Fierce Debate In The Bahamas Senate Over Banking Privacy

Mike Godfrey, Tax-news.com, New York

17 August 2000

An amendment to the Evidence (Proceedings in Other Jurisdictions) Act was passed in The Bahamas Senate on Monday despite fierce opposition in a debate which raged for just under four hours and concluded with an opposition members' walkout. During the debate which preceded the official Government acceptance of the law, opposition Senator Melanie Griffin declared that the new law will herald 'the death of bank secrecy as we know it today' and that this will have 'immeasurable' consequences upon the Bahamas' financial services sector.

Although Bahamas Finance Minister Sir William Allen had reassured the lower house on Friday that the new amendment really changed very little, this seems hardly credible given that the Prime Minister rushed back early from his trip to the US in order to organise this and other amendments to existing legislation, presumably desperate to follow the Americans' instructions as quickly as possible in order to regain international favour and escape the OECD's censure.

In his address to the nation in July, following Bahamas' blacklisting, the Prime Minister had made it clear that a significant change of attitude was necessary, and he listed half a dozen Acts that needed to be changed, so it is not very convincing if the actual changes when they happen are brushed aside as merely cosmetic. Who is kidding whom? The reality is that the amendment to the Evidence Act will allow disclosure of bank details as a matter of purely administrative fiat in some circumstances, whereas before there needed to be a Court order. Any investor is going to see that as problematic. You don't have to be a criminal to fear the actions of administrators, and to choose another jurisdiction which hasn't given in to the current wave of political correctness.

That is not to say the Government is wrong to change its legislation. A country like the Bahamas, with many existing relationships to other high-tax countries, and especially the US, probably has no choice but to go along with their demands (perhaps hoping that a future US Republican administration may be less terrifying). A smaller, up-and-coming jurisdiction may make a different calculation.

The amended act will clearly allow international investigators to obtain details of bank account holders in The Bahamas more readily than before. However, Ms Griffin's fears stem from the fact that it will not only be foreign bank customers but also Bahamian citizens who will be subject to investigation. A disgusted Senator Griffin complained that it is 'frightening' that the Bahamian Government 'is willing to allow foreign entities to embark in fishing expeditions in the bank account of not just foreigners who hold accounts in the Bahamas but Bahamians as well.'

Much of this is no doubt political posturing. The Senator understands the realities of the situation as well as anyone. However, she continued: 'the foreign entity doesn't have to have a case, they just need to 'contemplate' having a case and they can run to us and have free reign to mix up in our business and then just walk away, with the possibility that the information will not even be used ... this is farcical and should not be allowed to happen.'

Melanie Griffin then turned on the US: 'I have been made to understand that the amount of money laundered in the Bank of New York in a month is more than that in The Bahamas in a year, so with all their controls, the big powers cannot eliminate money laundering in their own countries, but they are trying to make The Bahamas and the Caribbean look like the bedrock of money laundering.'

'A US New Jersey bank that recently intended to make The Bahamas the head of its offshore centre', she continued, 'has adopted the stance of a 'wait and see' attitude towards re-locating to The Bahamas, the bank has now decided to look to Switzerland for the new location of its offshore head office.'

Ms Griffin contends that this is a reflection of how potential foreign financial interests in The Bahamas will react in the future, and this will result in job losses: 'it's a mushrooming effect ... and we cannot and should not play dollhouse with an industry that means so much to the survival of our country.'

Opposition leader Marcus Bethel and other opposition senators shared Ms Griffin's concerns, and refused to participate in the eventual vote on the amendment (which they couldn't affect, anyway).

So the Bahamas has fallen into line, although there may be other fierce debates ahead as further laws are adjusted. Still, investors should perhaps not rush for the exit doors too quickly, because much depends on how jurisdictions such as the Bahamas use their new powers in practice, and on how the courts react to such new limitations on their historical role in policing banking privacy.

It is a natural reaction to want to placate a powerful aggressor; but the high-watermark of the current round of high-tax dominance may already have passed. On balance, the OECD has probably diminished itself over the last three months: how could it have been so stupid as to attack offshore when its own employees live tax-free in great luxury in the world's highest-taxed cities?

It's wait-and-see time for offshore investors.

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