The 35 countries (not all are technically countries) appearing on the list which even the OECD in a BBC Radio 4 interview on 14 December 2000 described as a "blacklist" have been engaged in a headlong rush to put in place measures to try to take themselves off the list.

Those that are also on the list of "non-co-operative jurisdictions" published by the Financial Action Task Force have similarly been in rapid reaction mode seeking absolution for perceived past wrongs.

But as briefly noted in WMLR Digest for WMLR Vol. 2, No. 8, there is a growing realisation that the dash for approval by the OECD and the FATF may well have been an ill considered knee jerk reaction.

In response to questions as to whether the removal of international tax efficient investment business would mean hardship for places such as the Isle of Man, the OECD says that since the Cayman Islands agreed to take steps to reduce "harmful tax competition" in mid 2000, it has seen its financial services business increase by 50%.

Yet this is only a part of the story. As EU ministers meet in Nice to discuss the future of Europe, the single most important issue hanging over the summit was the question of the continued erosion of sovereignty of the member nations. Each of the various country leaders left claiming to have secured a recognition of the importance of their country within Europe - and perhaps the most significant issue of the summit was glossed over in the general media. That issue was that of which countries should have the most seats in the European Parliament - and therefore the greatest say in what direction Europe takes. The battle lines are being drawn between those who want greater integration and those who want enlargement - the so called "deeper" and "wider" factions.

Those in favour of greater integration want to see harmonisation of fiscal and monetary measures and the application of common policies for agriculture, fishing and the like applied in other areas. These are generally federalists and wish to see a concentration of power in the hands of a central European government. The concept of devolved government is an anathema to them.

Those in favour of enlargement are encouraging an increase in the number of members. The aim is to bring former Eastern European countries within the EU, as well as southern European countries. Increasingly, Europe is looking to differentiate between the geographical and political Europes.
Yet the question of how much of a country's sovereignty will be surrendered to European institutions remains unanswered. Unlike the USA, there is no "European Identity." Whilst some public buildings fly a European flag, it is most often seen on offices that have a direct involvement with, or funding from, a European project. In US state elections, a candidate will be seen with both his state flag and the US national flag. Mostly, candidates for leader of national governments within Europe would not dare to stand between their national flag and the European Stars.

The fear of loss of sovereignty is a central issue in most federations - Malaysia is a case in point and the secession of Pakistan from India and Ireland from the UK is an example of what happens when a regions decide they have had enough.

When your editor spoke in Jersey early in 2000, there were the beginnings of calls for independence as the population began to wake up to the fact that the UK was no longer protecting their interests and was, in may respects, selling-out Jersey - and its other dependencies - for favour in various fora. Then the idea was floated with a smile - now there is serious discussion about holding a referendum.

The question of sovereignty of nations over their own fiscal affairs has become entwined with other issues and now it is becoming difficult to see where one issue starts and another ends. This is especially so in relation to the OECD and the FATF, and it is notable that press report after press report refers to the two as being the same and muddling the "non-Cupertino list" with the "unfair tax competition list."

Yet there are cracks appearing within the OECD/FATF - and it is surprising that a significant shift was heralded by a member of the UK cabinet, at the very time that the UK's Prime Minister was in Nice carving out a deal which even his own team could not, by their own admission, understand until they had returned to the UK and thought it through.

Clare Short, the UK's plain-speaking Secretary of State for Overseas Development presented to Parliament a White Paper (a discussion document) addressing issues of world poverty. Clare Short is not known for pulling punches - a trait that causes consternation for her mealy mouthed colleagues and endears her to even those opposed to some of her more radical political ideals - indeed, it is said that because of her principles, honesty and openness she is more respected amongst her political opponents than amongst her own party.

According to Short, there is a total international aid spend of USD60 milliard annually. This is, she says with characteristic bluntness, more often spent very badly "by countries trying to promote their own trade."

Interviewed for BBC World Service Hard Talk (the programme is available on the BBC website but the address is not visible - you will have to use the site's Search facility), she also said that there is public resistance to aid: "Aid? - no good, it all goes into corruption."
But in an interview with the UK's Channel 4 News, Short made it plain that globalisation was not necessarily the bad thing that some people say - and significantly the use of tax management schemes can work to assist the world's poor. In essence what she says is that multi-national corporations should not be prevented from international growth, nor from investment in developing countries. They want, indeed need, inward investment, and if tax incentives help, then it is not for the world's richest countries to act to prevent that.

It is important to note that this argument is, at its simplest, precisely the arguments that the countries named by the OECD Short says there is no point is taking a high moral tone and saying we are going to lock you out of global trade if you have any child labour, and that instead there should be assistance to get them out of the situation where children have to work, for example, in agriculture.

Short's arguments are, in effect, "if you are hungry everyone in the family does what they can to get the little scrapings to keep your family alive. The aim is to help people earn enough so their children can find time and afford to go to school."

Short has also raised issues of protests against the World Trade Organisation: "how dare an international organisation tell America what to do?" She declares that much of the protest outside - and within - the WTO is actually about protectionism.

This issue of globalisation is one which should concern those involved in counter-money laundering endeavours. This is for many reasons - at its most basic is the simple thing that international business creates the shield under which the criminals conduct their business.

The question of balance is important, and it is significant that a UK Government minister has sought to create balance against the climate of inter-governmental hysteria against low and no tax jurisdictions.

And so the question now arises as to whether those who leapt into making changes to their national laws at the behest of the OECD may have jumped too soon - it will be difficult if not impossible to undo what they have done.

So, what is it that they have done?

In the case of the Cayman Islands, claimed as a success by the OECD, it signed an "advance commitment letter" to head off inclusion in the OECD's list of countries that operate a regime deemed by the OECD as "harmful tax competition" and in doing so says that the Caymans "commits to the elimination of tax practices determined by the Forum to be harmful in the 'Harmful Tax Competition - an emerging global issue' report."

The letter, dated 18th May 2000, is signed by Mr P J Smith, who is Governor of the Cayman Islands by appointment from the British Government through its Foreign and Commonwealth Office (FCO). Indeed, the letter is written to the Secretary General of the OECD and copied to the FCO. The independence of the decision making process that led to the writing of the letter must be called into question, given that the British Government has agreed with other nations to put pressure on its dependencies to eliminate so-called harmful tax competition.

The "commitment letter" has questionable constitutional status - it purports to bind the Caymans legislature from the date of that letter for evermore not to pass any legislation which would create a regime that the OECD deems to be harmful tax competition under the Harmful Tax Competition Report, which has been considered at length earlier in this volume of WMLR.

The text of the Cayman Islands' letter is at http://www.oecd.org/daf/fa/harm_ tax/advcom_cayman.htm

A letter in very similar terms was written by Eugene Cox, Deputy Premiere and Minister of Finance for Bermuda on 15 May. . Bermuda is a member of the British Commonwealth but is not a dependency - it has its own autonomous government. The Bermudan letter refers to a "Level One Commitment and carries sub paragraphs that are identical to those in the Caymans' letter, so making plain the fact that the letters, or the material parts of them, were drafted by the OECD.

This is, in fact, consistent with the fact that the OECD has posted to its website at www.oecd.org an invitation to other countries to join in the commitment - saying that all a country needs to do is to sign a letter without modification.

Similar letters of commitment were sent to the OECD prior to the publication of its list in June 2000 by Cyprus, Mauritius, Cyprus and San Marino.

Importantly, the letters say that a set of measures and a timetable have been agreed with the OECD, although those do not appear with the copy letters posted to the OECD website.

Interestingly, the Isle of Man, which had not been hostile to the OECD but nor had it jumped to the OECD's tune announced in mid December 2000 that it was going to take steps to avoid its facilities being used to avoid tax evasion. It may be no co-incidence that this has happened shortly after the furore over the Irish Deposit Interest Tax (DIRT) scandal involving a number of major Irish banks who put money into the Isle of Man and are now paying interest and penalties running into many millions of IR Pounds, as reported in WMLR Vol. 2, No 8.