CASHING IN ON A PARADISE ISLAND

Accountancy Age, 23 January 2003 [EXTRACT]

By Andrew Goodall

A 2001 OECD report Behind the Corporate Veil: Using Corporate Entities for Illicit Purposes drew attention to the misuse of corporate entities for 'money laundering, bribery and corruption, shielding assets from creditors, tax evasion' and other illicit activities.

The US Internal Revenue Service has noted a 'proliferation in the use of (offshore financial centre) trusts and corporations in tax evasion schemes due to the difficulty in tracing their beneficial owners'.

The veil of secrecy provided by corporate entities in some jurisdictions 'may also facilitate the flow of funds to terrorist organisations', it says. The OECD is urging governments to share information about ownership and control with law enforcement authorities domestically and internationally.
However, the Society of Trust and Estate Practitioners challenges the OECD report. Colin Sharp, chairman of STEP Worldwide, voices 'very serious concerns' that models proposed by the OECD and the Financial Action Task Force on money laundering do not meet a number of requirements, including 'client privacy'.

He says: 'It is understandable that the state may need to invade privacy in the name of the war on terrorism, but it is more difficult to see why one should accept incursions in the name of tax efficiency. Honest people, it is said, have nothing to hide. But that assumes that governments (or at least the people within them) are honest too. Honest people might have good reason to protect themselves from dishonest governments. We cannot assume that all banking information will not be misused.'

In a joint report with the International Tax and Investment Organisation, the society warns that business could migrate to jurisdictions insulated from pressure for change.
The report calls for 'new regulation premised on a truly level playing field, one in which all countries conducting cross-border financial services participate on an equal basis in setting the new standards which will affect them'.

Some progress has been made.

Two years ago Oxfam called for a more inclusive approach and last October the Cayman Islands hosted a meeting of the OECD Global Forum on Taxation.

The OECD said it brought about an 'enhanced sense of inclusive partnership amongst OECD and non-OECD countries'.

Certain countries, in particular the UK, have a special responsibility because many tax havens are UK dependencies or associated territories. There is still a long way to go, but in the meantime ordinary taxpayers and smaller businesses are picking up the tab.

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