STATEMENT AT THE OECD FORUM IN SYDNEY, AUSTRALIA
ON TUESDAY, 5TH OCTOBER 1999
by
Ronald M Sanders, Senior Ambassador with Ministerial Rank
Government of Antigua and Barbuda
My colleague, Althea Crick, and I are here as representatives of the Government of Antigua and Barbuda in response to an invitation from the OECD Secretariat. We understand that the OECD is engaged in an exercise to explore ‘harmful tax competition’. We are here in a spirit of international co-operation to contribute to some of the issues that arise from the idea that competition in taxation could be harmful.
We regard co-operation as a process of proportionate contribution to an end mutually satisfactory to all parties. In this connection, I am reminded of the suggestion by the hen that she and the pig should cooperate in giving the farmer bacon and eggs for breakfast as a reward for his kindness. The pig liked the idea of rewarding the farmer but was concerned about the process of cooperation. As he pointed out, for the hen it was a matter of laying an egg, for him it was a matter of laying down his life.
It was in the spirit of finding an end mutually satisfactory to all parties that we co-operated actively with the team who compiled the report on Antigua and Barbuda. We believe the report is a factual account, and we compliment its authors in overcoming the difficult task of digesting reams of information and distilling them into an easily readable form.
But, it will be important to know and understand what form of cooperation the OECD expects of us, and to what end.
Mr Chairman, Antigua and Barbuda is an open economy. It has always been so. We import from abroad - mostly from OECD countries - much of what we consume including the vehicles we drive, the food we eat, the clothing we wear, and the materials with which we build. In that sense, we were ‘globalised’, before ‘globalisation’ became fashionable. We also practice a very liberal trade regime with no restrictions on imports and no non-tariff barriers. Liberalisation and open competition, therefore, are not new to us. For some time, we have had to meet their challenges in order to survive.
For almost 300 years, until 1972, while it was British colony, the only economic activity in Antigua and Barbuda was the production of sugar cane. The country was essentially a one-crop economy. When sugar prices on the world market dropped in 1972, sugar production on Antigua collapsed and unemployment surged to over 40%. The land was unsuitable for any other kind of agricultural production and, in any event, the government could not afford to subsidise agricultural production as other countries were doing. In such an uneven playing field, Antigua and Barbuda recognised it could not compete. We chose instead to develop tourism.
For almost two decades, unemployment remained high while the working population was trained for the service industry. By the early 1990’s, we had moved from being entirely dependent on sugar, to being entirely dependent on tourism. Despite the considerable competition we encountered in the tourism market, we carved a share for ourselves.
Further, attempts were made to diversify the economy by providing incentive for manufacturing, particularly garments. However, the market in the United States on which such manufacturing was predicated disappeared with the creation of the North American Free Trade Area. We simply could not compete with Mexico which had completely duty free access to the US market and lower costs. The playing field was not level.
Since we have no goods to sell, Antigua and Barbuda is not a trade beneficiary of the arrangements under the Lomé agreement between the countries of the African, Caribbean and Pacific Group and the European Union.
The result of all this is that Antigua and Barbuda is a small island developing country with extremely high costs as a result of its remoteness and added costs of transportation of everything it imports. And, as I have already said, we import almost everything we consume. It is almost entirely dependent on tourism which accounts for more than 70% of its GDP. All this makes it extremely vulnerable to external economic shocks and to conditions in the countries from which it buys its goods and from which its tourists come.
To add to these conditions which already make Antigua and Barbuda very vulnerable, the country is also prone to natural disasters. In the four years 1995 through to 1998, we experienced four hurricanes - two of them in one year. Hurricanes Luis and Marilyn caused US$500 million in damage in 1995. In 36 hours, almost five years of GDP was lost. We had no sooner finished rebuilding infrastructure at great cost in 1998 when the country was struck by another Hurricane - this time Georges. In three years, we were forced to pay twice to rebuild the same infrastructure in the South of Antigua.
Despite all this, Antigua and Barbuda is a democratic country where the press is free, where general elections are constitutionally held at least every five years, and where trade unions flourish. The high price of robust democracy and strong trade unions is a per capita income which ranks us as a middle-income country by World Bank measurements. We are ranked 38th of 160 nations in the United Nations Human Development Index. We get no concessionary financing from the World Bank and all our borrowing for development has to be done on commercial terms.
Nonetheless, the State has to provide education and health services, maintain employment, build and expand infrastructure and provide the framework for civil society including policing, a judiciary and so on. As an independent nation, we must also fulfil our international responsibilities in global and regional institutions and in relations with other states.
Additionally, 27% of our legitimate work force comes from neighbouring Caribbean countries. The remittances of those workers to their families in their homelands help to sustain the viability of those nations.
In an international atmosphere that does not recognise our smallness and vulnerability as criteria for special and differential economic treatment, Antigua and Barbuda turned to the development of financial services because we needed to diversify our economy away from dependence on tourism only.
It should be emphasised that our offshore sector is small in comparison with other countries in Europe and the Caribbean. We have only 11,109 IBC’s of which 29 are banks, 5 are trust companies and 2 are insurance companies. Nonetheless, altogether the Government earns approximately US$8 million a year in fees, it would not otherwise have. We also believe that the sector offers the potential to triple those earnings to US$24 million a year. If we are to shut down the sector, we have no means of replacing the earnings or the jobs they create. Who will compensate us for the losses? Tourism alone cannot sustain us. Without economic diversification we are likely to face severe social dislocation that would threaten our democratic system, encourage illegality, and rupture our political stability.
It should also be recognised that many countries in the Caribbean were encouraged to go into the offshore financial services sector as a means of enhancing their earning power, and reducing their dependence on support from other countries. Indeed, up to two weeks ago, a Caribbean jurisdiction was being encouraged by a Minister of an OECD country to develop the offshore sector. In another Caribbean jurisdiction, it was a study paid for by a Development Ministry of an OECD country that led to a system of establishing IBC’s via the Internet. What is more, the Lomé Convention – a treaty signed between African, Caribbean and Pacific countries and the countries of the European Union – refers specifically to encouraging the development of the means of trade in services including financial services.
This Committee of the OECD, I am sure, has taken account of the role its member states have played in the encouragement and development of the offshore sector in some jurisdictions. I am confident that this Committee is conscious of the fact that relations between its member countries and offshore jurisdictions can not be reduced only to perceptions of ‘harmful’ taxation.
To return to the offshore sector in Antigua and Barbuda specifically, we admit that, in its evolution, mistakes were made. There was no intention to facilitate money launderers or any other financial crime. The mistakes were genuine; they were not malevolent in intent or action. They were born of inexperience and inadequate attention to the importance of establishing the necessary institutional infrastructure to regulate the sector efficiently.
We have corrected many of our mistakes already, and we are in the process of rectifying others through consultation with international partners, particularly the United States and the United Kingdom. Our objective is to continuously review our financial services sector so that it combines viability with a responsible legal, regulatory and institutional structure that will sustain the business while combating financial crimes including money laundering and tax evasion. In this regard, we are committed to the fullest cooperation with other jurisdictions.
By November 1997, we had already enacted legislation that put us ahead of most jurisdictions in the fight against money laundering, and in the requirements for disclosure. Indeed, much of the legislation we already had in place in 1997 is still not implemented in several jurisdictions in Europe and the Caribbean. For instance, since 1982 we have always required the publication of annual profit and loss statements and balance sheets of these institutions.
Then, in November 1998, the amendments to our IBC Act prohibited bearer shares or otherwise anonymously owned financial institutions. Our Money Laundering (Prevention) Act also prohibited offshore banks from accepting cash or bearer negotiable instruments.
Over the last two years, we have spent a great deal of time, money and effort listening to our international partners and either introducing or amending legislation that will curb money laundering and allow our competent authority to cooperate with foreign jurisdictions in accessing information.
As an example, in August this year, we amended our Money Laundering (Prevention) Act to provide that every person who acted in an official capacity when an offence was committed is deemed to have committed that offence and shall be tried for it.
The Act was further amended to permit the provision of information on request from a foreign jurisdiction on matters related to tax of any kind where a bilateral or multilateral treaty exists. In other words, countries with which Antigua and Barbuda has a Mutual Legal Assistance Treaty can obtain information on civil or criminal tax matters at the investigative, prosecution or any other stage of proceedings related to the imposition, assessment or collection of taxes of any kind (Section 23 (5) (b) of the Money Laundering (Prevention) (Amendment) Act 199). This important point was not included in the Report on Antigua and Barbuda.
The Government has also implemented regulations to the Money Laundering (Prevention) Act requiring all banks, on shore and offshore, to impose strict ‘know your customer’, requirements in addition to record keeping and training requirements on a broad range of domestic institutions which are involved in financial activities. These significantly strengthen the country’s money laundering prevention efforts.
A Money Laundering (Prevention) Act Order is shortly to be issued designating off shore insurance companies and dealers in art, jewellery and precious metals as ‘financial institutions’ subject to the provisions of the Act. While there has never been an allegation of such activities being used for money laundering, their inclusion in the Order is to conform to standards in the United States.
The IBC Act is to also to be further amended shortly to rectify shortcomings identified in the existing statute by the Governments of the United States and the United Kingdom.
Other amendments to the Act will include a provision that information shall be shared under the terms of a Mutual Legal Assistance Treaty to give assistance in a criminal or civil tax investigation consistent with the amendments which were made to the Money Laundering (Prevention) Act in August this year. Further, no inhibitions will be placed on an employee if he reports a criminal offence in his work place.
To ensure that there is no conflict of interest, the responsibilities of the International Financial Sector Authority will be limited to the licensing and regulation of the sector. Promotion will be separate. We expect that the new amendments to our laws will be in place within the next three months.
With regard to the IBC’s that operate Internet gambling in the Free Trade and Processing Zone, note should be taken that while our laws do not require these IBC’s to have directors who are natural persons and while they may be owned by bearer shares, in practice the owners and directors are required to be known by the Commissioners of the Zone. The Commissioners have established their own procedures for permitting IBC’s to operate in the Zone, and part of those procedures is knowledge of the beneficial owners and directors of the companies. Moreover, because a number of the licenses to operate in the Zone are owned by publicly-owned companies whose stocks are traded on the stock exchanges of North America, these companies have publicly-known audited accounts.
If I may turn now to the OECD report on Harmful tax, Mr Chairman, I have to say that it has several aspects that cause us alarm. These can be summarised briefly as follows:
- the objectives of the report seem to give the OECD an international authority that it does not possess;
- there is a suggestion of extraterritorial jurisdiction by the OECD that is not sustainable in international law;
- there appears to be an attempt by the OECD to dictate to national revenue authorities of sovereign states how they should determine their tax policies;
- there is an underlying suggestion that unless information is provided by a jurisdiction upon request, that jurisdiction is guilty of harmful tax practices whatever the circumstances.
Movement of money is as much a function of the “push” effect as it is of the “pull” effect. ‘Harmful’ tax could very well be equated to ‘high’ tax which pushes money away. I have no doubt that OECD countries have considered this, and, in their own sovereign judgement, have come to a conclusion that best suit their national circumstances. We respect that sovereign right of OECD countries to set taxes as they deem fit. At the same time, we do nothing more than ask for the same respect for our sovereign rights to set taxes as we judge to be appropriate.
As a small island State, we encounter competition every minute of the day in every field of endeavour. We do so, often on playing fields that are not level.
To survive, we have had to become creative, often ingenious. We have had to improve efficiencies and lower costs. We don’t defeat anyone in our efforts; we merely share the cake securing a small portion for ourselves.
Born out of our experience of competition which we have learned in the hard school of the GATT negotiations and in the World Trade Organisation, we find it difficult to accept that competition in taxation could be ‘harmful’ when it is admirable in every other field.
For years, we have known that our businessmen take profits earned in our country to at least three OECD countries where their deposits in banks are not taxed, and where their dividends from certain bonds enjoy a preferential tax regime. We have not sought to restrict this activity, nor have we complained in any international body. Instead, we have tried to create conditions at home that will encourage our businesspeople to invest their money at home. We do not always succeed, but we accept the situation as part and parcel of a new era of globalisation, liberation and competition.
On the matter of criminal activity, Antigua and Barbuda is doing everything we can to ensure that our legislation and regulation governing the offshore sector meets international standards.
We are grateful to two OECD member states, the United Kingdom and the United States, for the guidance they have given us in this regard. We intend to continue to work closely with them to put up a common front against fraudsters, tax evaders, money launderers and drug traffickers. Other OECD countries can be assured of our readiness to work with them in this regard whether or not Mutual Legal Assistance Treaties exist.
As I speak, Antigua and Barbuda is working closely with Belgian authorities over an alleged fraud even
though we have no MLAT with them. Even before a Rogatory Commission went to Antigua, from Belgium our authorities froze the bank assets of the persons and companies against whom the allegation of fraud was made.
We believe that there is ample space and opportunity for nation states to collaborate in combating financial crime including tax evasion without damaging the legitimate offshore sectors of jurisdictions around the world. To use an English phrase, “Let us not throw out the baby with the bath water”.
In this connection, Mr Chairman, I would ask your OECD Committee to consider holding a meeting at a technical level with member states of the Caribbean Community and Common Market (CARICOM) at some time in the near future under the auspices of the two Secretariats. It would be a very useful way of getting all the Caribbean countries identified by your committee as possible tax havens around the same table with your Committee. That way the process of discussion could be fully transparent and both sides might benefit from the cross-fertilisation of ideas.
Mr Chairman, I thank you and the members of this Committee for your patience in listening to this presentation. I want to end by reiterating what all of us gathered here know very well – dialogue, as long as it is not a dialogue with the deaf, is extremely useful and beneficial. I am unsure where this process started by your Committee will go, but I am very sure that it can only benefit from reasoned and sensible dialogue by all the parties concerned.
The Government of Antigua and Barbuda is certainly interested in continuing a dialogue with you if, in the end, like the hen and the pig we can cooperate in a way that is mutually satisfactory. Neither side should be required to lay down his life for a rewarding result.
Thank you, Mr Chairman.