November 21, 2000
BFSB Meeting with Counsel to Bahamas Government on OECD Initiative
Richard Hay, Counsel to The Bahamas Government on the OECD, FATF and related initiatives met with the members of BFSB today to provide:
-information on the changes in the legislation and regulation for the financial services industry requested by the OECD, FATF and the onshore governments those agencies represent
-comments on the state of the negotiations with those agencies to the extent that has been made public by the Government of the Bahamas
-an overview of the public elements of The Bahamas Government’s actions in response to those initiatives; and
-an opportunity for BSFB members to ask questions and provide feedback on matters of concern
Three supranational bodies have launched initiatives seeking changes in the laws and practices of offshore centres (OFCs) delivering international financial services.
These bodies are:
-the Paris-based Organisation for Economic Development and Co-operation, concerned with exchange of information to enhance onshore tax compliance
-the Financial Action Task Force, based at OECD offices in Paris, and concerned with countering money laundering; and
-the Financial Stability Forum, based in Basle, Switzerland, concerned with proper supervision of the global banking system.
Related initiatives are also underway in:
-the US, in their “qualified jurisdiction/qualified intermediary” program and
-the European Union, dealing with exchange of information for tax purposes.
CO-OPERATION REQUESTED, WITH THE THREAT OF SANCTIONS
The OFCs are under pressure to participate in the design and implementation of these initiatives. Sanctions are proposed for those who do not assist. Sanctions applicable to non-co-operating OFCs include restrictions on access to:
-onshore banking markets and
-onshore securities markets.
In an offshore banking centre, it is unrealistic to think in terms of isolating oneself from outside pressure by unplugging from the international grid. The opportunity to participate in the markets of other countries imposes some minimum standards of behaviour in order to justify access. Onshore countries can take the position that they are entitled to prevent or restrict access for institutions and their clients from jurisdictions which are, rightly or wrongly, perceived to be poorly regulated or overly secretive.
The Bahamas response to the supranational initiatives is based on the principle of constructive co-operation, with robust defence of legitimate national interests. The Bahamas has insisted on a process which is fair and transparent, leading to a common standard adopted by all co-operating onshore and offshore financial centres. The Bahamas believes this is essential to ensure the level playing field sought by all parties including the G7 and OECD.
The Government made impressive strides in their meetings with the leaders of all three supranational initiatives while in Europe. The Bahamas was perceived as well prepared and constructive but tough in the negotiations. In each case, The Government followed up with further discussions and detailed correspondence confirming The Bahamas’ position and setting out the matters discussed.
Progress on the various initiatives is as follows:
THE OECD HARMFUL TAX COMPETITION INITIATIVE
The current state of the OECD initiative is as follows:
-First, the OECD is no longer suggesting that The Bahamas must impose income tax. This is fair and crucially important to The Bahamas. It preserves the fundamental competitive advantage for The Bahamas in being able to offer financial services in a tax neutral environment. In my view, this is and should continue to be the primary appeal of The Bahamas
-Second, the OECD now accepts that their initiative is properly limited to illegal tax mitigation
-the OECD accepts that the Bahamas is entitled to demand a level playing field
The acceptance of the need for a level playing field follows the representations by the PM at the meeting at the OECD in mid September. The PM indicated, and the Secretary General of the OECD accepted, that any commitment from The Bahamas would be limited to adherence to a common standard, universally adopted by all onshore centres and all non-sanctioned offshore centres. This means that any changes in the Bahamas regime will be benchmarked against other competing international financial centres (onshore or offshore) to ensure no erosion in the local competitive position.
The OECD is seeking the following:
-an agreement to exchange of tax data for criminal tax purposes by 2004. This would be accomplished through bi or multilateral agreements, and would be limited to situations involving:
-a specific request
—involving intentional conduct
—which is subject to criminal tax prosecution
-exchange of information for civil purposes by 2006
-Bahamas Government access to information regarding beneficial ownership and financial statements for legal entities and trusts to facilitate the requested exchange of tax data
-Removal of barriers excluding IBC’s from participation in local business in The Bahamas
FINANCIAL ACTION TASK FORCE
The Bahamas shares the objectives of the FATF and has an ambitious legislative and administrative program to be at the forefront of OFCs fighting money laundering. The FATF continues to acknowledge progress by The Bahamas, and this was included in the two announcements following their recent plenary. The Bahamas is moving swiftly towards a position where it can insist that it is removed from the “non-cooperative list” at the next plenary for the FATF (January 31 to February 2). However, in the absence of any objective standard or process for removal, it is difficult to make any predictions with certainty.
FINANCIAL STABILITY FORUM
The Prime Minister, Minister of Finance and the Governor of the Central Bank met with Andrew Crockett, Chairman of the FSF in early October. The Government indicated that it is committed to adoption of regulative, administrative and legislative steps to strengthen the financial sector. Many of these changes are congruent with existing domestic plans to upgrade local infrastructure.
The Bahamas’ role as a tax neutral jurisdiction makes it a very attractive jurisdiction in which to do business. It will preserve this crucial advantage in the new financial architecture planned for this leading centre.
Greater transparency and co-operation with onshore centres are now elements of the strategy for all leading offshore jurisdictions. The Bahamas will stay at the forefront of this increasingly integrated global environment for the conduct of international financial services business by keeping pace with these global trends.