Offshore Financial Havens FaceTidal Wave of Change Since 9/11

Charlestown, Nevis, February 21, 2003:

On islands like Nevis, where offshore companies outnumber inhabitants, businesses have operated in relative obscurity for years. That is beginning to change.
Nevis' 17,000 companies, few of which have offices on the island, are drawn by confidentiality laws and the lack of taxes - traditions that have given offshore financial havens worldwide a reputation for tax evasion, dirty money and fraud.

But following the Sept. 11 attacks and amid mounting concerns that terrorist organizations hide money in offshore havens, these companies are under greater scrutiny than ever with the introduction of laws such as the USA Patriot Act, which prohibits U.S. banks from doing business with banks that have no physical presence.
"The Caribbean has really come a long way," said Chris Mathers, a consultant who once worked undercover as a money launderer for the Canadian police. "In the '80s, you could fly down to one of these islands with a big bag of money, and they'd take it. Not anymore."

Over the past few years, the two-island nation of St. Kitts and Nevis and other countries have introduced laws to prevent money laundering and have pledged to cooperate with international investigators.

"We have made significant progress," said Neville Cadogan, financial regulator on Nevis, an island of 11,000 people. "We don't want any business that is tainted with anything illegal. What we want is good business."

The island is home to a single offshore bank, plus many trusts and other offshore companies. They bring its government about $3.4 million in fees each year.
But the industry is growing thinner across the region. Nevis saw a 50 percent drop in new offshore businesses last year. The island is taking out ads in magazines to attract companies.

Throughout the Caribbean, hundreds of offshore banks have closed or had their licenses revoked.

On the island of Antigua, the number of offshore banks has dropped from 90 to 15 in five years.

It's better to have a few "strong, sustainable banks" than "fly-by-night" operations, said Sir Ronald Sanders, Antigua's high commissioner to London.

Many governments have been shamed into making reforms by blacklists introduced in 2000 by the Paris-based Financial Action Task Force and the Organization for Economic Cooperation and Development.

One list names countries accused of not doing enough against money laundering, while the other cites "harmful tax practices" said to bilk wealthier nations of billions of dollars through tax evasion.

Reforms helped St. Kitts and Nevis off the lists, along with all but one Caribbean country, St. Vincent and the Grenadines, which remains on the money-laundering list. The island of Grenada was removed last Friday.

St. Kitts and Nevis Prime Minister Denzil Douglas said the stigma of being listed was "an unfair blow by the developed world" but said the removal shows "our jurisdiction is clean."

Critics of the offshore havens say the new measures don't guarantee enforcement. Many jurisdictions have never prosecuted anyone for money laundering.

Nevis is among islands still attractive to criminals, said David Marchant, the Miami-based publisher of the newsletter OffshoreAlert. He cites last year's collapse of The Genesis Fund Ltd., which promised investors returns of up to 45 percent and folded owing some $50 million.

In a report issued last week, the Financial Action Task Force said even nonprofit groups are "vulnerable to abuse" by terrorist groups, which also are believed to use shell companies, gold and diamond trading and informal cash transfers to move money quietly. The report said securities and insurance businesses also remain highly vulnerable.

"Money is like water," said Saskia Rietbroek, of the Association of Certified Anti-Money Laundering Specialists in Miami. "The money will always find the path of least resistance."

Article Published by Caribbean Voice. (See SideBar)