02 October 2002

SMALL COUNTRIES URGE OECD TO LEARN FROM INCLUSIVE COMMONWEALTH

The International Tax and Investment Organisation (ITIO), a grouping of thirteen small and developing states, has welcomed Commonwealth Finance Ministers’ support for developing countries to participate more fully in international financial institutions.

The organisation has also welcomed the Ministers’ commitment at their meeting in London last week to developing new financial codes and standards on a transparent and universal basis.

The ITIO is now urging the Organisation for Economic Cooperation and Development (OECD) to adopt a similar approach in its latest initiative against corporate crime. At the moment, the OECD is targeting small states while overlooking or excusing problems within its own member countries.

In a major new report, the ITIO argues that, to be effective, the OECD needs to address the illicit use of corporate vehicles on the basis of a level playing field; and that new policy and rules should be developed in a truly universal forum, involving all countries on an equal basis.

“It is heartening to see these principles of inclusiveness and universality embraced by the Commonwealth”, said ITIO Director Lynette Eastmond, “We would urge the OECD to adopt the same approach.”

The new report, Towards a Level Playing Field, undertaken by international law firm Stikeman Elliott for the ITIO and the Society of Trust and Estate Practitioners (STEP), provides a first-ever, transparent comparison of corporate regulation in fifteen OECD and non-OECD countries.

It reveals that, while arguing for tighter regulation in small countries, the OECD is excusing large OECD corporate domiciles such as Delaware and Nevada in the USA from compliance with new rules to regulate service providers and track beneficial ownership.

Commenting on Towards a Level Playing Field, Owen Arthur, Prime Minister of Barbados, said, “OECD members should recognise that the problem of international corporate crime needs to be addressed in all countries, including themselves. As this report shows, times have changed and many small and developing countries are very well regulated.”

Colin Sharp, Worldwide Chairman of STEP, added, “International crime is a global problem which requires global solutions. The OECD’s partial approach will only achieve partial results and business will flow from well regulated centres to less stringent ones.”

Richard Hay, who headed Stikeman Elliott’s report team, explained, “The study shows that OECD countries must focus on implementing their ideas at home to catch up with developments in non-member states.”

Notes to Editors


1. Commonwealth Finance Ministers met in London from 24-25 September 2002. Their Action Plan commits all Commonwealth countries to work together and with others to:

“Work in the IMF, World Bank and other fora to reduce national and global vulnerability to financial crises by building capacity in all Commonwealth countries to implement the appropriate codes and standards, on a transparent and universal basis, taking account of individual country circumstances…
Support moves to strengthen governance in global economic and financial institutions, by appropriately enhancing the participation, voice and representation of developing countries in decision-making in the international financial institutions, and in the development and implementation of standards and codes. (para. 9):

“Commonwealth countries call on the Secretariat to… facilitate dialogue to ensure that regulatory standards and codes are transparent and universal in their application.” (para. 10)

2. Towards a Level Playing Field was commissioned by the ITIO and the Society of Trust and Estate Practitioners from international law firm Stikeman Elliott. It can be downloaded at www.itio.org or www.step.org.

3. The study responds to a November 2001 report by the Organisation for Economic Cooperation and Development (OECD), a grouping of 30 developed nations, on using corporate entities for illicit purposes. This called on governments and regulatory authorities to ensure they were able to obtain information on the beneficial ownership and control of “corporate vehicles” in order to combat their misuse.

4. The OECD report has proved influential, yet it focuses on corporate vehicles in non-OECD countries to the exclusion of those in OECD countries which are vulnerable to misuse, such as Delaware limited liability companies. OECD members control approximately 80 per cent of the global trade in financial services provided to non-residents.

5. Given the weaknesses of the OECD’s work, Stikeman Elliott was asked by the ITIO and STEP to develop a broader and more objective basis for policy formulation. Unlike the OECD report, Towards a Level Playing Field takes proper account of the major international finance centres within the OECD as well as in small and developing countries.

6. Using the OECD’s own criteria, Stikeman Elliott undertook a comprehensive benchmarking review of the regulation of corporations, trusts and limited partnerships in 15 OECD and non-OECD countries. This is the first time that such directly comparable and transparent information has been made generally available.

7. Among Towards a Level Playing Field’s recommendations are that:

To be effective and avoid charges of protectionism, the OECD must address the problem of the illicit use of corporate vehicles on the basis of a level playing field; and
A truly universal forum should develop new policy and rules, involving all countries on an equal basis.

8. The US General Accounting Office (GAO) prepared a report in October 2000 entitled Suspicious Banking Activities: Possible Money Laundering by U.S. Corporations Formed for Russian Entities. This states, “It is relatively easy for foreign individuals or entities to hide their identities [in Delaware] while forming shell corporations that can be used for the purpose of laundering money” (page 11). Although the US Senate commissioned the report, it has taken little action.

9. The International Tax and Investment Organisation (ITIO) is a grouping of small and developing economies set up in March 2001 to help members respond to global tax and investment challenges. It explicitly considers the development implications of these challenges. Members comprise Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Cook Islands, Labuan (Malaysia), St Kitts & Nevis, St Lucia, Turks & Caicos and Vanuatu. The Commonwealth Secretariat, Pacific Islands Forum Secretariat, CARICOM Secretariat, Caribbean Development Bank and Eastern Caribbean Central Bank have observer status. See www.itio.org.

10. The Society of Trust and Estate Practitioners (STEP) is the professional body for the trust and estate profession worldwide. STEP members come from the legal, accountancy, corporate trust, banking, insurance and related professions, and are involved at all levels in the planning, creation and management of, and accounting for, trusts and estates, executorship, administration and related taxes. STEP has over 8,000 members in leading finance centres in OECD and non-OECD countries alike. See www.step.org.

11. Stikeman Elliott is a Canadian law firm with offices in North America, Asia, Australia and Europe. Stikeman Elliott conducts a broad corporate and commercial law practice, including private sector and government consultancy on international taxation, banking and securities regulation. See www.stikeman.com.

12. For more information, please contact Ben Coleman on + 44 (0) 7958 616 444 or
bencoleman@oceans-consulting.com



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