THE OECD IMPERIALISTS:
IMPLICATIONS FOR THE ISLAND OF NEVIS
(Excerpted from Remarks Presented at the Capitol Hill Club)
The Heritage Foundation Lunch
Friday September 29, 2000
By Everson W. Hull, Ph.D.
Over the past thirty years, there has been a steady progression towards higher and higher taxes among the 29 OECD member countries. The tax share of GDP has increased steadily from about 29
in 1970, to 33 per cent in 1980, to 36 per cent in 1990 and more than 37 per cent in 1998. By contrast, in most of the off-shore banking jurisdictions there are no income taxes and international companies pay vastly reduced corporate tax rates than is the case in the United States and Europe. This marked divergence in the propensity to tax has led to a healthy tax competition between what has become known as the high-tax OECD cartel and the low-tax off-shore jurisdictions.
Many observers have argued that the real intent of the OECD is not to stamp out money laundering as it claims;
but to turn today's low-tax jurisdictions into tax collectors that would feed the enormous and growing appetites of the big spending governments that make up the OECD cartel. In the most unbridled display of imperialistic arrogance since the American Revolutionary War which brought the United States into existence, the OECD has made the low-tax off-shore banking jurisdictions the focus of intense international scrutiny alleging that their banks have been used to launder money by organized crime and drug barons. To accomplish their objectives, they have embarked on a vicious campaign of naming, shaming and black-listing the low-tax jurisdictions which they regard as being uncooperative in the fight against money laundering. They have treated these jurisdictions and their people as if they are a bunch of drug-runners.
For most of these countries, tourism remains the mainstay of their economies. For them, image means everything.
It is grossly unfair, cruel and hypocritical on the part of the OECD to seek in one fell swoop to tarnish and damage the reputation and image of these struggling economies -- a reputation of a trust-worthy and honest people that has been cultivated over many, many years.
In the case of the Queen of the Caribbees, the Island of Nevis, home of the magnificent up-scale Four Seasons International Resort, that is ranked Number One in the world among resorts, for service; there is only one off-shore bank – a home grown indigenous bank established and run by local men and women of goodwill. The farthest thing from the minds of these decent men and women is harboring any sort of business with criminals and drug barons. Yes, there are some 15,000 registered off-shore companies on the island. But, in sixteen years of operation, there has never been so much as one case of fraud or scandal in a business that has expanded rapidly and has brought the country recognition among international investors as a "safe" financial haven.
This vibrant sector today accounts for more than 30 percent of all tax revenues that are collected in Nevis. It has played a critically important role in helping the country to
balance its budget on current account in four of the last five years, with the single exception of the current fiscal year when a major storm Lenny forced the temporary closing of its flagship Four Seasons
In the interim, the presence of a vibrant offshore banking sector served as the automatic economic stabilizer that helped minimize the disastrous impact of the damaging hurricane, said to be the worst in over one hundred years. The off-shore banking sector is critical to helping developing Caribbean countries such as Nevis to diversify and to mitigate the harmful effects of the annual hurricanes that play utter havoc with the island's upscale tourism plant. Together with tourism, the off-shore banking sector helps to generate a measure of self-sufficiency as the country puts the necessary mechanisms in place to declare its full political and economic freedom, as it prepares for nationhood.
The island has a solid core American ex-patriot community that has integrated itself nicely into the Nevisian way of life. They have made this off-shore paradise which Princess Di, who,
before her untimely and tragic passing, selected as the idyllic setting that would provide the peace and tranquillity that she sought following her separation from Prince Charles.
Consider for the moment a retired American medical practitioner who has voluntarily decided to make Nevis his home.
He has elected to move to Nevis not only because of its crime-free and drug-free environment and its all-year round pleasing tropical climate; he has made Nevis his home to avoid the full and wide range of high taxes that are imposed by Uncle Sam. The economic decision that motivates the American retiree to set up residence in Nevis and to live in a low-tax jurisdiction is really no different from the economic decision that motivates the retiree to move out of a high-tax state such as New York and to move to a lower tax state such as Florida.
It is the same type of economic tax decision that motivates a manufacturing plant to
locate in a low-tax state such as North Carolina. And, it is the same type of business decision that motivates a U.S. firm to establish its headquarters in Delaware, or for a trust to locate in Delaware to take advantage of its favorable tax treatment of nonresident beneficiaries. In the U.S. itself, the courts have utterly rebuffed a number of high-tax states like California and New York which have sought to impose taxes on trusts that have been established for Californians and New Yorkers in a number of lower tax states.
Nevis has a highly regulated off-shore financial sector. It has built a solid international reputation as a safe financial haven. It provides the confidentiality and security
that investors seek, as well as the investment flexibility and cost savings that is needed to help them to maximize their earnings potential. The OECD's
"Know Your Customer" banking rule that makes customer identification mandatory will cause the financial accounts of off-shore investors to become an open book. It will lead to a flight of capital, as investors make a gracious exit in search of alternative jurisdictions that show greater respect for their financial privacy.
In the entire 16-year history of this rapidly growing off-shore banking sector, there has never been a charge of fraud or any banking scandal against any of the economic agents involved in this business. There are no branches of Credit Suisse -- Switzerland's second largest bank -- in Nevis. There is no economic agent in the financial sector who has ever been reprimanded for money laundering and statching away any of the missing Abacha billions that have been alleged to have been deposited by the former Nigerian dictator in various branches of Credit Suisse. Nevis is not at the center of any cigarette smuggling racket as Switzerland has been.
Indeed, the black-listing of the Island of Nevis and the other low-tax off-shore jurisdictions and the tarnishing of its clean reputation as an economic safe haven represents the height of
hypocrisy. It is generally known that more money laundering goes on in New York and London than in any other place on this earth. A substantial portion of the funds passing through the low-tax
off-shore jurisdictions have already been "pre-washed" in other countries, including the United States.
Yet, we hear of no FINCEN advisories from the U.S. Treasury that have been issued against banks in New York.
But, before seeking to pluck the beam out of the eye of another, the question must be raised,
has the U.S. itself made real progress in addressing its own money laundering concerns? By all accounts, the answer is No. It now appears that the International Counter-Money Laundering Bill (HR 3886) will not have sufficient support to clear the House in the remaining weeks of the present Congress. As you know, this legislation which has been supported by the Clinton Administration would have allowed U.S. federal officials access to the customer records of international banks in pursuit of suspected money-launderers. As you also know, financial regulators were bombarded with more than 300,000 angry letters from the American people vehemently rejecting the open book "know your customer" regulations that were being thrust upon them. It is the same type of "know your customer" guidelines that the American people have rejected that the OECD imperialists are now forcing onto the low-tax jurisdictions, while trampling all over their sovereign rights. This is wrong.
Ordinary Americans have long shown a great distaste for bullies.
The American Revolutionary War was fought, in part, because of the bullying tactics employed by the British imperialists against the American colonies. As in the case of the OECD today, there was no dialogue then. The British fanned the flames of rebellion through poor communication and aggressive enforcement of a litany of high taxes on the low-tax colonies who were beginning to acquire a measure of wealth and a degree of economic independence from Great Britain.
Today's OECD imperialists are proceeding along the same path. There has been no dialogue with the 35 off-shore low-tax jurisdictions that have been black-listed as
The low-tax off-shore jurisdictions were not present at the table when the Financial Action Task Force of the 29-member OECD high-tax cartel drafted their 40 recommendations that are now being rammed down the throats of the low-tax jurisdictions.
It is simply wrong for the high-tax OECD cartel of larger countries to bully the smaller low-tax jurisdictions into doing whatever the cartel demands. The effect would be to cause these
countries to go into a nosedive, with no realistic expectation of receiving any economic relief or assistance from the OECD countries. If the low-tax off-shore jurisdictions capitulate, and the OECD is
successful in bullying its way, the economies of low-tax countries like Nevis which are sitting on the Razor's Edge and poised for an economic take-off will be crippled and sent into a tailspin.
We will have been returned to a primitive and backwards agrarian lifestyle. I don't want to believe that this is what the OECD has in mind. If the OECD is allowed to continue unchecked, this is exactly the result that would obtain.
Ladies and Gentlemen, on this issue we are fully joined. There is a commonality of interests of the American people who are clamoring for tax relief and the low-tax jurisdictions
that are struggling for their economic survival.
The leadership shown by the Heritage Foundation with its long history of advocacy in favor of lower taxes and the very powerful voice of the Honorable Dick Armey has begun to have the desired impact of moving the OECD away from the wrongful path that it has embarked on. The feeding frenzy that is underway at the trough of BIG GOVERNMENT must be held in check and hard-working Americans must be allowed to keep more of what they earn. It is the right thing to do.