Despite September 11th, the U.S. Congress has yet to declare war on nations that sponsor terrorism — yet it’s conducting a war on capitalists and investors. Or one might say that Congress is conducting a war on terrorism — but only by painting capitalists as the equivalent of terrorists.
In addition to cracking down on low-tax havens, Congress (with the support of the Treasury and the OECD) is lumping capitalists and investors together with drug dealers and terrorists. The Treasury has a “Financial Crimes” unit that began as a vehicle for tracking down drug dealers and terrorists but is now being directed at tax minimizers. The OECD, using today’s alleged “war on terrorism” to punish innocent capital, says it is:
. . . exploring the relationship between money laundering and tax-related crimes. In particular, it is examining how tax authorities can obtain access to information gathered by anti-money laundering authorities both to pursue tax offenses as well as to exchange that information with foreign tax authorities.53
As far back as 1989 the G-7 countries started a “Financial Action Task Force on Money Laundering” (FATF). The OECD adopted it in 1998. In June 2000 the OECD’s FATF placed 15 countries on a money-laundering “blacklist” with a recommendation that banks in other countries be prohibited from having any dealings with banks in countries on the blacklist. That led to a spate of new laws violating financial privacy in the Bahamas, the Cayman Islands, Panama and Liechtenstein.
So far, countries have been free to define what they regard as illegal sources of money. All include drugs, racketeering and other dark crimes in their definition. Some, such as France, consider tax evasion to be money-laundering; others, like Switzerland, do not. In the future the [FATF] may lay down a consistent definition of money laundering — and some of its members want this to include tax evasion. Some suspect that the OECD would like to use the fight against money laundering to advance its parallel and controversial campaign against an activity it calls ‘unfair’ tax competition . . .”54
In June of last year the FATF threatened sanctions against Russia, the Philippines and Nauru (a Pacific island tax haven) and added six more countries to its blacklist: Burma, Egypt, Guatemala, Hungary, Indonesia and Nigeria.55 But as could be seen from its comments on Russia, the FATF is quite vague about what, exactly, it’s going after: it wrote of “the existence of a continued, large-scale capital flight, under-developed market institutions and lack of financial resources.” What’s that got to do with drugs? According to Sir Ronald Sanders of Great Britain (which has jurisdiction over a number of tax haven territories):
The OECD wants information at will on any account; who owns it, who the family members are — everything about it. That is a violation of privacy laws and even of human rights. If by their demand for exchange of information they mean they can just ask for information about any account without going through our courts and we get bound to give it, we are not going to comply.56
On October 26, 2001, as part of the “U.S. PATRIOT ACT,” Congress passed the “Money Laundering Abatement and Anti-Terrorist Act of 2001,” which goes beyond previous regulations imposed on banks and imposes them on all financial institutions, including brokerage firms, registered broker-dealers, commodity trading advisors and investment advisors. The Act effectively requires employees of these firms to become detectives and law-enforcement officers, to issue “Suspicious Activity Reports” (SARs), to work closely with the Treasury’s “Financial Crimes Enforcement Network”57 — and to face criminal prosecution and up to a $1 million fine per transaction if they fail to uncover terrorists.58
Just as they’ve blurred the distinction between legal tax avoidance and illegal tax evasion, OECD officials have tried to blur the distinction between money-laundering and tax havens — even though the latter involves moving illegally-gained money above-ground, from the “underground economy” while tax avoidance involves legally moving legally-made money to jurisdictions with the lowest tax rates. Officials are doing this, even though statistics compiled by the U.S. State Department, the CIA and the IRS demonstrate that tax havens are not where most money-laundering takes place. It takes place, primarily, in the U.S., the U.K., Germany and various nations in the Middle East. One analyst who examined the cause of these findings writes that:
There are many reasons why criminals are unlikely to rely on tax havens. On a practical level, it is very difficult to transfer money to a low-tax jurisdiction unless the funds are already in a financial institution. Yet if the criminal money is in a bank, the laundering has already taken place. So why bother going offshore? . . . Terrorists are even less likely to utilize tax havens since they are motivated by hate rather than tax minimization or asset protection. 59
53 OECD, “Tax Avoidance and Evasion” (available at www1.oecd.org/daf/fa/evasion/evasion.htm).
54 “Money Laundering: Fighting the Dirt,” The Economist, January 23, 2001, p. 66.
55 Richard Stevenson, “Three Countries are Warned to Limit Money Laundering,” The New York Times, June 23, 2001, p. A6. At the same time, the FATF removed four countries from the last, because they passed laws violating financial privacy: the Bahamas, the Cayman Islands, Liechtenstein and Panama.
56 Cited in Samanta Sen, “Offshore Tax Havens Reject Calls for Transparency,” The Third World Network, July 12, 2001 (available at www.twnside.org).
57 See www.treas.gov/fincen/.
58 See “What New U.S. Anti-Money Laundering Laws Mean for Broker-Dealers, Investment Companies, Banks and Other Financial Institutions,” AIMR Advocate, Association for Investment Management and Research, March-April 1992.
59 Daniel Mitchell, “U.S. Government Agencies Confirm That Low-Tax Jurisdictions Are Not Money-Laundering Havens,” Prosperitas, Center for Freedom and Prosperity, January 2002 (available at www.freedomandprosperity.org/papers/blacklist/blacklist.pdf).