Global Policy Forum

The tiny republic of Nauru called on South Pacific states to oppose international demands that they clean up their offshore banking industries, as nations gathered for an economic summit Friday. With a population of 10,000, the tiny island just above the equator has 400 offshore banks registered to a single government mail box. It is one of 35 nations identified as a tax haven or money laundering center by the Organization for Economic Cooperation and Development.

For small Pacific nations with few resources and little industry, offshore banking provides a ``viable, legitimate and competitive economic opportunity, (but) the rich states of this world have labeled it harmful competition,'' Nauru President Rene Harris told the 16-nation Pacific Island Forum late Thursday. The OECD, which represents the interests of wealthy, oil-dependent countries, has pressured Nauru, the Cook Islands, the Marshall Islands and Niue to clean up their banking and finance systems, or face sanctions.

``When the developed states are condemning us, we must stand together in unity on this issue and defend our rights,'' Harris told officials gathered for the annual summit. Up to $70 billion in Russian mafia money has been laundered through Nauru's financial systems, according to Russia's central bank. Offshore banks in the Pacific also are used by companies to avoid paying taxes in other countries.

In the 1980s, dozens of foreign-based companies used tax havens in the Cook Islands to avoid paying millions of dollars in taxes to the New Zealand government. The OECD has given the Pacific tax havens until the end of November to comply with international standards or face unspecified sanctions.

The United States, which loses at least $70 billion in tax revenue a year due to assets hidden offshore, has urged the Paris-based OECD to change its approach. Treasury Secretary Paul O'Neill told Congress last month that the Bush administration will aggressively pursue those who use offshore havens to escape U.S. taxes, but will not support international efforts to dictate how these countries structure their tax systems. Instead of threatening sanctions against the countries identified as tax havens -- including Nauru, the Bahamas and Panama -- O'Neill said the United States would seek to negotiate treaties allowing for easier pursuit of suspected tax evaders.

New Zealand Prime Minister Helen Clark said Thursday the tax haven issue was not about a country's right to have no taxes, but rather about whether scams are allowed to go unhindered. ``We've been urging the countries named by the OECD to comply in a way that satisfies the OECD,'' she said. Pacific forum leaders met behind closed doors Friday, and were to have another full day of discussions Saturday.

Also Friday, Harris said the forum would send a delegation to the United Nations in October to press for international action to curb global warming, which low-lying Pacific island states fear because rising sea levels could submerge them completely. Harris said while the delegation would also press for President Bush to withdraw his opposition to the Kyoto Protocol limiting greenhouse gas emissions.

The Pacific Island Forum is made up of Australia, New Zealand, Fiji, the Cook Islands, the Federated States of Micronesia, Kiribati, Nauru, Niue, Palau, Papua New Guinea, the Marshall Islands, Samoa, the Solomon Islands, Tonga, Tuvalu and Vanuatu.

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