A future for financial services?

The following is the first part of a presentation delivered earlier today at a conference in Panama.

Globalization has been a one-way street of impositions by powerful countries; fiscal sovereignty has been violated by the strong; and tax competition remains under threat from the mighty. Indeed, if the current pattern of incursions, restrictions and false labelling of Caribbean jurisdictions as ‘tax havens’, and the Caribbean as a region of ‘high risk’, is not halted soon and swiftly, not only will financial services have no future, but the Caribbean region as a whole could be relegated to the backwater of global existence.

It is clear that the major member states of the Organization for Economic Cooperation and Development (OECD) have embarked upon a campaign to eliminate competition in financial services from Caribbean countries and other developing states since the 1990s. That campaign has gained validation in the international community by seducing or coercing some developing countries into participation in groups, created at the behest of G7 countries, ostensibly to establish globally acceptable rules on tax information exchange, transparency, common reporting standards, anti-money laundering, counter terrorism financing and tax evasion.

One such group is the OECD Global Forum on Transparency and Exchange of Information for Tax purposes which claims 139 members and in which the countries of the European Union are over-represented since they participate as individual nations and as a collective body. At the end of the day, the seemingly broad membership of the OECD Forum is window-dressing for the menacing objectives of the more powerful countries. The high number of members masks the fact that no small nation can resist the candy-coated but bitters pills with which they are presented.

In the end, sanctions hang like the sword of Damocles over the heads of those who participate. The entire process remains one of pushing the agenda of automatic access to tax information and ending tax competition in keeping with the prevailing ideology of EU countries especially. Despite all the rhetoric of ‘level playing fields’ and respect for sovereign rights, the world remains one in which might parades in the armour of right, and power camouflages itself in the clothes of justice. In this matter, there has been – and continues to be – the most blatant disregard for the rules of international law.

Those rules specify quite clearly that states cannot intervene in areas solely within the jurisdiction of other states, and international organizations are restricted from intervention within the domestic jurisdiction of states. Yet, the powerful nations of the world – clustered in the OECD – do precisely the opposite. And, weak and vulnerable nations are powerless to respond. In fear of sanctions, such as blacklisting by OECD countries and the European Union Commission, and penalties from the United States, they acquiesce; surrendering their sovereignty.

At the conception of the United Nations, world leaders committed themselves to a world “governed by justice and moral law”, one in which they asserted the “pre-eminence of right over might and the general good against sectoral claims”. If, in the history of the UN, that commitment was ever respected, it has certainly been disregarded if not reversed in relation to fiscal sovereignty and globalization. And, in all this, the powerful nations have seduced the international media into becoming participants in their campaign.

As far back as 1834, a US Senator described this with prescient clarity. He said “power marks its victim; denounces it; and then excites public hatred and odium to conceal its own abuses and encroachments”. So, as one commentator put it: “The dogs of war have been released on Caribbean off-shore centres”. The truth that dares not speak its name is that “automatic exchange of tax information”; false branding of countries as “tax havens “while the real tax havens continue to thrive and prosper; and sanctions against what is described as “uncooperative jurisdictions”, is a form of neo-colonialism. It is a campaign to dictate the tax systems and structures of other nations for the benefit of OECD member-states.

This campaign has been continuous and unrelenting, reaching an apex 17 years ago, when the OECD launched its so-called ‘harmful tax competition’ in 1999. The campaign has persisted and has been successful not only because of the coercive might of the powerful states, but also because there has been no unified response from the countries and jurisdictions which are their victims. The victim-nations lack the cohesion, the coherence and the capacity to formulate a common position and to stand-up for themselves.

Instead, there is a scramble by individual powerless nations to salvage what they can of their financial services sector, and to avoid, at all costs, the sanctions and penalties of the powerful countries. So, they play the game as best they can, with their feet hobbled and their hands tied behind their backs. The upheaval against the discriminatory political order that we have seen within the affairs of nations has not yet taken root in the affairs between nations. There is as yet no leader ready to trump the abuse of the last three decades.

In fact, the absence of cohesion and coherence by developing countries might be obvious in a recent decision by the Government of Ecuador, as Chair of the G77& China at the UN, to work for an independent UN body that will eliminate tax havens and illicit financial flows. There had been no prior discussion with other developing countries on this effort, and no clear indication of which jurisdictions Ecuador regards as tax havens. The initiative might have had the support of developing nations if the real tax havens are identified. As it is, more than a little suspicion now attaches to its motivation and supporters, and that is unfortunate.

But, in any event, the OECD countries, including the US, would hardly support a UN body over which they would have no control. They are far more comfortable with the OECD Global Forum on Taxation that they dominate and with their own unilateral actions such as the US Foreign Account Tax Compliance Act (FATCA) and the blacklists of countries they issue from time to time.

It is well-known that Caribbean jurisdictions have been labelled as ‘tax havens’. There is this imaginary belief that we are rum and Coca-Cola societies that deliberately hide the ill-gotten gains of foreigners; help people to hide their taxable revenues from tax authorities; and have off-shore centres in furtherance of the Hollywood image of swashbuckling Pirates of the Caribbean. Nothing could be farther from reality.

A ‘tax haven’ is an area or jurisdiction where payable tax is hidden, and where countries, in which such payable tax originate, are prohibited from receiving information on the such taxable assets. That is not the Caribbean; it is other countries – some in the OECD, but not in the Caribbean. Low tax or no tax jurisdictions are not “tax havens”. Low tax or no tax is not a measure of a ‘tax haven’. Countries pitch their tax levels in accordance with the imperatives of their economic and social development.

For instance, with a corporate tax rate of 22 per cent, Ecuador is seven per cent lower than the average of the Americas and considerably less than Europe. But Ecuador would not consider itself a tax haven. In the case of my own country, Antigua and Barbuda, we are a low tax jurisdiction; indeed, we abolished income tax completely last year on the strong belief in two things: first, that the costs of pursuing such taxes outweigh the benefits, and second, that money left in people’s pay packet will be promote economic growth through spending and saving.

With growth of 4.3 per cent last year, Antigua and Barbuda was the fastest growing economy in the Caribbean and the fourth fastest growing economy in Latin America and the Caribbean. But, Antigua and Barbuda, like most Caribbean countries, is not a tax haven. (to be continued)

(Sir Ron Sanders is Antigua and Barbuda’s Ambassador to the United States and the Organization of American States (OAS). Views expressed in this column are his own.)

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