OECD to cast cloud of sanctions on tax havens

The OECD yesterday published a much-feared list of tax havens in an increasingly hard-hitting bid to clamp down on big banking centres which thrive off investments by foreigners evading tax or trying to recycle hot money.

The report from the Organisation for Economic Cooperation and Development was due to be issued around 1 p.m. in Paris (1100 GMT), identifying dozens of locations – many of them offshore financial centres – as havens for tax dodgers. After four years of work, which has focused more on legislation and reported practices than on-the-spot investigations, the OECD is taking the diplomatically sensitive step of issuing a warning list and giving those identified a year to change tune.

“Coordinated defensive measures would be applied to jurisdictions that the OECD finds to be uncooperative as of July 31, 2001,” the organisation said in a statement ahead of its two-day annual meeting opening on Monday. It will be attended by a mix of trade and finance ministers from the 29 member countries. A related report last week named 15 mainly exotic Caribbean and Pacific Islands as “non-cooperative” in the battle against the recycling of money from drugs and mafia activity, in a list which also included Russia, Liechtenstein, Lebanon and Israel.

That report, drawn up by the Paris-based Financial Action Task Force, a group created by the G7 economic powers in 1989, provoked angry reactions from several “culprits,” who are sensitive to the risk of international quarantine.

Both Washington and the French government welcomed the move and raised the prospect of sanctions against places which refused to do what was needed to get off the renegade list.

Fourteen other offshore centres and banking meccas including the French-linked principality of Monaco as well as Jersey, Guernsey and the Isle of Man were let off the hook but identified by the FATF and asked to tighten up efforts to combat money laundering. Much of the suspense over the OECD list published yesterday concerns whether or not the net will be spread wider to include places which are not in the money laundering listings but which risk being lumped together with the others as a result.

OECD members Luxembourg and Switzerland have objected in the past to the work of the OECD tax haven experts and refused to endorse their work. The OECD classifies tax havens as those with nominal or no taxes, and which either openly or implicitly sell themselves as a place where foreigners can avoid any awkward questions or risk of information on their investments being disclosed.

Several places recently got off the hook and were dropped from a shortlist of some 47 locations being reviewed by the OECD to see whether they should be put on the warning list. The six in question – Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius and San Marino – were put on a shortlist of close to 50 financial centres under review but have since pledged to meet internationally accepted standards by 2005. Reuters