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His Excellency Sir Ronald Sanders



His Excellency Sir Ronald Michael Sanders

Chief Foreign Affairs Representative with Ministerial Rank
of Antigua and Barbuda


the Luncheon Meeting of the
Antigua and Barbuda Chamber of Commerce and Industry
on Tuesday, 27th March 2001

May I say first of all how pleased I was to accept the Chamber's invitation to speak at this luncheon meeting on the subject of the implications for Antigua and Barbuda of the OECD' 'harmful tax competition' scheme before so distinguished an audience.

The Organisation for Economic Cooperation and Development (the OECD) is a multinational grouping of thirty of the world's richest countries. It is not an international organisation and it has no legal authority to speak for the world or to establish rules, norms or standards for any State except its own members. Nonetheless, it is now dictating terms  on what, in short, could be described as cross border tax matters.

It has said quite categorically that, if targeted jurisdictions do not submit to its terms, damaging sanctions will be imposed against them.  In other words, wherever the OECD meets resistance, it will invoke economic power to force surrender. 

The OECD's   'harmful tax competition' scheme  is nothing less than a determined attempt to bend other countries to its will. It is a form of neocolonialism in which the OECD is attempting to dictate the tax economic systems and structures of other nations for the  benefit of the OECD's member states.   

If the scheme is implemented, the OECD will limit the authority of non-OECD governments and legislatures over their own countries' tax economic systems and structures.  Their authority will be limited by the constraints of a framework set by the OECD.

Apart from the immediate damaging effects that the scheme will have on our economies, it is this erosion of the sovereign authority of elected legislatures and governments that lies at the heart of concern about it.   For, if the OECD countries succeed in imposing their will over this matter, they will be emboldened to do more. The flood gates having been opened, the OECD could drown developing countries in a torrent of measures that reduce them  to colonial outposts  with the OECD as the imperial centre.

The target of the OECD's 'harmful tax competition' scheme is 41 small jurisdictions mostly in the Pacific and the Caribbean. As one commentator put it, "when a powerful international political organisation officially brands a small nation as 'harmful', trouble is brewing.  Defamation anticipates oppression, conditioning suggestible minds to accept it". 

The evidence supports that observation.  Throughout the principal OECD countries - the US, the UK, Canada, Germany, France and Japan - the media characterises these 41 jurisdictions  as "harbouring tax cheats", and "providing secure bases for tax dodgers and other criminal activity". The media, playing handmaiden to their Governments, characterise our countries as 'rogue states'.

As far back as 1834, a US Senator described this process well. He said, "power marks its victim; denounces it; and then excites public hatred and odium to conceal its own abuses and encroachments".   Thus, by seducing the media into characterising our countries as rogues, the OECD clothes itself in the armour of a moral champion and covers up its real intention to force small countries into surrendering their autonomy.


Why the OECD HTC Scheme

So, what is behind the OECD's 'harmful tax competition' scheme?  And, why has the OECD launched it?

 The OECD countries have the highest taxes in the world. They also have the widest range of taxes.  These include personal income tax, property tax, corporate tax, inheritance tax, capital gains tax, death duties and value-added taxes on almost all goods and services consumed within their States. People are quite literally taxed from the cradle to the grave and beyond.

Despite this wide range of high taxes, the Treasury Departments of several OECD countries are finding it difficult to finance the activities of their governments.   The cost of the military and their sophisticated weaponry is extremely high in all these countries, except Japan.  In addition, the costs of social programmes are rising. For example, their populations are aging  but living longer.  At the same time, the work force's payments to social security are becoming proportionately smaller.   Therefore, governments have to find more money to provide health care and pensions over a longer period.

But, it is difficult to raise additional money without imposing additional taxes. 

Given that the people of the OECD countries are already heavily taxed, only a very imprudent  government would seek to tax them still further if it wished to be re-elected. 

Consequently, Treasury Departments began to look elsewhere for revenues to finance government programmes.   Hence, they hit upon the 'harmful tax competition' scheme.

In April 1998, the OECD published a report entitled: Harmful Tax Competition: An Emerging Issue.  At the time, the Governments of France, Germany, Japan and the United States were its chief advocates.  Two OECD member-states, Switzerland and Luxembourg, rejected the report which recommended measures to counter the loss of taxation to OECD countries from overseas investment by their resident companies and persons. The objective of the measures was twofold: (i) to gain access to the foreign bank account information of their resident companies and persons, and (ii) to stop other countries from attracting investment from residents and companies of OECD states by offering them tax concessions.


What the HC scheme is not 

Well what exactly is the 'harmful tax competition' scheme?

Let me start by saying what it is not.

It is not about money laundering and financial crime.  The OECD has deliberately allowed an ill-informed international media to assume that the scheme is directed at curbing money laundering because this has won them support. 

The Financial Action Task Force (FATF), along with the UN Commission on money laundering,  are the entities concerned with money laundering. Indeed, in a June 2000 report entitled:  Towards Global Tax Cooperation, the OECD itself  acknowledges quite clearly that "other institutions such as the FATF and the UN Commission on money laundering, are addressing serious international criminal activities and money laundering in particular".

I emphasise that Antigua and Barbuda was judged by the FATF against 25 stringent criteria and found to be fully cooperative in the fight against money laundering.  We were not alone in this.  Of the 41 countries that the OECD has targeted, very few are on the FATF's money laundering blacklist.

The OECD scheme is also not about offshore banks only. There is a popular belief that the offshore banks are the sole targets of the OECD's work, and the cause of their stance against jurisdictions such as ours. This is a false belief and, again, it has been fostered by the OECD, through a poorly informed media, to make players in the domestic sector believe that the scheme has nothing to do with them. By fostering such a belief, the OECD hoped that opinion-makers within targeted countries would pressure governments into acquiescing to its demands.


Backdrop to the HTC scheme

Now to what the OECD scheme is all about. 

Two things should be borne in mind as a backdrop to the scheme.  The first is that the OECD countries are in the forefront of pushing the world into globalization and liberalisation of trade, because they want unrestricted access to markets around the world for  their goods and services. We must erect no barriers to the importation of their products and we should give no protection to our own farmers and manufacturers.  If we do, they will take us to the World Trade Organisation where the Disputes Tribunal will impose sanctions against us.  The WTO's own organisational ideology is based on the mantra of globalization and liberalisation. To dare to suggest that liberalization and globalization may be inappropriate is akin to savaging two sacred cows in broad daylight in the middle of a busy high street in downtown Bombay!

The second thing to be borne in mind is that the OECD countries are the principal advocates of the virtues and merits of competition in the provision  of goods and services globally. For them "competition" is the new panacea  for the world's economic ills, because their industrial and agricultural capacity has reached the point where it needs unrestricted entry to  global markets to continue to provide employment and profits to their people. Yet, while they promote competition in everything else, they decry it in taxation.

Their objection derives from the fact that, in a globalized world, the mobility of financial and other services, such as shipping and Internet gambling, provided an opportunity for States like ours and posed a threat to them.   Our low tax or no tax regimes coupled with our literacy in English and good telecommunications gave us an advantage with which they many OECD countries could not compete. 

Instead of trying to vie with us by lowering their own taxes, the OECD responded by demanding that we change our tax systems and structures or face damaging sanctions.


The HTC Scheme: What it is

In a paper the OECD  produced entitled: Globalization: Impact on Tax Policy and Administration, a great deal is revealed about the thinking behind their 'harmful tax competition' scheme. This is what they say:

    "In this new global environment multinational enterprises will continue to move their manufacturing activities to low-cost countries...  All countries will be forced to compete for this footloose investment: either by lowering regulatory standards or creating incentives, particularly tax incentives, to attract business to their jurisdictions."

This analysis points to a fear in the OECD countries that they will lose investment in a range of activities to developing countries that offer tax incentives to win investors.

Hence, the 'harmful tax competition' scheme says that a jurisdiction has harmful tax regimes if it has preferential tax regimes designed to lure investors. The OECD booklet on its Global Forum on Taxation specifically states, "As economic and financial barriers disappear, tax differentials can have a more significant impact on trade and investment. Bidding wars to attract foreign direct investment, for example, erode tax bases throughout the world while providing little economic compensation". 

The OECD's real concern is that they will lose investors who would otherwise be subject to their high taxation.  Their purpose is to tax the profits and interest income of those investors wherever they may be.  The consequence is to deprive countries, such as ours, from advancing our own development through our tax structures and systems.

Of course, the OECD argument comes after many of its member states have reached a high level of industrial development precisely because of tax competition in which they lured foreign investment into their countries by tax breaks. In fact, many of them still do. 

In the United States, for instance, there are hundreds of billions of dollars in accounts held by foreign persons. That money is there because the US exempted the holders of those accounts from taxes on their interest income.  I need hardly explain what would happen to the US banking system if those hundreds of billions of dollars were to be withdrawn and taken elsewhere.

The OECD countries also make no distinction between tax avoidance and tax evasion.  In their desire to get information on persons and companies, they equate these two concepts denying their legal definitions and differences. 

They have also set criteria for determining whether or not a jurisdiction is a tax haven.  The criteria are the following:

    1. No taxes or low taxes;

    2. Companies with no substantial activity in the domestic economy;

    3. Companies that are 'ring-fenced'. In other words, companies that enjoy conditions that are different from other companies, including taxation.

    4. Lack of machinery to effectively provide information on companies and persons to foreign tax authorities.

Against these criteria, the treatment accorded to our Free Trade and Processing Zone, and our International Business Corporations, including offshore banks, Internet Gaming, sports book and virtual casino operations, would qualify us, by the OECD's definition and for its purposes, as a "tax haven".

In this regard, the recent measures announced by the Government to apply taxes to both the offshore banks and the Internet gambling companies is a helpful step in removing part of the ring-fence that now surrounds these entities.

Of course, if we were to get rid of offshore banks, international business corporations and Internet gambling, sports books and virtual casinos, Antigua and Barbuda would no longer be labelled a tax haven. However, there would be an adverse impact on our economy in three significant ways: first, the government would lose revenue from licence and registration fees and this loss would adversely affect its ability to continue to provide services for the country;  second, the private sector which  provides a range of services to these entities would lose income; and third many persons who now enjoy relatively good paying jobs with these entities would become unemployed.

In any event, as far as the OECD is concerned we would still have a further harmful tax regime in place comprising of  tax incentives to investors.

This would include many of the hotels currently operating here as well as any future investment we might try to attract on the basis of tax incentives.

It doesn't end there.  The OECD goes on to make demands for changes in our tax systems and our laws.  These fall under the heading of three broad principles whose meaning is defined exclusively by the OECD.  They are: transparency, non-discrimination and effective exchange of information.

These  demands are included in a Memorandum of Understanding that the OECD has drafted and require all the targeted jurisdictions to sign and implement.  The Memorandum seeks to make targeted jurisdictions accomplices in extending the power of OECD States to pry into private dealings in other countries.

If we were to sign it, some of the things all the jurisdictions would be required to do are:

  • provide information to tax authorities in OECD countries upon request and without the approval of the Courts for both criminal and civil tax matters with no regard to confidentiality laws.  Information requested would not be limited to  money laundering and tax evasion, and could be used to allow for other investigations.
  • all resident companies, including domestic ones, would be required to keep financial accounts which are to be audited and filed with tax authorities.
  • the beneficial owners of all bank accounts, companies, and trusts, both offshore and domestic must be known, and be capable of being revealed.
  • there should be no negotiation with an investor over tax rates regardless of the size of the investment.

Should our jurisdictions sign this Memorandum of Understanding, we would commit ourselves to the following:

    1. Blind acceptance of the meaning of the three principles of non discrimination, transparency and effective exchange of information as defined exclusively by the OECD;

    2. A plan to remove 'harmful tax regimes' by 31st July next year; and

    3. Full implementation of the plan by 31st December 2005. 

If the jurisdictions were to sign the Memorandum of Understanding  making  these three commitments, it would be a virtual unconditional surrender to the OECD, especially as none of them would see the implementation plan until after they have signed.

In our discussions with the OECD, I have stressed that they are asking us to take a leap of faith, one in which we place trust in them not to take advantage of us once we give them an advance binding commitment.   I have made the point that it is not easy to take such a leap.  After all the OECD comprises countries that have been the colonial masters and exploiters of the targeted jurisdictions.  The historical experience is not one that breeds trust; to the contrary it nurtures suspicion. 

 In sum, the OECD scheme is a dagger pointed at the heart of our capacity to diversify and develop our economies and look after the welfare of our people.  If the scheme is implemented in its present form, we will be relegated to the backwater of social and economic development and consigned to an existence on the margins of global life.

This point is acknowledged by the OECD when, in their several reports, they urge that we dismantle our tax structure, accepting in its  place aid and technical assistance.   In other words, we should curb our ambition to compete for our place in the world, and accept instead the role of beggar living off the crumbs that fall from the table of the wealthy.

I think we will all agree that those days are done, and long gone!


Why are other jurisdictions not included

I should draw to your attention that there are many other OECD and non-OECD countries that would qualify under the OECD criteria as practising 'harmful tax competition'.  So why, you might ask, are they targeting the 41 small jurisdictions mainly in the Caribbean and the Pacific?   The answer is exactly because we are seen to be small, weak and powerless.  It is the shark and sardines syndrome. In their view, it is relatively easy to knock us off, before attempting to take on bigger fish.

Among the other non-OECD countries whose practices violate the OECD's requirements are several Latin American countries, Singapore, Hong Kong and Russia with whom they have begun no consultations.  Clearly, there are political and strategic reasons why OECD countries would not wish a confrontation at this time with Russia or with China over Hong Kong, particularly if such a confrontation would lead to the formation of an alliance between China, Russia and the other targeted jurisdictions against the OECD.

And, of course, within the OECD itself,  there are countries that blatantly violate the requirements of the 'harmful tax competition' scheme.  These include Switzerland, Luxembourg and the Netherlands. 

All of this points to serious flaws in the OECD scheme and in the process by which it was established and is now being pursued.


The flaws in the HTC and its process

The greatest of these flaws is that it does not seek to establish a level playing field between the targeted jurisdictions and OECD member countries.  Consequently, if the 41 targeted jurisdictions submit to the OECD demands, they will find that they cannot compete with several OECD countries in mobile services.

You will be aware that in January this year, the OECD reluctantly agreed to the establishment of a Joint Working Group comprising representatives of OECD countries and the targeted jurisdictions. Prime Minister Owen Arthur of Barbados and I are the two Caribbean representatives.   The Group met twice, first in London in January and then in Paris in February.

At no time during the Group's discussions could the OECD representatives tell us that their own countries had agreed to the same Memorandum of Understanding and the same commitments that they require of us. 

They also could not explain why our jurisdictions were analysed by them, without our participation, to determine whether or not we were tax havens, but their member states did a self-analysis. We pointed out that, given a self-analysis by the OECD members on the one hand, and an OECD examination of us on the other, it is little wonder that we are named as tax havens and OECD countries are not.

Further, while preferential tax measures maintained by small countries are defined unambiguously as 'harmful', the OECD uses the precautionary adjective 'potentially' harmful when describing regimes in OECD states such as Canada, Austria, Germany and Italy.

We also  pointed out that there are several OECD countries that are in breach of the 'harmful tax competition' scheme, and yet the OECD has not documented them, nor required the countries to commit to change them.

The obvious OECD countries whose practices breach the 'harmful tax' requirements are Switzerland and Luxembourg.  But, they are not the only ones.  The United States and the United Kingdom are also serious tax havens, yet neither are mentioned and neither are required to change.

Money in the offshore banks around the world is said to be about US$16 trillion. It would surprise no one that an OECD country,  Switzerland leads the way with 33% of that money.  But, many would be surprised to know that two other OECD countries are the second and third centres for offshore banking. They are, respectively, the UK with 15% of the money and the US with 12%.   The UK's 15%, incidentally, does not include the Channel Isles and the Isle of Man.

Another example of violations of the OECD's 'harmful tax' scheme is that it is still possible to register and operate companies where the beneficial owner is not known in several OECD countries including the US and the UK.

In sum, the fundamental problem with the OECD scheme is that it is arbitrary and unequal, and inconsistent with international law and international norms and practices. The OECD is relying for the implementation of the scheme on raw power and coercion rather than hard law.


What will happen if jurisdictions do not submit to the OECD

This distinguished audience will recall the words of Shakespeare's Marc Anthony, after Brutus had led the fatal stabbing of Caesar.

    "The noble Brutus had said Caesar was ambitious.  If it were so, it were a grievous fault and grievously has Caesar answered it".

Similarly, the OECD seems to regard our ambition to compete against them as a grievous fault, and grievously do they mean us to answer it.

In its June 2000 report, the OECD lists eleven sanctions that its member states intend to impose on the targeted jurisdictions unless they submit to OECD demands by 31st July this year. In addition, the report states quite clearly that OECD governments should determine "whether to direct non-essential economic assistance to the jurisdictions" and "explore what other defensive measures can be taken, including non-tax measures".

Among the eleven detailed  sanctions are:

  • a requirement for comprehensive reporting for all transactions involving the targeted jurisdictions and those entities that benefit from their 'harmful tax' practices. In other words, they will tie-up all bank transactions from the targeted jurisdictions for all companies, especially those such as offshore banks and Internet gaming entities;
  • the imposition of withholding taxes on certain payments to residents in the targeted jurisdictions;
  • the termination of all existing double taxation agreements;
  • the imposition of transactional charges or levies on certain transactions involving the targeted jurisdictions.  In other words, they will increase the cost of doing international business by applying additional charges on telecommunications, banking and other services originating in a targeted jurisdiction.

All the 41 targeted jurisdictions are, therefore, caught between the proverbial rock and a hard place.

If we opt to surrender to the OECD demands, our economic and social development will be severely impaired, and our autonomy as a nation will be gravely compromised.

If we choose not to submit to the OECD's demands, our economic and social development will still be impaired, except over a longer time.

It is little wonder that eight of the forty-one targeted jurisdictions, two of them in the Caribbean, have already capitulated to the OECD's demands and have signed letters committing themselves to implement the OECD's requirements.  The two Caribbean jurisdictions are The Cayman Islands and Bermuda, both of which are colonies of Britain. In a vulgar show,  the OECD has actually published these letters and it displays them on the Internet like prized scalps on a totem pole .

In the negotiations between the non-OECD and OECD countries in the Joint Working Group, we have reached a stalemate.  As Prime Minister Arthur colourfully put it, "we were close to Church, but far from God".

The non-OECD members offered to sign a commitment letter to the OECD agreeing to an implementation plan by 31st July next year with completion by the end of 2005, provided we are admitted as equal members of the OECD's Global Tax Forum where we would contribute to a mutually acceptable definition of the three principles of non-discrimination, transparency and effective exchange of information.  We also wanted the right to be part of a team to monitor the implementation plans in all countries, including OECD States.  The OECD members refused to allow us to participate in the definition of the three principles and they rejected  our participation in monitoring all jurisdictions, including their's, for compliance.

Unable to force  us into accepting their demands, the OECD has indicated that it does not want any further meetings of the Working Group.

We responded through a letter signed by Prime Minister Arthur as Co-Chair of the Group to the OECD Co-chair.  The letter should have been transmitted yesterday.  It stresses our willingness to participate in further meetings of the Group to settle the matters of equality of treatment and the right to be involved in monitoring compliance of all countries including member states of the OECD.  We will now await their further response.

In the meantime, what can we do about this situation that is so unfair and unjust that it stirs the most profound anger and vexation?


What can the targeted jurisdictions do

Undoubtedly, the targeted jurisdictions can take those OECD countries that impose sanctions against them to the Disputes Tribunal of the World Trade Organisation.

However, this cannot be done until the OECD country actually applies the sanction. We can take no action to prevent the sanctions from being imposed; we can only seek redress after the harm has been done.

We can also work, through like-minded groups, to encourage member-states of the OECD to reject the concept of 'harmful tax competition' and its flawed process.  In this regard, what Switzerland does will be very important.  On 4th March this year, the Swiss voted not to join the European Union because they wanted to protect bank secrecy which is part and parcel not only of the financial community, but also of Switzerland's political culture. It has to be assumed, therefore, that Switzerland will continue to defy the OECD even though it is a member.

The OECD will then be forced to impose the same sanctions on Switzerland that they are threatening to impose upon us. If they don't, the OECD will find its actions even far less defensible in the world community than they now are.

A considerable amount of work has also been done in the United States to try to persuade the new Secretary of the Treasury, Paul O'Neill, to review America's support for the scheme which started under the previous US administration.

It is encouraging that Senators and Congressmen from both sides of the political divide, including the Ranking Majority Republican Leader Dick Armey, and the Congressional Black Caucus who are all Democrats, have written to Secretary O'Neill in the strongest terms calling on him to withdraw US support from the OECD on this matter.

Prime Minister Lester Bird, as the Head of Government in the CARICOM quasi-Cabinet with responsibility for services, will raise the matter directly with US President George W Bush in Quebec later this month at a meeting of leaders of this Hemisphere.

If the US government does review its role, it is more than likely that other countries including Canada and Australia will do the same. It is hoped that the US Administration will act before the deadline of 31st July.

But, we can not simply rely upon the possibility that the US Administration might reject the OECD scheme. We have witnessed too many instances of double standards in international relations not to presume that the scheme will continue.

Therefore, we plan to implement measures at the level of the non-OECD countries and at the national level to meet the OECD threat.

Last week in London, the non-OECD members of the Working Group decided to establish a International Tax and Investment Association.  The Association will serve as a forum for a unified voice by developing countries on international tax and investment matters.  Its remit extends beyond OECD matters, and we see it as complementary to the OECD.

In a national context, we must now think of ways in which we can retain the business now conducted by the offshore sector and Internet Gambling operations within the framework of the OECD's requirements.  Several weeks ago, I laid this challenge at the feet of the Offshore Bankers Association in a formal meeting with their representatives. I hope that they will respond with a careful study.

Part of the solution may be to bring all International Business Corporations, including banks and Internet gambling entities, onshore as local businesses doing international business.    In this way, they will meet several of the OECD criteria, including partially removing the ring-fence. We could also require offshore entities to have a physical office in the country with local employees and give them the right to do business domestically.  This would meet the requirement for 'substantial domestic business'.  And, if good sense prevails in the OECD, we may be able to negotiate the remaining matters such as effective exchange of information in a manner that does not disregard our jurisprudence.



Ladies and Gentlemen, as I said earlier, the jurisdictions targeted by the OECD are between a rock and a hard place.

Seen as small, weak and powerless jurisdictions we are victims of the worst form of bullying by big, strong and powerful nations that the world has witnessed since the 19th Century. 

Indeed, the 21st Century has dawned with ominous signs that there are those  who yearn for a return to a world ruled not by principles of justice and fairness, but by power and force. We would be wrong to let them prevail. For, we would lose every right for which we have struggled, and every place for which we have fought.

We would continue to exist notionally as nations, but our affairs  would be directed and dictated by others.

The Government of Antigua and Barbuda will work in the international community to resist this incursion on our autonomy and infringement of the rights of the State and its people.

Here at home, we should draw on the creative and intellectual strength of all to devise ways in which we can ensure that we overcome the challenge of the OECD.

This why I have met twice with the Leader of the Opposition and members of his party to brief them. This is not a partisan issue; it is a national one and it requires a national response.

The Chamber of Commerce and all its members have a constructive role to play in this process, and I urge you to play it to the fullest.

Let us not, like Caesar, fall  down  with  knives  in our ribs because we dare to be ambitious.

We must stand up for fairness.

We must stand up for justice.

We must stand up against the excesses of the OECD.

Thank you for your time.


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