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Banning US financial institutions from processing payments to/from offshore e-gaming firms

Kitty Miv, Editor
16 October, 2014

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

Credit to the tiny Caribbean territory of Antigua and Barbuda, which is doggedly continuing to stick to its guns in a trade dispute with the mighty United States; if ever there was a David versus Goliath contest between nations, in the non-military sense at least, then this must be it. But then it's not difficult to see why plucky Antigua keeps chipping away at this issue when it is so obviously in the right from a legal standpoint, and has been so grievously harmed economically as a result. The matter in dispute is a change in US laws some years ago which effectively shut offshore-based e-gaming operators out of the very lucrative US market. One may not be comfortable with the rise of the e-gaming and gambling industry from a moral point of view. But the flip side to this coin is that hundreds, if not thousands, of precious, skilled and well-paying jobs have been lost in a country that has little to fall back on economically apart from tourism – the Antigua and Barbuda Investment Authority estimates that 3,500 Antiguans and Barbudans have experience or have had specific training in the industry, out of a total population of just 100,000.

The far-sighted Government of Antigua and Barbuda was well ahead of the competition when it put in place the first set of laws to licence and regulate interactive gaming and wagering companies in 1994. Exploiting access to two separate undersea fibre networks, by the year 2000 the number of internet gambling licensees in the jurisdiction had grown to 93, the jurisdiction's industry was turning over USD1.7bn, had a 60 percent share of the global market and employed 1,600 people. Then, in the early 2000s came a series of enforcement actions against providers of e-gaming services to the US, followed by new legislation effectively banning US financial institutions from processing payments made to and from offshore e-gaming firms. These actions wrecked the sector in Antigua and Barbuda, which by 2003 had lost 80 percent of its e-gaming and sportsbook firms. More reprehensible, however, is how the US Government ignored subsequent WTO rulings in favor of the Caribbean nation, and effectively picked up its ball and stomped home when it rescinded one of its services agreements under GATT. Despite repeated protestations by Antigua and no less than former WTO chief Pascal Lamy, the US remains completely unmoved by A&B's plight. I'm glad that USTR Michael Froman has agreed to discuss this issue once again, but, sorry to say A&B, I'll be really surprised if the meeting leads to anything more than the usual empty promises to review the situation.

Staying on the small country theme, Antigua and Barbuda is an example of how relatively impoverished territories with few natural resources can punch well above their weight with ambitious ideas, effective legislation and sensible tax policies. Guernsey is another example. It might have inexplicably plummeted, along with other IOFCs, down the league table of financial centres compiled biannually by Z/Yen. But the news pages of this publication have been replete with stories recently about a number of notable Guernsey firsts. A significant one was the migration of Investec Asset Management's USD1.2bn fund from Ireland to Guernsey, a huge endorsement of the flexible way in which Guernsey has approached a new EU law regulating investment funds, the Alternative Investment Fund Managers Directive. Other recent developments have included the registration of the first financial services firm on Guernsey's innovative image rights register; the registration of the recently-launched Guernsey aircraft registry's first wide-bodied jet; the migration of the first ever foreign foundation company to Guernsey; and the recent introduction of limited liability partnerships. It is also worth mentioning here that the Isle of Man, a fellow Crown Dependency, announced a couple of weeks ago that it has achieved 30 consecutive years of economic growth. How many other countries, I wonder, could boast of the same statistic? Certainly none of the G7 could, and it seems highly doubtful that any of the OECD members could either. What's more, the Isle of Man cannot be considered "dirty," because it is routinely placed in the top tier of jurisdictions for transparency. That's got to be really galling to the Gurrias, Šemetas and Levins of this world!

Given the sorry state of the eurozone's economy at the moment, the turn-around in fortunes for the United Kingdom's economy looks remarkable, especially as the former is one of the latter's main export markets. Prime Minister David Cameron also made the right noises on tax at the recent Conservative Party conference, calling for a substantial and long overdue increase in the threshold at which the 40 percent rate of income tax kicks in. It used to be that you had to be earning significant amounts of money before the Government took almost half of your pay. Now somebody earning not much more than 40,000 pounds is considered rich, and the UK isn't the only offender in having intermediate and top rates of income tax applying at criminally low levels of pay. Anyway, this is something of a digression, because it's time for an execration, and while Cameron may pretend that all is rosy in England's garden, the reality is that the UK remains vulnerable. The Government has fallen well short of its original deficit reduction target and the reality is that the UK deficit, in percentage terms, is still well above those of many eurozone countries which have received bail-outs of one description or another. And if the eurozone economy goes down, the UK will probably be dragged down with it, EU or no EU. Another, fairly predictable, worry now is that the Scottish referendum has unleashed nationalist forces across the Kingdom that London is struggling to contain. Yes, the Union might have been saved, but the price is more powers to Scotland, including over taxation. Now its Wales's turn to get its piece of the action. And since the referendum we have heard that it is now time for an English parliament. But cities in the UK's former industrial heartlands are also hankering for greater autonomy. How far is this going to go? Towns? Villages? Hamlets? Streets? Not that I'm a friend of highly centralized, micro-managing governments. But if you are a Brit, the way things are going you soon won't be able to figure out what tax you are supposed to be paying to whom. In many respects, the Government doesn't have much choice but to accept this, having let the devolution genie well and truly out of the bottle; I suppose it shows that it is prepared to listen to people who consider themselves cast to the margins of the Kingdom. But in hard economic terms, I don't see much good coming out of it.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 126th) one or more countries are given encomiums and one or more are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is at plus 1, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc and now it's on plus 1 again.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums:

Antigua & Barbuda plucky

Guernsey innovates

And Kitty's Execrations:

United Kingdom disintegrates




About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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