Morals of the tax haven story

By Michael Field

Pick a Pacific constitution and chances are there will be a reference to God and Christianity in it. Ask Jurgen Mossack whose Panama firm Mossack Fonseca and Co operate the Niue tax haven whether this kind of business has a morality about it, question whether there is a right or a wrong and he thinks a bit about the answer first.

“There is a big grey zone, there is no clear cut area,” he said.

Tax havens like those operated by the Cook Islands, Marshall Islands, Nauru, Niue, Samoa and Vanuatu are all based on a simple script; tax avoidance. In other words countries which depend on the aid and goodwill of taxpayers in countries like the United States, Australia and New Zealand have no hesitation at helping bilk those same taxpayers.

“Most of the people are trying to avoid paying taxes in their home countries, that is the main trust, it is not the laundering of criminal receipts.”

And there is the other argument, advanced by the Group of Seven, the Organisation of Economic Cooperation and Development (OECD), the Financial Action Task Force and the US State Department who all say that tax—havem operations like those in Niue are being used to launder money.

The Russian Central Bank reckons there is around US$7O billion of black money moving around the world, primarily from the Russian Mafia. Much of it, they believe, goes through Nauru. And they have the Cooks, Marshall Islands and Niue under watch too. OECD has targeted Niue as one of a number of ‘’non-cooperating” states.

Mossack believes the OECD is using money laundering as a pretence.

“I am not saying no money laundering goes on in any particular jurisdiction. That is a cover.”

His view is that the real worry for the West is that countries like Niue offer “unfair tax competition”.

He does not have a problem with

Western countries trying to protect their tax base.

“They can protect it of course, they can do the best they can do, but they have to do it by their own internal means at their disposal within the county, not by reaching across frontiers by trying to close down others and trying to grab the tax.”

He points to the fact that in the United States places like Delaware, Florida and Nevada offer off-shore banking.

“If OECD countries want to be serious about unfair tax competition they are going to have to close down their own operations first.”

As for money laundering, he says that is actually carried out on-shore.

“I would say in the United States, that is where the big numbers can be played because that is where they do not cause so much attention. That is where the real money laundering is done.”

Money laundering was going on through the mainstream banks who ignored it.

The now celebrated US$7O billion figure through Nauru points to the big American banks being involved.

“Every operation of that scale needs the intervention of the big international banks and/when they see an unusual operation they must know it, and if they then continue the business it is because either they are not interested in the morals of the story, or they see it as good business to continue these operations If you have figures of that sort that they are dealing with then the international banks know what they are doing.”

Tax havens cannot be money laundering.

“I try to tell them that off shore companies cannot launder money, you need to have the banking system, without the banking system it is impossible to launder money... You need banks... and you need the mainstream banks. How else can you get figures of that sort through the system.”

Pacific officials involved in tax-haven banking fend off the money laundering in another way, saying that they are not committing any sins or crimes, and if they

did not do it then the money would go somewhere else.

“Money laundering has devastating social consequences and is a threat to national security because it provides the fuel for drug dealers, terrorists, illegal arms dealers, corrupt public officials and other criminals to operate and expand their criminal enterprises,” says the latest International Narcotics Control Strategy Report published by the US State Department.

“Money laundering is now being viewed as a central dilemma in dealing with all forms of international organised crime because financial gain means power.

Fighting money launderers not only reduces financial crime; it also deprives criminals and terrorists of the means to commit other serious crimes. ” ■