The Bahamas’ Application to be designated a qualified jurisdiction (“QJ”) for purposes of new US withholding procedures scheduled to take effect 1st January 2001, was submitted 4 months ago by the Association of International Banks & Trust Companies in The Bahamas (“AIBT”). The application was supplemented by a Governmental response to FATF criticisms of the Bahamas KYC regime.

As of 1st January 2001 new regulations on the procedure governing withholding tax will come into effect in the US. The new procedures will impact the holding of US securities (shares or bonds in US companies) by so called “foreign intermediaries” for and on behalf of their customers. A foreign intermediary may best operate under the new US withholding procedures by being designated by the IRS as a “qualified intermediary” (“QI”). Before a foreign institution may become a QI, the non-US jurisdiction in which that foreign intermediary is domiciled must be designated a QJ. The KYC regime of a foreign jurisdiction requires approval by the IRS if that jurisdiction is to be deemed a QJ.

The IRS is currently reviewing and approving QJs based, in part, on their legislative response to FATF KYC criticisms. The Bahamas’ response is underway, thus, the industry learned yesterday, that the Bahamian QJ application is still pending. AIBT, the Clearing Banks’ Association and the Bahamas Financial Services Board (“BFSB”) are satisfied that the Bahamas is on the right course to remedy deficiencies identified by the Financial Action Task Force (FATF) in the Bahamian KYC and counter money laundering systems. The AIBT, Clearing Banks’ Association and BFSB support and encourage the Bahamas’ efforts.

AIBT, Clearing Banks’ Association and BFSB representatives have made and will continue to make recommendations directly to the Government towards producing the most appropriate legislative response.

Quite apart from the legislative response, the private sector is making deliberate effort to ensure international best standards and practices are applied throughout the financial services sector. During late July 2000, the BFSB established a Strategic Development Committee (“the Committee) to formulate a private sector plan for the continued development of the Bahamas’ financial services industry. The Committee has had several meetings with the Government and is providing industry recommendations to assist with respect to the overall response.

The Committee has now moved to promote self-oversight of the financial services industry. In a recent Report of the Committee dated 4th October 2000 delivered at the Annual General Meeting of BFSB the Committee stated:

“The Committee believes that, in a more formal way than before, the financial services industry and each constituent part must provide a system of attentiveness to the maintenance of best practices. It is good for our reputation, good for the country, good for business and, in the Committee’s view, the right direction to go. With the representative associations of constituent parts of the industry, the Committee will explore ways of achieving this.”

Towards formalizing a system of attentiveness to the maintenance of best practices for the financial services industry and each constituent part thereof, the Committee has recommended that the Board of Directors of BFSB initiate a process to discuss with all constituents of the financial services industry the early establishment of a “Standards & Practices Committee” of the Bahamas Financial Services Board, constituted as a standing committee. The mission of the Standards & Practices Committee shall be to promote and to encourage adherence by members of BFSB to best international standards and practices generally and, in particular, in relation to know-your-customer and counter money laundering systems, procedures and practices.

November 2nd, 2000
Clearing Banks’ Association