LIECHTENSTEIN FACES CONTINUED DIRTY-MONEY ALLEGATIONS

Date: August 28, 2000 Source: Financial Times Liechtenstein's financial industry has been further tarnished by the recent publication of an official inquiry linking some of the country's lawyers and banks to Russian organized crime and Colombian drug cartels. The government describes the allegations as "complete nonsense", but the continued negative press from the past few months has significantly slowed investment into the tiny principality. The Financial Times quotes Benno Buchel, president of the Liechtenstein Bankers Association, who hopes to rehabilitate the haven's image. "We take the accusations very seriously," he said, "and we are making every effort to restore and keep our good reputation." Liechtenstein's financial services account for 40% of the government's total revenues. The country's 16 banks, 60 lawyers and 250 trust companies employ 16% of the nation's entire workforce.

DOMINICA COMPLIES WITH OECD

Date: August 29, 2000 Source: Tax-news.com At a recent press conference, Dominica's Finance Minister, Ambrose George, announced his government's new anti-money laundering legislative measures. In an effort to get the Caribbean country's name removed from the Financial Action Task Force's (FATF) June black-list, the Dominican government will introduce new laws and amend some of its existing offshore legislation to conform with international standards. George then plans to visit Washington in September and petition the FATF to remove Dominica from the list of uncooperative countries. Tax-news.com quotes the Minister who says that "a number of measures were indicated which government would have to demonstrate, that those measures would have to be put into effect with respect to our offshore financial services, to put us on par with international standards as required, and to demonstrate our compliance as far as offshore financial services are concerned."

JERSEY DELIVERS MONEY-LAUNDERING WARNING

Date: August 29, 2000 Source: Tax-news.com The Jersey Financial Services Commission (FSC) released an anti-money laundering update intended to serve as a guide for the island's financial industry. The advisory warns financial institutions to use caution when dealing with transactions from either the Cayman Islands or Malta. The FSC's initiative follows advice given by the Financial Action Task Force (FATF) which, in June, issued a list of 15 countries considered to be uncooperative in the fight against global money laundering. Although Malta did not appear on the list, it is still under investigation. Tax-news.com quotes the FSC's Director General, Richard Pratt, who commented on the update. "To maintain our reputation and keep off the FATF's uncooperative list," he said, "we must and will press on with our reform agenda. We will keep abreast of the latest thinking of our international colleagues about the fight against crime." Strong anti-laundering laws regulating Jersey's finance industry have doubled the number of suspicious-transaction reports passed on to the Jersey police force.

The Internet bookmaking industry was dealt a severe blow

The Internet bookmaking industry was dealt a severe blow last week when Jay Cohen, co-owner of Antiguan sports book World Sports Exchange (WSEX), was convicted in Federal Court of running an illegal sports wagering operation via the Internet. Cohen, 32, a former San Francisco stockbroker, after a two-week trial in New York was found guilty of all charges: one felony count of conspiracy and seven felony counts of violating the federal Wire Act by taking wagers over a wire transmission facility. The jury didn't buy Cohen's defense that what he was doing was legal because he had a "license" from the Antiguan government to take Internet wagers. The landmark and precedent-setting trial was the first in U.S. history of a bookmaker for taking sports wagers over the Internet. Cohen is scheduled to be sentenced May 23 and is expected to receive five years in prison for the conspiracy charge and two years for each of the other seven charges, for a total of 19 years. He will also receive a $2 million fine. Cohen's attorney, Benjamin Brafman, says Cohen will appeal the convictions.

Build Your Own Soapbox

Thanks to the Web, you no longer need access to a printing press or broadcast facility to make your voice heard. By SETH LUBOVE THERE WAS A TIME WHEN FINANCIAL ADVICE WAS hard to come by for the average American. If anything, it is too plentiful today. The World Wide Web has created a vast forum where anyone with information or advice can offer it to a broad audience at almost no cost to the sender. Pre-Web, if you were a nobody and wanted to get your voice heard, you started a newsletter or got a book published. Getting books published is tough and you would need to spend hundreds of thousands of dollars to launch a newsletter. It costs just a few hundred dollars a year to rent space on a server and slap together a Web site to open for business. Thousands of amateur gurus are doing just that. In some cases the content is appallingly bad or even dishonest. Most of the graphics are crude and silly. Much of the content is stock touting or seat-of-the-pants commentary on the market. The long strong bull market in tech stocks has created thousands and thousands of investment success stories. Most of them are the result of what John Kenneth Galbraith is said to have once described as a "short memory in a bull market." But never mind: In a momentum-driven market it seems to work, and many of these sites have attracted loyal, if unsophisticated, followings. Follow these touts at your own risk. But say this for the phenomenon: The Web makes it cheap and easy for all kinds of people to make their voices heard--good stuff, bad stuff, irrelevant stuff. You no longer need access to a printing press or a broadcasting station to have your own soapbox. The amateur Web is a noisy place with lots of static--and some gems. In the gem category falls Jay Adkisson's www.quatloos.com. Fresh out of the University of Oklahoma law school in 1988, Jay Adkisson soon landed in the middle of a huge case involving a conspiracy to transport chemicals for weapons to Libya. Adkisson, now 36, ended up being sued himself when a lawyer for the defendant in the case accused him of libelous statements made during his pleadings. He came out of the mess with just enough money to quit his day job and later move to Irvine, Calif. The harrowing experience of being sued for something he did in the course of earning a living made him a self-taught expert on sheltering his assets from legal liability. When acquaintances starting telling him about dubious offshore asset protection schemes they were considering, he posted a rudimentary educational Web site on the topic in 1997. "I got fed up with seeing the junk," Adkisson says. A woman who claimed she had lost her $800,000 life savings in an offshore scam told him her hard-luck story. Her loss involved something called "prime bank trading" notes. "I wished I could have gotten those sons of bitches," Adkisson scowls behind dark sunglasses that cover a glass eye, the result of recent surgery to remove a cancerous tumor. "Her money was in Antigua. When that happens, the money is just gone." Nothing he could do there. but he could help protect people against similar swindles. He expanded his site into a repository of financial scams. Now called Quatloos.com, after a made-up term used on the Internet to designate a scam, Adkisson meticulously chronicles colorful and bizarre scams that range from annuity abuses to the Dominion of Melchizedek, a bogus nation well known to longtime readers of FORBES. "The nice thing about the Internet is these scammers are forever immortalized in cyberspace," he beams. Among the 50,000 to 80,000 hits he claims a week are ones from staffers of the IRS and SEC looking for leads. Tax lawyer Robert Sommers also offers useful advice--gratis--on his Web site, www.taxprophet.com. A compilation of Sommers' accumulated tomes, scam warnings and other wisdom, the site offers useful information on tax matters. In a profession that still frowns somewhat on advertising, the site is a dignified and cheap way for Sommers to solicit clients for his San Francisco legal boutique. Now he is considering expanding the site to cover another topic: employee embezzlement. Ripped off of as much as $100,000 by what he thought was a trusted office administrator, Sommers plans to offer advice about how to guard against crooked workers. This, too, can help ring in some law business. "The truth of the matter is there could be a whole bunch of warning signals that are ignored," says a chastened Sommers, who recently extracted a settlement out of Wells Fargo & Co. for its shoddy oversight of the now-incarcerated employee. But far more numerous than free-advice sites are ones run by amateur stock pickers. David Gordon, 52, of Great Neck, New York, describes himself as an "old bomb thrower" from the 1960s who marched, torched and made a general pest out of himself before joining the Army and then later teaching. Gordon built up a prosperous swimming pool and spa business until being waylaid by a life-threatening case of non-Hodgkins lymphoma in 1995. Now Gordon is a stock tipster. During grueling daily doses of chemotherapy he couldn't concentrate on reading and he was tired of movie reruns, so he tuned into CNBC. Mostly a dabbler in stocks until then, the manic rants of CNBC fixture James Cramer got him hooked on the market. When Gordon recovered, he commandeered his son's Gateway personal computer to hang out full-time on the Motley Fool message boards. He had saved some money and started playing the market. He got early into such tech darlings as JDSUniphase, and soon attracted enough of a following that Motley Fool gave him his own message board. Inspired by his online fans, he created his own Web page in January 1998, www.trenchrat.com. Why the rat? It came from an hallucination he had during blood transfusions at the depth of his cancer treatment. "That son of a bitch rat was telling me you gotta be like a rat to survive," Gordon says, now fully recovered. Under a superfluous warning that states, "Trenchrat.com is not an investment advisor and does not provide investment advice," Gordon proceeds to do just that with breezy daily commentaries ("Believe little of what you read because most of it is bogus manipulation, but there is always some truth buried in the midst of the propaganda"). He proffers a few dozen tech-stock picks divided between "long-term holds" and "stocks in play." To make the site pay, he now charges $25 a month for access and peddles "rat gear": $15.95 for a T shirt, $13.95 for a "rat" mouse pad, $14.95 for a cap. "One door opens, one door closes, my mother used to say," Gordon muses. "It's funny because if I didn't get the cancer, I'd still be out there humping pools." William Stein, 27, is director of information technology for an engineering firm in Canonsburg, Penn. A lucky stock pick turned him into an Internet advice giver. In the summer of 1997 he bought shares in an Internet portal called Infoseek when it was trading at about $5. By the time he bailed in January 1999, the stock had soared to over $83. Friends and acquaintances hounded him for the secret of his stock-picking techniques. "People were fascinated that I picked a stock like that and had the patience to hold it," Stein says. So he obliged them. Early in 1998 he set up www.stockiceman.com. Today, it is a graphics-challenged mélange of stock picks, stock-picking tournaments, bare-bones commentary and, perhaps regretfully, a history of Stein's performance (up 23% for all of 1999, but down for most of the year so far). Russell LiPuma manages his Web site, www.stockwerld.com from his bedroom near Buffalo, N.Y. He lacks formal financial training, unless you count the time 20 years ago when he briefly worked for an outfit peddling junk bonds that were really junky. LiPuma, 39, is by profession a maker of furniture and cabinets. "I was totally computer illiterate," he says. "I didn't even know how to turn it on." But now he's a stock market guru--and a popular one. Under the name of Mystifier on Clearstation.com and on his Web site, www.stockwerld.com , LiPuma attracts 2,000 hits a day from folks who want to read his stock picks, financial commentary and trading strategies. Early on, he used to just lift his picks straight out of big mutual fund prospectuses. "I'm not in it for the fame or glory," LiPuma adds. "People write to me and say, 'I made money off of this because of you,' and that makes me feel good. I've been able to help other people." He claims his success has attracted people who want him to manage their money. He says he's managing portfolios for seven people now, and has four more in negotiation. "But I don't want to get any more because it gets too hard," he sighs. Yeah, and in managing money, unlike in tossing out advice, you are held accountable. But don't get us wrong: We love the Web. It helps democratize expressions of opinion. Makes it easier for ordinary folks to start a business. We just think people should be both selective and skeptical about what's out there.

Bank of New York Cuts Off Offshore Banks

The G-7's Financial Action Task Force (FATF) created some banking turmoil. The FATF placed the following countries' banks on their black list: St. Kitts and Nevis, Bahamas, Cayman Islands, Cook Islands, Dominica, Israel, Lebanon, Liechtenstein, Marshall Islands, Panama and a host of other European and Caribbean countries. In one instance, the Bank of Nevis, International. Ltd, which had a bank account at the Bank of New York for our North American customers was in turmoil. Due to the pressure applied on the Bank of New York by the FATF, The Bank of New York closed the Bank of Nevis' account on July 3, 2000. Unfortunately all checks written on the Bank of New York, that weren't presented for payment prior to June 30, 2000, will not be honored by The Bank of New York. Since that time, the Bank of Nevis International has been using the Bank of America as their U.s. correspondent with no further problems.

Grenada Government Takes Over Bank

By RICHARD SIMON, Associated Press Writer ST. GEORGE'S, Grenada (AP) - Grenada's government has taken over operations of First International Bank, an offshore bank that Grenadian officials say offered investors returns up to 250 percent and was capitalized on a single ruby. The Caribbean nation's Ministry of Finance said in a statement that the government took over the operations Thursday, with former Accountant General Garvey Louison appointed to watch operations. Finance Minister Anthony Boatswain, in a radio interview Friday on the Grenada Broadcasting Network, said he knew the bank was experiencing a ``shortage of funds,'' but he did not say how it would affect investors. Ministry officials could not be reached Friday to give more details. Government spokeswoman Nancy McGuire said recently that the government was investigating the bank in coordination with the U.S. Department of Justice and the FBI. Local offshore industry regulator Michael Creft said the investigation included the possibility of money laundering. A bank employee who answered the telephone Friday said bank owner Van A. Brink had not been at the bank ``for some time,'' and said no other officials were available to comment. Before coming to Grenada, bank owner Brink lived in Oregon as Gilbert Allen Ziegler until he declared bankruptcy in 1994, bought a Grenada passport and changed his name, Creft said. The bank, licensed in 1998, was capitalized on the strength of a jeweler's $20 million appraisal of one ruby, Creft said. The bank's reported gross income last year of $26 billion is the same as the revenue reported by the fifth-largest U.S. bank, Bank One Corp. (NYSE:ONE - news) of Chicago. Creft said he didn't know if the bank's claim was true. Creft said First International Bank had made good on promises to pay up to 250 percent interest, but he didn't know how the bank did it. Every month, First International Bank paid for hundreds of Americans to come to the island and wooed them at upscale beach resorts with lectures on the evils of U.S. taxation, Creft said. Prospects are assured their money is insured by the International Deposit Indemnity Corp. - a small private operation that was closed down by regulators in the tiny island of Nevis, was again shut down in Dominica and now operates here. Brink, in an interview with the Grenada Broadcasting Network last year, said his bank was ``doing legitimate business'' and ``acting lawfully.''

BERMUDA UPDATES SEGREGATED COMPANY LAW

Date: August 14, 2000 Source: The Royal Gazette Bermuda's new Segregated Accounts Companies Act will update the country's existing laws which allow international companies to set up separate corporate entities. The Act provides for record keeping, the distribution of shares and dividends, winding up of a company and the appointment of an official receiver. More than 100 segregated companies have been created over the past 10 years in Bermuda, which was the first offshore jurisdiction to allow this corporate structure. A segregated account company enables a creditor or shareholder's investment to be insulated from creditors of the larger overall company. The Bermudan Government expects that the new statute will offer even greater protection to investors.

REPORT CRITICIZES OECD ACCOUNTING METHODS

Date: August 14, 2000 Source: Financial Times Having recently accused several offshore centers for a lack of financial transparency, the Organisation for Economic Co-operation and Development was itself criticized for using outdated and inadequate accounting methods. An independent report prepared by the firm Arthur Andersen, and commissioned by the OECD, concluded that the organization's bookkeeping practices failed to provide a clear view of their finances and expenditures. The Financial Times quotes Donald Johnston, OECD secretary-general, who calls the findings a "good wake-up call". He said: "What those reports are saying is that the OECD uses archaic accounting systems - which we know and which we are cleaning up." The report found no evidence of fraud.

TRUST COMPANY REGULATION COMES TO GUERNSEY

Date: August 10, 2000 Source: Guernsey Press and Star The previously unregulated trust sector in Guernsey will soon be under the close scrutiny of the Bailiwick's Financial Services Commission (FSC). With the anticipated passage of the Regulation of Fiduciaries and Administration Businesses Law 2000, officials hope to strengthen Guernsey's image as an offshore financial center. At present, the 200 fiduciary businesses on the island employ close to 1,300 staff or 20% of the financial sector's work force. The Advisory and Finance Committee came to consider the lack of formal regulation of this well-established industry to be an unacceptable risk. The new legislation will make it a criminal offence to provide, or offer to provide, fiduciary services without a license. A license will be required of any company providing trust services in Guernsey as well as Guernsey-registered companies providing such services anywhere in the world. The FSC will be responsible for processing all fiduciary applications.

OFFSHORE INVESTORS TO FIGHT CAPITAL GAINS RULES

Date: August 15, 2000 Source: Financial Post Reaction has been less than enthusiastic to the Canadian Parliament's proposed legislation on the taxation of non-resident trusts and foreign corporations. In fact, a campaign in opposition to the bill is being organized by the investor advocate group "Bylo Selhi" through their website at www.bylo.org. There, other do-it-yourself investors are encouraged to voice their disagreement by contacting their local MP. However, protests must be filed no later than September 1, which is the deadline set by the Department of Finance for receiving comments on the proposal. The draft legislation, announced on June 22, includes a new tax regime for exchange-traded funds (ETFs) which are passively-managed baskets of foreign stocks. The new law would require investors to pay tax on annual ETF gains, even if the ETFs weren't sold. What's more, the tax rate on these unrealized gains would not be the same as for capital gains. Rather, ETFs would be taxed as income on 100% of the gain.

Belize bows to offshore rules

Belize has bowed to British government pressure to tighten its offshore regulations, in a move that will hit the business interests of Lord Ashcroft, the controversial Conservative peer. The government suspended debt relief to Belize in response to tax breaks granted to Michael Ashcroft, the billionaire former Tory treasurer, and some other favoured investors. Gian Ghandi, the former colony's chief regulator, said areas of financial law would be revised in the light of a visit by govern- ment-appointed experts from KPMG, the accountants. Mr. Ghandi, head of the International Financial Commission set up last year in response to criticism of Belize's free-wheeling offshore sector, said the country was keen to co-operate. He said bearer shares, in which the owner of a company is not disclosed and which can be transferred by mere possession of the certificate, would be abolished or immobilised. That would require the registered Belizean agent of a company to keep the share certificate. Bearer shares are available to so-called international business companies incorporated in Belize.

Grenada Bank Taken Over by Receiver

22nd August, 2000 TO ALL DIRECTORS AND CONSULTANTS TO THE BOARD OF DIRECTORS AND FORMER DIRECTORS AND FORMER CONSULTANTS TO THE BOARD [of the First International Bank of Grenada]: Dear Sirs, Please find enclosed copies of letters of appointment from the Minister of Finance who has appointed me on 11th August, 2000 pursuant to Section 20(i)(v) of The Offshore Banking Act ('the Appointee') to carry out a special investigation of the affairs of the Bank and to assume control over it ('the Appointment'). Pursuant to the statutory provision the Appointee has like power of a receiver appointed under the Bankruptcy Act. These powers are extensive and designed to protect the interests of the Bank, its depositors and creditors. "Since my appointment it has come to my attention that numerous companies (IBCs and other entities) have been either set up or used to facilitate monies either emanating from the Bank or from the clients of the Bank either directly or indirectly through the sub-bank structure or mechanism. "It is also apparent that many millions of dollars have been transferred to Mr. Downes, Mr. And Mrs. Skirving and Mr. Van Brink either directly or through companies in which the aforesaid have or had a beneficial interest in, either directly or indirectly. "I also note that Certificate of Deposits have been issued for many millions of dollars without any such funds coming into the Bank and without any proper assets being in place which are immediately available or not available at all to meet such claims. This clearly is a breach of your fiduciary duties at best and at worst a fraudulent misrepresentation to whoever is relying upon the value of CDs or Bank Statements which appear to have been issued and provided to you. "Further, I am also aware that many millions of dollars have been transferred to Uganda and assets acquired there. I am also aware that other properties including land have been acquired with the use of monies belonging to the Bank or its subsidiaries. I require all information relating to all assets that you or companies with which you are or have been associated either legally or beneficially have acquired. By all assets I mean land, chattels and/or intangibles. "In respect of the Assets you say are owned by the Bank, I believe the last count was 62 Billion I require all documents relating to these assets and all original documents. "I require you to set out in writing within 7 days all information relevant to the points raised above. The information should be fully particularized and include assets held by other persons (legal or natural) for your direct or indirect benefit. "I hope to proceed in a way which is conducive to the best interest of the Bank and would expect your fullest cooperation. Failing this I shall have no alternative but to ensure your attendance here in Grenada for a public examination. Yours faithfully, Garvey Louison FCCA MANAGER

Bahamian Leader Warns Angry Bankers On Money-Laundering

NASSAU, Bahamas (AP)--Creating an uproar in the financial industry, Premier Hubert Ingraham told tightlipped bankers something almost inconceivable even weeks ago: the Bahamas will fully cooperate in international investigations and scrap secretive laws that put it on a black list of nations branded uncooperative in the fight against money-laundering. "The people that aren't saying anything are the people who are just listening and deciding how they are going to break this to head office", Lucia Broughton, a Bahamian who works at a private bank and trust company, said of Ingraham's private meeting Wednesday with about 200 mainly foreign financial executives. "Quite frankly, the entire industry is up in arms at this point," she said. She and others said some companies may consider pulling out of the Bahamas, an expensive location that, without the advantage of secretive laws, would be competing with ordinary onshore institutions in places like London and New York. Owen Bethel, the Bahamian president of Montaque Securities International, said, "What you have seen happen today is basically somewhat of a shock wave." Before Ingraham visited the U.S. and Canada two weeks ago to consult officials, he said, the premier gave them "assurances there would be dialogue with the financial sector, and that confidentiality was not to be an issue." Ingraham's determination played out in Parliament this week, when senators from his governing party passed an amendment to strengthen anti-money laundering laws. Opposition politicians walked out of the session, accusing the government of railroading through changes that would seriously affect the country's economy without consulting the Bahamian people. The amendment is intended to answer criticism overseas that secretive banking laws offer a haven to criminals to hide illegal funds. It permits foreign and local investigators to obtain evidence from offshore banks and other institutions without a lengthy and obstructive legal process to obtain a court order. Other legislation is in the works. The Cayman Islands - the world's fifth largest financial center - has rushed through similar legislation and St. Kitts and Nevis is promising to do the same. The industry hadn't felt any immediate fallout after the Paris-based Financial Action Task Force, set up by the Group of Seven leading industrial nations, in June listed the Bahamas among 15 countries and territories - one third in the Caribbean - considered uncooperative in the global fight against money laundering. The U.S. followed that up by warning its financial institutions to give extra scrutiny to all transactions with those countries. The money-laundering list is to be reviewed in Paris in October, and countries that don't make an effort to comply with what the task force considers international norms could face sanctions next year. Bethel said financial institutions would be deciding whether to remain in the Bahamas: "It has been made quite clear what the government's decision is, and so now I think people can start making decisions. That is what you will probably find taking place in the board rooms around the world today." Broughton was pessimistic: "The fact is the leaders in the finance industry in this country are foreigners. They don't bother to make adjustments in local jurisdictions. "They leave.

IRS CRIMINAL INVESTIGATION REORGANIZES

WASHINGTON - As part of the Internal Revenue Service reorganization, the agency has created a new, streamlined Criminal Investigation (CI) geared toward investigating tax and related financial crimes. Effective Monday, 4,500 CI employees, including more than 2,800 special agents, will now report directly to the CI Chief in Washington. Previously, CI employees reported to District Directors across the country. The 1999 independent review of IRS CI, conducted by Judge William Webster, resulted in two key recommendations for change that form part of the reorganization. The primary change is a renewed emphasis on the investigation of tax-related crimes. CI will continue to investigate money laundering and narcotics-related financial crimes, but its primary focus will be to investigate violations of the Internal Revenue Code. Referrals to CI of detected fraud from the new IRS operating divisions will help ensure that all taxpayers pay their fair share of taxes. In addition, CI will play a key role on an IRS Compliance Council, which will implement a more coordinated and comprehensive IRS tax compliance program. Another key change was IRS Commissioner Rossotti's selection in November of CI Chief Mark E. Matthews from outside the IRS. Matthews, an attorney with federal prosecution and private practice experience, brings a new perspective to the investigation and prosecution of tax and related financial crimes. Matthews' outside experience, combined with the 26 years of IRS special agent experience of the new Deputy Chief, Dennis E. Crawford, produces a well-balanced team to lead CI. "As a prosecutor, I was keenly aware of IRS CI's reputation as the best financial investigators in federal government, and I am honored to be a part of this organization," Matthews said. The 35 local CI Special Agents-in-Charge (SACs) will report directly to the IRS Headquarters office through the Directors of Field Operations and will be responsible for referring cases for prosecution to the Department of Justice Tax Division. The CI changes are part of a broader IRS reorganization to transform the tax agency from a geographic-based organization to a customer-focused agency built around the specialized needs of taxpayers.

CREDIT SUISSE OVERTAKES UBS

Date: August 7, 2000 Source: Financial Times With a recent surge in its share price, Credit Suisse passed UBS to become Switzerland's largest bank. The 4.7% rise in stock value bumped Credit Suisse's market capitalisation to SFr104.6 billion (CDN$90.7 billion) surpassing UBS' mark of SFr99.5 billion (CDN$85.4 billion). This comes despite UBS' July acquisition of US brokerage house Paine Webber. At the time of this increase, Credit Suisse's shares were trading slightly below their all-time high, whereas UBS's shares were off nearly 25% from their record price.

BARBADOS ENACTING E-COMMERCE LAWS

Date: August 10, 2000 Source: Tax-news.com With the passage of its new Electronics Transactions Bill, Barbados will become the third Caribbean nation (after Bermuda and the Cayman Islands) to enact digital signature legislation. The bill, which has been approved by the Cabinet, deals with record-keeping, security and electronic contracts. Tax-news.com quotes the Minister of Industry and International Business, Reginald Farley, who explains that the law's purpose is to "prepare a legal framework for the recognition of digital transactions…and, once they meet certain criteria, to put them on a legal footing equivalent to that of paper-based transactions."

BANK OF BERMUDA INVESTIGATES FRAUD

Date: August 10, 2000 Source: Royal Gazette The Bank of Bermuda is looking into its connection to an alleged investment fraud involving an estimated US$95 million (CDN$140 million). This follows the US indictment of 11 people who apparently promised investors spectacular returns but, instead, laundered the funds through various institutions such as the Antigua-based 'paper' bank AMPAC, an account holder at the Bank of Bermuda. Filed on June 20 in Florida, the indictment charges the defendants with one count of conspiracy to commit wire and securities fraud and one count of conspiracy to launder money. The newsletter InsideBermuda quotes US attorney P. Michael Patterson of the northern District of Florida who says the investment programs never existed but were a multi-million dollar pyramid scheme where "latter investors' funds were used to pay for former investors to promote the fraud." The Bank of Bermuda has reserved comment until it completes its investigation.

Bahamas Opposition Exits During Money-Laundering Debate

Dow Jones Newswires NASSAU, Bahamas (AP)--The Bahamian Senate on Monday passed an amendment to strengthen anti-money-laundering laws, despite a walkout by opposition politicians who charged the government was abusing procedures to railroad the law through Parliament. The amendment is intended to answer criticism overseas that secretive banking laws offer a haven to criminals to hide illegal funds. It would permit foreign and local investigators to obtain evidence from the Bahamas' offshore banks and other financial institutions without a lengthy legal process to obtain a court order. "We will not allow the government to ram rod legislation around and down our throats and down the throats of the Bahamian public that put their rights at risk," opposition Sen. Marcus Bethel of the opposition Progressive Liberal Party told reporters. All four opposition senators walked out. But the remaining seven senators, all from the governing Free National Movement, voted to pass the amendment unanimously. Prime Minister Hubert Ingraham now must sign it into law. "I believe the government needed to move swiftly, and I thought it was incumbent upon us to pass it as quickly as possible, in the national interest," said Sen. Darron Cash. But Bethel warned the bill would have "far-reaching" consequences for the Bahamas offshore financial industry and its judicial and legal system. Ingraham introduced the legislation on Thursday and urged Parliament to pass it quickly. It is the first step for the Caribbean country to get off a black list of countries condemned in June as non-cooperative in the global fight against money-laundering by the Paris-based Financial Action Task Force, which was set up by the Group of Seven industrialized nations. The U.S. Treasury Department in July warned U.S. banks to scrutinize with extra care all transactions from the Bahamas and 14 other countries on the list.

Funds in the Sun

TIME EUROPE July 10, 2000 VOL. 156 NO. 2 Tax havens are coming under increasing pressure to clean up money laundering By Charles P. Wallace Vaduz "When a man knows he is to be hanged in a fortnight," quipped the English essayist Samuel Johnson, "it concentrates his mind wonderfully." For Liechtenstein, a postage stamp-sized "offshore" banking haven snuggled in the landlocked mountains on Switzerland's eastern border, it must have seemed such a moment last month, when the world's richest nations placed the principality on a blacklist of countries that have failed to cooperate on money laundering. Banking and related services account for 40% of Liechtenstein's economy and the prospect of financial sanctions promised a bleak future. "It was a real crisis for us," recalls Gerhard Mislik, one of the country's senior judges. "We are only a small country." Now, Liechtenstein is scrambling to set matters right. After years of stalling, the country's parliament last week hurried through a bundle of new laws making it a crime for bankers or financial intermediaries to fail to report suspicious financial activity and providing for international cooperation to fight money laundering. Parliament also approved plans to hire new judges, prosecutors and police officers with special knowledge of economic crimes. "We see there is more criminality in the financial sector than we thought," Prime Minister Mario Frick acknowledged in an interview with Time last week. Liechtenstein was the only European country among the 15 jurisdictions listed as "non-cooperative" in a report on money laundering released June 22 by the Financial Action Task Force on Money Laundering (FATF), a group established by the world's seven richest nations in 1989. But it is not the only nation on the Continent coming under scrutiny for failing to do enough to stop dirty money. Last month, a French parliamentary committee investigating financial crime in Europe lambasted Monaco, another tiny principality famed for its tax-haven status, for imposing so few financial controls that "money laundering can thrive." Austria just narrowly escaped being booted out of the FATF by agreeing not to permit any more anonymous savings accounts to be opened. Even Israel, not generally considered to be a financial services hub, was scolded for not doing enough to stop hot money from sloshing through its banks. The U.S. investment bank Merrill Lynch estimated in 1998 that more than $5 trillion, representing a third of the savings of wealthy people worldwide, was held offshore. While only a small percentage may involve money laundering — the act of taking illegally obtained money and making it appear legitimate — the recent crackdown appears likely to finally make money laundering more difficult, at least in Europe. The FATF report said that while Liechtenstein had improved its vigilance recently, the system for reporting suspicious transactions was inadequate, there were no laws in place for exchanging information about money laundering and resources devoted to tackling it were too paltry. Indeed, Liechtenstein had figured prominently in allegations earlier this year that German politicians had used bank accounts there to receive bribe money paid by the French oil giant Elf Aquitaine. Two working days after the FATF report appeared, the parliament in the capital of Vaduz roused itself out of complacency and passed the requisite laws on a first reading. In addition to adopting the laundering legislation, the government has independently begun to crack down on economic crimes in the principality. In May, the nation of 32,000 people was shaken to learn that a special team of Austrian police called in by the government had detained four men on suspicion of fraud, misuse of funds and money laundering, according to Judge Mislik. The four, who by the end of June had not been formally charged, included Gabriel Marxer, a member of the country's 25-member parliament, and Rudolf Ritter, the brother of the Deputy Prime Minister. Parliament agreed to lift Marxer's parliamentary immunity to allow him to be detained. In an apparently separate case, police searched and carted away documents from two banks, including the Liechtenstein Global Trust, which is controlled by Liechtenstein's ruler, Prince Hans-Adam II, and his family. A spokeswoman for the government said that the Prince was not in Liechtenstein at the time, but had supported a thorough investigation of money laundering activities there. Prime Minister Frick said the newly adopted legislation will finally allow the authorities to lift the veil of banking secrecy in suspected money laundering cases, but he noted that the laws would still not apply in tax cases. "I deny that we have been uncooperative," Frick said in response to the FATF report. "If you read these accusations, you'd think we are a country of evil." Even blunter than the FATF report was the study published by the French National Assembly concerning Monaco, whose government and civil service are filled with officials seconded from Paris. With 49 banks and 70 financial institutions for about 32,035 inhabitants, the principality attracts some of the world's wealthiest celebrities and sports people by conferring no taxes on income, capital gains or dividends. Monaco is a playground for the fabulously wealthy with their yachts and the principality's famed casino, and the French report charged that offshore companies and trusts have plentiful opportunities to move money for individuals whose identities remain hidden. For Monaco, the report said, "nothing could be worse than a [money laundering] case coming to light and tarnishing the principality's reassuring image." In response, Minister of State Patrick Leclercq accused the French of presenting a "clearly biased overall view of the Principality of Monaco." Leclercq reiterated the Principality's desire to participate in international efforts to stamp out money laundering, and noted that the country was not included among those named as "non-cooperating" by the FATF. Austria came under fire at the FATF for its system of anonymous savings passbooks, which could be used for money laundering by concealing the true identity of the owner of an account. There are 24 million such accounts in Austria. That is about three times the population, a clear indication they are used by foreigners as well. After finally threatening to kick Austria out of the FATF by June 15 unless the system was changed, the new Austrian government finally relented on March 20. New banking laws now require any new passbook accounts opened after Nov. 1 to identify the owner. After June 30, 2002, no deposits or withdrawals can be made from any accounts without identifying the owner. "Anonymous passbook savings accounts have been a major problem and a critical loophole in the international consensus to combat money laundering," said Stuart Eizenstat, Deputy U.S. Treasury Secretary, after the decision to identify the account owners. "This victory represents a clear demonstration of FATF resolve and credibility." Other havens in Europe are also feeling the heat to crack down. On the Greek side of the divided island of Cyprus, already a favorite haunt for Russian Mafia and East European wheeler-dealers, the Central Bank in early May revoked the license of Beogradska Bank, the oldest offshore banking company in the country, because its "liabilities outweighed its assets." Beogradska Bank is believed to be controlled by Yugoslav President Slobodan Milosevic, and was one of 950 offshore companies whose licenses were revoked in the past year. Switzerland, which for generations has been a watchword for banking secrecy, two years ago had already begun to allow the financial curtains to be parted when evidence suggested a criminal offense. In just two of the more recent high-profile cases, authorities are investigating nearly $500 million deposited in 17 banks by former Nigerian dictator Sani Abacha, and an undisclosed sum frozen in nine bank accounts controlled by the Ivory Coast's former leader, Henri Konan Bédié. James Nason, head of international affairs at the Swiss Bankers Association, says that since a new money laundering law went into effect in April, 1998, the number of suspicious cases being reported by banks has jumped from 30 a year to 370 this year. While the FATF report lauded the major achievements of the past year, it cited a new and disturbing channel through which money launderers may escape attention: the Internet. "It is the potential for conducting financial transactions online that presents one of the most significant vulnerabilities to money laundering at present," the report said. "The potential money laundering risks arise from the extreme difficulty for banks offering such capabilities to positively establish the identity of a particular transactor or even determine the location from which the transaction is made." So far, there have been no cases of money laundering detected on the Net. But as sure as the sun shines in Monaco and the snows fall in Liechtenstein, it can only be a matter of time before a criminal with a pile of cash and a laptop gives it a click. — With reporting by Helena Bachmann/Geneva, Anthee Carassava/Athens, Nicholas Le Quesne/Paris, J.F.O. McAllister/London and Andrew Purvis/Vienna

Caribbean Grp Starts New Group To Counter Tax-Haven Attacks

Dow Jones Newswires GEORGETOWN, Guyana (AP)--The 14-nation Caribbean Community has set up a special group to fight rich countries' attacks on the region's lucrative offshore financial industry, the trade bloc announced Friday. The new Caribbean Association of Regulators of International Business, comprising bankers, community officials and country representatives will "articulate Caricom's position in the face of attacks on the offshore sector by the G7 through various agencies it has established," it said in a statement. An inaugural meeting will be held later this month, according to the statement, which didn't name the head of the group. The Paris-based Organization of Economic Cooperation and Development, the Financial Stability Forum and the Financial Action Task Force in June published blacklists of countries whose lax laws and regulations they believed could attract funds from criminals and tax evaders. The groups are threatening sanctions against countries that don't revise their laws. The U.S. acted first, issuing advisories warning U.S. financial institutions to carefully scrutinize transactions with 15 countries on the OECD money-laundering black list, five of them in the Caribbean. Fifteen Caribbean countries and territories are among 35 countries blacklisted as harmful tax havens. Caribbean leaders say they want to cooperate to fight money laundering, but argue that the OECD had no right to demand they change their no-tax and low-tax regimes, which they say are fair competition. "The OECD along with the FSF and the FATF was created by the G7 and in recent times the G7 through these three organizations has orchestrated a series of unilateral activities that are inconsistent with international practices," the statement said. Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved. Copyright and reprint information.

Liechtenstein fund inflow slows

By William Hall in Zurich Published: July 26 2000 20:43GMT The threat of sanctions against Liechtenstein, blacklisted as a "non-co-operative jurisdiction" by international regulators, has caused a sharp slowdown in the inflow of funds into one of the world's most secretive tax havens. VP Bank, the second biggest bank, reported last week that its assets under management fell by 2 per cent to SFr30.9bn (£12.3bn), in the first six months of the year, and Liechtenstein Landesbank, the third biggest bank, reported a mere 2.7 per cent increase, to SFr33.2bn. LGT Bank in Liechtenstein, which is owned by the royal family and is the biggest bank in the principality, said on Wednesday that its assets under management had continued to grow in the first half of the year. But the size of the increase remains a state secret. The sluggish growth in the funds at Liechtenstein's top banks contrasts with last year, when they increased their funds under management by between 14 per cent and 28 per cent. The weak first-half performance also contrasts with the success of the Swiss private banks, which continue to enjoy a healthy inflow of funds. Zurich's Bank Vontobel increased its funds under management by 13 per cent, to SFr80.1bn in the first six months of the year. In response to international criticism, Liechtenstein has rushed through emergency legislation to force its banks to identify all their customers. In the past, banks were not required to establish the identities of beneficial owners and beneficiaries whose accounts were handled via intermediaries such as Liechtenstein lawyers and accountants.

Editorial comment: Taxing time for offshore centres

Published: July 27 2000 18:32GMT Tax havens are often seen as parasites thriving on high taxes in other countries. But their bite is not always harmful. There is therefore an urgent need to reach agreement on what is and what should be permissible in these offshore centres. As this week's series of articles in the FT has shown, financial activity in tax havens is large and expanding. The Organisation for Economic Co-operation and Development estimates that more than $1,000bn is held in offshore funds, and the number of funds is 15 times larger than in the mid-1980s. Certainly, the developed countries have legitimate grievances about tax havens. The tax and regulatory systems in offshore centres are often characterised by a lack of adequate transparency or supervision; little effective exchange of information; and by preferential treatment for overseas investment. This erodes the tax base of other countries and encourages international tax evasion. It can distort trade and investment patterns and it undermines the legitimacy of tax collection elsewhere. But too often developed countries simply attempt to bully tax havens into raising their tax rates. So long as an offshore centre's tax system does not discriminate in favour of mobile capital or foreign companies, tax competition is legitimate and may be healthy: it encourages tax reform and efficient tax regimes. Large countries will always have to live with the fact that smaller jurisdictions can offer lower tax rates. When small countries cut taxes, they stand to gain a similar amount of international business, but lose less revenue from their smaller existing base of domestic companies. The financial costs of tax havens to large economies can also be exaggerated. Although revenue is clearly forgone, the losses are not yet obvious in the statistics. International mobility of capital puts corporate tax revenues most at risk, but its share in OECD countries' total revenues has remained constant at 9 per cent since 1965. The OECD has sensibly steered clear of blanket sanctions for offshore centres. Nevertheless, it has declared the tax systems of 35 as harmful. Unless they comply with international standards of disclosure, transparency and non-discrimination, they will be targeted for co-coordinated action by OECD members. This will spur many offshore centres to clean up their act. That is welcome. But the OECD must be just as firm with its own members. It has identified 47 harmful tax practices in industrialized countries. The industrial countries can crack the whip on tax havens. But they must also reform themselves. © Copyright The Financial Times Limited 2000. http://www.ft.com

MORE COMPANIES REGISTERING IN ANGUILLA

Date: August 3, 2000 Source: The Daily Herald In its annual report, the Caribbean Development Bank (CDB) noted that 219 offshore companies registered in Anguilla during the second half of 1999. This is 58 more than were reported for the same period in 1998. The CDB said that the increase was facilitated by Anguilla's online incorporation procedure. The report also highlighted the island's initiatives for 2000 which include new legislation for the development of captive insurance and mutual funds, along with stronger regulations to deter money laundering.

News From Belize

Under UK pressure, Belize has agreed to strengthen the regulation of its offshore industry. The British Parliament had previously suspended its debt relief program after the Central American country granted tax breaks to some wealthy UK investors. However, upon meeting with British-appointed accountants, the Belize government said that it was keen to cooperate in reforming some of its practices. Among its amendments, Belize plans to abolish bearer shares. As a result, Belizean agents will be required to hold the share certificates of companies they represent.

Tax havens' promise may end OECD dispute

By Michael Peel in London Published: August 4 2000 20:28GMT | Last Updated: August 5 2000 01:43GMT Jersey, Guernsey and the Isle of Man on Friday opened the way to a deal to end their long-running dispute with the world's big economies over a global crackdown on tax evasion. The three UK Crown dependencies promised to work with the Organisation for Economic Co-operation and Development to meet international concerns about tax crime in offshore financial centres. The pledge comes after the OECD said this week that the dependencies could qualify for removal from a blacklist of tax havens published in June. "There are things that they want and things that we want," said Michael Gates, head of the international services division at the Isle of Man Treasury. "But we are certain there is a deal there." The dependencies come under the protection of the British Crown, but are outside the jurisdiction of the British parliament and the European Union. The UK dependencies have big financial services sectors, accounting together for about £350bn ($525bn) of assets. The June list named Jersey, Guernsey, the Isle of Man and 32 other centres as tax havens that lacked transparency and effective rules on exchanging information with overseas tax authorities. The exposure caused deep unhappiness in the dependencies, which claim their standards are at least as high as many centres not on the list. Richard Pratt, director-general of Jersey's Financial Services Commission, said it was time to seek reconciliation with the OECD. "We are all grown-up and we are willing to move forward," he said. "We are not going to let that discontent get in the way of discussions." The centres must agree to co-operate with the international drive by next summer or face economic sanctions by OECD members. It is understood that the changes the OECD wants from the dependencies are far smaller than those it is demanding from many other havens on the list. Laurie Morgan, president of Guernsey's advisory and finance committee, said the OECD's positive words about the dependencies came as a "pleasant surprise". "Perhaps there is a realisation that we are not that far apart," he said. The dependencies have complained that the OECD is cracking down on tax havens without putting pressure on member states with secretive banking systems, such as Switzerland and Luxembourg. The dependencies have attacked the OECD for failing to provide them with details of its concerns. But Frances Horner, head of the OECD's tax competition unit, said it was "simply incorrect" to say that the OECD had failed to point to specific problem areas. "I put that in the category of rhetoric," she said. "They have been told in writing." It is understood that the OECD is confident of reaching agreement with the five British overseas territories on the list - Gibraltar, and the Caribbean centres of the British Virgin Islands, Anguilla, the Turks and Caicos Islands and Montserrat.

Offshore Banking & Investing, Legally and Commentary on OECD Actions

By Arnold L. Cornez, J.D. Prepared for The Summit 2000, Nassau, Bahamas July 21-22, 2000 A century of banking "stealth and secrecy" has come to an abrupt ending! It is no longer socially and fiscally acceptable- and further, it may be illegal, tax evasion or worse, criminal in your country or because of your citizenship. With the dedication and coordination of numerous worldwide agencies, the UN, the IRS, the WTO, FinCEN, Revenue Canada, Inland Revenue, G-7, OECD, to name only a few, rapid changes are expected. Every agency wants to get into the act, to garner funding and claim the credit for results. There must be an end to the laundering of ransom money from kidnapping used to fund acts of terrorism; illicit drug proceeds contaminate and corrupt weak banks and at worst, the total jurisdiction; and rampant worldwide tax evasion is placing an undue burden on those that are locked into their taxing system. In the rebel controlled diamond fields of Africa, child labor is exploited for diamond mining with the proceeds knowingly going into the world financial community to fund rebel warfare. Changes are necessary and coming. Perhaps, the source of a new banking paradigm may be from France. At first blush I ask, "How can a country known for such fine wines and cheeses now produce such chaos in the offshore financial community?" Am I about to renounce my citizenship in the Francophile association? NO, because in the long run it will be for the better. Perhaps under the influence of too much fine wining and dining in Paris, an upstart organization unheard of two years ago, has created a Tsunami of uncertainty across the international financial centers of the world. Their initial charter was to stamp out harmful tax competition (whatever that means). Their quantum leap to black listing countries defies rational explanation. The G-7 countries, principally being pushed by the U.S. have declared financial war upon those perceived to be tax evaders. Carrying an innocent sounding title of the "Organization for Economic Cooperation and Development", the Paris-based, 29-member OECD and its Business and Industry Advisory Committee (BIAC) recently issued a Black List of offshore jurisdictions accused of non-cooperation in the international fight against money laundering. The Black List was no surprise. We knew it was coming for years! We just didn’t know who would be on what list. We didn’t know how the term "facilitating money laundering" would be construed. The BIAC was partially critical of the report and took the view that tax competition was healthy and reduced waste. So there is some dissension within the ranks of the OECD. The ranks also include as many as 30 non-OECD member states who are very interested in the outcome of OECD action. The BIAC labeled the tone of the OECD report as being too anti-competitive. It further criticized the OECD for imposing new restrictions or limitations on freedom of choice in the offshore jurisdictions. Here, here! This list was immediately charged with political favoritism since you cannot create an objective scale to measure cooperation and decide where the threshold of cooperation begins! Tiny countries such as Dominica, without financial and political clout in the world community, were black listed impairing their ability to promote their financial community. A counter-productive and destructive action on the part of the OECD that will cause irreparable harm to smaller nations for years to come. The OECD is reluctant to use the expression "black lists" and prefers that the 15, 29 34, or 35 nations identified- depending on which list you use- were intended only to seek better international cooperation and to avoid the necessity of OECD countermeasures. The worst black list is comprised of the Group III jurisdictions that have been labeled to have a level of cooperation of the lowest quality. Members of this list are comprised of the following jurisdictions: Anguilla Antigua Aruba Bahamas Belize British Virgin Islands Cayman Islands Cook Islands Costa Rica Cyprus Lebanon Liechtenstein Marshal Islands Mauritius Nauru Netherlands Antilles Niue Panama St. Kitts & Nevis St. Lucia St. Vincent Samoa Seychelles Turks & Caicos Islands, and Vanuatu I have great difficulty with this Group III list when it includes such fine jurisdictions such as the Bahamas and the Cayman Islands. The Bahamas has what I perceive as one of the strongest Central Banks in the Caribbean and the Cayman Island’s Monetary Authority is also quite proficient. On the other hand you can pay a California or Canadian company $30,000 to $70,000 and you’ve got a bank in the South Pacific. You can’t even establish one in the Bahamas or the Caymans unless you are an existing world-class bank with a long and successful track record. Since this is a Bahamian based seminar and an analysis of all of the above jurisdictions is much beyond the scope of this seminar, I will address the Bahamas issues principally but much of what is said does apply elsewhere as well. The Hon. William C. Allen, MP of the Bahamas delivered a well-drafted 25 page preemptive statement to the members of the OECD Study Group in August of 1999, but it appears to have fallen on deaf ears. He clearly set forth what the Bahamas had been doing and would be doing to inform the OECD of their support effort. A copy of the Statement is available from the Bahamian Central Bank. "Bahamas Bows to Pressure" Headlines, The Bahama Journal, July17th, 2000 Adding further to the confusion, the OECD published a list of 35 Countries that it said were guilty of engaging in harmful tax practices. They were given a year to decide whether to "eliminate harmful features of their regimes" or face "defensive measures" to be defined over the coming year. The countries on this "Bad Tax Haven List" are Andorra, Anguilla, Antigua and Barbuda, Aruba, Bahamas, Bahrain, Barbados, Belize, British Virgin Islands, Cook Islands, Dominica, Gibraltar, Grenada, Guernsey, Isle of Man, Jersey, Liberia, Liechtenstein, Maldives, Marshall Islands, Monaco, Montserrat, Nauru, Dutch Antilles, Niue, Panama, Samoa, Seychelles, St. Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, Tonga, Turks and Caicos, US Virgin Islands and Vanuatu. The Bahamas needs the U.S. for tourism income and other support and cooperation. Tourism provides 70% of the income of the Bahamas. The Bahamas needs their financial industry providing approximately 15% of their gross domestic product, employing more than 4,000 local persons in the sector. The two countries are so closely interlinked, including cooperation on drug interdiction missions and rescue of boat people from the other islands. It can’t drag its heels and ignore the problem identified by the OECD. As is likely being done elsewhere, as well, the Bahamas have established a board to address the OECD condemnation. The Bahamas Financial Services Board (BFSB) has been charged with "promoting confidence in the country’s financial services sector." Eliminating the secrecy of ownership in IBCs will go a long way in this direction when the bearer share is prohibited under the new IBC act. I predict that ultimately, the IBC or exempt company with bearer shares will disappear from the offshore community since the concept is held in such contempt by the OECD. How can the BFSB continue to market a financial community that has been branded by the G-7’s OECD as a harmful tax haven? Previously, in 1999, The U.S. Department of Treasury issued an advisory that put great pressure upon the banking system of Antigua and Barbuda because of money laundering and their failing to cooperate with the worldwide law enforcement community. It had dire effects on their economy. Since then, Antigua and Barbuda has capitulated and have cleaned up their act somewhat. They had to. Antigua’s financial system was compromised by the United State’s action. Antigua’s attorney general Errol Cort reported that the advisory actually caused some U.S. banks to shun Antigua. Antigua and Barbuda has yet to recover from the negative publicity. In 1996, the U.S. issued an advisory against the Seychelles. Prior to this current OECD action, these were the only two advisories ever issued by the U.S. The U.S. is using the same tactic with the Bahamas. Last week, the U.S. Financial Crimes Enforcement Network (FinCEN) warned all U.S. financial institutions to be careful when routing transactions through the Bahamas. The BFSB is hoping that the planned legislative changes to the IBC act and implementing greater levels of regulatory oversight will satisfy the OECD. All the changes will come out of necessity, but there still remains a deep rooted conviction that the superior and effective competition for banking services from the Bahamas was seen by other G-7 banks as unfair, further exacerbating the competition among world banks. The Bahamas will comply; they have no other choice than to bow to the mounting international pressures. International cooperation by the Bahamas is essential to the long-term success in the battle against harmful banking and the prompt implementation of countermeasures is essential. What remains as limited offshore banking alternatives for the U.S. individual continues to be that the U.S. permits its citizens to have offshore financial account(s) but reporting these accounts has become a must. Interest earned on the offshore bank or brokerage account is taxable to the U.S. citizen for the current tax year. No tax deferral is allowed. Accounts individually, or collectively, in which an American has signatory authority or control that amount to more than US10,000.00 in the aggregate, must be reported to the U.S. even where there is no interest income. Cash accessed by using an offshore ATM card is taxable income for U.S. persons unless for legitimate travel and business purposes as provided for under a written expense and compensation agreement with the ATM card provider. Further, I can no longer see any cost/benefit rewards for obtaining a private banking license in any jurisdiction in the Group III list. Such a bank would lack credibility and be very likely unable to create a correspondent relationship with a U.S. bank. Without such a correspondent relationship, you do not have access to the SWIFT wire transfer system and would be unable to move U.S. dollars. It is my opinion that such licensed private banks are virtually nonfunctional. For example, St. Vincent just cleaned house and cancelled around 6 private banking licenses on small and inactive private banks to improve their image with the OECD. One should deal offshore with one of the many fine and established banks. According to author David Marchant of the well-respected Offshore Alert newsletter, "the biggest and most established offshore bank is the Bank of Bermuda (Tel. 441-295-4000). The bank has been around for 113 years and offers a variety of investment products, including a family of mutual funds." Slowly you will see each jurisdictions fold and sign the "Advance Letter of Commitment" agreeing to cooperate in many areas previously considered private by local law, such as in tax investigations for tax evasion. Some of the countries have already capitulated to the OECD, such as: Bermuda (whose primary interest is insurance so they didn’t give up too much). Cyprus. Malta. Mauritius, and San Marino. No longer will the tax havens be able to treat their offshore financial sectors as private domains. Each tax haven will need to comply with the OECD wishes eventually. This likely will be through the establishment of local super agencies to help regulate money laundering since it is a matter of national importance for financial survival. Further comments:   And, the OECD is not the only scenario where so-called "harmful tax practices" are under attack. The U.S. courts seem to have become increasingly hostile towards certain abusive tax arrangements -- in this case offshore trusts. TAX BITS INTERNATIONAL Volume 6, Issue 29 -- July 17, 2000     MONEY LAUNDERING PROMPTS OTTAWA TO WARN BANKS Date: July 12, 2000 Source: The Globe and Mail As part of its commitment within the G7 to take measures against international money laundering, the Canadian Government is cautioning< banks to be vigilant in monitoring and reporting suspicious transactions. In a recent notice, the Office of the Superintendent of Financial Institutions (Canada's bank regulator) alerted banks, credit unions and insurance companies to "give special attention to businesses and transactions with persons, including companies and financial institutions, in countries or territories identified as being non-co-operative." G7 TACKLES MONEY LAUNDERING IN JAPAN Date: July 8, 2000 Source: G7 Press Release At last week's G7 gathering in Japan, finance ministers discussed the recent publication of the Financial Action Task Force's list of 15 non-cooperative countries in the fight against global money laundering. The members have initially decided to issue advisories to financial institutions in their own countries warning them to monitor and report suspicious transactions involving any of the identified jurisdictions. The Ministers warn that this preliminary step may be followed by economic sanctions against the offending countries unless there is real reform. If adequate measures against money laundering are not implemented, the listed countries may find themselves cut off from the international banking system or from International Monetary Fund loans. However, the G7 has made it a priority to keep an open dialogue with these countries and to provide them with the technical assistance required to bring their counter-money laundering schemes into compliance with international standards.

LIECHTENSTEIN TO PROHIBIT ANONYMOUS ACCOUNTS

Date: July 21, 2000 Source: Tax-news.com The principality of Liechtenstein decided to eliminate the use of anonymous bank accounts. This comes after much maligning by international officials over alleged money laundering activities in this small central European country. A new system called "Know Your Customer" now requires a depositor's representative to disclose the client's name to the financial institution. This allows banks to then verify the identity of the depositor. For now, this rule is only voluntary but is expected to become part of the country's banking legislation. It is estimated that these changes will affect around one third of the clients at the ten banks belonging to the bankers association. There are six other banks in Liechtenstein which are not association members and which are not required to adopt these rules. However, officials are hopeful that all banks will comply with these new standards.

ESC PROPOSES STRATEGY TO COMBAT TAX EVASION

Date: July 21, 2000 Source: European Report At its plenary meeting in July, the European Economic and Social Committee (ESC) adopted an initiative to better co-ordinate the continent's strategy in fighting tax evasion. The ESC remarked that the current division of powers within the EU Council of Ministers is a hindrance to their efforts. The ESC proposes a mechanism be put in place to assist cooperation between the Finance Council which handles fraud, and the Home Affairs Council which deals with organized crime. The Committee also intends to strengthen communication between OLAF, the EU anti-fraud body, Interpol and other investigative organizations.

LABUAN TO AMEND OFFSHORE COMPANIES ACT

Date: July 21, 2000 Source: Yahoo! Asia - News Labuan's Offshore Companies Act, first introduced in 1990, is about to be amended making it illegal to operate an offshore business without prior registration from the Labuan Offshore Financial Services Authority. The law which initially dealt only with the regulation of offshore banks currently encompasses any offshore financial activity. Under the updated Act, the maximum penalty for conducting business without a license will be five years in prison, a fine not more than RM 10m (US $2.6m), or both. Yahoo! quotes Labuan's deputy finance minister who says that under the revised law "non-banking institutions can only operate if they have an offshore banking license or exemption from the minister."

CHANNEL ISLANDS BALK AT EU PROPOSAL

Date: July 26, 2000 Source: Financial Times The Channel Islands have sternly opposed the European Union's proposal for an information exchange system between bankers and tax collectors. Guernsey and Jersey have made it clear that they have no intention of going along with the plan, saying that they lack both the resources and the will to participate in such a scheme. This EU initiative comes after the OECD's suggestion that countries adopt broader information exchange policies. The European proposal would see financial institutions supplying tax officials with information on cross-border interest payments to EU residents. As non-EU members, Guernsey and Jersey do not feel compelled to support the proposal. Austria and Luxembourg have also voiced opposition to the plan whereas Belgium, Greece and Portugal remain undecided.

Did you know that....

Offshore banks licensed in the Cook Islands are not required to verify the identity of customers and are not prohibited from establishing anonymous accounts? Money laundering is not a crime in Israel, the Marshall Islands and Nauru? Lebanon, Liechtenstein, and the Philippines have some of the world's strongest banking privacy laws?

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