Dominance of The Bahamas as a Financial Center in Private Banking Driving the Intensity of the Efforts by the Industrialised World to Secure Cooperation on Tax Matters. …..

In his annual New Years Address to the Nation, presented on January 15, the Rt. Hon. Hubert A. Ingraham, Prime Minister of the Bahamas, took the opportunity to report on what he described as the bombardment from the economic powerhouses and other agencies of the major industrial countries, including the Organisation for Economic Cooperation and Development (OECD), the Financial Action Task Force (FATF) and the Financial Stability Forum (FSF). Actions which, he said, made it necessary for The Bahamas to reorder its national priorities during 2000 to accommodate the international pressures threatening its financial services sector.

Prime Minister Ingraham addressed a number of industry issues, such as The Bahamas’ response to the international initiatives, the old and new financial services environment, and the impact of new legislation. He expressed confidence in the ability of the nation to weather economic hard times and to snatch success from the claws of impending doom — as done before through its resiliency.

The immediate response to the international efforts was defined as a thorough and exhaustive review of existing legislation, policies, procedures, and practices, with ongoing necessary adjustments. These substantial and far-reaching changes to the delivery of international financial services, crafted to strengthen the financial services sector and to protect it from abuse, were viewed as essential to the continuation of The Bahamas as an international financial center of significance in the world. The Prime Minister noted that before the globalisation of business and then of crime, particularly drug crime, self-regulation and supervision of professionals was considered sufficient and adequate. “Our international banking and financial services sector, long self-regulated, is being brought under legislative regulation through amendment to existing and/or enactment of, new legislation.

As a result, all licensed financial institutions and/or financial services providers in our nation will now be required by law to ensure that they are not engaged in or accommodating illegal activities. These include banks and trust companies, lawyers and accountants, management companies and broker-dealers, investment managers, casino operators, and others” said the Prime Minister. Today’s international environment for the conduct of financial services has changed, a reality with which The Bahamas has had to come to terms.

The move by a sizeable number of jurisdictions over the last two decades to move their economies towards service industries and, notably, financial services, was reported to have led inevitably to an increase in the abuse of legal tax avoidance. And, subsequently, “to rampant engagement in illegal tax evasion by criminal elements including drug traffickers, corrupt government officials and crooked businessmen”.

Prime Minister emphasized that The Bahamas shares a common interest with concerned industrialized countries and multinational financial agencies in seeking a well-regulated and transparent global market for the conduct of international finance. The Government of The Bahamas also “is of the firm view that all financial centers, whether located in major industrialized countries such as in the member states of the OECD, or in small “off-shore” centres like The Bahamas, ought to meet the same new and evolving international standards for the delivery of international financial services”.

As a consequence, the legislative responses of The Bahamas to stated concerns have been based on the principle of constructive cooperation with the industrialized countries. “While we do not propose, nor have we adopted legislation and practices which place us at a competitive disadvantage to other international financial services centers of repute, we do not propose that The Bahamas lag behind in the proper regulation and supervision of its financial services sector; nor do we propose to permit out-dated laws to facilitate unscrupulous individuals to use our jurisdiction to their illicit advantage”.

Referring to both improved administrative processes and legislative standards, Prime Minister Ingraham expressed the Government’s confidence in its initiative to enhance and strengthen the regulation and supervision of the financial services sector — to the benefit of all who are engaged in sound and legitimate financial services business. He emphasized that the Government had acted “to ensure that good, legitimate business would not be enticed away from The Bahamas to presumably better regulated jurisdictions”. The package of new and amended legislation was “benchmarked” to against acceptable practices in multiple jurisdictions. The Prime Minister confirmed that extensive consultations with providers of international financial services in and from The Bahamas – including discussions with senior management teams of all the major international bank and trust companies with branches and/or subsidiaries operating in and from The Bahamas – provided assurance that standards now enacted coincide with good industry practice as already observed by those institutions. This was so particularly with regard to “know your customer” rules.

Prime Minister Ingraham pointed out that the notion of sovereignty is being defined by the realty of globalisation as that process intensifies. Notwithstanding the difficulty as a sovereign nation in accepting that changes in the international financial services regime might be required solely to satisfy the demands of other countries, it was recognised that home jurisdictions of international banking institutions operating in The Bahamas are in a position to determine whether The Bahamas continues to have an international banking sector made up of their institutions. Similarly, they can determine the rules which must be in place if their financial institutions are to remain in or come to The Bahamas.

“The Bahamas must comply with the new evolving rules governing the delivery of international financial services, as the industry can only survive and prosper in The Bahamas if financial institutions located here are able to conduct hassle-free business with New York, Toronto, London, Zurich, Geneva, and other financial centers around the world”.