Samuel M. Lohman
President, The Offshore Institute

OFI News: August 2003 Sector Developments

The OECD Matters: Different Perspectives

OECD Expresses More Cooperative Tone Towards Jersey

22 July 2003 The OECD has changed its tone remarkably since it placed Jersey onto its blacklist of harmful tax havens back in 1998. The Paris-based organization is now offering to assist the jurisdiction in its proposed tax reforms. The Policy and Resources Committee president Frank Walker has chracterized the OECD as being 'naïve and impatient' when writing its 1998 report on harmful tax practices. Now it is taking a more constructive approach to negotiations, which includes assisting Jersey in its proposal to introduce a zero rate of corporate tax.

The EU Savings Directive has not helped Jersey in their efforts to promote global standards of tax co-operation and, by its decision to allow some countries to establish a withholding tax, it has also raised the level playing field issue. There are now only six offshore jurisdictions we deem to be uncooperative: Andorra, Liechtenstein, Liberia, Monaco, the Marshall Islands and Nauru.'

FATF: New Anti-Money Laundering Standards Released

23 June 2003 The Financial Action Task Force (FATF) issued its revised Forty Recommendations to combat money laundering. The main priority of the FATF during 2002-2003 has been to complete the revision of the Forty Recommendations, the international anti-money laundering standard. The revision makes significant changes, which when combined with the Eight Special Recommendations, create a comprehensive, consistent and substantially strengthened international framework for combating money laundering and terrorist financing.

FATF: Non-cooperative countries and territories

July 2003 The FATF removed St. Vincent and the Grenadines from the list of Non-Cooperative Countries and Territories (NCCTs). In line with past practice, the FATF says it will continue to monitor closely the implementation of the anti-money laundering system in this jurisdiction. The current list of NCCTs is as follows: Cook Islands, Egypt, Guatemala, Indonesia, Myanmar, Nauru, Nigeria, Philippines and Ukraine. The FATF welcomed further progress made by some of the jurisdictions on the list. Egypt, Guatemala, and the Philippines will be invited to submit implementation plans to enable the FATF to evaluate the actual implementation of their legislative changes.

New members of FATF

The FATF also announced that South Africa and the Russian Federation have been admitted as full members of the FATF following a positive outcome to the first mutual evaluations - which assessed their systems for combating money laundering and terrorist financing. The addition of South Africa and the Russian Federation to its membership strengthens the FATF's representation worldwide.

Collaboration between FATF and the IFIs

The FATF has continued its collaborative efforts between FATF and the International Financial Institutions to reinforce global standards. Having earlier recognized the Forty and the Eight Special Recommendations as the international standards for combating money laundering and terrorist financing, the IMF and World Bank formally added them to the list of standards for which Reports on the Observance of Standards and Codes (ROSCs) are prepared. In October 2002, the IMF, the World Bank and the FATF agreed a common methodology to assess compliance with the FATF Recommendations.

European News

EC Finds 'Harmful' Tax Practices In New EU Entrants 23 July 2003 In a report released last month, the European Commission revealed that all of the forthcoming members of the European Union - with the exception of Estonia and Latvia - have corporate tax measures in place which could disrupt the EU's internal market.

The EU Savings Directive

3 June 2003, The European Union's Council of Economic and Finance Ministers (the 'ECOFIN') has formally adopted the tax package of the Directive on Taxation of Savings. Assuming each EU jurisdiction enacts the relevant provisions by 1 January 2004 The Directive will be effective from 1 January 2005, and so long as agreement is reached with certain third party jurisdictions. These third parties are supposed to be similarly bound by the terms of the Directive. Switzerland is the most relevant of these third party jurisdictions.

The jurisdictions with banking secrecy will not automatically exchange information of this nature. The jurisdictions with banking secrecy will instead impose a withholding tax on savings income. The EU banking secrecy jurisdictions are: Austria, Belgium and Luxembourg. Austria, Belgium and Luxembourg agreed to the Directive, on the condition that other non-EU jurisdictions agree to the terms of the Directive: the USA, Switzerland, Liechtenstein, Andorra, Monaco and San Marino and the dependant territories of EU states.

Ireland Will Fight To Keep National Tax Veto

22 July 2003 Ireland's Finance Minister, Charlie McCreevy has announced the Republic's strong opposition to proposals contained within the draft EU constitution, which would remove the national veto for EU member states in certain circumstances.

If all member states were to agree that a proposal related to either administrative cooperation or to tackling tax fraud, under the terms of M. Giscard d'Estaing's draft constitution they would lose the right to a national veto.

Germany published Tax Amnesty Bill

18 June 2003 The German Government published the expected tax amnesty bill for (corporate) income taxes, municipal business tax, net wealth tax (before 1996), VAT, inheritance tax and gift tax. To benefit from the amnesty the taxpayer has to declare all non-taxed income realized between 1993 and 2001.

Belgium: Tax Amnesty

In order to encourage Belgian citizens to repatriate savings held abroad Belgium’s new Government is considering a tax amnesty . Final details still need to be worked out, but repatriated capital could be taxed at up to 10%, depending on how it is reinvested in Belgium.

Jersey: Financial Services Commission accused of acting too fast

25 The Jersey Financial Services Commission has strongly denied accusations that Jersey's regulation has progressed too far and too fast to be competitive. Further questions have been raised following the decision by the UK regulator, the Financial Services Authority, to halt plans to force finance companies to verify the identity of their existing customers.

Jersey: Court seizes £3.7m assets from drug money launderers

July 2003 Assets worth an estimated £3.7 million were seized from the five defendants in Jersey's biggest-ever drug money laundering case. Everything the people involved owned was confiscated, including cash, Eurobonds, houses and a pub.

Cyprus Rejects Harmful Tax Measure Claim

30 July 2003 Recently the Financial Times reported that the European Commission has identified nine harmful tax breaks given to businesses in Cyprus. The Cypriot Finance Ministry has reacted fiercely. The Cypriot government acknowledged that the nine areas of concern do exist. Yet the government stresses the fact that the measures in question have been abolished as part of recent taxation reform.

Cyprus Central Bank lifts more exchange restrictions

4 August 2003 The Cyprus Central Bank has announced the lifting of certain exchange restrictions, in the context of the preplanned gradual lifting of all restrictions by Cyprus' accession to the European Union in May 2004. A Central Bank press release notes that the lifting of the restrictions is occurring earlier than the deadline agreed on with the EU and will have an immediate effect.

Madeira: EU VAT ruling is driving ISPs to the island

13 July 2003 A virtual invasion is transforming Madeira into the domicile of Europe's dotcom industry. Internet businesses operating outside the EU are now liable for VAT on all sales to consumers who live within the community. The EU is trying to provide a level playing field to European websites, who argued it was unfair that rivals operating from outside the EU should escape paying VAT on sales to EU consumers. The bizarre consequence is that internet businesses are now flushing into Madeira, where VAT is charged at a mere 13 per cent.

US and Caribbean News

Study Explains How the IRS Interest-Reporting Regulation Will Hinder the Fight Against Money Laundering

13 July 2003 The Center for Freedom and Prosperity Foundation released a study showing that the proposed IRS interest-reporting regulation (REG-133254-02) will make it harder to investigate and prosecute financial crime. The report, entitled 'How the IRS Interest-Reporting Regulation Will Undermine the Fight Against Dirty Money' explains that the new regulation will encourage many foreigners to withdraw their money from American banks – and therefore make it almost impossible for U.S. law enforcement officials to ascertain if those funds are being used for illicit purposes.

Offshore Compliance Program Shows Strong Results31 July 2003 The Internal Revenue Service continues to see a strong response to its Offshore Voluntary Compliance Initiative (OVCI), with more than $75 million in taxes collected so far. In addition, more than 400 offshore promoters were identified. In all, the IRS received OVCI applications from 1,299 taxpayers from nearly every state and from 48 other countries. The IRS is still processing many of these applications. People from all walks of life applied for the program, including lawyers, dentists, business executives, estate heirs and numerous other occupations.

IRS Goes After Tax Shelter Promoters

22 July 2003 By issuing new registration, list maintenance rules for financial service providers and reporting requirements the US Internal Revenue Service (IRS) has increased its campaign against tax sheltering arrangements and the promoters of such schemes. Under the new registration advisers are obliged to report to the IRS any tax minimization services and products offered which - according to that tax agency - can be seen as 'abusive tax shelters'.

Bill Thomas Proposes Tax Cut For Small Firms

28 July 2003 The top rate of tax for many firms in the United States will fall under a new proposal being put forward by House Way and Means Committee Chairman Bill Thomas that will replace the Extraterritorial Income Exclusion Act ruled illegal by the WTO. Among the measures to be announced by the California Republican is a reduction in the higher rate of tax for small and mid-sized firms, reductions on tax on income repatriated to America from foreign subsidiaries, and generally streamline and modernize the country's international taxation system.

The Bahamas are discussing entry to the Caribbean Single Market and Economy (CSME)

27 July 2003 The Government of Bahamas is discussing the option to join the CSME (Caribbean Single Market and Economy). The Prime Minister of Barbados, Owen Arthur has urged the Bahamas to join the CSME. According to him the removal of trade barriers in the region will increase the country's chances of future economic expansion.

ASIA and PACIFIC News

Japanese Tax Policy 'At A Crossroads' Says Tax Panel Chairman

23 July 2003 Japan's tax revenues are at present only covering half of what the country is spending on basic public services, according to the Daily Yomiuri. This is a situation which may lead to a sea change in tax policy over the coming years. According to the head of the tax panel, Hiromitsu Ishi finds Japan itself 'at a crossroads' in terms of taxation policy, and must face the choice of adopting a more European model of high tax and spend, or the American model of less state interference in the provision of services in order to reduce expenditure. The tax panel chairman also suggested that a reform of the corporate tax system is needed to generate more income for the government in a time of recession.

August 2003 Articles

Matters of Interest to the International Offshore Financial Intermediary

New US Tax Collection Strategies
The IRS is expanding the American Family
By: David S. Lesperance

The US is going global

August 2003 Are you a Member of the American Family? If so Uncle Sam wants your taxes! New US Tax Collection Strategies may identify you as a US Citizen and a taxpayer with a whopping tax bill. There are several million people living around the world who may be unknowingly committing US tax evasion each year. The US government labels them as 'non-resident non-filers' and until now has been unable to collect taxes from (or even identify) these individuals. This situation has existed ever since the United States re-introduced its current income tax regime at the time of the First World War.

Times are, however, changing dramatically. The Internal Revenue Service (IRS) now has the means to find these individuals and collect outstanding taxes, interest, and penalties from assets located outside the US. Given the current political climate in Washington, where normal corporate tax avoidance planning is labeled “unpatriotic”, there is a renewed passion to expose these non-resident non-filers and apply the full force of US law against them.

Are you going to receive an unexpected US tax bill?

How the IRS Interest-Reporting Regulation Will Hinder the Fight Against Money Laundering

By: Dan Mitchell

Executive Summary of the Analysis

July 2003 On January 17, 2001, as part of a blizzard of rulemaking during the final days of the Clinton Administration, the IRS proposed a regulation to compel U.S. financial institutions to report bank deposit interest paid to nonresident aliens – even though this information is not needed to enforce U.S. law. The Bush Administration withdrew most of the controversial 'midnight regulations' proposed by the previous Administration, but officials in the Office of Tax Policy at the Treasury Department inexplicably have fought to keep the IRS's interest-reporting regulation alive. The latest argument used by these officials is that the regulation will help the fight against dirty money. Like every other assertion made by Treasury Department personnel, this claim is demonstrably false. Indeed, the regulation will make it harder for U.S. law enforcement officials to investigate and prosecute criminals and terrorists by driving funds to foreign banks.

OI Membership Matters & Activity Reports

The Offshore Institute Activities

August 28 and 29 2003: Launch of the Nevis Chapter of the Offshore Institute & Conference on the Future of the International Financial Services Industry

Nevis is planning the Launch of its Offshore Institute Chapter on the 28th and 29th of August. It will take place at the Four Seasons Resort in Nevis. The launch of the Nevis Chapter was originally scheduled for the 21-22 August has been changed; however, on the basis of the expected larger turnout, it has been rescheduled to accommodate the same.

The event is a comprehensive event and includes a two-day international Conference. This international event will comprise the following:

International industry experts who will discuss the developments and the future of the international financial services industry

Lobbyists that will report on developments and how to participate in the process of change

Hands-on practical industry related specialized advice on marketing financial services, formal professional training & academic opportunities

Anti-money laundering compliance procedures. This event will provide well-known global presentations by speakers who will utilize their expertise to make this Conference a memorable event.

Speakers will include:

Mr. Samuel Lohman of Lohman Law Firm (Switzerland) and President of the Offshore Institute (Isle of Man) and Co-Director of the Financial Institute (BVI)
Mr. Denis Kleinfeld of The Kleinfeld Law Firm, Miami
Mr. Dan Mitchell, Lobbyist Heritage Foundation, Washtington DC
Mr. Peter Friedmann, Lawyer and Lobbyist, Washtington DC
Dr. Michael O. Neal, Vice President HLSCC and Co-Director FSC
Mr. Howard Fisher of Fisher & Clinco, Beverly Hills, USA.
Mr. William Carney, ....
Mrs. Caroline Hanson, ....
Mr. Jerry James, Deputy President of the Offshore Institute

Attendees will profit from the insight of world-renowned experts in marketing, education, lobbying, anti-money laundering compliance measures and other areas of interest. The Conference is open to all registered agents, financial service providers as well as other interested business professionals locally, regionally and internationally. Please note that the conference is limited to 120 persons, so get your registration in.

For more information and registration forms, please contact: the Nevis Financial Services Development & Marketing Department Tel: 1 (869) 469-0038 Fax: 1 (869) 469-0039

E-mail: nevismarketing@caribsurf.com

October 14, 2003: Launch of the Mauritius Chapter of the Offshore Institute

The Offshore Institute shall open a Chapter in Mauritius . In association with the FSPA, the launch for the Mauritius Chapter is planned on 14 October 2003. The Mauritius Chapter wishes to attract membership from Financial Services Providers who will have the opportunity to meet once a month following the formation of the Chapter. Such forums allow for open discussion together with 'conference' style presentations from Members and guest speakers alike. For further info: contact info@offshoreinstitute.org.

October 8/9 and 23/24: Academy & Finance: OI Member discount

Academy & Finance is organizing two conferences on the topic 'New strategies facing the new European fiscal landscape' in Geneva with l'AGEFI on 8 & 9 October and in Lugano on October 23 & 24. A&F has agreed to offer a discount for Offshore Institute Members for the two conferences in Geneva and Lugano of 15% discount on official price (official price : 1 day : 1250 CHF, 2 days : 2250 CHF). The discount will not be mentioned on the brochure ; members will have to indicate that they are members when they register.

November 5,6 and 7: BVI Annual Anti-Money Laundering Compliance Symposium

The OI will be a sponsor to the Symposium on Anti Money Laundering Compliance and Practice to take place in November in the British Virgin Islands. This successful annual event will be in November with the venue, speakers and dates to be advised in the next issue of the IFI. Reserve the dates 5, 6 and 7th November.

Annual Conference in Geneva

Discussions are in the final stages to hold the 2003 Annual Offshore Institute Conference in Geneva, Switzerland. The event will focus on new developments within the international financial service industry regarding products, services and jurisdictions of interest. The second day will focus on policy, legislation and regulation that affects the international financial service industry. We contemplate that our discussion with the world class conference organizing group will reach an agreement. You will be notified of the date, venue, speaking and sponsorship opportunities within the next two weeks.

Offshore Institute Membership Directory 2003 - 2004

The Offshore Institute Membership Directory (OIMD&A) 2003 - 2004 has been published recently. The OIMD&A Directory combines an in-depth analyses of the developments in the sector. The Directory provides a complete overview of all OI members' contact details in alphabetical Country Listing and and a listing on Family Name..