As published on tribune242.com, Wednesday February 19, 2020.
A former attorney general yesterday said The Bahamas “must absolutely embrace” its new regulatory regime to attract fresh investment, jobs and companies to this jurisdiction.
John Delaney, pictured, now principal of the Delaney Partners law firm, told Tribune Business that The Bahamas needed to stay out of trouble to fully exploit legislation such as the Commercial Entities (Substance Requirements) Act following its complete escape from the European Union’s (EU) tax “grey list”.
This legislation has imposed an “economic substance” regime that requires companies to prove they have a physical presence, and are doing “real business”, in this jurisdiction, and Mr Delaney urged The Bahamas to quickly turn this regulatory regime transformation to its advantage by attracting more business to domicile here.
“That is an opportunity for The Bahamas that it must absolutely embrace,” he told this newspaper. “To the extent we have a substantive economic presence, staff will be engaged, real economic activity will be transpiring here, and the impact on the local economy and yield from trade in international financial services will be far greater than if this was not the case.”
The government appears to have been preparing for this eventuality since 2018 with the passage of the Commercial Enterprises Act, which is designed to remove immigration-related bureaucracy and red tape and make it easier for approved businesses in targeted industries to establish a physical presence in The Bahamas.
While this Act has yet to translate into easily-apparent economic benefits, Mr Delaney said the cost and ease of doing business remain areas for The Bahamas to target if it is to capitalise on such reforms.
“There are many things we can do to facilitate that,” he argued. “We should look to see if it is possible to have the kind of infrastructure that will facilitate the easy establishment of physical presence in The Bahamas for businesses wishing to do financial services business here that may not come otherwise. Many onshore jurisdictions are trying to do that, and it only makes sense for The Bahamas to do the same thing.”
Mr Delaney added that The Bahamas’ existing tourist infrastructure, especially its airports, aviation connectivity and proximity to the US and Miami, were all features that could prove attractive for international businesses seeking to establish physical presence in The Bahamas.
But another key, he argued, will be The Bahamas’ ability to maintain its reputation and seamless links to the international financial system by staying clear of future “blacklisting” initiatives. Its removal from the EU’s tax transparency monitoring list was thus another key step in maintaining its international business centre model.
“These things are important in the context of The Bahamas being engaged in international trade and the provision of financial services,” Mr Delaney told Tribune Business. “Whenever you have a major group of countries like the EU that pejoratively label this country it’s very unhelpful, at a minimum, from a marketing perspective as it suggests somehow the jurisdiction is less than credible.
“It’s not good from that perspective, and there’s always the possibility members of the EU might take measures to frustrate financial transactions coming from and going to The Bahamas. None of that is helpful for an international financial centre platform like The Bahamas. It just creates a lot of friction for businesses operating from and within The Bahamas.
“That means we must keep the gateway open for businesses to connect with the international financial system without restrictions and friction..... It’s always in our best interests to enforce the legislation.”
Mr Delaney also warned that removal from the EU’s ‘grey list’ represents just “a particular snapshot in time”, and it was “only a matter of time” before new standards and regulatory criteria were developed for The Bahamas and all other international financial centres (IFCs) to comply with.
Emmanuel Komolafe, a Bahamas-based fellow of the International Compliance Association, told Tribune Business that this nation needed to place “everything on the table” - including its status as a low-tax or ‘no tax’ jurisdiction - in developing a strategic plan to redefine the financial services industry’s “value proposition”.
While the country’s compliance with the demands of the EU and others has “sent a strong message The Bahamas is not the place for financial or tax crime”, he argued that it must rapidly “look to the future” and not see “staying off and keeping off” blacklists as its main priority.
“We need to redefine our value proposition,” Mr Komolafe said. “The cost of compliance has gone up, and this is reflected in the cost and ease of doing business. We must now retool and reposition the industry, develop a strategic plan and refine our value proposition.... We’re talking about quality of service we provide and making The Bahamas a financial services centre of excellence.”
He added that financial technology (Fintech) and related innovation was part of the solution, noting that traditional financial services providers now face direct competition from the likes of Facebook and other technology-driven firms.
“Clients are looking for much more than product,” Mr Komolafe added. “They’re looking for the quality, efficiency and effectiveness of the service obtained.... I don’t want to downplay that we’ve done a lot to get off this EU list, but it is not really a case of patting ourselves on the back. Will this suffice to help The Bahamas successfully shed the ‘tax haven’ label?
“We now have to look at positioning the financial services industry, which is a significant contributor to GDP growth and is suffering attrition year in, year out, and charting the course for its future. Nothing should be off the table. We know we’re not a ‘tax haven’, but do we have to go beyond and look at reforms to the tax system? We must have an honest conversation.”