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‘New Hebrides was far more reputable than Vanuatu is today’

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Dr. Van Fossen on Vanuatu’s financial reputation, introduction of income tax, and scapegoating Pacific tax havens

Dr. Anthony Van Fossen, well-known reputable expert in the economy of the Pacific Islands and tax havens, in this exclusive interview for Vila Times, talks about the potential end of Vanuatu as a tax haven, why Vanuatu’s reputation in global financial circles is so bad, how Pacific Islands tax haven countries should fight against scapegoating by Europe and what will happen if the Government pushes the income tax through.


I would like to start with the recent article in Bloomberg titled “The Final Days of a Tax Haven”. Would you agree with its general message, predicting the “end of Vanuatu as a tax haven”?

Not necessarily. There are many contingencies that the Bloomberg article does not deal with.



The whole article seems a bit speculative in regard to Vanuatu in particular, since we know Vanuatu is not affected by Paradise Papers that much, would you agree?

We have seen many similar predictions over the past decades and Vanuatu’s offshore tax haven still exists today. If it is in such terminal decline, why were there 5,084 international (tax haven) companies at the last official tally in June 2017, while there were only 2,178 such companies in March 2012. Also, why were flag of convenience shipping fees higher in 2017 than they were in 2016?



‘Many reputable (and even not so reputable) firms have moved out of Vanuatu’


So far we haven’t seen any particular revelations in Paradise Papers, directly related to Vanuatu. And earlier you explained that “information about Vanuatu is not likely to be as dramatic because Asiaciti pulled out of Vanuatu” some time ago. So about that. Can we say that Vanuatu’s reputation is so bad, that even shady money-laundering-tax-evading firms tend to avoid it?

Vanuatu’s reputation is not good. Many reputable (and even not so reputable) firms have moved out of Vanuatu or avoided it. Forty years ago the New Hebrides was far more reputable in global financial circles than Vanuatu is today. While offshore tax havens have generally become far more significant, Vanuatu has stagnated in global terms, and faced new formidable regional challenges in the Cook Islands, Samoa and the Marshall Islands—which are all more successful as offshore tax havens.



‘The scapegoating of Pacific havens reached a very high level’



One particularly interesting thing you have mentioned before is that “havens in the Pacific Islands were made into sort of scapegoats” by Europe. Would you say, to some extent at least, it is a deliberate strategy?

I cannot read the minds of European officials, but it is clearly in the interests of large and formidable European offshore tax havens to deflect blame for tax avoidance and money laundering on to much smaller and less consequential havens in the Pacific Islands. This has been a problem for Pacific havens for two decades, since the Paris-based OECD campaign against offshore tax havens focused disproportionately on them. Jean-Claude Juncker has been a very powerful figure in Luxembourg’s tax haven. Since Juncker is the president of the European Commission, the scapegoating of Pacific havens reached a very high level.



It’s well-known there are plenty of jurisdictions in Europe widely used for the same purposes, with, as far as I understand, much more funds going through them. Like Cyprus, like Jersey, like all the activities going on in Switzerland and in London. You think Vanuatu and other Pacific tax havens should use the “what about” strategy to defend themselves against these kind of accusations, by pointing back at Europe?

Pacific Islands tax haven countries would be wise to push for a more comprehensive list of tax havens, including (and even emphasising) the major havens in Europe and Asia. Furthermore, the UK and some states in the US (for example, Delaware, Nevada, and Wyoming) have very important tax haven and secrecy attributes that should be more widely identified.



‘Vanuatu’s bad reputation has come primarily from its private sector’


In regard to Vanuatu and its bad reputation. The common opinion of many experts is that not the rules and regulations in the country per se are the problem, but the way they are implemented. The way system works – government is incredibly slow and inefficient, corruption is widespread, there is a frightening incompetency on every level of the government…

Vanuatu’s bad reputation has come primarily from its private sector, which has too often done business with dubious clients and resisted effective implementation of global anti-money laundering standards. Some people in offshore tax haven firms are known to have refused to cooperate with public officials who are responsible for enforcing the laws and regulations that Vanuatu has had in force. Governments have also been too slow to pass laws and insist on regulations and enforcement. In the past, parliament has not met often enough, due to governments’ fears of no confidence votes.



So would you agree that tightening regulations against money laundering would not really fix all this?

Vanuatu’s reputation is bad. Tightening effective regulation against money laundering would help.



‘Some of the foreigners who have acquired Vanuatu citizenship have been accused of money laundering and other crimes’



Going back to the Bloomberg article. Last time Vanuatu was all over world media after the [turned out to be] fake announcement that the Government now accepts Bitcoins for its citizenship. And later it turned out the announcement was made by fraudsters, the Government didn’t know anything about it, and it took them incredibly long time to even simply figure out what is going on. You think that incident also had a significant impact on Vanuatu’s generally bad international reputation (as an offshore tax haven)?

This story is just one of many that have consolidated Vanuatu’s bad reputation.



And since we brought that up. The fact that Vanuatu sells its citizenship. You think this actually makes the country more attractive as a tax haven for those individuals interested in hiding or laundering their money?

Some of the foreigners who have acquired Vanuatu citizenship have been accused of money laundering and other crimes. One recent, highly stigmatising case has been Kim Wong, who has been accused of masterminding the theft of US$80 million from the accounts of the Central Bank of Bangladesh. Wong is reported to have used his Vanuatu passport to leave and return to his home in the Philippines.



What you generally think about the future of this [citizenship by investments] industry, directly tied with activities around tax havens?

The citizenship by investment industry in Vanuatu has often been distinct or only indirectly or loosely related to Vanuatu’s Finance Centre, which has concentrated on company and trust formation and management, offshore banking, flag of convenience shipping registration, etc.



‘The government’s progress in introducing income taxation has slowed, and it is up against powerful forces’


As you know, Vanuatu’s Government intents to push the income tax through, and many parties are opposing this initiative. What are your general thoughts and expectations, you think it will go through?

The government’s progress in introducing income taxation has slowed, and it is up against powerful forces. Opponents (particularly from the offshore tax haven sector) have made politically powerful arguments that the introduction of income taxation is illegitimate (never mentioned in the 2016 election campaign); neo-colonial (Australia-driven); wasteful and expensive to administer; unrealistic in terms of forecast revenues; devastating to foreign investment, economic and human development; socially divisive; and worse than alternatives such as extending existing taxes. Who knows whether these arguments will prevail politically?


If it will go through, would the income tax itself put Vanuatu out of the list of Pacific “tax havens”?

The introduction of the income tax would hurt the offshore tax haven, but not necessarily, in itself, move Vanuatu outside the list of Pacific tax havens. The Cook Islands, Samoa and the Marshall Islands all have internal income taxes, but they have “ring fenced” them from their offshore tax haven regimes, which have no income taxes for foreigners who operate through their offshore tax havens.