VZCZCXYZ0002
RR RUEHWEB

DE RUEHSJ #0365/01 1202210
ZNR UUUUU ZZH
R 302210Z APR 09
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 0804
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHBS/USEU BRUSSELS
RAYWEED/AUSTOECD PARIS OECD
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SAN JOSE 000365 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EEB/IFD/OIA:GHICKS 
DEPT FOR WHA/CEN AND WHA/EPSC:AWONG 
TREASURY FOR SSENICH 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV PREL CS
 
SUBJECT: AMCHAM'S DISCONTENT: OECD BLACKLISTS COSTA RICA 
 
¶1. (U) SUMMARY: Representatives of the American Chamber of Commerce 
(AmCham) met with DCM and Emboffs on April 17 to make a strong case 
against the recent OECD listing of Costa Rica on the tax haven 
"blacklist".  They argued that the OECD's decision, which seemed to 
ignore the transparency of the 1991 Costa Rican-U.S. Tax Exchange 
Information Agreement (TEIA), was totally inappropriate: 
substantively incorrect, procedurally mishandled, and politically 
motivated.  In addition, AmCham expressed dismay at how quickly 
Finance Minister Guillermo Zuniga acceded to the OECD listing by 
submitting a letter pledging that the GOCR would consider new 
legislation eliminating the need for a court order in order to open 
bank account records (a prominent OECD complaint).  Ostensibly, 
Zuniga's action changed Costa Rica's OECD classification from the 
"black list" to the "grey list."  AmCham -- deeply concerned about 
Costa Rica's reputation after the initial OECD announcement -- 
requested that the USG make a statement on Costa Rica's behalf. 
Post countered that Zuniga could raise the issue (at his discretion) 
in his meeting with Treasury officials on April 27 (on the margins 
of the World Bank meeting in Washington).  Of note, the GOCR has not 
approached us about the "black list."  See Action Request, para 11. 
END SUMMARY. 
 
------------------------- 
AN EXPERIENCED DELEGATION 
------------------------- 
 
¶2. (U) Executive Director Lynda Solar, President Luis Gamboa, and 
ex-presidents Humberto Pacheco and Hernan Pacheco represented 
AmCham.  Given that Humberto Pacheco negotiated the GOCR's TIEA in 
the 80's, he led AmCham's presentation.  Pacheco seemed personally 
offended by the OECD's failure to acknowledge the effectiveness of 
the existing TIEA with the US (in effect since 1991) and emphasized 
the difficult five-year process of gaining legislative approval for 
the TIEA. 
 
¶3. (U) The AmCham representatives' believed the OECD decision was 
based on the following factors (which also figured prominently in 
local media reporting about the black listing): 
 
-- Costa Rica does not tax overseas income; and 
 
-- Costa Rica requires a court order to be obtained in order to open 
any bank account records. 
 
--------------------------- 
A DELEGATION WITH A MISSION 
--------------------------- 
 
¶4. (U) AmCham adamantly disagreed with Costa Rica's classification 
as a tax haven by the OECD and pressed that there are "no 
technically valid reasons" to place Costa Rica on any tax haven 
black list for three reasons: 
 
-- Humberto Pacheco noted that a characteristic of a tax haven is 
low taxes.  Quite the contrary, Costa Rica has a high tax regime; 
 
-- Typical tax havens do not disclose tax information to the proper 
foreign counterparts.  Pacheco claimed that Costa Rica consistently 
cooperated with U.S. counterparts, abided by the TIEA with the US, 
and exercised considerable control over its banking system through a 
regulator.  (NOTE:  Pacheco was unaware of any European disclosure 
requests.  END NOTE.)  He stated that, to his knowledge, never in 
the history of the TIEA with the United States had a request for 
information been denied.  That is, judicial permission to access 
account information requested by the IRS has always been 
forthcoming; and 
 
-- Costa Rica purposely designed its foreign tax regime to eliminate 
any appearance of "ring fencing," the issue of treating foreign 
source income differently, based on the residency of the taxpayer. 
The GOCR made a conscious decision to exempt taxation of all foreign 
source income for all taxpayers; thus, the law treats all taxpayers 
the same on this issue, which, in Pacheco's words, "is a choice that 
the government made. . . very wisely." 
 
¶5. (SBU) In addition to the specific arguments on tax havens, 
AmCham cited Costa Rica's role as a good neighbor in the war against 
drugs and its fight against money laundering (it passed an 
anti-money laundering law earlier this year).  AmCham further argued 
on the issue of the OECD's "Eurocentric" outlook.  AmCham contended 
that the four countries on the OECD's black list -- Costa Rica, 
Uruguay, Malaysia, and Philippines -- had no ties to Europe.  Thus, 
the OCED selected easy targets -- countries without direct European 
ties -- while overlooking European counties with questionable 
practices on bank secrecy, i.e. Belgium, Switzerland, and/or 
Luxembourg. 
 
¶6. (SBU) AmCham disapproved of the "easy way out of this," as 
proposed by Finance Minister Zuniga, of simply proposing changes in 
the law regulating bank secrecy.  Hernan Pacheco stated that AmCham 
strongly opposed eliminating the requirement that a judge review any 
request to open bank account records.  Real or perceived abuses of 
the power to open bank records, Pacheco added, could do enormous 
harm to Costa Rica's democracy by altering Costa Ricans' perceptions 
of (and confidence in) government.  Furthermore, it isn't clear how 
the government would truly guarantee the protection of privacy 
rights (without the requirement for a judicial order). 
 
--------------- 
SAY IT ISN'T SO 
--------------- 
 
¶7. (SBU) Humberto Pacheco argued that "the US should not have 
allowed [Angel] Guria [OECD Secretary General] to denigrate Costa 
Rica's reputation, since there is not a technical reason [for Costa 
Rica's presence on a black list]".  Pacheco noted that the term "tax 
haven black list" still lingers in the air, in spite of the OECD 
elevating Costa Rica to the "grey list" five days after the "black 
list" announcement.  Pacheco, the ex-TIEA negotiator, continued, 
"We're looking for a face-saving comment from the USG that helps 
clear Costa Rica's reputation."  "Whatever the inner workings of 
this situation," Pacheco continued, "it was made to look like the 
G20 originated this."  He suggested the following points:  "Costa 
Rica has a TIEA with the US, has cooperated with the United States, 
and has never denied access to requested bank information." 
 
¶8. (SBU) We listened to the presentation and noted that GOCR's 
delinquency on many issues, such as passing the anti-money 
laundering law, could have played a part in the OECD decision. 
Also, the DCM shared some of the findings provided informally to us 
by Treasury (TREAS) prior to the AmCham meeting:  (1) TREAS is not 
comfortable with the OECD list-making, (2) nonetheless, TREAS 
generally agreed with OECD's underlying goals, and (3) the US 
Internal Revenue Service is reasonably comfortable with Costa Rica's 
cooperation through the framework of the TIEA.  However, we were 
noncommittal about any USG statement in defense of Costa Rica, urged 
AmCham to voice their concerns directly to the GOCR, and suggested 
that Zuniga raise the issue at his meeting with Treasury on the 
margins of the IMF/World Bank meeting April 27.  We also said we 
would report AmCham's concerns to Washington. 
 
¶9.  (SBU) In one notable follow-up, Finance Vice Minister Jenny 
Phillips has invited Jeffrey Owens of the OECD's Center for Tax 
Policy and Administration to Costa Rica for a review session of the 
proposed legislation.  The Ministry is girding itself for the 
session by publicly noting that several other Latin American 
countries also have bank secrecy laws, while stressing the GOCR's 
cooperation on information requests. 
 
-------------------------- 
COMMENT AND ACTION REQUEST 
-------------------------- 
 
¶10. (SBU) The GOCR evidently does not share AmCham's concerns and 
has not approached us.  (In fact, we understand that Zuniga did not 
discuss the issue during his meetings in Washington).  We respect 
AmCham's enthusiasm for (and expertise on) this issue, but believe 
that the GOCR decided to quickly dispense with the issue by 
promising to introduce legislation that would eliminate the need for 
a court order to open bank account records.  We doubt such 
legislation could be passed quickly or easily (if at all) in Costa 
Rica, but the pledge alone seemed to have satisfied the OECD. 
Though an OECD designation can sully the reputation of a designee, 
we understand that a designation carries no penalties or sanctions. 
 
 
¶11. (SBU) ACTION REQUEST: In the aftermath of the controversy (which 
we expect may re-surface here given the pending OECD review session, 
we remain interested in others' views of the transparency and 
fairness of the OECD ranking process.  We would appreciate insight 
from the Department, USEU, and/or Treasury.  We cannot judge from 
here, but AmCham makes a persuasive case against OECD's objectivity. 
 Why, for example, did the OECD rating seem to discount the 
importance of a functioning TIEA between the GOCR and the USG? 
 
CIANCHETTE