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William Byrnes (Texas A&M) tax & compliance articles

Caribbean Historical Anecdotes of its Financial Centers

Posted by William Byrnes on September 26, 2009

I continue in my historical anecdotes leading back up to the subject of cross-border tax (financial) information exchange and cross-border tax collection.  This week, we start with the United Nations Declaration Regarding Non-Self Governing Territories, which is in the UN Charter, then turn the a few UK Reports about her territories, and the UN and OECS Human Development Indices.

Marshall Langer will be addressing these much more in-depthly during his lectures in October and November.

Chapter XI

Declaration Regarding Non-Self-Governing Territories

Article 73 

Members of the United Nations which have or assume responsibilities for the administration of territories whose peoples have not yet attained a full measure of self-government recognize the principle that the interests of the inhabitants of these territories are paramount, and accept as a sacred trust the obligation to promote to the utmost, within the system of international peace and security established by the present Charter, the well-being of the inhabitants of these territories, and, to this end:

     a. to ensure, with due respect for the culture of the peoples concerned, their political, economic, social, and educational advancement, their just treatment, and their protection against abuses;

     b. to develop self-government, to take due account of the political aspirations of the peoples, and to assist them in the progressive development of their free political institutions, according to the particular circumstances of each territory and its peoples and their varying stages of advancement;

     c. to further international peace and security;

      d. to promote constructive measures of development, to encourage research, and to co-operate with one another and, when and where appropriate, with specialized international bodies with a view to the practical achievement of the social, economic, and scientific purposes set forth in this Article; and

     e. to transmit regularly to the Secretary- General for information purposes, subject to such limitation as security and constitutional considerations may require, statistical and other information of a technical nature relating to economic, social, and educational conditions in the territories for which they are respectively responsible other than those territories to which Chapters XII and XIII apply.

 Article 74 

Members of the United Nations also agree that their policy in respect of the territories to which this Chapter applies, no less than in respect of their metropolitan areas, must be based on the general principle of good-neighbourliness, due account being taken of the interests and well-being of the rest of the world, in social, economic, and commercial matters.

 1999 Partnership For Progress And Prosperity: Britain And Her Overseas Territories 

In 1999, Robin Cook presented to Parliament a White Paper Partnership for Progress and Prosperity: Britain and the Overseas Territories (the “White Paper”).  The White Paper’s primary conclusion was that the Overseas Territories had successfully diversified their economies through developing global market positions in the offshore financial services industry but that the Overseas Territories required reputation maintenance through regulatory enhancement in order to maintain their global market position within this industry.  The White Paper noted that the Caribbean Overseas Territories were potentially susceptible to money laundering and fraud because of their proximity to drug producing and consuming countries, inadequate regulation and strict confidentiality rules. 

 Also, the White Paper proposed that Britain grant full citizenship, i.e. with right of abode, to the Overseas Territories citizens.  But this right of citizenship was not in exchange for implementing the more extensive regulatory regimes in alignment with the OECD Report.  In 2002, the UK enacted the British Overseas Territories Bill[1] in order to fulfil the Government’s commitment, announced in the White Paper, to extend full British citizenship to those who were British Dependent Territories citizens. 

Free Movement of Persons 

Note that the nationals of the US, Netherlands, French, Portugal and Spanish territories have full parent State nationality with rights of abode.  The non-colony status jurisdictions charged further discriminatory treatment, that they did not have the same rights of free movement and abode as the colonial nationals. 

 In its Report, the OECD members targeted trade in capital and services with the stick of sanctions, but did not offer a carrot, much less a lifeline, to the independent micro-economies.  Some Island states’ pundits allege that the OECD drive against tax competition is a geo-political move for re-(economic) colonization.  These commentators propose that the inevitable declining human development impact of the OECD’s drive against tax competition will be a brain drain to the OECD countries via legal and illegal immigration.     

The United Nations Human Development Report for 2009, to be released within a few weeks in October, will address the international issue of the movement of persons. 

The OECS Human Development Report 2002 

Because the UN Human Development Annual Report does not include all the Caribbean Islands, such as the non self-governing former colonies, the OECS Human Development Report is critical for the quantitative measuring and qualitative analysis of social and economic indicators for Eastern Caribbean territories, and to then be able to contrast these to other UN members captured by the UN Report.

It should be noted that the OECS Report noted that the Caribbean financial centers held approximately US$2 trillion in assets from international financial center activities.  The OECS stated that these international financial services contributed foreign exchange to its members’ economies, revenue to its governments, and that the sector created employment while developing human resources and contributing to the growth of technology.  The OECS concluded that the most important impact to the economies from international financial services was economic diversification.[2] 

1990 Gallagher Report 

In 1989, HMG commissioned the Gallagher Report (Survey of Offshore Finance Sectors of the Caribbean Dependent Territories) with the intent to review whether its territories’ offshore financial services sectors regulations met international standards.  Overall, the Gallagher Report presented proposals to extend the range and scope of offshore financial services in the COTs through the introduction of new measures designed to improve the regulatory framework especially with relation to banks, trusts, insurance and company management.  The Gallagher Report made specific recommendations to several jurisdictions.

By example, with regard to the British Virgin Islands, the Gallagher Report presented proposals to extend the range and scope of offshore financial services through the introduction of new measures designed to improve the regulatory framework as it relates especially to banks, trusts, insurance and company management.  Following the Gallagher Report’s proposals, the BVI government revised in 1990 the 1984 IBC Act, enacted a modern Banks & Trust Companies Act to replace the 1972 legislation; and passed the Company Management Act requiring companies providing registration and managerial services to be licensed.  In 1993, BVI enacted a Trustee (Amendment) Act in order to modernise the 1961 Trust Ordinance and the following year passed the 1994 Insurance Act.

With regard to Anguilla, Gallagher’s Report criticised the lack of up-to-date legislation, inadequate supervision of its financial sectors, and a confidentiality statute that encouraged “the type of business best avoided”.  Gallagher’s Report recommended the enactment of three draft laws, as well as the repeal of the Confidential Relationships Ordinance 1981.[3]  Following Gallagher’s Report, in 1992 the British Government aid agency engaged the consultancy firm of Mokoro to advise the Government of Anguilla on its economic strategy for the 21st century.  The Mokoro Report concluded that the development of additional economic activity in Anguilla principally required the development of the financial sector.  The 1993 Report stated that the financial sector’s socio-economic impact would be: 

  • Substantial additional government revenue.
  • Sizeable increase in the contribution of professional services to the GDP (Gross Domestic Product).
  • Range of new employment opportunities for young people.
  • Increase in professional trading.
  • Inward migration of Anguillans living overseas.
  • Increase in the number of visitors and a decrease in their seasonability.

As a result of the Report, Anguilla received a three-year 10.5 million English pound grant from the Minister for Overseas Development to research and to develop a Country Policy Plan.  In 1994, Anguilla updated its international financial center through enacting a package of twelve statutes.

Please contact me for further information or research that you would like to share on these topics at http://www.llmprogram.org.

[1] Bill 40 of 2001-2002 was enacted to fulfil the Government’s commitment, announced in March 1999 in its White Paper, to extend full British citizenship to those who were British Dependent Territories citizens.

[2] 2002 OECS Report p.23.

[3] The Confidential Relationships Ordinance, 1981, made it illegal to give other Governments information, including information regarding tax offences.

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