DO tax havens have a future? The question might seem absurd given that an eye-watering $5,000bn (£2,900bn) is held offshore, according to the last estimate by the International Monetary Fund (IMF).
But late last year, the Organisation for Economic Co-operation and Development (OECD) announced there had been a "major step forward" in the international effort to clamp down on the secrecy of the world's tax havens. Its declaration of "considerable progress" after an inter-governmental meeting in Melbourne appeared to give new momentum to its struggle to prevent reluctant taxpayers stashing billions of dollars into highly secretive jurisdictions.
The OECD campaign, which started in 1996, had ambitious beginnings. It drew up a list of 35 jurisdictions deemed to be tax havens on grounds such as having no or nominal taxes, a lack of transparency and a refusal to exchange information with other authorities.
It floated the idea of stiff reprisals against countries unwilling to reform. Its demands for greater transparency were reinforced by the widely shared determination to get tough on money laundering, fraud and terrorist financing.
But it soon ran into difficulties. For one thing, it was accused of double standards. Important financial centres such as Singapore and Hong Kong are not participants in the initiative. More embarrassingly, nor are four OECD members: Austria, Belgium, Luxembourg and Switzerland all have bank secrecy laws that prohibit exchange of banking information.
These countries have also resisted pressure from the European Union (EU) to exchange information about savings accounts, opting to introduce a withholding tax instead, under the EU Savings Directive.
Also, the OECD was accused of attempting to stifle tax competition.
Such criticism resonated with the Bush administration in the US, which in 2001 pressed the OECD to tone down talk of sanctions. It said the initiative should focus on its core element: the need for countries to be able to obtain specific information from other countries in order to prevent non compliance with tax laws.
The OECD is making some progress on these lines. By 2002, it had cut its list of "uncooperative tax havens" down to just five: Andorra, Liberia, Liechtenstein, the Marshall Islands and Monaco.
Instead of talking about sanctions, the discussion at the Melbourne conference was all about "mutual benefits", including giving non-OECD countries better access to financial markets.
The OECD highlighted, as an example, an exchange of information agreement signed late last year between the Isle of Man and the Netherlands, which included an agreement on taxation of shipping and aircraft businesses based in the Isle of Man.
It also said "considerable progress has already been made towards a global level playing field" in the area of transparency and exchange of information - with China, Hong Kong and South Africa endorsing the principle of transparency.
But the meeting was immediately dubbed a flop by a rightwing Washington pressure group, The Centre for Freedom and Prosperity, which claims the initiative is an attempt by uncompetitive welfare states to impose anti-growth tax policies on the rest of the world.
It said the "banal language about co-operation and progress" was misleading because there had been no agreement on specific commitments.
The OECD acknowledges that "further progress is needed". It says there is still widespread use of bearer shares and information is still not available on beneficial ownerships of companies, trusts and other structures.
But Jeffrey Owens, head of the centre for tax policy and administration at the OECD, dismisses criticism that the initiative targets tax competition as "a complete misrepresentation of what this project is about. If successful, we will encourage competition which is fair and transparent. It has never been about dictating to countries what their tax system should be."
The OECD may have bigger problems in shrugging off criticisms of double standards.
The Society of Trust and Estate Practitioners says it is unfair that the offshore centres are being subjected to more onerous demands than some onshore centres. It highlights Delaware, the US state where many companies incorporate, as an example of a "totally untransparent system".
This point is echoed by Howard Bilton, chairman of The Sovereign Group, a firm of international tax planners.
He says there are plenty of opportunities to reduce tax bills using features of the tax regimes of big industrialised countries such as the UK. "If the offshore centres disappeared overnight, tax planning would continue unabated using onshore regimes."
But he does believe the OECD's drive for more exchange of information has implications for illegal tax evasion, at least in the offshore centres. "My view is that confidentiality in the offshore jurisdictions no longer exists or will not exist shortly."
But there are still some powerful forces increasing the temptation for errant taxpayers. The growth of electronic banking has given greater ease of access to offshore funds; and the use of account-linked credit cards can enable funds to be transferred without creating a paper trail.
Moreover, the refusal of some of the world's leading financial centres to share information about suspected evaders means there will still be opportunities to hide money from the tax authorities. Tax havens are changing, but they are not disappearing.
Under syndication arrangement with FE