La Doble Moral de la OCDE y los Centros Financieros Offshore

by Eduardo Morgan, Jr.

October 2007

The Organization for Economic Cooperation and Development (OECD) is a cartel formed by Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Holland, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, England, and the United States. As it can be noticed, it is, basically, a club of wealthy countries that includes the seven members of the G7 who, in turn, are the creators of organizations such as the Financial Stability Forum and the Financial Action Task Force (FATF), and with decisive influence in the economic organizations of the United Nations.

The genesis of the so-called “black lists” is found in documents of the OECD itself, where it can be appreciated that these are born as a reaction of its partners to the lawful competition that small countries and jurisdictions, aided by the technological revolution, started to pose to the traditional financial centers, mainly England and the United States. Fearing competition, the brains of the OECD designed strategies that may only be called Machiavellian, seeking total destruction of the viability of emerging financial centers. To that end, they resorted to all kinds of imaginable resources, regardless of any moral considerations, among them, fabrications and all sorts of tricks to hinder and discredit their new competitors. These plans, designed in the seventies, were kept secret until the year 2000, when the Committee on Fiscal Affairs of the OECD decided to make them public in a document called, IMPROVING ACCESS TO BANK INFORMATION, which may be consulted at the OECD’s Internet site (www.oecd.org). The confession of the conspiracy is particularly portrayed in paragraphs 36, 37, and 38 of this lengthy document. They express there, with the impudence characteristic of their arrogance, that the liberalization of the financial markets was promoted by them as “a response to the threat to financial markets posed by offshore financial centers. Such financial centers were able to attract foreign financial institutions in the 1960’s and 1970’s, offering a minimally regulated banking system and minimal taxation, at a time when technological advances made them more readily accessible. Since capital flows to offshore financial centers threatened to affect the traditional financial markets, a number of reforms were undertaken to level the playing field between onshore and offshore banking. Exchange controls were eliminated. Some countries established markets to compete directly with the offshore financial centers. In addition, measures were taken to harmonize the regulation framework of financial markets on a global basis.” (36) In paragraph 38, they acknowledge that even though “the liberalization of financial markets has increased economic growth, it has also facilitated new opportunities for non-compliance with tax laws” providing individuals and legal entities access, at reduced costs, to banking systems throughout the world, to conduct both legitimate and illegitimate transactions and also to have access to jurisdictions that limit access to bank information for tax purposes. It they add “It has also made it harder for Tax Administrations to detect non-compliance, unless they have adequate exchange of information with the relevant administrations”.

It was a two-phase plan. First, to compete on equal terms, to which end they created the international banking system in the USA and in almost all European financial centers, with the same conditions and advantages offered by Panamanian law to International License Banks –zero taxes on international operations and foreign account holders. But this was not enough. The offshore financial centers had to be eliminated, and nothing better or easier than to damage their reputation and make it difficult for them to conduct business. This is how the black lists, which originated in the USA with the infamous ANNUAL CERTIFICATION of countries, were born under the excuse of the global fight against the traffic of illegal drugs and laundering of money therefrom. Thus, in 1996 and 1997, they accused Panama of laundering TEN BILLION DOLLARS of drug money through the Colon Free Zone. They proceeded, haughtily and shamelessly, to accuse Panama in an official document circulated throughout the world, of something that is not just a big fat lie, but an absolute absurdity, as proven by the mere fact that at the time Panama’s total GDP was US$7 Billion and the Free Zone business was nowhere near that amount. In addition to the accusations to the Free Zone, they also criticized the Financial Center and the Panamanian corporations system, alleging that both lend themselves for illegal transactions.

Given that there appeared criticisms immediately, in view of the unilateral nature of the CERTIFICATION, they then decided to attack us through the Financial Action Task Force (FATF) created by the executive committee of the OECD, which is made up of the G7. And so, FATF produced its black lists of non-cooperative countries in money laundering matters and included Panama, despite the fact that our country is a pioneer in the implementation of controls to avoid money laundering in the banks (it is the first country in Latin America to regulate the obligation to Know your Customer and have an independent Financial Analysis Unit [UAF, per its acronym in Spanish]), as it also was in the control of stock corporations (unlike the USA, Panamanian corporations are constituted only by lawyers, who are required to know their clients). Despite all that, we repeat, and without any justification, the FATF included us in its discriminatory list alleging that our laws failed to include money laundering as a stand-alone crime. And they did this even though in the last 10 years, there had not been in Panama a single notorious case of money laundering, as there have been in OECD countries. (Let us remember the scandals of Raúl Salinas de Gortari, Benazir Buttho, Sani Abacha, the 7 billion dollars of the Russian mob, and lately, the accounts of the notorious Vladimiro Montesinos, which were discovered in banks in Miami, Switzerland, London, and New York). Quickly and with the utmost cooperation from the civil sector, the Executive and the Legislative Assembly of Panama approved the new laws and regulations they demanded, leaving them with no choice but to remove us from the list.

But the attacks did not end there and almost immediately they included us in a new list, prepared by the same Rich Countries Club, the OECD itself, with the ostentatious name of NON-COOPERATIVE TAX HAVENS. They did not care that we proved that Panama had none of the characteristics that they attributed to tax havens, and that the territorial tax system was perfectly legitimate. They PERCEIVED, I repeat, PERCEIVED that we were a tax haven and that was enough for them. In view of the outrageous reality that many of its members, if not all, were, openly, tax havens, and the United States, the largest, they said that the difference with us was that they did cooperate furnishing information; that before a certain date we had to change our laws and, in addition, sign with any country that so requested, treaties for the exchange of tax information and of transparency on our banks, corporations, and other elements of our service economy. As it is well known, without privacy and confidentiality, there cannot be any kind of commercial activity let alone an international service center.

In short, the failure of the conspiracy they concocted at the beginning of the ‘70s to destroy us and prevent us from competing in the international service sector, has kept them in a state of constant alert. They know that Panama has all the components to become a Services Center par excellence: a Canal that moves 4% of the world trade; the best ports on both seas; the Continent’s Free Zone par excellence; a Regional Financial Center regulated in compliance with the best international standards; the dollar as legal tender; a territorial tax system; the best international communications; a first rate aerial hub; a democracy and political stability well established in three exemplary elections; but above all, a capable, efficient labor force, with a proven and renowned professionalism.

The attempts by the OECD were frustrated by the equal treatment demanded by countries classified as Tax Havens (Panama among them, of course), what came to be known as: the Level Playing Field. That is, the Financial Centers affected refused to furnish tax information unless all financial centers did the same, including OECD member countries, such a Switzerland, Luxembourg, Belgium, and the United States.

This became an impossible task for the OECD so they introduced the issue of cooperation in tax matters and to continue demanding the signing of tax information exchange treaties from small countries. It is clear that countries such as Panama with a territorial tax system do not have to sign treaties that will be one-sided. But, in addition, it cannot oblige to the underhanded attitude of the OECD, that is seeking nothing but to eliminate the competition of what they call offshore centers. The banner of “harmful tax competition” used by the OECD to allege evasion of tax payments is nothing more than a subterfuge that does not withstand the minimum analysis whatsoever. For instance, the largest tax evasion by foreign taxpayers takes place within the most influential member of the OECD, the United States, that does not tax foreign deposits in their banks, much less the multimillion investments of foreigners in their Stock Exchanges, neither does it furnish information on these investments to any country other than Canada. Why the OECD does not pressure, instead of signing an information agreement that they will not enforce, to tax the profits from those investments or banking interests and deliver the money to the corresponding countries, as does Switzerland with the European Union countries? What does the OECD think of the scandal that took place not long ago when the Internal Revenue Service tried to have banks furnish that information? And what about the objection from then Florida’s governor, Jeff Bush, President Bush’s brother, and from a Congress majority that refused to approve this measure? Does the OECD ignore the US Senators and bankers arguments in the sense that furnishing that information would cause an alarming exodus of trillions of dollars from the American economy?

Which is, then, the country that contributes the most to tax evasion in the world? Of course that everything points to the United States, the most conspicuous member and greatest contributor to OECD´s very fat annual budget of 340 million Euros.

Does the OECD ignore that it was, precisely, the United States Government Accountability Office (GAO) itself, the organism that made the following statement: “CRIMINALS USE PLIABLE STATE LAWS TO SET UP SHELL COMPANIES THAT EVADE TAXES OR LAUNDER MONEY. THESE COMPANIES CREATED IN THE UNITED STATES, HAVE BEEN USED TO LAUNDER AS MUCH AS $36 BILLION IN ILL- GOTTEN PROFITS FROM THE FORMER SOVIET UNION, ACCORDING TO FBI SOURCES QUOTED IN THE REPORT. THE FBI HAS 103 OPEN INVESTIGATIONS ON MARKET MANIPULATION, THE MAJORITY OF WHICH INVOLVE UNITED STATES SHELL COMPANIES”? And if that statement was not enough, we ask whether the OECD also ignores the following paragraph from the same statement: “GOVERNMENT OFFICIALS INTERVIEWED FOR THE REPORT SAID THAT THE LACK OF INFORMATION CAN KILL AN INVESTIGATION. CUSTOMS OFFICIALS TOLD THE CONGRESSIONAL INVESTIGATORS THEY COULD NOT INVESTIGATE THE NEVADA-BASED CORPORATION, WHICH RECEIVED MORE THAN 3,774 CABLE TRANSFERS TOTALING US$81 MILLION OVER A PERIOD OF TWO YEARS, BECAUSE THEY DID NOT KNOW WHO THE OWNER WAS” . And to top it all, does the OECD ignore this last assertion? “LAST YEAR, THE U.S. DEPARTMENT OF JUSTICE RECEIVED 75 REQUESTS FOR ASSISTANCE FROM UKRAINIAN AUTHORITIES SEEKING, IN ORDER TO IDENTIFY THE OWNERS OF UNITED STATES SHELL COMPANIES. RUSSIAN AUTHORITIES ALSO MADE 30 SUCH REQUESTS. IN ALL CASES, THE DEPARTMENT OF JUSTICE WAS HINDERED FROM FURNISHING IT DUE TO THE LACK OF INFORMATION”. The statements transcribed can be consulted in GAO’s web page (www.gao.gov). And for a more productive task, I refer the readers, to the USA TODAY newspaper, February 23 and March 19, 2007 issues, where they will be able to verify, just like OECD members, how easy it is to open accounts in some of their banks and how much more difficult it is to open them in, for example, Panamanian banks. Finally, we also recommend reading The Economist, April 19, 2007 issue, which carries a very interesting and revealing article regarding the OECD intimacies. Perhaps we can find there an explanation as to why all that the bureaucrats who run it do is to look after the interests of the countries that pay them their juicy salaries free of any taxes whatsoever, in addition to other benefits, like the remodeling of a luxury apartment in Paris for the Director General, who, by a quirk of fate, used to be Mexico’s Ministry of the Treasury, a fellow country that was one of the first to include Panama in their black list. The Economist reads: “Many of the delegates are unhappy at the pay deal Mr. Gurría negotiated on top of the rent-free residence. His basic salary of €183,000 was increased by a confidential package; a €33,000 expatriate’s allowance (unprecedented for the top chief), a “household” expenses allowance of €11,000, and a “representation” expenses allowance for €50,000. The latter can be spent as he thinks best and is not subject to audit. A rather loose definition of “normal expenses” led to some raised eyebrows among Officials who saw an invoice for a wedding anniversary dinner for Mr. Gurría and his wife, according to a document seen by The Economist. Officials pointed out that this type of expense could not be reimbursed. A spokesman said that these were personal expenses and were not processed”.

It is public knowledge that our economy is based by more than 80% on the services sector. This is so, basically, because of its geographical position, which made the Canal possible, and has turned us into a communications hub, not only for the Americas, but between other Continents as well. This geographical position was sequestered all throughout the past century, since the Canal was not returned to Panama until the year 2000 and the ports, until 1979 (until 1948 we were, additionally, a country without an airport). Both required and continue to require significant investments to make them suitable for global trade. Being deprived of its geographical position, Panama had to find out how to survive and thus, our forefathers created in 1919 the Open Ship Registry, complementing it in 1927, with the law of stock corporations. Both have been essential vehicles since the beginning of the globalization, allowing different countries to conduct business among them through a neutral instrument- (Currently, our Open Ship Registry represents close to 20% of the world merchant marine). At the beginning of the ‘70s, Panama created the first International Financial Center outside the traditional financial centers of the OECD countries. The development of telecommunications has reduced distances and spaces. Everything is in the Internet, and the universal language is no longer English or Mandarin, but the binary system. This technological revolution and the other complements offered by Panama, such as the new law of Regional Headquarters, offers our country the possibility of becoming a Financial and Services Center of the same stature as London, New York, Tokyo, Hong Kong, and Singapore. The OECD, of course, wants to prevent it, as shown in this document.

The purpose of writing it, is to alert the community of the perverse goals and methods of the OECD, and to convince our Governments that the OECD’s attacks against Panama, to force us to sign tax information exchange treaties with all its members, are immoral and groundless, under International Law, and unacceptable within the context of relations between countries of the OECD itself. We also believe we have proven that what they seek is to eliminate us as an International Financial and Services Center. With the strength of this truth, the National Government must take all measures within its reach, with the support of local and international laws, for all the countries that harm us to cease on their attacks and exclude us from their black lists.

We have to acknowledge that our former President and his Foreign Affairs Minister treated the subject with the Heads of State from those countries, but results in three years of Government and personal negotiations proved fruitless. Our President must now put into motion the instruments provided in our Law of Retaliation. There are two aspects to this law: retaliation, itself, and reciprocal measures. Retaliation may consist of excluding companies with capital from those countries that keep us in black lists, from participating in bids for Government contracts. Reciprocal measures, as indicated by their name, is the application of the same or similar measures to those applied by such countries against Panama, or to its individuals or companies.

The Law of Retaliation was modeled after the “Retaliation Statute” of the United States and its goal, both in that country and in ours, is to have measures to discourage countries from discriminating against its own products and services. In Panama, the law was the answer to the black lists, and the upcoming multimillion dollar works for the expansion of the Canal were taken into account, for companies interested in participating in the juicy contracts, many of which come from countries that keep us in their black lists, would put pressure on their respective Governments to exclude the country from them, given the threat of being barred from participating in this grand endeavor. The past Government took the first steps toward the application of the retaliation, but the action was not continued by the present Government, that preferred to begin a personal negotiations policy, as we have mentioned before. The delay in applying the retaliation measures has caused that it is no longer appropriate to do so as it may interfere with the bidding for the expansion works of the waterway, and because it is in Panama’s best interest to have the largest concurrence of international companies without any kind of restrictions whatsoever. But the Government should apply the other variant of the law, that is, the application of reciprocal measures. These measures would not affect at all the large participation that is sought for the Canal works, but it would be a legitimate instrument for companies operating, or planning to operate, in Panama, and that come from countries that keep us in their black lists, to put pressure on their Governments to exclude us from such black lists, given the threat of being subjected to the same discriminatory measures that their Governments apply to Panama and its companies. These involve, mainly, the obligation to withhold surcharges or taxes above those applied to ordinary transactions in case of currency remittances to Panama. In the case of Mexico, for example, any remittance to banks, companies, or Panamanian individuals carry the obligation to apply and withhold a surcharge of 40% as a special tax. If an equal measure was to be applied by Panama, Mexican companies like ICA and Cemex, in the case of Mexico, would have to withhold the same additional surcharges and pay them to the Panamanian Treasury, also as a special tax on all remittances made to Mexico. In the case of Spain, the surtax the impose us by virtue of the Black List is 20%, which would apply to Union Fenosa, Spanish banks, and the Telefónica company. We feel certain that if we applied such reciprocal measures, the law would serve its purpose, which is that before the withholding becomes effective, the companies from such countries would pressure their respective Governments to keep Panama out of those black lists. These black lists are, in turn, an insult to the dignity of a country, and prevent us from fully developing our service economies, specially, our Financial Center. It is here where the true wealth of Panama lays, the one that would help us to reduce poverty levels and elevate all of us to the Canal’s level: becoming a First World country, without barefoot children, nor empty stomachs. Our Government has the moral strength of the wide mandate conferred by the voters to face the OECD, whose only arguments are arrogance and double standards.

Panama, October 2007

Eduardo Morgan Jr. 

Former Ambassador of Panama to the United States of America