U.S., Cayman Islands Agree to Tax Pact

NEWYou can now listen to Fox News articles!

The Cayman Islands, long considered a haven for tax evaders, has agreed with the Bush administration to share tax information that would help the United States track down violators.

Treasury Secretary Paul O'Neill was to sign the pact Tuesday with Christopher Meyer, the British ambassador to the United States, and Cayman Islands Gov. Peter J. Smith, according to Treasury Department officials.

The accord would enable the Internal Revenue Service to pierce the secrecy of accounts at Cayman Islands financial institutions, paving the way for audits that could uncover tax evasion, drug money-laundering and other misdeeds, said former IRS Commissioner Donald Alexander.

"Right now, nothing is a fair description of the cooperation the United States is getting," said Alexander, now with the law firm Akin, Gump, Strauss, Hauer & Feld. "It's a hotbed of tax evasion. This is a good step in the right direction."

Senate hearings earlier this year disclosed that the United States loses an estimated $70 billion in tax revenue each year because assets are concealed in offshore tax havens. Although many like the Cayman Islands have little or no direct taxation, their bank secrecy laws are more important to individuals and businesses seeking to evade taxes in their home countries.

Manhattan District Attorney Robert Morgenthau told senators that about $800 billion is on deposit at some 600 banks licensed in the Cayman Islands - more than twice the amount deposited in all New York City banks combined.

The money is there, Morgenthau said, "because those who put it there want a free ride ... some of this avoidance is legal, but much of it is not."

Led by O'Neill, the Bush administration has shifted the U.S. focus in dealing with tax haven countries away from an international effort to overhaul tax structures and toward negotiated treaties that allow easier U.S. pursuit of suspected cheaters.

O'Neill pledged in July that within a year, the administration would complete negotiations on such treaties with half of the 35 countries listed as tax havens by the Paris-based Organization for Economic Cooperation and Development. The Cayman Islands was one of several jurisdictions that pledged greater openness last year to avoid being included on the OECD list.

Others on that list include Antigua and Barbuda, the British Virgin Islands, Barbados and Panama.