Tue, Mar 31, 2009 - Page 9 News List

No-tax paradise lost

Offshore financial centers from Jersey to the Cayman Islands are rallying to defend their privileges from a wave of international action against secrecy.

By Nick Mathiason  /  THE OBSERVER , LONDON

Home to 160 powerful US Congressmen, Rayburn House on Capitol Hill in Washington was the venue on Monday last week for a desperate resistance movement at its darkest hour.

In the basement of the sprawling whitewashed classical complex, 70 senior politicians and their advisers heard that prizing open to increased scrutiny the secretive and corrupt world of tax havens — where trillions of dollars are stashed far from the reaches of the tax man — was akin to an evil Big Brother conspiracy that would smash civil liberties and hamper world economic growth.

It was organized by Dan Mitchell, co-founder of the right-wing Center for Freedom and Prosperity, and Richard Rahn, a senior fellow at influential libertarian Washington think tank the Cato Institute, a former board member of the Cayman Islands Monetary Authority and a regular Washington Post columnist. They told the high-powered audience that moves to force so-called secrecy jurisdictions to share information with tax authorities were “hypocritical,” “racist” and would destroy “defenseless” island economies.

Mitchell, a high priest of light tax, small state libertarianism, argued that current moves to encourage information exchange between secretive tax havens and the international community would see unscrupulous government officials sell highly sensitive information about the world’s richest companies and individuals to drug cartels and warlords. Tax transparency would lead to kidnapping and murder.

For Mitchell, this is familiar territory. In 2001, when the Organisation for Economic Cooperation and Development (OECD), the world’s most powerful think tank, was intent on stamping down on “harmful tax competition,” his ferocious lobbying pulled off a stunning victory, persuading former US president George W. Bush to bring a halt to the OECD plan.

Eight years later, Mitchell is on the warpath again.

“Tax competition leads to low tax rates and increased prosperity,” he told the Observer from his office in Washington. “Sovereign entities have the right to secure tax privileges. Even if the US government does not like it.”

His audience last week sat in rapt silence. But the world’s power brokers don’t appear to be listening with similar attentiveness.

US President Barack Obama, German Chancellor Angela Merkel, French President Nicolas Sarkozy and British Prime Minister Gordon Brown are now all intent on shining a light into so-called secrecy jurisdictions. This week in London, leaders of the G20 will attempt to frame a response to the growing global economic crisis. Tax havens, whatever Mitchell and Rahn argue, have moved to center stage.

These are desperate days for offshore financial centers. Never before have the world’s most powerful countries united in their determination to expose the shadowy banking system that has mushroomed unchecked for the last 15 years. Lobbyists have been hired at huge cost to ensure that senior bankers and politicians from Cayman Islands, Switzerland and the Channel Islands meet and brief influential policymakers and congressmen. Jersey has hired London-based Aura Financial, while the Cayman Islands retain Fleishman-Hillard.

Even so, in the last two months a surge of tax treaties have been signed by countries including Liechtenstein, Singapore, Switzerland, Austria, Andorra and Belgium in an effort to abide by global protocols. Last week, the Isle of Man, Jersey and Guernsey signed more agreements with France, Germany and Ireland.

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