31/08/17

Barbados: Tax experts say tourism will pay if de-risking is ignored

The Freundel Stuart administration is being warned not to ignore the vexing issue of de-risking even as it struggles to address the country’s worsening economic conditions, reports Barbados Today.

The warning which came from overseas tax compliance experts, cautioned that if the issues relating to de-risking were put on the back-burner, the country’s bread and butter tourism industry, as well as other sectors, could pay dearly.

De-risking is the term used for the termination or restriction of business relations, or the severing of correspondent banking relations to avert risks of money laundering and terrorist financing.

Up to June of this year the Central Bank of Barbados had given the assurance that the concerns regarding de-risking were being addressed at the highest level among regional states and the international community.

Economist Jeremy Stephen said over the past few months it seemed Barbados had become relaxed in tackling the threats and issues relating to de-risking and the Foreign Accounts Tax Compliance Act (FATCA), in order to focus more on issues relating to public financing.

“I think that we took our eyes off the ball with respect to de-risking. It is as if it is not even a big threat anymore and people have just put it in the back and we are focusing on the fiscal issue that Government has,” Stephen said.

Speaking to the media today, ahead of a seminar to be held here next week on matters relating to FATCA, Common Reporting Standard (CRS) and de-risking, President and Chief Executive Officer of Foodman CPAs & Advisors Stanley Foodman said if Barbados failed to save its institutions from de-risking sectors of the economy could be “severely impacted”.

“It is an issue that can permeate and affect every sector of the Barbados economy and I think it is important to keep that in mind that it is probably the most unforeseen dangerous financial issue that has crept up behind FATCA,” Foodman said.

“With respect to de-risking the impact on the local economy is for example, if you are not self sufficient with food supply you might have trouble bringing in food supplies. If you import your medicines and medical supplies that can be impacted and tourism in and of itself,” he said.

The compliance and risk management specialist explained that jurisdictions that have already lost their entire correspondent banking relations were now reeling from the effects.

“De-risking is negatively affecting the Caribbean in a way that we haven’t seen since the ramification of the Caribbean Basin Initiative. It has become a terrible problem for economies in the Caribbean. It has caused loss of jobs, it has caused a loss of food supply in some places and of course it is affecting the tourism industry.

“If for example, I were to go to Barbados and I wanted to use a credit card in Barbados and the banking system in Barbados was de-risked then I couldn’t use my credit card in Barbados, which is a throwback to the days when I would have to travel with travellers cheques and cash, which also creates the spectra of potential increases in street crimes and other issues affecting the local economy and the local cultures and countries,” he added.

Foodman said if institutions were de-risked, a part of the solution was to find “second tier banks” to provide the necessary correspondent banking services.

“The solution is a bifurcated solution that comes together. The first is to make sure that Barbados is completely FATCA compliant from top to bottom. That is an absolute. Also to make sure that Barbados is CRS compliant,” he said.

FATCA, passed by the US Congress in 2010, requires foreign financial institutions to report to the US tax office, the Inland Revenue Service, information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest.

President of the anti-money laundering consultancy firm ComplianceAid Michelle Martin said even if local banking institutions were de-risked the country should still ensure it was up to date on a number of tax compliance matters.

“If entities de-risk then they are looking for the second tier and to even go back to the first tier they have to have the house in order. If the house is not in order they are not going to be looked at. Obviously you are going to need a strong AML (anti-money laundering) programme in place where your policies and procedures are not just written but they are tailored to your industry and then to your specific institution,” Martin said.

She also warned of the need to have a qualified and capable compliance officer in place, and that requirements under the local tax compliance law were followed, including annual training, audit, risk assessment and controls.