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Agence France Presse

April 29, 2001, Sunday

Pacific tax havens set to defy close-down orders from rich club

by Michael Field

     (AUCKLAND, April 29) Pacific tax haven nations, in some cases with Russian mafia and South American drug connections, are defying orders from the worlds richest powers to curb their operations.

     The Pacific Islands Forum Secretariat said in a weekend statement that its 16 nation membership is "committed to protecting their sovereign right to operate offshore financial centres" and warned the Organisation for Economic Cooperation and Development (OECD) to back off or the Pacific "will have to take recourse to other avenues and fora".

     The "Harmful Tax Competition Initiative" of the Paris-based OECD, made up of 30 of the worlds richest nations, has set a July 31 deadline on seven Pacific countries, among 35 states, to impose tight new controls over their tax haven banking.

     Among them is Nauru which Moscow and Washington authorities claim has seen around 70 billion US dollars worth of mafia money pass through its banks.

     Niue meanwhile has given control of its tax haven operation to a Panamanian law firm, bringing allegations it is being used to launder drug money. Earlier this year US banks announced a ban on sending money to Niue.

     But Pacific nations claim they are being attacked because they are small and powerless while the big tax haven operations, those operated within the OECD, are not subject to the deadline.

     Last week ministers and officials from Cook Islands, Nauru, Niue, Republic of Marshall Islands, Samoa, Tonga and Vanuatu met in Fiji, along with Australia, New Zealand and the OECD Secretariat to discuss the issue.

     The acting secretary general of the secretariat, Iosefa Maiava, said in a statement it was a "David and Goliath stand-off".

     "The seven listed Pacific nations have a combined GDP (gross domestic product) of around one billion US dollars, compared to Australia's annual GDP of around 300 billion dollars, and they have a total population barely one eighth that of Sydney," he said.

     Niue, the smallest nation, has a population of only 1,800 and an annual government budget of around 20 million NZ dollars (8.3 million US dollars) and all the Pacific nations have heavy trade deficits with mainly OECD members.

     They did not have the resources to address the issues of harmful tax competition, and nor could they negotiate on an equal standing with the OECD, the statement said.

     The meeting issued a regional position statement in which they said all nations "have the right to compete in the international financial markets, through the provision of both onshore and offshore financial services".

     They concede that "basic standards" have to be met by the operations but "in a way which does not compromise the right of countries to provide these services".

     It said the OECDs Initiative was forcing countries to choose between committing to it and suffering "possible and immediate to long-term loss of economic activity through the loss of offshore sector clients" or ignoring the deadline and "suffering loss of economic activity through the imposition of defensive measures by OECD members".

     "In either case, the elements which make offshore financial tools attractive will be removed and so cause shrinkage or closure of this sector in listed nations ...

     "It can also be damaging to the integrity of their jurisdictions and to the well-being of other countries in the region. The end result will be greater reliance on development assistance."

     The statement said Pacific countries were being treated unfavourably by the initiative: "It offers one-sided benefits to OECD members, while OECD nations with offshore financial centres are not required to make an identical commitment."

     The Pacific wanted the deadline lifted so real negotiations could take place.

     "Affected members are committed to protecting their sovereign right to operate offshore financial centres.

     "As such, if the deadline is not lifted and comes into play the membership will have to take recourse to other avenues and fora to resolve the situation."


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