In response to Michael Peel's Financial Times article:

Andrew Quinlan's and Dan Mitchell's letters to the editor:

Andrew Quinlan:

Dear Editor,

Once again Michael Peel has it wrong.

His most recent attack low-tax jurisdictions and the Center for Freedom and Prosperity ("A belated unanimity," September 27) asserts that defenders of tax competition are being forced to change their views. Yet the horrible events on September 11 underscore the importance of our message. Governments should cooperate in the fight against crime, something we have stated for the last 12 months, but the OECD and EU tax harmonization initiatives undermine this cooperation.

International cooperation has always been based on the "dual criminality" principle. If there is an activity that is against the law in two countries, those two countries cooperate in the investigation and prosecution of that activity. In those circumstances, financial privacy is suspended. In other words, there is nothing to stop the effort to track down drug dealers, murders, con artists and terrorists. Tax competition, by contrast, simply means that low-tax nations are under no obligation to help high-tax nations enforce bad tax law on an extra-territorial basis.

I'm sure that Mr. Peel knows CFP's position. He has been on our e-mail distribution list for more than 10 months. Unfortunately, Mr. Peel seems determined to serve as a mouthpiece for the EU and OECD.

Sincerely,

Andrew Quinlan
President
Center for Freedom and Prosperity
www.freedomandprosperity.org
202-285-0244

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Dan Mitchell:

Sir,

Michael Peel continues to confuse low-tax jurisdictions with criminal sanctuaries ("A belated unanimity," September 27). He seems unable to understand that all countries have some level of bank secrecy - including the U.S. and the U.K. - and that all countries pierce those secrecy laws for criminal investigations.

Jurisdictions like Switzerland and the Cayman Islands, for instance, have mutual legal assistance treaties that govern effective cooperation in the fight against crime. Indeed, the best response to recent events is to increase the network of mutual legal assistance treaties and to improve their effectiveness. This approach, not new money laundering regulations that burden law enforcement with useless information, is the best way to catch criminals and terrorists.

Ironically, this process sometimes is hampered because high-tax nations often seek to make extra-territorial tax enforcement part of these agreements. Needless to say, the anti-tax competition initiatives of the European Union and Organization for Economic Cooperation and Development create additional distrust and undermine incentives for countries and institutions to cooperate.

Mr. Peel should report facts, and not simply regurgitate propaganda from Paris and Brussels. There is no evidence that so-called tax havens attract a disproportionate level of criminal activity. The U.S. government, for instance, admits that about one-half of the world's money laundering takes place in America. And the United Nations even issued a report in 1998 that criminals avoid low-tax jurisdictions because they act as a "red flag" for investigators.

In any event, all nations should help fight the types of barbarism that took place on September 11. But we should not allow high-tax welfare states to exploit this tragedy so they can cripple fiscal competition in order to stop capital from fleeing their oppressive tax regimes.

Sincerely,

Daniel J. Mitchell
McKenna Senior Fellow in Political Economy
The Heritage Foundation,
Washington, DC
US

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