Bahamas Denies Readiness To Agree To OECD Demands

by Mike Godfrey, Tax-News.com, New York

26 November 2001

Executive Director of the Bahamas prestigious Nassau Institute, Dr. Gilbert Morris, has written to the OECD to protest at the organisation's attempts to persuade other offshore jurisdictions to agree to its demands by pretending that the Bahamas is close to agreeing them itself.

Addressed to Donald J. Johnston, OECD President, the letter reads as follows:

It has been reported recently to The Nassau Institute (NI) that officials at the OECD - in their negotiations with sundry Offshore Financial Centres OFCs - have given assurances that The Commonwealth of the Bahamas is moving to sign onto the OECD's "information exchange" regime.

If there is merit to this report, it raises grave concerns, not only concerning the methods of OECD officials, but the presumption that this group, which does good work in many areas, is fit to negotiate in good faith on important sovereign matters between nations.

The danger, as you will be aware, is that such rumors may deter credible investors - wishing to exercise their right to privacy - from investing with the Bahamas through no fault of its own. While I understand that it is the OECD's position that investor information be subject to its information exchange regime, may I say respectfully that is not yet the status quo. I say further, it would be an unthinkable diplomatic faux pas that the Bahamas could be moving towards the existing proposal; since in recent days, the Governor of the Central Bank Mr. Julian Francis has echoed comments by the Prime Minister - The Rt. Hon. Hubert Ingraham - that the concessions offered by the OECD in its latest 'harmful tax' report were not enough to see targeted Caribbean jurisdictions sign up to comply.

As such, we call upon you Sir to clarify the position to the international community by a means sufficient to the task; confirming the status of the Bahamas aforesaid. Additionally, we would welcome any clarification on these rumors your office may condescend to provide.

The Institute issued a press release explaining the reasons for its action:

The Institute for Economic Freedom (IEF) - now renamed The Nassau Institute (NI) was on high alert last night. This was owing to a report from reliable sources in France and Washington, that OECD officials have been boasting to Offshore Financial Centres (OFCs) that The Bahamas is ready to fall to the OECD's demands on automatic information exchange.

In a Report on Harmful Tax Practices last year the OECD listed the Bahamas and 34 other nations as having harmful tax practices; which includes offering incentives - such as no taxes - to encourage legal tax avoidance and investment in and through the Bahamas.

The Institute's Executive Director, Dr. Gilbert NMO Morris reached the OECD General Secretariat at 9:am Paris time this morning to express concern. He has also been in constant contact with the office of Mr. Jeffrey Owens - Director of the OECD Division of Fiscal Affairs. If the rumours are true the Bahamas would have broken its word to its citizens. The Bahamas' position, reiterated in today's paper by Sir William Allen, is that the OECD 's demands do not meet criteria laid out by the Bahamas as conditions to any possible agreement on the information exchange issue. If the rumours are true it would also mean that the Bahamas has ignored the pleas and broken whatever assurances have been given to regional negotiators such as Sir Ronald Sanders - High Commissioner to the Court of St. James for Antigua and Barbuda; who have asked the Bahamas to lead the Caribbean OFCs, by holding to the position that the OECD's demands are not acceptable.

In recent days Governor of the Central Bank Mr. Julian Francis has echoed comments by Prime Minister, The Rt. Hon. Hubert Ingraham that the concessions offered by the OECD in its latest 'harmful tax' report were not enough to see targeted Caribbean jurisdictions sign up to comply. According to Dr. Morris, "we think, - in agreement with our colleagues in Washington and Paris, - that these rumors are a rouse to get other jurisdictions to fold, given the significance of the Bahamas. We expressed concern that carelessness on the part of the OECD could damage the reputation of the Bahamas, leaving the impression that somehow every week, the OECD can make demands that become practice codes for us. This could mean serious further losses in financial services business for the Bahamas; still recovering from a major fire that ravaged part of its downtown and Hurricane Michelle. I sought to remind the OECD officials that The Prime Minister and Bahamas government officials made the position clear, and that the OECD's handling of these matters must reflect the highest principles of diplomacy, first amongst which is good faith".

He stated further: "The Institute calls on the OECD to immediately dissociate itself from the rumors, and assure the world that the position stated by the Bahamian government is the status quo".

Dr. Morris said: "If the Bahamas were to agree to the latest OECD initiative, it would effectively sign on to the European Union's infamous "Savings Tax Directive"; which seeks to draw all financial centers - including those outside the EU - into a consortium that would require automatic "information exchange" on all foreign investors. This would mean that private information on investors would be exchanged, not only in high-level cross-border criminal investigations, but also in the ordinary case of any European individual investing in, or through the Bahamas".

Dr. Morris stated that "such a regime such would be wholly repugnant to the constitution of the Bahamas which rests on the principle of sovereignty". At the Institute, we believe in the provision in international law for "Enforcement of Judgments", since it recognizes the sovereign peculiarity of nations in respect of their domestic laws". He argued, "There are some lawyers here in the Bahamas who take the view the there is no property right in privacy under the Bahamas constitution. But that is an over-literal and false reading of the constitution and a poor interpretation. The due process rules in the constitution are the bulwark of the privacy protections. We cannot invite investors to the Bahamas under the guise that they enjoy the protection of long settled law, only to offer them up to external forces on unsound legal basis".

On the problems facing the Bahamas in respect of the OECD initiatives Dr. Morris commented: "We are pleased at the stiffening shown by Bahamas government officials. Unfortunately however, the path we are defending is in reality the road to a cul-de-sac. For instance, the argument over designation of a tax haven is utterly meaningless. It does not matter what nations are called, but how they alter their legislative and constitutional characteristics, in response to these illegal initiatives from the OECD/FATF and IRS."

"Second", he continued, "the refusal to sign onto tax harmonization is an empty gesture, and reflects a failure to understand how the OECD's diplomacy operates and how the OECD and the FATF operate in concert. Not only the Bahamas, but also a host of nations have got this issue very wrong. Tax harmonization is the diplomatic nirvana, or the "idiot's gold". These international bodies know that no right thinking nation would sign up. But they also knew that many OFC's would cave in to the FATF as a way of choosing the lesser of two evils.

The OECD and FATF understood that no one wanted to be called money launderers, and the "good cop" routine basically required Offshore Financial Centers to undermine their constitutional protections in an effort to avoid being called names. If they had stood fast as they are now, their reality and relative strength would be different today. Moreover, even as the Offshore Financial Centres have been defending themselves, they have done so largely on grounds of fairness or opaque sovereignty. None of them have done so on explicit legal grounds.

The Institute is near completion of a comprehensive legal review of the OECD initiatives of the Wolfsberg "Know Your Customer Rules", the FATF's 40 Recommendations and the Qualified Intermediary Rules. This will be the first legal analysis which may serve as a guideline for a rational defense of sovereignty resting on international law, constitutional law, and the common law first principles".

THE NASSAU INSTITUTE, November 22, 2001

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