NATIONS WIPED OFF HAVEN LIST

The Miami Herald, 19 April 2002

By Gregg Fields and Mimi Whitefield

Panama was removed Thursday from an international blacklist aimed at cracking down on uncooperative tax havens, leaving not a single Caribbean Basin jurisdiction on a list that has been a source of conflict between Washington, Western Europe and the island nations.

When the Paris-based Organization for Economic Cooperation and Development, which is comprised of the world's rich democracies, put out its first unfair tax haven list two years ago, 17 of the 35 jurisdictions on it were in the Caribbean Basin.

Now they are all gone and just Andorra, Liechtenstein, Monaco, the Pacific island nations of the Marshall Islands, Nauru, and Vanuatu, and Liberia remain on the latest list.

Several Caribbean jurisdictions, however, are on a separate list for being uncooperative in the fight against money laundering. That blacklist is compiled by the Financial Action Task Force, an affiliate of the OECD. The OECD has contended that low-tax or no-tax jurisdictions are little more than secretive fronts where foreigners can deposit assets and evade scrutiny and taxes at home.

"I think you have to look at the changes the Caribbean countries have made," said Ben Coleman, a London-based consultant for the International Tax and Investment Organization, an association of tax havens.

The Caribbean Basin governments, which have relentlessly promoted financial services and their tax policies as a way of attracting capital and diversifying their economies away from agriculture and tourism, have lifted a number of secrecy provisions and agreed to exchange tax information, making it easier to catch offshore tax criminals.

The Bahamas, for example, earned its way off the OECD list March 15 after months of intense negotiations.

"The Caribbean banking centers - and I certainly can speak for the Bahamas - have always been concerned about our reputation. Our institutions live by their reputations. We're pleased not to be on the list," said Wendy Warren, executive director of the Bahamas Financial Services Board.

There are trillions of dollars in offshore accounts around the world, and the Internal Revenue Service estimates it loses about $70 billion in taxes each year to U.S. taxpayers hiding money offshore. Americans are allowed to have offshore accounts, but they still must pay any applicable taxes on their earnings there.

The Bush White House - espousing tax cuts at home - moved away from the OECD's crackdown last year and suggested tax competition between governments was a good thing.

It thought the emphasis should be on exchanging tax information and on transparency - or less ironclad secrecy for offshore account holders, rather than telling other countries what their tax rates should be.

And instead of blacklisting countries, U.S. Treasury Secretary Paul O'Neill told Congress last summer that the United States would pursue tax information exchange agreements with countries on the original OECD list.

Since last November the United States has signed agreements with the Cayman Islands, the British Virgin Islands, Antigua and Barbuda, the Bahamas, and just this week with the Netherlands Antilles. In January, U.S. officials began talks with Panama in hopes of reaching an agreement on exchange of tax information.

Meanwhile, the OECD decided to drop its insistence that offshore financial centers couldn't attract overseas business by offering more favorable tax policies. That encouraged more island governments to sign letters of cooperation with the OECD, culminating in their removal from the list.

The move toward cooperation gained momentum after Sept. 11, when new laws designed to track terrorists' money increased the pressure on countries to share information with Washington. Those who didn't risked being denied access to the U.S. banking system.

While the OECD often portrayed Caribbean centers as providing cover to tax cheats, and sought to link tax evasion with money laundering, the governments there bristled at what they termed heavy-handed policymaking by the world's wealthiest countries.

"The point we've been making all along is that there's not a level playing field," said Lynette Eastmond, a Barbados economic development official who also heads ITIO.

It has rankled small countries that some OECD members, such as Switzerland and Luxembourg, have notoriously secretive banking practices and others, including the United States, freely attract flight capital from other countries even as island havens were being criticized for it.

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