23 September 2002

OECD CORPORATE CRIME CLAMPDOWN FLAWED

Attack on small countries ignores problems at home, new study warns.

A major new study warns that, by focusing on small states and overlooking their own membership, the 30 countries which make up the Organisation for Economic Cooperation and Development (OECD) may fail in their latest bid to stop corporate crime. Instead, some dominant OECD countries may simply get a further commercial advantage over small and developing economies and even over their OECD partners.

The study, Towards a Level Playing Field, undertaken by law firm Stikeman Elliott for the International Tax and Investment Organisation (ITIO) and the Society of Trust and Estate Practitioners (STEP), reveals that, while arguing for tighter regulation of “corporate vehicles” 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.

Launching the report, Rt Hon. Owen Arthur, Prime Minister of Barbados, an ITIO member country, said, “This report is a constructive contribution to the debate on how states should interact on international economic matters. 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. To avoid seeming protectionist in a world where free trade agreements are proliferating, the OECD must insist that all finance centres improve regulation to the same degree and at the same time.”

Colin Sharp, STEP Worldwide Chairman, added, “International crime is a global problem which requires global solutions. Our members worldwide find it incomprehensible that they have to bear more onerous obligations than competitors in some US states. Unless corrected this 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, said, “The OECD has made important contributions to improving the regulation of companies. However, service providers in the US still sell corporate shells around the world with no questions asked about beneficial ownership and no requirements to track financials. The study shows that OECD countries must focus on implementing their ideas at home to catch up with developments in non-member states.”

Towards a Level Playing Field provides a first-ever, comprehensive review of the regulation of corporations, trusts and limited partnerships in 15 OECD and non-OECD countries.

Notes to Editors:

1. Towards a Level Playing Field can be downloaded at www.itio.org or www.step.org (from 24 September 2002).

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. (See http://www.oecd.org/EN/document/0,,EN-document-28-nodirectorate-no-12-22243-28,00.html)

3. The report has proved influential and is being actively used by other international bodies, such as the Financial Action Task Force, which tackles international money laundering. However, it has two major failings: it was prepared without involving 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.

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

5. In October 2000, the US Senate’s General Accounting Office (GAO) released a report 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” (GAO report, page 11).

The GAO report was commissioned by Senator Carl Levin, Chair of the Senate Committee on Correspondent Banking and a noted scourge of tax havens outside the USA. The Senate Committee’s own, subsequent report was oddly silent on the problems in Delaware which the GAO report identified.

6. In an attempt to provide a broader and more objective basis for policy formulation than the OECD’s work, the International Tax and Investment Organisation (ITIO) and the Society of Trust and Estate Practitioners (STEP) commissioned the well-regarded international law firm Stikeman Elliott to conduct a review of the OECD’s report.

7. Unlike the OECD report, the Stikeman Elliott review, Towards a Level Playing Field, takes proper account of the major finance centres within the OECD as well as in small and developing countries.

8. 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.

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, Commonwealth 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 the following:

For the ITIO, Ben Coleman on + 44 (0) 7958 616 444

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

For Stikeman Elliott, Richard Hay on + 44 (0) 20 7648 1310.

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