Special REPORT
THE OECD IMPERIALISTS: Implicationsfor the Island of Nevis
(Excerpted from RemarksPresented to Legislators and Staff at the Capitol Hill Club)
Friday September 29, 2000 - Washington, DC
Everson W. Hull, Ph.D.
Professor of Economics - Howard University
Editor's Note: Many of the Islands of theCaribbean which stand to be affected by the OECD's high-handed,bullying tactics, are fighting back by addressing the issue ofthese tranquil islands -- including Cayman to become tax-collectorsfor these giants. The following article was forwarded to CaymanNet News so that our readers can learn how the Island of Nevisis handling this onslaught by the OECD.
Over the past thirty years, there has beena steady progression towards higher and higher taxes among the29 OECD member countries. The tax share of GDP has increased steadilyfrom about 29 per cent in 1970, to 33 per cent in 1980, to 36per cent in 1990 and more than 37 per cent in 1998.
By contrast, in most of the off-shore banking jurisdictions thereare no income taxes and international companies pay vastly reducedcorporate tax rates than is the case in the United States andEurope. This marked divergence in the propensity to tax has ledto a healthy tax competition between what has become known asthe high-tax OECD cartel and the low-tax off-shore jurisdictions.
Many observers have argued that the real intent of the OECD isnot to stamp out money laundering as it claims; but to turn today'slow-tax jurisdictions into tax collectors that would feed theenormous and growing appetites of the big spending governmentsthat make up the OECD cartel.
In the most unbridled display of imperialistic arrogance sincethe American Revolutionary War which brought the United Statesinto existence, the OECD has made the low-tax off-shore bankingjurisdictions the focus of intense international scrutiny allegingthat their banks have been used to launder money by organizedcrime and drug barons.
To accomplish their objectives, they have embarked on a viciouscampaign of naming, shaming and black-listing the low-tax jurisdictionswhich they regard as being uncooperative in the fight againstmoney laundering. They have treated these jurisdictions and theirpeople as if they are a bunch of drug-runners.
For most of these countries, tourism remains the mainstay of theireconomies. For them, image means everything. It is grossly unfair,cruel and hypocritical on the part of the OECD to seek in onefell swoop to tarnish and damage the reputation and image of thesestruggling economies -- a reputation of a trust-worthy and honestpeople that has been cultivated over many, many years.
In the case of the Queen of the Caribbees, the Island of Nevis,home of the magnificent up-scale Four Seasons International Resort,that is ranked Number One in the world among resorts, for service;there is only one off-shore bank - a home grown indigenous bankestablished and run by local men and women of goodwill.
The farthest thing from the minds of these decent men and womenis harboring any sort of business with criminals and drug barons.Yes, there are some 15,000 registered off-shore companies on theisland. But, in sixteen years of operation, there has never beenso much as one case of fraud or scandal in a business that hasexpanded rapidly and has brought the country recognition amonginternational investors as a 'safe' financial haven.
This vibrant sector today accounts for more than 30 percent ofall tax revenues that are collected in Nevis. It has played acritically important role in helping the country to balance itsbudget on current account in four of the last five years, withthe single exception of the current fiscal year when a major stormLenny forced the temporary closing of its flagship Four SeasonsResort. In the interim, the presence of a vibrant offshore bankingsector served as the automatic economic stabilizer that helpedminimize the disastrous impact of the damaging hurricane, saidto be the worst in over one hundred years.
The off-shore banking sector is critical to helping developingCaribbean countries such as Nevis to diversify and to mitigatethe harmful effects of the annual hurricanes that play utter havocwith the island's upscale tourism plant. Together with tourism,the off-shore banking sector helps to generate a measure of self-sufficiencyas the country puts the necessary mechanisms in place to declareits full political and economic freedom, as it prepares for nationhood.
The island has a solid core American ex-patriot community thathas integrated itself nicely into the Nevisian way of life. Theyhave made this off-shore paradise which Princess Di, who, beforeher untimely and tragic passing, selected as the idyllic settingthat would provide the peace and tranquillity that she soughtfollowing her separation from Prince Charles.
Consider for the moment a retired American medical practitionerwho has voluntarily decided to make Nevis his home. He has electedto move to Nevis not only because of its crime-free and drug-freeenvironment and its all-year round pleasing tropical climate;he has made Nevis his home to avoid the full and wide range ofhigh taxes that are imposed by Uncle Sam.
The economic decision that motivates the American retiree to setup residence in Nevis and to live in a low-tax jurisdiction isreally no different from the economic decision that motivatesthe retiree to move out of a high-tax state such as New York andto move to a lower tax state such as Florida.
It is the same type of economic tax decision that motivates amanufacturing plant to locate in a low-tax state such as NorthCarolina. And, it is the same type of business decision that motivatesa U.S. firm to establish its headquarters in Delaware, or fora trust to locate in Delaware to take advantage of its favorabletax treatment of nonresident beneficiaries. In the U.S. itself,the courts have utterly rebuffed a number of high-tax states likeCalifornia and New York which have sought to impose taxes on truststhat have been established for Californians and New Yorkers ina number of lower tax states.
Nevis has a highly regulated off-shore financial sector. It hasbuilt a solid international reputation as a safe financial haven.It provides the confidentiality and security that investors seek,as well as the investment flexibility and cost savings that isneeded to help them to maximize their earnings potential.
The OECD's "Know Your Customer" banking rule that makescustomer identification mandatory will cause the financial accountsof off-shore investors to become an open book. It will lead toa flight of capital, as investors make a gracious exit in searchof alternative jurisdictions that show greater respect for theirfinancial privacy.
In the entire 16-year history of this rapidly growing off-shorebanking sector, there has never been a charge of fraud or anybanking scandal against any of the economic agents involved inthis business. There are no branches of Credit Suisse -- Switzerland'ssecond largest bank -- in Nevis.
There is no economic agent in the financial sector who has everbeen reprimanded for money laundering and snatching away any ofthe missing Abacha billions that have been alleged to have beendeposited by the former Nigerian dictator in various branchesof Credit Suisse. Nevis is not at the center of any cigarettesmuggling racket as Switzerland has been.
Indeed, the black-listing of the Island of Nevis and the otherlow-tax off-shore jurisdictions and the tarnishing of its cleanreputation as an economic safe haven represents the height ofhypocrisy. It is generally known that more money laundering goeson in New York and London than in any other place on this earth.A substantial portion of the funds passing through the low-taxoff-shore jurisdictions have already been "pre-washed"in other countries, including the United States. Yet, we hearof no FINCEN advisories from the U.S. Treasury that have beenissued against banks in New York.
But, before seeking to pluck the beam out of the eye of another,the question must be raised, has the U.S. itself made real progressin addressing its own money laundering concerns? By all accounts,the answer is No. It now appears that the International Counter-MoneyLaundering Bill (HR 3886) will not have sufficient support toclear the House in the remaining weeks of the present Congress.
As you know, this legislation which has been supported by theClinton Administration would have allowed U.S. federal officialsaccess to the customer records of international banks in pursuitof suspected money-launderers. As you also know, financial regulatorswere bombarded with more than 300,000 angry letters from the Americanpeople vehemently rejecting the open book "know your customer"regulations that were being thrust upon them.
It is the same type of "know your customer" guidelinesthat the American people have rejected that the OECD imperialistsare now forcing onto the low-tax jurisdictions, while tramplingall over their sovereign rights. This is wrong.
Ordinary Americans have long shown a great distaste for bullies.The American Revolutionary War was fought, in part, because ofthe bullying tactics employed by the British imperialists againstthe American colonies. As in the case of the OECD today, therewas no dialogue then. The British fanned the flames of rebellionthrough poor communication and aggressive enforcement of a litanyof high taxes on the low-tax colonies who were beginning to acquirea measure of wealth and a degree of economic independence fromGreat Britain.
Today's OECD imperialists are proceeding along the same path.There has been no dialogue with the 35 off-shore low-tax jurisdictionsthat have been black-listed as non-cooperating countries. Thelow-tax off-shore jurisdictions were not present at the tablewhen the Financial Action Task Force of the 29-member OECD high-taxcartel drafted their 40 recommendations that are now being rammeddown the throats of the low-tax jurisdictions.
It is simply wrong for the high-tax OECD cartel of larger countriesto bully the smaller low-tax jurisdictions into doing whateverthe cartel demands. The effect would be to cause these countriesto go into a nose-dive, with no realistic expectation of receivingany economic relief or assistance from the OECD countries.
If the low-tax off-shore jurisdictions capitulate, and the OECDis successful in bullying its way, the economies of low-tax countrieslike Nevis which are sitting on the razor's edge and poised foran economic take-off will be crippled and sent into a tailspin.We will have been returned to a primitive and backwards agrarianlifestyle. I don't want to believe that this is what the OECDhas in mind. If the OECD is allowed to continue unchecked, thisis exactly the result that would obtain.
Ladies and Gentlemen, on this issue we are fully joined. Thereis a commonality of interests of the American people who are clamoringfor tax relief and the low-tax jurisdictions that are strugglingfor their economic survival.
The leadership shown by the Heritage Foundation with its longhistory of advocacy in favor of lower taxes and the very powerfulvoice of the Honorable Dick Armey has begun to have the desiredimpact of moving the OECD away from the wrongful path that ithas embarked on. The feeding frenzy that is underway at the troughof BIG GOVERNMENT must be held in check and hard-working Americansmust be allowed to keep more of what they earn.
It is the right thing to do.