Bahamas Seminar Discusses OECD Blacklisting Impact

by Mandy Robinson, Tax-news.com, London

18 April 2001

The Bahamas Journal reported that a high profile meeting took place last week on the nature of the impact of both the OECD's decision to blacklist the Bahamas as a 'harmful tax haven' and the country's subsequent efforts to be removed from the list. Attending the event at the British Colonial Hilton Hotel were Attorney K Neville Adderley of Chancery Law Associates, attorney Michael Paton of Lennox Paton and Company, trust and estate practitioner Gavin Cassar and economist Ralph Massey of the Institute of Economic Freedom and Prosperity.

During the meeting Mr Adderley argued: 'Being on the money laundering blacklist is bad for the Bahamas because this would mean the virtual shutdown of the offshore financial sector in the Bahamas, with obvious impact on our economy. On the civil side, your organization could find itself embroiled as co-defendant in a complicated lawsuit with high legal fees and if money laundering is found, banks and their employees, officers and directors and other persons with fiduciary duties could find themselves personally liable or constructive trustees for loss to such persons suspected to be involved in money laundering transactions.'

He continued to argue that many people have confused the two issues of money laundering and harmful taxation, saying: 'one fundamental difference is that the money laundering issue pertains to international standards which the Bahamas agreed in writing to implement. The harmful taxation issues is a unilateral declaration of the OECD through its committee on fiscal affairs. If tax haven countries do not sign an advanced commitment letter by July 31st this year undertaking to abolish its harmful tax practices by December 31, 2005, it has been threatened that they will automatically be included in a new blacklist. This time not in relation to their failure to cooperate in the fight against money laundering, but in relation to being a tax haven which is engaging in what they call harmful tax competition.'

Attorney Michael Paton said that the OECD has been using the FATF as an added influence on the Bahamas to force the jurisdiction to implement its OECD commitments earlier than other jurisdictions which do not have to comply until the year 2005. In reference to the new laws enforcing the 'Know Your Customer' rules and the reporting of suspicious financial transactions, he stated: 'The Bahamas is being held at a higher standard and the rules of the game aren't being evenly applied. The problem we're going to face now is that institutions in The Bahamas are going to have to verify each account that is being set up. Unfortunately the way business is working, where you have a financial institution headquartered in Switzerland for example that wants to set up accounts for clients in the Bahamas, which would mean very big business for us, now financial institutions in the Bahamas that want to take on that account have to call Switzerland and ask who their clients are. They're not going to do that.'

Mr Paton also argued that the new laws would also adversely affect stamp duty, real estate sales, domestic banking and the tourism industry.

According to economist Ralph Massey from the Institute of Economic Freedom , the poor track record of the Bahamas' offshore sector has not helped its case: 'in the case of the blacklisting, the weight of both the past and the present is pressing down on the Prime Minister and the country like a nightmare', he said.

Mr Massey is also of the opinion that the blacklisting had severely affected business and employment - particularly for lawyers, accoutnants, IFAs, fund managers, and estate agents - in the Bahamas and it will be difficult to assess the damage until after the dust settles. He argued: 'What will be the business lost by the producing private sector? What are the critical factors causing that loss? And how much regulation is essential, and will it be cost effective? Right now, no one knows for sure. In the meantime, the Government is rightfully publicizing its crack down on the bad apples and extolling the virtues of government regulation. But will this progress last beyond the immediate crisis? Will it produce a new day? It will take strong political leadership and a new way of thinking about government law and order.'

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