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Friday, 17 August, 2001, 15:19 GMT 16:19 UK
Tiny island talks tough on tax havens
Russian rouble coins
Nauru: Alleged conduit for $80bn of Russian mafia money
Nauru, a Pacific island state with a population of just 12,000, has challenged international finance officials trying to enforce a crackdown on tax evasion to stop interfering with its sovereign rights.

Its president, Rene Harris, accused rich countries of pursuing the probe into harmful tax competition so as to stop smaller rivals from taking a slice of the global offshore finance industry.

Nauru and several other Pacific states stand accused of encouraging tax evasion by refusing to share information with other jurisdictions, offering preferential tax rates to foreigners and failing to oversee their banking systems adequately.

Nauru, Russian and US officials say, is heavily implicated both in tax evasion and in money laundering. Up to $70bn of Russian mafia money allegedly flowed through the 400 banks registered to a single government postbox in 1998 alone.

Threats

The Organisation for Economic Co-operation & Development of 29 developed nations is threatening 35 countries which it put on a blacklist last year with "defensive measures" - sanctions by any other name - if they do not sign up to a list of corrective policies.

US Treasury Secretary Paul O'Neill
O'Neill: Forced OECD stay of execution

The deadline is 30 November, and only half a dozen countries have signed up so far.

Originally the cut-off point was 31 July. But pressure from US Treasury Secretary Paul O'Neill - following a concerted campaign by US right-wingers who favour swingeing tax cuts and see the small states as a stalking horse for their aims - forced a delay and some concessions.

Aside from Nauru, the Cook Islands, Niue and the Marshall Islands also stand accused of being conduits for financial crime.

Pacific Forum

During the opening session of the Pacific Islands Forum, which groups 14 mostly small states in the Pacific along with OECD members Australia and New Zealand, Mr Harris acknowledged the risks posed by international financial crime.

OECD list of tax havens
Andorra
Anguilla
Antigua & Barbuda
Aruba
Bahamas
Bahrain
Barbados
Belize
British Virgin Islands
Cook Islands
Dominica
Gibraltar
Grenada
Guernsey
Isle of Man
Jersey
Liberia
Liechtenstein
Maldives
Marshall Islands
Monaco
Montserrat
Nauru
Dutch Antilles
Niue
Panama
Samoa
Seychelles
St Lucia
St Kitts & Nevis
St Vincent & the Grenadines
Tonga
Turks & Caicos
US Virgin Islands
Vanuatu

"Such activities affect the islands' economic and financial stability," he told his fellow leaders. "Weaknesses in our financial systems allow international criminals to exploit them and undermine our national credibility."

Nauru has promised the OECD to reform its banking system, but has failed to do so since Mr Harris' election in March.

The president said it will do so on its own terms, rather than terms imposed from outside, and the OECD initiative in particular went too far.

Fear of competition

"The small islands of this world do not have much in terms of natural resources and industry," he said.

"It is alarming that now we have identified a viable, legitimate and competitive economic opportunity, the rich states of the world have labelled it harmful competition simply because they choose not to compete.

"Instead of assisting small islands to harness our competitive advantage and economic opportunity, the developed states want to shut it down."

Much of Nauru is taken up with worked-out phosphate mining operations, and the island is almost bereft of other economic goods.

Introducing offshore finance is a tactic followed by many countries in the same position. Indeed, many - such as Barbados, the de facto leader of the blacklisted countries - point out that the policy has been encouraged by donor countries.

Analysts say that the resistance from blacklisted countries might be less severe had the OECD not indicated earlier this year that talks between members and non-members would not lead to any substantive changes.

They also say that promises of technical assistance to reform banking and oversight systems have yet to be fleshed out.

See also:

20 Jul 01 | Business
US eases stance on 'tax havens'
14 Aug 01 | Business
Pacific islands to sign trade pact
26 Jun 00 | Business
Sanctions threat to 'tax havens'
01 Aug 01 | Business
Laundering reports reach record high
16 Jul 01 | Business
Russia's money laundering charges
22 Jun 01 | Business
Money laundering list gets update
22 Jun 00 | Business
Suspect financial centres named
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