Cheryl Bazard of Bazard Law examines the Bahamas reaction to the various compliance issues and anti-money laundering legislation faced by International Finance Centres today.
It seems as if the Bahamas’ financial services sector has had as many challenges to its survival as the number of islands that make up its archipelago.
The jurisdiction has been painted a number of shades, albeit from the darker sections of the colour wheel. At the closing of the 20th century, Y2K was not the only matter to cause the financial services sector to stay awake at night. The closing of the 20th century saw the inclusion of The Bahamas on the Organisation for Economic Co-operation and Development’s (OECD) black list while the dawning of the 21st century saw The Bahamas on the OECD’s grey list.
The removal from the blacklist involved the implementation by the jurisdiction of several pieces of legislation which both criminalised and defined penalties for the laundering of money and expanded the definition to include crimes other than drug trafficking. Know your client and anti-money laundering legislation, guidelines and regulations were also passed and were immediately instituted in the financial institutions. In fact and in practice, many institutions were now following more rigorous standards than those set by their head offices in onshore jurisdictions.
There was also the Anti-Terrorism Act of 2004 that criminalised the financing of terrorism and ensured that financial institutions had statutory guidelines in place to detect and prevent the movement of funds for such a sinister activity. The International Economic Obligation and Ancillary Measures Act provided for the freezing of accounts of persons associated with the 9/11 Attack on the United States as identified on the United Nation’s list of terrorist organisations.
The removal from the lesser hued list involves The Bahamas signing Tax Information Exchange Agreements (TIEA) and to date, 28 TIEAs have been executed with 11 of those TIEAs representing agreements with member states of the G-20 countries. The countries range from the Nordic states to the Republic of South Africa.
Additionally, The Bahamas has amended its Banks and Trust Companies Regulation Act and of particular note is the implementation of section 19 of that Act, which resulted in a change from secrecy within the banking environment to confidentiality. This allows the release of information for the purposes of, inter alia, (1) making a disclosure by court Order issued by a court within the Commonwealth of The Bahamas or under the provisions of any law of The Bahamas; (2) for the purpose of enabling or assisting the Governor of the Central Bank to exercise any functions conferred upon her by any written law; (3) for the purpose of criminal proceedings, disciplinary proceedings, within or without The Bahamas, relating to the exercise by a counsel and attorney, auditor, accountant, valuer or actuary of his professional duties; or (4) disciplinary proceedings relating to the discharge by a public officer or a member or employee of the Central Bank of his duties.
One of the latest legislative developments in the United States, namely the Foreign Account Tax Compliance Act (FATCA), which requires, inter alia, all foreign financial institutions to enter into disclosure compliance agreements with the United States Treasury, also seems as threatening as the hurricanes that develop during this time of the year. However, a similar storm, although maybe not of the same category strength, brewed over this jurisdiction and in response to the same, the Bahamas passed the USA Tax Information Exchange Agreement Act 2003 which caused it to remain a Qualified Jurisdiction and allowed several offshore banks to obtain a Qualified Intermediary status with the Internal Revenue Service.
The implementation of TIEAs and the legislative measures to release information in specific circumstances have been viewed by some as causing deep erosion into the strength of the sector and now beg the fundamental question for this jurisdiction: Is it now time to restructure the tax regime and should that restructuring factor in a direct taxation of sorts? This then leads to whether or not the assaults on the jurisdiction have weakened its position as a premier financial services destination. There is no doubt that the changes in the regulatory landscape also brought about an increase in the operating costs to achieve compliance with these matters and the increase in costs has come at a time that has been likened to no less than the Great Depression.
Like both emerging and emerged financial services jurisdictions, the dangers of money laundering, tax evasion, corruption and illicit enrichment loom large on regulatory radars. Like G-20 countries, The Bahamas has sought to reform its regulatory and supervisory standards under Basel 2 and IAS 39. There has been the reform of the legal framework in the financial sector. Corporate governance has become a watchword, not only in theory, but in practice and The Bahamas has been an ally in the regulatory initiatives that have been planned for the Caribbean region.
It should be noted that the treaties that brought about the Mutual Legal Assistance Act have been in existence with the United Kingdom, the United States and Canada since 1988 for criminal matters and furthermore assistance is rendered to courts and tribunals exercising criminal jurisdiction that do not have a mutual legal assistance treaty with The Bahamas by virtue of The Criminal Justice (International Cooperation) Act, 2000. By 1998, there was the elimination of managed banks and in 2001, bearer shares were abolished.
The Bahamas and its people have shown resilience throughout the course of their history, but more importantly, The Bahamas has shown a sustained commitment to conducting its internal affairs in compliance with international standards and best practices. The foundation for the financial services sector is sure and the building blocks and renovation to its structure all point to a safe and well-regulated jurisdiction that will withstand these storms once the playing field remains level.
Cheryl Bazard, Principal, Bazard & Co, The Bahamas