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Associated Press

By Gretchen Allen

Associated Press Writer

     GRAND CAYMAN, B.W.I. (AP) - A call for the Cayman Islands to revoke its letter of commitment to the OECD's (Organization of Economic Cooperation and Development) so-called "harmful tax competition" initiative is being made here by Americans Andrew F. Quinlan, President of the Center for Freedom and Prosperity (CFP), a Washington, D.C.-based foundation, and Dan Mitchell, Ph.D., a Senior Fellow at The Heritage Foundation, a Washington, D.C. "think tank", and a leading expert on tax competition. The two men, along with others from the Free Congress Foundation, Americans for Tax Reform and four U.S. congressional staffers, were part of an 8-man panel which addressed more than a hundred businessmen and women at the monthly Cayman Islands Chamber of Commerce (CoC) meeting Wednesday. The men's position against the OECD initiative was met with apparent enthusiastic approval by most of the eagerly listening audience.

     The U.S. "ad hoc coalition" for tax competition, as they described themselves, was scheduled to meet with members of Cayman's Executive Council (ExCo) Wednesday afternoon for a similar presentation to government. The Governor, Mr. Peter J. Smith, is the Chairman of ExCo, which is comprised of the three official members: the Chief Secretary, Mr. James Ryan; the Acting Attorney General, Mr. Samuel Bulgin, and the Financial Secretary, Mr. George McCarthy, along with the Leader of Government Business, Mr. Kurt Tibbetts, and the four elected Ministers of the Legislative Assembly.

     The American team posits that the OECD initiative, against which the U.S. Secretary of the Treasury, Paul O'Neill, has recently spoken out against, is really only the thin end of the wedge that the OECD would use to keep chipping away at in order to get more and more information. They maintain that the OECD wants a global network of tax police with access to private financial records.

     Earlier this month (May 10), the U.S. Treasury Secretary announced that the Bush Administration had re-evaluated its participation in the OECD working group that targets so-called "harmful tax practices". Mr. O'Neill said he is concerned about the "potentially unfair treatment of some non-OECD countries". He said the U.S. "does not support efforts to dictate to any country what its own tax rates or system should be, and will not participate in any initiative to harmonize world tax systems. The United States simply has no interest in stifling the competition that forces governments - like businesses - to create efficiencies," O'Neill stated.

     "The news was welcomed by the business community in the Cayman Islands," said CoC President David Foster, asking "but the question now arises, what impact will the US' decision have on the OECD initiative generally?". That was the query he hoped the panelists could shed some light on, Mr. Foster said.

     Caymanian attorney Michael Alberga, who organized the CoC panel discussion, claimed that "unfortunately, the Cayman Islands led the way" in acquiescing to the demands of the Paris-based OECD, he said. He believed the Cayman Islands Government acted in haste in agreeing to the OECD letter of commitment, claiming inadequate analysis was done. He lauded Barbados' Prime Minister Owen Arthur for taking the lead in opposition to the OECD's pressure tactics. "Unfortunately the Caribbean has suffered," Mr. Alberga asserted, "over the mistakes of the past two years." He said business was down in the region as a result, and he had just returned from a trip to Nassau, Bahamas, where business was off some 50 percent. "But Cayman chose to forge ahead," lamented Mr. Alberga, suggesting the Government "should have taken a page from Sir Vassel's (Johnson) book", referring to the man generally credited with positioning Cayman as one of the world's premier offshore financial centers (OFCs), and taken more time and employed experts in Washington whose advice would have been beneficial to Cayman. He couldn't believe the letter of commitment the OECD had asked Cayman to sign, he said, adding he doubted if Sadam Hussein had signed a letter like it at the end of the Gulf War. 

     The attorney called on the Caribbean to speak with one voice. Mr. Alberga said the recent denunciation by the U.S. of the OECD "harmful tax competition" initiative put the OECD "in complete disarray thanks to the panelists who saw the attack was not only on the Caribbean, but also the U.S." It was only the U.S., who stood up against the OECD, Mr. Alberga suggested, asking, "where is the U.K. in all of this?" He claimed the U.K. "is lost in this initiative", asking why they did not show support for Cayman in this matter. "It is a pity as a British Colony we have to depend of the U.S., when the U.K. has veto power," Mr. Alberga said with obvious disdain.

     "We view this misguided initiative as an attack on the U.S. as well," asserted Dan Mitchell. He pointed out that the OECD is comprised of some 30, mostly European, countries with heavy tax burdens whose capital is flowing away to friendlier jurisdictions where the tax burden is lighter. He said he initially dismissed the report of the OECD on "harmful tax competition", but last year saw the OECD "was going to browbeat the low-tax jurisdictions into making them tax collectors for the welfare states." He said there were 41 countries on the OECD "harmful" list, asking why was the United States, the largest tax haven in the world, as well as Switzerland and the UK not also on the list. He objected to the fact that those countries that were on the list did not know and were not told why they were on the list, or how they could get off of it.

     Unfortunately, Mitchell said, six countries initially capitulated to the OECD, including the Cayman Islands and Bermuda, which, he suggested, had been made sacrificial by the U.K. "Only three since then," he added, "have knuckled under". "The nine should rethink their surrender," Mr. Mitchell said, saying, "the OECD cannot win if the U.S. pulls out of the cartel". A financial blockade will not work if the world's largest economy (the U.S.) is not a part of it, he added. Dr. Mitchell said he and his compatriots were in Cayman for reasons of "self-interest", as they saw the OECD as a threat to America, as well. He claimed the OECD "wants low-tax jurisdictions to be informers and to lay down and let foreign investigators rummage through their banks' documents", calling it an infringement on national sovereignty. He said the OECD would "go running willy-nilly over individual freedoms". Tax competition, he said, should be celebrated, not persecuted. "Everything the OECD says Cayman is guilty of, the U.S. is too," he admitted, "and we consider it good". "The OECD has no power," Dr. Mitchell asserted, "they have to rely on others and if the U.S. is not part of the cartel, it's not going to happen," he reiterated. Competition is good, he maintained. 

     It was quite simple, he told the assembled Caymanians and expatriate business community workers, many of who were bankers, "you're right, and the OECD is wrong". "We do not want the low-tax jurisdictions to capitulate," he said, adding, "we'd love to get the Cayman Islands to retract its capitulation".

     Dr. Mitchell said he, along with his colleague, Andrew Quinlan, had founded the Center for Freedom and Prosperity as a "clearinghouse" for those fighting the OECD. It was the center's job to "help educate about the OECD threat". He said the U.S. administration "understands that unlimited information exchange is a bad idea". It was its goal, he said, "to make the OECD initiative 'radioactive'". He deplored "fishing expeditions" and investigators "running through financial documents". He said his group was pressuring the U.S. Treasury Dept. on what is acceptable and what is not, adding, "we want to make sure the issue is not just crippled, but dead!". 

     Mr. Quinlan credited U.S. Congressman Dick Armey as "firing the first shot across the OECD bow". He said when he and Mitchell started the CFP, "we thought the OECD would succeed," asking "why Cayman had acquiesced so early?". But, he said, "we found the OECD's argument just wrong, which was why Treasury Secretary O'Neill did what he did. He claimed a 75 percent victory over the OECD as a result, but said the information exchange is the key part yet remaining. "Rescind your commitment to the OECD," Mr. Quinlan exhorted.

     Bradley Jansen, Deputy Director for the Center for Technology Policy of the Free Congress Foundation, spoke extensively about individuals' privacy rights. He referred to KYC (Know Your Customer) legislation introduced in the U.S. year, which was passed, but subsequently defeated when some 300,000 comments in opposition were registered, with only 105 in favor. "The KYC is widely hated in the U.S.," he asserted. He, too, bemoaned Cayman's compliance with the OECD which "will hopefully be withdrawn". 

     Other speakers included Damon Answell, Vice-President of Public Policy, Americans for Tax Reform; Jeff Janas, Professional Staff Member on the Committee on House Administration; Roger Morse, Legislative Director for U.S. Representative Van Hilleary (R-TN); Andrew Halataei, Senior Legislative Assistant for U.S. Representative Steve Largent (R-OK), and John Albaugh, Chief of Staff for U.S. Representative Ernest Istook (R-OK), whom he said was very opposed to the OECD proposal.

     Halataei, hailing as an example the benefits of tax competition, told the story of the owner of the Washington Redskins, who sold the football team for $60 million. If he had remained a resident of Washington, D.C., it would have cost him between $13 - 15 million in taxes. Or, he could relocate to Bermuda and sit on a beach with a cold drink. Which, Halataei asked, "do you think he chose?" 

     "Politicians finally get it," Halataei said, "that you can only raise taxes so high before there's no one left to tax". "The facts are on your side," he told the Cayman audience.

     A U.S. delegation would be going to Paris for an OECD meeting 8 - 11 June, Mitchell told the group, "bearing a firm message that the U.S. does not agree" with its initiative. He said the OECD had given the 32 remaining jurisdictions on its hit list until the end of July "to surrender their sovereignty". "Will the OECD call for sanctions after that when the U.S. does not support it?", he queried. That was anybody's guess, he said, but he suggested the OECD could do one of two things: "look for a way to gracefully back down" from its stance, or, more likely, he suspected, "they will repackage their agenda through the FATF (Financial Action Task Force)". "Eternal vigilance," he said, quoting Thomas Jefferson, "is the price of freedom".

     Former Leader of Government Business, Truman Bodden, under whose previous government the OECD letter of commitment was signed, and whom some suspect was defeated in the November election as a result, put a question regarding Secretary O'Neill and the exchange of tax information to the floor. Dr. Mitchell responded by asking, "what does tax information exchange mean?". He said that it was, at first, simply routine, automatic, information exchange, but warned that "once you've bought into that process they will wear you away and wear you away and wear you away," he said to applause from the audience. Mitchell said "once they've got their foot in the door, the natural greed of foreign politicians would expand and expand". "Don't accept it," he warned. He believes the OECD's ultimate agenda includes tax harmonization "and they are using information exchange as a foot in the door for that", he suggested. "They're not going to stop," he continued, calling for Cayman to fight today rather than from a weakened position later. It was a matter, he suggested, of who controls one's destiny.

     Cayman businessman Mario Ebanks, who, rising to the floor described himself as a "capitalist", stated he believed Cayman needed more lobbying on its behalf. He said he saw "remnants of the evil empire creeping back in" to Cayman. He was concerned the OECD would use the FATF to "get in through the back door".

     Brad Jansen claimed the initiative "doesn't just affect the OFCs", suggesting soon it would extend to lawyers and accountants, that they would be too busy filling out report forms on their clients, to conduct their clients' business. He suggested that in Cayman's signing the letter of commitment with the OECD in exchange for being included as a part of its forum, it was like "setting the table and serving yourself as the main course".

     In a moment of levity, several of the panelists, who had all expressed their appreciation of Cayman's famed hospitality, raised their hands when a query from the floor asked in Cayman should have its own lobbyist in Washington.

     Eric Crutchley, President of the Cayman Islands Bankers Association asked why "there was no squeak out of the Cayman Islands" over the OECD initiative. "We were surprised to find ourselves on the FATF list," he said. He said that "once you're in the glove's hand, you find it has ten fingers instead of five". The OECD had raised its initial demands from 25, to now some 40 points, he noted.

     Mitchell suggested the U.K. "bullied" Bermuda and the Cayman Islands to accede to the OECD, "but what about Anguilla and the others?" (territories), he queried. Cayman is in a difficult position, Mitchell added. "You have much stricter laws than we have in the U.S." He said the OECD "never says why you're on the list, or what to do to get off of it. They keep changing the goalposts," he accused, adding, "we know the OECD is going to keep pushing its agenda through the FATF". "The OECD agenda makes the Cayman Islands into another Haiti," he averred, and "hurts the whole economy".

     In concluding the meeting, CoC President David Foster remarked that "we at the Chamber take our role as the conduit between business in Cayman and the rest of the world seriously". He said the panel discussion was a means for "us in Cayman to gain a wider understanding of international developments affecting business" and thanked the members of the U.S. Congressional staff for taking time away from Washington to come to Cayman and said he hoped "this discussion will stand as the basis for future talks between our two countries".

     The 3-hour panel discussion, which included comments from the floor, was broadcast live on Government-owned Radio Cayman.

 

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