Dr Gilbert Morris, Executive Director of the Bahamas' Nassau Institute recently held a workshop at which he addressed the threats to the Bahamas' financial sector from the recently-signed US/Bahamas Tax Information Exchange Agreement and other international legislative developments.
Under the title 'The Diplomatic Opportunities and Strategic Possibilities In Neutralizing the Effects of Cross Border Financial Services Regulations', Dr Morris addressed the history of the development of legitimate tax avoidance techniques and current trends to limit and compromise their use.
'It was nearly 35 years ago,' said Dr Morris, 'that Sir Stafford Sands caused a change in the direction of the commercial landscape of the Bahamas. What he intuited and foresaw was a means by which the American investor could arbitrage - legally - his tax obligations by organizing his affairs through tax saving instruments and investment vehicles in the Bahamas. These instruments - which are "tax avoidance" measures - had been in use in Europe since the rise of the Austro-Hungarian empire between 1630 and 1647. In England, the notion of tax avoidance gives a meaningful reading to the 1215 crisis which lead to the signing of Magna Carta. The King, under the presumption of "divine right of rule" saw it as his prerogative to tax - in this case by raising armies in the duchies - unquestionably. Each duke or knight had a duty to provide war resources to the king from his lands. The difficulty was that in the exploitation of these resources - which included men - the king was unaccountable…and a disproportionate loss to a duke or knight may have meant such a depletion in his resource base as to render him unable to maintain his place in the king's "pecking order". At Runnymeade in 1215, the knights changed that by limiting the prerogative powers of the king by force of threat. This was the first decisive act of citizenship by Englishmen against taxation without representation.'
After reviewing the early history of banking, Dr Morris explained the origins of banking secrecy:
'In the wider European political theatre, the first Swiss banking clients were the royal courts of France - who greatly which sought discretion from their money lenders, against the prying eyes of the church. The Geneva bankers were actually Protestants, who were often of French origin and chased out following the Revocation of the Edict of Nantes by Louis XIV in 1685. They soon found commerce in financing the King of France from Geneva. At the time there was no better borrower than the king, who had both the ability to pay back his loans and insatiable financing needs. Discretion was of utmost importance, since knowledge of the king's indebtedness to heretic Protestants would have brought the ire of the church. One of the earliest pieces of legislation regulating bank secrecy dates back to this period. In 1713, the Great Council of Geneva (cantonal council) adopted banking regulations which stipulated the bankers' obligation to "keep a register of their clientele and their transactions. They are, however, prohibited from divulging this information to anyone other than the client concerned, except with the expressed agreement of the City Council".
'Switzerland became a "financial asylum" for those fleeing the political upheavals ravaged the continent since 1789 . From then to 1934, bank secrecy was regulated solely by civil law. A client could lodge a complaint for damages against any bank that neglected its duty of confidence. The cantonal civil rights unified in 1907 by the Swiss civil code and the 1911 labor code provided sufficient guaranties for aggrieved clients to enforce their rights. This capacity for enforcement is at the heart of citizenship…won from the vestiges of over-centralized government since 1215. On the other hand, there was no criminal provision; there was no threat of imprisonment for the banker's breach of confidence to his client…though in practice the banker was regard alike to the priest and the physician. Swiss jurisprudence at the turn of the 20th century would confirm this duty of confidence on several occasions. In 1930, the federal court, the Supreme Court of Switzerland, recalled that "the banker's confidence constitutes an implicit contractual duty". This affirmation was further developed in 1932 in the case of Charpiot versus the Caisse d'épargne de Bassecourt (Bassecourt savings bank): "Bank secrecy is nothing other than the right of each bank client to demand the strictest confidence from the bank in the business affairs with which it is entrusted; it is equally, and conversely, the bank's duty to keep completely quiet about these affairs. For the banker in particular, this duty is independent of the legal relationship between the banker and his or her client. Whether there is a written contract or not, violation of bank secrecy constitutes a wrongful act according to articles 41 et seq. of the labor code".'
Turning to the present day, Dr Morris said that the Bahamas faces a three pronged attack upon its banking and financial services sector from the The Tax Information Exchange Agreement (TIEA), the OECD initiative on Harmful Tax Practices, and the US PATRIOT ACT 2001. He analysed these three threats in detail, concluding:
'The fallout of these initiative in general and the PATRIOT ACT in particular is that whilst all of the smaller, less prestigious financial centres will be squeezed out of the business, if centres such as the Bahamas fail to respond with some diplomatic sophistication, there will be a landmark shift toward the traditional European centres. Some offshore centres have already expressed concerned that if Switzerland (and Luxembourg) are not obliged to adhere to the standard sought to be imposed on offshore Caribbean centres, business will migrate to OECD Member Countries. (Particularly the US, Switzerland and Austria - and do not discount Russia and Cuba. Note also that Italy has just announced a new IBC law). If Switzerland's commitment is delayed so that it remains the "last man standing" for clients seeking financial privacy, client structures may well come to rest there, even if Swiss laws subsequently change.'
Dr Morris concludes:
' It will not do to fall into the nonsense that signing the undertakings or the TIEA - and such other initiatives as will come to the fore eventually - are an assent to "international standards". This is ridiculous when at the same time arguing for a "level playing field". What is more it appears ridiculous to the world.
'Returning to the issue of culture, we lack a genuine banking-culture as much as we do a juris-culture. When the foreign banker comes to our shores, it is not we, but he who demonstrates to us the advantages of banking here. It is he who - to the extent that he does - tests the limits of possibilities of banking. Part of the reason there is no defense of banking from the general population is exactly because in the public's mind, banking has no understandable relation to the way Bahamians live; and even for those Bahamians in banking, they do little more than mechanical tasks involving none of the responsibility, and so creativity required for financial services. What they have is a job. Period.
'Third, the representatives of the industry - though peopled by some quite thoughtful and interesting people - are thoroughly compromised by their sponsored relationship with government. It is impossible to be objective under such an arrangement. Indeed, they are inoculated from the responsibility of developing policy for their membership in a manner consistent with our political realities and germane to a community without the native talent and experience in the broader cultural conception of financial services. Moreover, I say without reservation, those bodies who failed to defend the financial services industry in the Bahamas take as their defense that their role is promotion and so they cannot be seen to be critical. It must now be seen as a nonsense of the first water. First, if their promotion within the Bahamas were successful, Bahamians would be apprised better of the role of banking in the national culture inducing a historiography as laid out for Switzerland in the beginning of this paper. Second, if promotion of the banking in the Bahamas is their goal, that too now is shown to be a failure as the government and the industry continues to reaction rather than induce reaction to policy. In point of fact - which I challenge all and sundry to refute - the absence of a native creativity after 35 years in banking; the absence of genuinely Bahamian banks; the absence of a "Bahamian standard in financial services - all reflect a failure of democracy and an enterprise culture.
'Now it is clear for the world to see, we have these long years suckled on that which we did not create, could not improve and are set to lose. And in this - should we care to be honest - we have cultivated nothing lasting. Only is dangerous folly and gifted ineptitude permits us now to say that we can entre a new form of financial services, defending our longstanding failure as a concept of life. But the rouse is up: we have demonstrated to the world that we are not prepared to defend the rights of our inhabitants, whether citizen or guest, even according as our law demands.
'It may surprise you that I am not in despair concerning these failures and the infliction upon us all out of the circumvolving vision of those responsible for more than they have bothered to act responsibly for. In the thickets of this comes opportunities for a new thinking, which - ironically - those who have been irresponsible wish to take into their portfolio as well. It cannot be so. If you will do more than survive with what little you have been left with…if you will thrive in that you must do the following:
Network Tweets
Network BlogsContent
provided by
|
Archive | Resources | Partners | Site Map | Links | Newsletter Archive | Contact | RSS Feeds | About | Syndication | Advertising & Marketing | Recruitment | Terms & Conditions | Privacy & Cookies
Copyright © 2012 - All Rights Reserved - Tax-News.com
IMPORTANT NOTICE: Tax-News.com has taken reasonable care in sourcing and presenting the information contained on this site, but accepts no responsibility for any financial or other loss or damage that may result from its use. In particular, users of the site are advised to take appropriate professional advice before committing themselves to involvement in offshore jurisdictions, offshore trusts or offshore investments.
Write a comment