Following is the text of Bahamas Prime Minister H.A. Ingraham’s communication to the House of Assembly following his return from Offical Travel in Western Europe, and attendance at the IDB-World Bank Meetings between 16 September – 14 October, 2000:

I am pleased to advise on the progress of my official travels in Western Europe from 16 September to 14 October, 2000.

Honourable Members are aware that The Bahamas’ international financial services sector makes an important contribution to The Bahamian economy permitting Bahamians to engage in the highly-rewarding, highly-skilled services of global finance. The sector employs some 12 percent of the Bahamian labour force and contributes 15 percent to the Gross Domestic Product of The Bahamas.

Honourable Members are also aware that three multinational agencies, the G-7 created Financial Stability Forum (FSF), the Financial Action Task Force (FATF), and the Harmful Tax Forum of the Organization for Economic Cooperation and Development (OECD), have launched initiatives seeking changes in the laws and practices of offshore centres (OFCs) delivering international financial services. These initiatives are a consequence of a new emerging international morality being designed and implemented at the insistence and at the behest of the world’s largest and most powerful economies.

The adverse listing of financial jurisdictions in relation to banking supervision and anti-money laundering initiatives commenced in June of this year by the FSF and the FATF, and the OECD issued an advance notice of possible sanctions against certain countries and territories which it identified as engaging in what it termed “harmful tax” practices. The appearance of The Bahamas on the lists of the three multinational agencies represents a most serious challenge to the continuation and growth of The Bahamas financial services sector.

Affected jurisdictions, including The Bahamas, have been invited to participate in the design and implementation of these initiatives with the threat of sanctions for those who do not cooperate. In particular, proposed sanctions applicable to non-cooperating OFCs include restrictions on access to onshore banking and securities markets.

The propriety and evenness of the process adopted by the various agencies and the legality of the proposed economic sanctions have been the subject of debate and challenge. The validity of such challenges has been rejected by larger countries who have refused to entertain any questions about the lawfulness of their initiatives in international law.

Because of the seriousness of these initiatives and the potential for economic harm to The Bahamas, I believed it appropriate, indeed necessary, that I be personally associated with the process to free The Bahamas from the present predicament.

The Bahamas shares a common interest with the concerned multinational agencies in seeking a well regulated and transparent global market for the conduct of international finance and a level playing field. Hence, our responses have been based on the principle of constructive cooperation involving a wide ranging review of the financial services legislation and practices. This process has necessarily begun with a commitment by the Government to bring The Bahamas’ financial services sector into compliance with new emerging international standards and practices as expressed in the Core Principles of the Basel Agreement on the Regulation and Supervision of financial institutions.

Honourable Members are advised that during my mission to Europe, I held discussions with the Heads of the Secretariats of the OECD, the FATF, and the FSF at the Bank for International Settlements. I discussed with the Head of each of the Secretariats the process of assessment of The Bahamas’ financial services sector so as to obtain a clear understanding of the deficiencies, real and/or perceived, identified by each of the Organizations as the basis for its unfavourable listing of The Bahamas; advised of those areas where The Bahamas concurs and accepts inadequacies identified in certain legislative, regulatory, administrative and supervisory processes in The Bahamas and gave notice of areas where corrective measures have commenced and where additional corrective action is proposed. As Honourable Members will be aware, many of the legislative and administrative changes, both taken and proposed by The Bahamas coincide with the objectives of the multinational agencies. In each case I followed up my meetings with detailed correspondence confirming The Bahamas’ positions and setting out the matters discussed.

I also met with heads of French, Swiss, Dutch and British banks and trust companies licenced to carry on business from The Bahamas. I was encouraged by the assurances given by all head offices of their full agreement that Bahamian legislation, administrative and supervisory practices ought to conform to international best practice standards; standards now met by their institutions in the home countries. This position mirrored the position taken by heads of Canadian and American banks and trust companies with whom I met in July and early August of this year. It should, at this stage, be noted that 40% of all Bahamians working in the financial services sector are employed directly by the major clearing banks and their associated trust companies.

Honourable Members are advised that while each of the organizations listing The Bahamas is a separate agency with a separate secretariat, there is, to a considerable extent, a coincidence in the deficiencies identified by the organizations and remedies required to correct them. The primary concerns of these Organizations, as expected, centred on:

– Know Your Customer (KYC) policies.

– Transparency and Exchange of Information.

– Regulation and supervision of financial services providers including banks and trust companies and intermediaries (lawyers, accountants and investment analysts).

– Ring fencing (opportunity to establish enterprises that are explicitly prohibited from operating domestically first introduced in The Bahamas through the provisions of the International Business Companies Act, 1989)

In addressing these concerns, The Bahamas is insisting on a process which is fair and transparent, leading to a common international standard adopted by all cooperating onshore and offshore financial centres. The Bahamas believes this is essential to ensure the level playing field sought by all parties including the G-7 and the OECD.

I have previously, in a national address on 23 July, and in this Honourable House, during debate on the Evidence (Proceedings in Other Jurisdictions) Act, 2000 on the 9 August, stated that my Government is concerned that the Bahamian regulation and supervision of financial services does not provide opportunities for individuals to conceal the proceeds of crime; and I foreshadowed that addressing these concerns would require amendment to and adoption of legislation governing the provision of financial services in The Bahamas.

I am pleased to advise that The Bahamas’ stated position for amendment and/or adoption of new legislation to address shortcomings was welcomed in European capitals much as was the case in North America. Nothing in my discussions in Europe suggested a need for a broadening or expansion of the areas proposed for legislative and administrative review and amendment. It will be recalled that the following areas have been identified for review and appropriate action:

– “Know your Customer” (KYC) rules as observed by financial services centres in major developed countries;
– the expansion and enhancement of the Supervision Division of the Central Bank of The Bahamas;
– cross-border supervision and on-site inspection of banks and of other financial institutions by their home country regulators;
– enhancement of the administrative capacity and capability of The Bahamas as regards responses to requests under Mutual Legal Assistance Treaties (MLATs) and other requests for assistance and cooperation;
– cooperation and exchange of information between The Bahamas and its international partners in the area of criminal tax matters, fraud and bribery;
– the establishment of a Financial Intelligence Unit (FIU); and
– the abolition of bearer shares now available under the provisions of the International Business Companies Act.

Honourable Members are aware that action to address these concerns commenced in June of this year. However, the agencies reviewing The Bahamas ( the FSF, FATF and the OECD) adopted the position that, while laudable, political commitments to act and/or the introduction of legislation in Parliaments were, of themselves, insufficient evidence that countries under review (including The Bahamas) could be adjudged to have met the new and evolving international standards and practices. Hence, The Bahamas did not escape adverse listings.

To date legislative amendments have been enacted and entered into force as follows:

– amendment to the Money Laundering (Proceeds of Crime) Act, strengthening the requirement for the reporting by financial institutions and others of suspicious transactions to include the necessary reporting of unusual transactions;
– the enactment of a new Evidence (Proceedings in Other Jurisdictions) Act, replacing the Foreign Tribunals Evidence Act, 1856. The new Act places The Bahamas in a position to live up to its obligations under International Conventions to which it is party, permitting evidence to be obtained in The Bahamas for use in proceedings in other jurisdictions in respect of matters pending before a Court or in respect of matters where proceedings are contemplated before that Court and for which investigations have commenced.

Currently under review by Bahamian legal counsel retained by the financial services sector in consultation with The Bahamas Government, and by legal experts in financial services retained in the United States and Great Britain by the Government, are the following pieces of legislation:

– a new Financial Intelligence Unit Act, 2000
– a new Criminal Justice (International Cooperation) Act, 2000
– a Central Bank of The Bahamas (Amendment) Act, 2000
– a Banks and Trust Companies Regulation (Amendment) Act, 2000
– a Banks (Amendment) Act, 2000
– a new Proceeds of Crime Act, 2000
– a new International Business Companies Act, 2000
– a new Financial Service Providers Act, 2000
– a new Financial Transactions Reporting Act, 2000
– a Mutual Legal Assistance (Amendment) Act, 2000

It is proposed to introduce this important legislative programme in Parliament over the next several weeks commencing today with the introduction of the Financial Intelligence Unit Bill and the Criminal Justice (International Co-operation) Bill.

When adopted and brought into force these additional pieces of legislation, together with legislative and administrative action already taken, and the new administrative and supervisory processes presently being introduced by the Central Bank, will, I believe, bring The Bahamas’ financial services sector into full compliance with international standards and practices.

Of particular importance is the impact which the legislation will have in reducing opportunities for anonymous use and/or abuse of Bahamian entities for unauthorised purposes either within The Bahamas or internationally.

Additionally, the new International Business Companies Act (IBC), by the elimination of bearer shares and the reporting requirements, will positively impact concerns with regard to transparency, including in relation to investments in mutual funds. The elimination of a prohibition against IBCs conducting business in The Bahamas and the removal of artificial tax exemptions in the existing Act will also address charges of ring fencing made by the OECD.

The OECD released a report on the 26 June, 2000 entitled Towards Global Tax Cooperation. That Report deals with what are referred to as “Harmful Tax Practices”. The Report seeks:

– provision of information from OFCs for the enforcement of onshore tax liabilities, and
– the elimination of harmful tax practices.

In the case of The Bahamas, the elimination of harmful tax practices appears to be limited to concerns regarding the current exclusion of IBCs from operating in the domestic market. The OECD now accepts the legitimacy of zero income tax regimes such as The Bahamas, and so there is no longer pressure on The Bahamas to introduce income tax or otherwise redesign our environment to satisfy OECD concerns.

Honourable Members will recall that six so-called tax havens (Cayman Islands, Bermuda, Cyprus, Malta, Mauritius and San Marino) entered into advance commitments with the OECD prior to the release of the Report in June, 2000. The Bahamas chose not to precipitously enter into any agreement that might erode our competitive position without first completing a thorough review of international standards and practice, including the standards and practices of onshore jurisdictions. A remaining group of 35 jurisdictions, including The Bahamas, have been given one year (i.e., until June, 2001) to agree terms on matters of interest to the OECD. Sanctions are proposed for those jurisdictions which fail to agree by the deadline.

In meeting with the Secretary General of the OECD, I emphasized that The Bahamas and the OECD have a shared interest in pursuing an improved regulatory framework for the conduct of international financial services. I informed the Secretariat of the legislative and regulatory initiatives to upgrade The Bahamas financial services infrastructure to meet international standards, taking OECD concerns about exchange of information, transparency and ring fencing into account. I also used the occasion to express the concerns of The Bahamas over the OECD process which has, to date, led to undisclosed agreements with the six advanced commitment jurisdictions. The point was made that such secret agreements could serve to undermine the perceived credibility of an initiative premised on plans for a fair, transparent and level playing field for the delivery of international financial services. I emphasized our firm commitment to the principle that any agreement struck by The Bahamas with the OECD must ensure a level plying field internationally, and be fully transparent.

With specific regard to transparency in the exchange of information for tax purposes, I informed the Secretary General that The Bahamas was prepared to consider facilitating the exchange of information on criminal tax matters, particularly as the OECD member states have unanimously agreed to a process for doing so. As regards the exchange of information on civil tax matters, I noted that The Bahamas would not act in a way so as to injure its competitive position vis-a-vis other financial centres including those within the OECD. I stressed that in agreeing to increased international cooperation The Bahamas was particularly interested in a process that was transparent and fair, and that guarantees a level playing field for all OECD countries and co-operating financial centres, in other words, a multilateral approach to cooperation.

This theme, in the form of a CARICOM initiative, was subsequently raised with the OECD at the September Meeting of Commonwealth Finance Ministers in Malta where the possibility of adopting a multilateral approach to achieve a common standard was discussed.

I re-emphasized The Bahamas’ interest and support for such an approach in a follow-up letter of the 11 October, 2000 to the Secretary General of the OECD.

A further meeting was held with the OECD on September 26, which was attended by the Governor of the Central Bank and the Permanent Secretary in the Office of the Prime Minister. This meeting resulted in constructive dialogue about technical elements of the OECD initiative. In these discussions, The Bahamas tabled the following proposals:

– IBCs are to be permitted to conduct business locally, subject to the usual exchange control permissions applicable to any non-resident;
– Records of beneficial ownership for local entities and trusts will be maintained by local service providers and, in limited cases, on a confidential register maintained by the Government;
– The Bahamas is prepared to provide criminal tax information by 2004 through bilateral or multilateral agreements pursuant to:

(i) specific requests;
(ii) requests involving intentional misconduct;
(iii) requests which are subject to criminal tax prosecution.

(I wish to advise that information exchange within these terms was unanimously agreed by OECD members in paragraph 21 of the April, 2000 OECD report Improving Access to Bank Information for Tax Purposes.)

The implementation of these proposals by The Bahamas is premised on the implementation of similar standards by all OECD member states and co-operating OFCs. This stipulation is designed to avoid erosion of The Bahamas’ competitive position by ensuring adherence to the OECD commitment to a level playing field adopted by all parties not subject to sanctions.

Honourable Members will recall that the FATF published a report on June 22, 2000 entitled Review to Identify Non-Cooperative Countries or Territories. That Report was preceded by a review of 29 jurisdictions over a four month period to analyze anti-money laundering regimes. A number of jurisdictions, including additional OFCs located in the Caribbean, have not been reviewed or rated and it now appears that the second review exercise has been postponed following the airing of serious concerns over the process of assessment employed by the FATF.

More than half of the reviewed jurisdictions, including The Bahamas, were identified as “uncooperative”. As I have noted on earlier occasions, the FATF had incongruously written to The Bahamas’ Attorney General shortly before the “uncooperative listing” with commendation for the progress being made in The Bahamas in strengthening the anti-money laundering regime.

At useful discussions held with the Executive Secretary of FATF in Madrid on 20 September, I learned that the member states of the FATF were scheduled to discuss the response of countries blacklisted as non-cooperative in the international anti-money laundering initiative at their October meeting. Also to be addressed was the matter of an “exit strategy” for listed countries, a matter not dealt with prior to the June 22 issuance of the blacklist by the FATF.

At that time I expressed the unequivocal commitment of The Bahamas to continue working with the FATF and the Caribbean Financial Action Task Force (CFATF) to develop legislation and administrative practices to assist in the fight against money laundering and reiterated the interest of The Bahamas to receive technical assistance from the FATF in the legislative programme.

I also registered concern over the potential for economic harm to The Bahamas by the label “uncooperative”, which suggested that the jurisdiction was being deliberately obstructive; a position which The Bahamas’ record of cooperation in both the international counter-drug effort and in the international anti-money laundering initiative, clearly reveals as inaccurate.

Simultaneously to my meeting in Madrid, the FATF Review Group for the Americas sought from the Attorney General’s Office in Nassau, additional information for consideration at its October meeting. The Review Group for the Americas, which is responsible for The Bahamas, appears to suffer from resource constraints and has been unable to find the time to meet with The Bahamas to discuss progress since the listing in June. These same constraints appear also to limit the capacity of the FATF’s involvement in the review of proposed legislation to consider its adequacy in addressing FATF concerns. I am pleased to advise that it now appears that a face-to-face discussion with the Review Group of the Americas will take place on the 11 December, 2000.

My Government’s response to the letter from the Chair of the Review Group, signed by the Hon. Sir William Allen, Minister of Finance, is tabled for the information of Honourable Members. In the letter, The Bahamas noted the wide ranging programme of legislative and administrative changes underway designed to upgrade anti-money-laundering processes.

Honourable Members are advised that my Government has noted the value of consistency and quality legislation to address issues rather than “quick-fix” solutions. Honourable members will be aware that following upon its Madrid meeting earlier this month, the FATF noted its satisfaction with the rapid response of seven of 15 countries (including The Bahamas) listed as non-cooperative in the international anti-money laundering effort but did not remove any jurisdiction from the list regardless of such progress and the legislation and/or administrative processes adopted in response to the listing. It is now indicated that, following a period of implementation of new legislation and/or administrative rules, such countries are to be considered for removal from the money laundering blacklist during next year.

Discussions with the Chairman and Secretariat staff of the Financial Stability Forum (FSF) and of the Basel Committee on Bank Supervision, centered on The Bahamas’ commitment to the implementation of international best practices in financial sector supervision and regulation of financial institutions, including those established by the Basel Committee on Bank Supervision. I took the opportunity to inform the Forum of The Bahamas’ full support for the UN Minimum Performance Standards agreed to at the Global Programme Against Money Laundering Forum Plenary in March, 2000.

The Forum was further informed of the amendment and/or enactment of relevant legislation and the introduction of new administrative steps to strengthen and enhance the supervision of the financial services sector.

In this regard, I wish to advise Honourable Members of the engagement by the Central Bank of The Bahamas, on the recommendation of the IMF, of Mr. Timothy Sullivan, an international expert in bank supervision. Mr. Sullivan, who assumed duties on the 8 October, is heading-up the expanded supervisory programme of the Bank. As foreseen during my meetings with professionals engaged in the financial services sector during July, the Central Bank is recruiting additional bank supervisory staff domestically and internationally from among a pool of experienced, and in some instances recently retired, bankers and others with expertise in regulatory compliance in financial services with a view to putting in place the necessary resources within the shortest possible period of time. Canada’s Office of the Superintendent for Financial Institutions (OSFI) is also lending its assistance in the identification of suitable international banking supervision staff. As well, the Central Bank will broaden its recruitment and training of junior supervisors to ensure that future requirements are adequately met.

I also wish to advise that the Central Bank is reviewing, restructuring and tightening its policy as regards the licensing, regulation and supervision of managed banks; adopting new regulations to broaden bank supervision; facilitating cross-border supervision and on-site inspection of Bahamian licensed banks by home-country regulatory authorities in accordance with standards established by the Basel Committee on Bank Supervision; and putting in place new, further restrictive conditions for the licensing of banks and trust companies in The Bahamas.

It is our confident expectation that steps taken to eliminate institutions abusive of The Bahamas’ legal regime and new international norms, will ultimately result in the strengthening of other institutions in the financial services sector in The Bahamas, the expansion and renewal of confidence and sustainable economic growth.

The FSF were particularly pleased to learn of the programme of consultation by the Bahamian government, domestically and internationally, with stakeholders in its international financial services sector in developing a plan of action to facilitate and ensure the strengthening, enhancement and continuation of the financial services sector in The Bahamas and the removal of the jurisdiction from the various unfavourable lists. In this regard, the expressed agreement and support of financial institutions licenced to operate from The Bahamas, with the Government’s planned programme of reform, is seen as a positive indication for the continuation of The Bahamas’ financial services sector.

It is expected that the adoption of the proposed amendments to the Central Bank Act and the Banks and Trust Companies Regulation Act and the implementation of the new regulatory and supervisory regime by The Central Bank will result in improved supervision, including an appropriate level of on-site inspection of banks, full cooperation on cross-border supervision of banks, and enhanced cooperation between the Central Bank and overseas regulatory authorities.

I table for the information of Honourable Members and for publication, a copy of a statement issued by me following the meeting at the FSF.

I also used the opportunity of my presence in Europe to meet with the Finance Ministers of Switzerland, the Netherlands and the Chancellor of the Exchequer of the United Kingdom, all members of the OECD, FATF and the FSF. The United Kingdom is also a member of the G-7.

In each of my meetings, I outlined The Bahamas’ position, informed of The Bahamas’ response to the adverse listing of its financial services sector by the agencies of the G-7 and OECD pointing out areas where my Government accepted the inadequacies identified in certain of its legislative, regulatory, administrative and supervisory practices and advised of corrective measures underway to address these shortcomings.

I especially stressed the fact that the legislative and administrative changes already taken and proposed by The Bahamas coincide with the objectives of the G-7 and OECD as regards the appropriate regulation and supervision of the delivery of international financial services.

I also expressed the serious concern of my Government over the actions taken by the multinational agencies which appeared to fail their own standard that the process be transparent and fair, and that it guarantee a level playing field for all. I expressed serious reservation with a process that permitted member states of the OECD, many of whom are direct competitors in the delivery of financial services internationally, to stand in judgement of the financial services sectors of financial centres like ours even while not themselves meeting the same standard, or committing to meet the standard, demanded of off-shore centres under threat of sanction.

Each of the Finance Ministers and the British Chancellor of the Exchequer expressed understanding of the position of The Bahamas. They also indicated the intention of the wider membership of the OECD to cause all its members to meet the new international standards advocated for off-shore financial centres and committed to support the removal of The Bahamas from the damaging lists subject to The Bahamas’ continued position of cooperation and evidenced amendment to and implementation of appropriate legislation and practices so as to bring its financial services sector into compliance with the new evolving standard and practices governing the delivery of international financial services.

Honourable Members are aware that I led The Bahamas delegation to the Annual World Bank/IMF Meeting in Prague, Czech Republic from 25-30 September, 2000, meetings which were regrettably marred by violent demonstrations.

Of particular importance to The Bahamas, during side meetings in Prague, The Bahamas was able to obtain the agreement of the IMF to conduct an independent assessment of The Bahamas Financial Services Sector beginning during the coming year. Significantly, member states of the OECD including Canada and the United Kingdom, are also expected to submit their financial services sectors to similar independent assessment by the IMF. This development is welcomed by The Bahamas which has been concerned that its financial services sector has been subjected to review and unfavourable listing by a process managed by select members of the most developed countries of the world with whom its financial services sector is frequently in direct competition. Further, it is believed that an independent assessment by the IMF and the carrying out of resulting recommendations will remove any question of the adequacy of The Bahamas’ regulation and supervision of its financial services sector in accordance with emerging international best practices and standards.

18 October, 2000