On June 7, The BVI Beacon turned 40. To celebrate, it is re-publishing some of the biggest stories from its archives over the past four decades. The article below was written by Robert Jeffers and originally ran Oct. 8, 1998.
“Open warfare” has been declared on offshore financial centres, Chief Minister Ralph O’Neal charged at Tuesday’s Legislative Council meeting.
Mr. O’Neal accused the UK government of participating in initiatives designed to make offshore financial centres cross-border businesses look less attractive.
Regardless, he concluded, there is still room for well-regulated, reputable financial centres committed to facilitating legitimate, cross-border financial activity.
Mr. O’Neal, who is also minister of finance, was responding to what he referred to as widespread speculation in the local media and elsewhere “on the effect that global initiatives can have on the attractiveness and competitiveness of our financial services sector programmes and policies.”
No precise definition exists for harmful tax competition, the chief minister said. But he noted that at a Sept. 9 financial services seminar here with Baroness Elizabeth Symons, legislators were alerted to initiatives “being taken under the auspices of the European Union, the Organization for Economic Cooperation and Development and the major economic powers of the world, the Group of Seven Industrialized Countries,” to combat harmful tax competition.
Initiatives from the OECD and G7 initially dealt with preventing money laundering, Mr. O’Neal said, but have since widened in scope.
He said the OECD concluded that increased liberalization of the world’s financial markets has led to increased opportunities for tax evasion and avoidance.
In an April 1998 report titled Harmful Tax Competition: An Emerging Global Issue, the OECD set out recommendations and guidelines addressing tax havens and harmful preferential tax regimes.
The following month the G7 outlined a series of principles, including the reporting of suspicious movement of criminal assets by financial institutions, and the sharing of tax and supervisory information.
“These initiatives present a special challenge to offshore financial centres such as the BVI,” Mr. O’Neal said. First “because they signal a growing international confusion and a tendency to conflict and blur the well established divide between tax avoidance, which is legal, and tax evasion, which is illegal, and between so-called tax havens and special tax regimes,” he said. “But also because OECD ministers have agreed upon a series of recommendations to conquer the spread of tax havens and harmful preferential regimes, including the creation of an OECD list of tax havens.”
The BVI is on that list, the chief minister said.
“Mr. O’Neal said that a Sept. 7, 1998 London seminar was intended to “sensitize the overseas territories to the international communities’ resolve and that of Her Majesty’s Government to tackle harmful tax competition, and [its] commitment to work with the overseas territories to ensure that the views and concerns of the overseas territories were factored into the ongoing dialogue on harmful tax competition.”
He was persuaded, he said, that it is best for the territory to provide detailed information on its tax systems and financial services programmes to the Forum on Harmful Tax Practices, which was established to consider how the OECD report could be implemented.
Time for responding to the initiative was limited, Mr. O’Neal said. So a temporary response was despatched to the OECD, indicating the desire to involve the private sector “in responding to this complex issue.”
Mr. O’Neal announced the establishment of a task force, made up of public and private sector personnel, set up to develop a strategic response to the proposal, which he said will be forwarded to the OECD later this month.
“It will be a pragmatic, strategic response which considers all the options available to us, and which is aimed safeguarding the international competitiveness of our financial services industry,” he said.
The minister added that the territory believes the international community’s “ambitious attempt to create a new international standard” will have to apply evenhandedly if it is to have any validity.
And, he implied, that might not be the case.
He cited “the fact that Luxembourg and Switzerland, members of the OECD, could choose to abstain from adopting the report and from cooperating on the initiative, but still not appear on the OECD blacklist.”
He also claims the fact that “Her Majesty’s Government is participating in these initiatives is proof of some sort of hidden agenda by Her Majesty’s Government and the industrialized world to reduce the attractiveness of offshore financial centres for legitimate cross-border business.”
Massive injections of capital from the UK to its overseas territories would be necessary if they didn’t have thriving offshore sectors, the finance minister reminded all.
The chief minister said he doubts that HMG would wish to participate in deliberate actions which would drive good business from reputable jurisdictions such as the UKOTs. They fully cooperate with the international community in fighting cross-border commercial crime to less well-regulated, trustworthy jurisdictions, he said.
Mr. O’Neal said the UK’s renewed commitment to Europe gives it greater authority in seeking to ensure that a soundly drafted, evenly and fairly applied proposal does not leave its territories with an unfair disadvantage when competing with other offshore centres.
He therefore appreciates Her Majesty’s Government’s offer to appoint a UK financed consultancy aimed at ascertaining the full implications the proposed initiatives will have on the UKOTs.
The chief minister expressed faith in the UK government’s role in the process while assuring legislators in the House of the BVI government’s determination to keep its financial services sector thriving.
