing users.
Next Came The G7 and the
Financial Stability Forum....
PART II: The Story after
September 11th
- The US Anti-Money Laundering
Law
- Consequences of the US law
for the funds industry
- Reactions of the Offshore
Jurisdictions
- The Bahamas Asserts Its Independence
- Culmination of the OECD and
FATF initiatives
- The EU Takes to the Ring
Extract:
Introduction
The terrorist atrocities
of September 11th substantially changed the balance of the
long-running saga of 'offshore' versus the multilaterals,
and gave new weight to the latter's demands for transparency
and information exchange.
The US itself, which under
the new Republican administration had previously been agnostic
at best towards the OECD, lukewarm about the FATF's efforts
to curb money-laundering, and plain negative towards the EU's
demands for an information-sharing regime, immediately passed
swathes of legislation to uncover terrorist financing and
threatened sanctions against any country which did not fall
into line.
However, reports that the
US Treasury was reconsidering its attitude towards the OECD's
'unfair tax competition' initiative seemed to be untrue. Jeremiahs
such as London's Financial Times, which seems to regard itself
as a flag-carrier for the FATF and OECD, immediately assumed
the worst for offshore: 'The broad sanction powers represent
a sea-change in the administration's approach to financial
regulation and multilateral agreements,' gloated the pink
paper, 'Before the terrorist attacks, the Bush administration
opposed international threats to impose sanctions on tax havens
that refused to share information with US officials. Any action
against countries that are unable to comply with the US demands
will boost the movement of private banking away from secretive
offshore financial centres to mainstream onshore centres with
higher regulatory standards.'
The FT was being premature,
and what it said was not even correct - neither George Bush
nor Paul O'Neill was ever against the imposition of sanctions
on jurisdictions which knowingly sheltered crime-related beneficiaries.
The Terrorist Financing Order published in late September
was complied with just as easily by offshore banks as by onshore
banks, and with the same problems of identifying related accounts.
Virtually all offshore jurisdictions agreed that exchange
of information in named cases is normal and unproblematic,
and were in the course of entering appropriate agreements
where these didn't exist already. By September 2001 the FATF's
list of non-co-operative jurisdictions over money-laundering
was already dominated by non-offshore countries, and among
the countries whose banking secrecy laws did and still do
prevent 'fishing expeditions' are the US and the UK.
Attempts to track down the
late Nigerian dictator Sani Abacha's corrupt funds ground
to a halt in London, where the government said it could do
nothing to force banks to divulge details of accounts without
prima facie evidence of crime.
The US did indeed crank up
its demands on other countries, with Mr Bush saying that he
expected "civilised nations" to change financial
laws and regulations to pursue terrorist funds in line with
the US. And Congress eventually passed the 'Patriot Act' which
imposed far stiffer reporting requirements on a wide range
of financial institutions, without fundamentally undermining
the principle of banking secrecy.
For the most part, US action
against the financial underpinnings of terrorism has been
a question of stricter adherence to existing international
norms of exchange of information and mutual assistance. It
remains to be seen whether any offshore jurisdictions will
tempt providence by trying to defy the US - they would certainly
be foolish to do so.
The US expected co-operation
with its Executive Order, and indeed received it. "No
one is Pollyannish enough to believe there won't be concerns
or objections voiced,' said Treasury General Counsel David
Aufhauser, 'but we have a high degree of confidence after
talking with our friends and allies that they will assist
in this effort to track down the assets of foreign terrorists,
because no responsible banker would ever be an enemy to the
purposes of this order."
The problem with the Executive
Order, however, for bankers, starting with the 5,000 US institutions
who were sent the Order, was to know which accounts to freeze.
Bankers are easily able to check client lists for a list of
proscribed names, but they find it difficult or impossible
to know which accounts might be indirectly connected to those
identified.
"That's one of the real
thorny problems," Ed Yingling, chief lobbyist for the
American Bankers Association, told the Wall Street Journal
at the time: "How many veils have been put out? At some
point, we cannot tell who's linked to whom."
PART III: The Response
of the Jurisdictions
Summaries of legislative and
other responses from all the jurisdictions listed below:
- Anguilla
- Antigua
- Bahamas
- Barbados
- Bermuda
- British Virgin Islands
- Cook Islands
- Cyprus
- Gibraltar
- Guernsey
- Isle of Man
- Jersey
- Liechtenstein
- Malta
- Mauritius
- Panama
Extract:
CAYMAN ISLANDS (partial excerpt):
As early as July 2000, Caymans
legislators were considering four bills addressing money laundering,
following the concerns raised by the FATF. The resulting new
laws set out, among other provisions, to expand the role of
the Cayman Islands Monetary Authority and to require service
providers to strictly adhere to standardised anti-money laundering
procedures for client identification, record-keeping and internal
reporting. The legislation built on the Code of Practice issued
in March 2000 under the Proceeds of Criminal Conduct Law.
The Caymans were quick to act in response to the FATF list
and the authorities closed several financial institutions
on the basis of money laundering suspicions.
The main areas of concern
raised by the FATF, and legislative actions taken by the Cayman
Islands, are outlined below, with details of actions undertaken
to address them:
Customer Identification &
Record-keeping Rules: The Cayman Islands has compulsory legal
requirements, with respect to relevant financial business,
for customer identification, internal reporting and record-keeping
in the Money Laundering Regulations 2000, which contain criminal
sanctions. These regulations were passed on August 7, 2000
and took effect on September 1, 2000.
Regulatory Cooperation: The
Cayman Islands Monetary Authority was enabled by the Monetary
Authority (Amendment) (International Co-operation) Law 2000
to readily access and share information with overseas regulators,
including information regarding the identity of customers
in appropriate regulatory circumstances. This law was passed
on July 14, 2000, and took effect on July 24, 2000.
The Role of the Regulatory
Authorities: The Cayman Islands Monetary Authority reviewed
its resources and adopted a strategy for enhanced on-site
inspections of licensees.
Suspicious Activity Reporting:
A new criminal offence was added on July 14, 2000 by the Proceeds
of Criminal Conduct Law (Amendment) (Money Laundering Regulations)
Law 2000, making it a crime punishable by up to two years
imprisonment to fail in the course of business to report any
suspicious transaction. This exceeds UK Law, which has such
an offence only in relation to drugs and terrorism. In addition,
the Money Laundering Regulations require by law that financial
services providers have systems in place to secure the reporting
of suspicious transactions, punishable on a breach by up to
two years imprisonment.
When the FATF met in January
2001....
PART IV: The Future for Offshore
The future for offshore and
what effects the new legislation will have.
Although the early years
of the new millennium felt like a time of crisis for the world
of offshore, it is important to see current events in their
historical perspective. The battle of taxman and taxpayer
is one of the longest-running sagas of the ongoing development
of human society, and without any doubt it will be continuing
long after the offshore wars of the early 21st century are
forgotten about.
If it's a mite early to to
write the history of the 21st century, one can say with some
confidence that as far as tax is concerned the 20th century
was marked on the one side by an inexorable rise in the demands
of the State, and as a direct result, on the other side by
a matching rise in the emergence and use of low-tax jurisdictions
by individuals and companies to mitigate their tax bills.
Although exact figures are
hard to come by, the total proportion of the world's wealth
that is based 'offshore' is often said to be well over 60%
- and that figure is rising, both because existing offshore
assets increase largely without being held back by tax, and
because people continue to try to re-direct income streams
away from high-tax areas and into low-tax ones.
Of course, what is true of
wealth is not true of income: the vast majority of income
arises in or is remitted to high-tax jurisdictions, despite
the best efforts of people to re-direct it, basically because
they have to live somewhere, and most concentrations of economic
activity are 'onshore'. At present, the same goes for companies:
most of them have to be based onshore and therefore get taxed
there.
In trying to understand the
behaviour of rich country tax authorities, it is useful to
talk separately about individuals and companies.
Continues....
Click
here to learn more. |
