06 August 2002

CORPORATE VEHICLE CLAMPDOWN MAY FAIL: OECD Can’t Afford to Overlook Own Members in Tackling Abuse, New Study Warn

A new study warns that, by overlooking its own member states, the Organisation for Economic Cooperation and Development (OECD), representing the world’s 30 richest countries, is failing to tackle effectively the use of corporate entities for illicit purposes.

The study, Towards a Level Playing Field, which has been issued for comment by the International Tax And Investment Organisation (ITIO) and the Society of Trust and Estate Practitioners (STEP), reveals that, by focusing on finance centres in smaller and developing countries, the OECD is ignoring potential problems in much larger OECD finance centres and corporate domiciles. OECD countries control most of the global trade in financial services for non-residents.

Towards a Level Playing Field includes a comprehensive review of the regulation of corporations, trusts and limited partnerships in fifteen OECD and non-OECD countries. This is the first time that such directly comparable information has been made available.

In a joint statement, ITIO and STEP noted, “Our report is intended as a constructive contribution to the corporate vehicles debate. It takes a broader view than the OECD and compares OECD members with non-members. The results may surprise those who think the OECD has nothing to learn from smaller countries.”

Deborah Drummond, ITIO report coordinator, commented, “This demonstrates the need for a level playing field approach to standards. Unless the OECD agrees to take a look at its own members, the picture will remain incomplete and the very real danger of the misuse of corporate vehicles will remain.”

Colin Sharp, STEP Worldwide Chairman, added, “We pledge to work together with the OECD in fulfilling international obligations to deny any safe haven for terrorists, money launderers and those who undertake serious criminal activity. But unless the OECD consults properly with the finance services industry, its efforts could actually increase the risk of unlawful activity going undetected in major financial centres. Jobs may also be lost as potentially flawed regulation increases business costs in both OECD and non-OECD states alike.”

Richard Hay, who headed Stikeman Elliott’s report team, said, “OECD proposals could further fuel the erosion of personal financial privacy through the indiscriminate collection and collation of financial data, most of which relates to legitimate and lawful activity.”

NOTES TO EDITORS

1. Towards a Level Playing Field, can be downloaded at www.itio.org. Comments are invited by 30 August 2002 and should be sent to comments@itio.org. STEP members may comment separately through STEP’s website.

2. In November 2001, an OECD report, Behind the Corporate Veil: Using Corporate Entities for Illicit Purposes, 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 for illicit purposes.

3. The report has proved influential and is being actively used by other international bodies. However, it has two major failings: it was prepared without the participation of countries outside the OECD; and it focuses on corporate vehicles in non-OECD countries while largely ignoring those in OECD countries which are vulnerable to misuse, such as Delaware limited liability companies and trusts administered in Switzerland.

4. OECD member countries control approximately 80 per cent of the global trade in financial services provided to non-residents.

5. In an attempt to provide a broader and more objective basis for policy formulation, the International Tax and Investment Organisation (ITIO) and the Society of Trust and Estate Practitioners (STEP) have commissioned Stikeman Elliott to conduct a review of the OECD’s report.

6. Unlike the OECD report, the ITIO/STEP review – Towards a Level Playing Field – takes proper account of the major finance centres within the OECD.

7. In order to provide a transparency not found in previously published materials, the review undertook a comprehensive benchmarking review of the regulation of corporations, trusts and limited partnerships in fifteen OECD and non-OECD countries. This is the first time that such directly comparable information has been made available.

8. The International Tax and Investment Organisation (ITIO) is a grouping of small and developing economies (SDEs) set up in March 2001 to help SDEs 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, Malaysia, St Kitts & Nevis, St Lucia, Turks & Caicos and Vanuatu. The Commonwealth Secretariat, Pacific Islands Forum Secretariat and CARICOM Secretariat have observer status. See www.itio.org.

9. 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 centers in OECD and non-OECD countries alike. See www.step.org.

10. 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.

11. For more information please contact:

For the ITIO, Deborah Drummond on + 1 345 244 2221

For STEP, Keith Johnston on + 44 (0) 20 7763 7156.

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