Globally, there is a commitment to tax cooperation and transparency. Governments across the world are working with their international partners to address the issue of global inequality. This is being achieved largely through the exchange of information. The risks to the financial services industry have never been higher as clients report their offshore accounts via voluntary disclosure programs. Whistleblower claims are increasing exponentially, massive data leaks are becoming more prevalent and governments are sharing their amassed data through automatic and specific exchanges of information. This spirit of cooperation is coupled with the teeth of enforcement, as the enactment of the UK Criminal Finances Act extends extraterritorial reach to individuals and entities that fail to implement policies and procedures to prevent the facilitation of tax evasion.
Against this global backdrop, The Bahamas has joined more than 108 countries in the signing of the OECD’s Multilateral Convention on the Mutual Administrative Assistance in Tax Matters (the Multilateral Convention). Arriving at this point required much collaboration between the government and industry stakeholders in The Bahamas in order to address the risks to tax compliance posed by non-cooperative jurisdictions.
The legislative framework for implementation of the Common Reporting Standard (CRS) was initially put in place by The Bahamas in 2016 to facilitate the automatic exchange of information, with most recent amendments being made to reflect the change from a bilateral to a multilateral approach.
The Bahamas will implement CRS using the ‘wider approach’, which means that financial institutions will need to collect and retain the CRS information for all account holders, ready to report, in relation to all non-residents. The CRS information will not be transmitted to the competent authority until the financial institution is notified to do so. Financial institutions will therefore carry out due diligence procedures in relation to all accounts even if the account holder (and any controlling person of the account holder) is a tax resident of an overseas jurisdiction that is not a reportable jurisdiction.
The Bahamas has also signed the Multilateral Competent Agreement (MCAA) and has entered the Inclusive Framework on Base Erosion and Profit Shifting (BEPS).
BEPS has been defined by the OECD as “tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.” Under the inclusive framework, over 100 countries and jurisdictions are collaborating to implement the BEPS measures to tackle BEPS. The Bahamas’ indication of a definitive position on BEPS in December 2017 demonstrates its proactive engagement with international stakeholders as a means of strengthening the positioning of the jurisdiction. In commenting on these recent developments, Tanya McCartney, CEO and executive director of the Bahamas Financial Services Board (BFSB), said, “We support the government taking the necessary steps to avoid any adverse impact to the Bahamas as an international financial centre and to pursue initiatives that position this jurisdiction for sustainable growth and development.”
In addition to CRS implementation, signing MCAA and entering BEPS, the integrity of the jurisdiction is evidenced by the following:
• a strong anti-money laundering (AML), counter financing of terrorism (CFT) regime; and
• an effective implementation of the US Foreign Accounts Tax Compliance Act (FATCA Compliance).
A Strong Anti-Money Laundering and Counter-financing of Terrorism Regime
The Bahamas has always been committed to complying with international best practice and has fared well in its Phase 2 peer reviews by the OECD’s Global Forum. In fact, The Bahamas has been deemed ‘largely compliant’ with the OECD’s existing standard of exchange of information on request. The jurisdiction has gone on record with its intention of attaining and maintaining the very highest levels of conduct as a clean jurisdiction, complying with the highest standards to prevent the abuse of its financial system by money launderers and criminal elements. It has committed to satisfying recommendations coming out of the Caribbean Financial Action Task Force (CFATF), and Financial Action Task Force (FATF) in relation to simplifying and making The Bahamas' cooperation with foreign jurisdictions in legal proceedings more efficient. Some of the key elements from the rounds of The Bahamas’ regulatory reform are as follows:
1. In 2000 the Bahamas eliminated bearer shares.
2. Since 2001, there has been a register of directors and officers.
3. The law mandates that financial institutions have Know-Your-Client/Client Due Diligence as well as counter financing of terrorism processes. Further, regulators have issued guidelines to industry, outlining best practices for verifying customer identity and for developing anti-money laundering procedures and measures to prevent terrorist financing.
4. There is a regulatory framework for the reporting and investigation of suspicious transactions.
5. Financial service providers, including corporate service providers face independent inspections and regulatory examinations for compliance with AML/CFT laws.
6. The legislative restructuring in 2000 included the Evidence (Proceedings in Other Jurisdictions) Act and the Criminal Justice (International Cooperation) Act. The former regulates cooperation by Bahamian courts in civil matters, while the latter regulates such cooperation in criminal matters.
As the nature of risks evolves, The Bahamas continues to review and improve the framework for risk mitigation. Amendments to the anti-money laundering legal regime are expected, as well as a revamped Anti-Terrorism Act which will be passed in 2018.
The Bahamas is FATCA Compliant
On 3 November 2014, the Bahamas and the US signed the Agreement to Improve International Tax Compliance (the Agreement) and to implement FATCA based on the Model I Jurisdiction Status Intergovernmental Agreement (IGA) . To accommodate the non-direct tax system in The Bahamas, the IGA is a model 1B (non-reciprocal) IGA. As an IGA partner jurisdiction, the Bahamas-based financial institutions will not be subject to a 30 per cent withholding tax on US source income, unless they fail to meet the requirements set out in the IGA and in The Bahamas’ domestic implementing legislation.
Under the terms of the Agreement, The Bahamas’ financial institutions provide The Bahamas’ competent authority with the required information. The Bahamas’ competent authority forwards that information to the competent authority in the US. The Agreement is an international instrument for exchange of information for tax purposes between The Bahamas and the US.
Our Legacy in Financial Services
Historically, The Bahamas has always sought to provide superior financial products and services and a world-class client experience. It has proven itself to be nimble and responsive to global changes – always mindful of the need to adhere to international standards with respect to compliance, cooperation and transparency. As a sovereign nation for more than 40 years, successive governments have consistently demonstrated the country’s commitment to international best practices, cooperation in the administration of justice, international tax transparency, anti-money laundering and the countering of financial terrorism initiatives. Bahamian regulators are well regarded and active partners with international peer groups and agencies. There is collaboration between government and the private sector to ensure that The Bahamas remains a well-regulated, blue chip international financial centre. In fact, BFSB was established in 1997 to create a public-private partnership and forum for open dialogue about the challenges and opportunities facing the country’s second most important economic sector.
While The Bahamas was not included on the EU’s blacklist issued at the end of 2017, BFSB’s Tanya McCartney said: "We have to be in a state of continuous improvement to ensure that we remain aligned with international standards. The work does not stop. We know that focus is on tax transparency and co-operation, and the need for jurisdictions such as ours to shed the perception of being an 'offshore tax haven'.” She went on to state: "We are working assiduously to ensure that policy actions are taken to secure this."
The Clear Choice
The Bahamas’ strong regulatory regime and its historic determination to ensure its integrity as an international financial centre, as evidenced by its most recent commitments, reflect the mindset of a jurisdiction focused on protecting and cultivating its key assets. Regulation, as it relates to international initiatives, is the canvas upon which The Bahamas’ wealth management expertise, innovative client-centric products and services and unique geographic tropical location combine to make it an increasingly clear choice for institutions and individuals seeking a premier provider of financial services.
Dr. Tanya C McCartney
Dr. Tanya McCartney is a UK trained barrister and chartered banker who since 2016 has served as the CEO and Executive Director at the Bahamas Financial Services Board. Over the past two decades Tanya has distinguished herself as a hardworking professional with expertise in the law, regulatory and gaming compliance, risk management, banking, and international financial services. She holds a Doctor of Business Administration from Edinburgh Napier University (Scotland, U.K.) for a programme of work entitled “Perspectives on Leading change: Exploring Change Readiness Strategies used in the Bahamian Financial Services Sector”. Tanya was appointed to the Senate of the Commonwealth of the Bahamas in 2001 being one of the youngest persons ever appointed to the Upper House where she served for five years. She vied for a seat in parliament in the 2002 general elections. She is a former President and founding member of the Bahamas Association of Compliance Officers. She is the co-chairman of the Bahamas Chapter of the global Association of Certified Anti-Money Laundering Specialists. Tanya is also an adjunct professor in the School of Business at the University of the Bahamas. She has served on several government boards over the years including The Public Hospital’s Authority, The University of The Bahamas and currently serves as Chairman of The Police Complaints Inspectorate and Deputy Chairman on The Airport Authority.