Nassau Institute Worries About Bahamas/US Agreement

Tax-News.com, New York

30 January 2002

The Nassau Institute in the Bahamas has expressed grave concern over the Tax Information Exchange Agreement (TIEA) signed by US Treasury Secretary Paul O'Neill and Bahamian Finance Minister William Allen on January 24th 2002. This agreement, according to the US Government, commits the Bahamas to share tax information in order to cut off funding to terrorist organizations, to eliminate the use of financial institutions for illicit transactions and to assist in the enforcement of U. S. tax laws.

Following the failure of consultation on the Financial Services Bills last fall, Labour Bills this Spring and the recent proposed Constitutional amendments, a principal concern is that the Financial Services Industry was at the time of the signing broadly unaware of the particulars in the agreement, and more importantly it came to the larger community as a surprise.

The Nassau Institute says that it continues to insist on the rule of law as central to legitimate governance. To some this may seem like a theoretical point, says the Institute, but the rule of law implies process; which is to say consultation as a means of developing impersonal approaches decision-making. This gives the fullest guarantee of legitimacy and proficiency in government policy-making, and maximizes the input of experience and structural efficiencies.

Continues the Institute in a press release: 'The signing of the TIEA by the Bahamas is a failure of this principle. It seems, the decisions of a small group of persons is determining the fate of an entire industry - without the genuine participation of its members. This is so despite the apparent noble intentions behind the Agreement - which nonetheless can be achieved without putting the Financial sector at risk, and without these Agreements and their open-ended clauses on OECD initiatives.

Dr. Gilbert Morris - Executive Director of The Nassau Institute explains: "The Bahamas are in the midst of an election cycle and a referendum and this is not the time to have signed an agreement which may reconfigure the financial services landscape". He continued: "What is deeply troubling is that this signing is stand-alone. It is not a component of a re-positioning strategy for the entire financial services sector, or on the heels of an extensive review and a vision of where we should go. If there were such an agenda the financial community would have been driving this not people with temporary authority and limited experience in global financial services", with the assistance of a few experienced operatives.

Dr. Morris says: "It is important for banks and their clients to remember is that any exchange of information is subject to the courts - particularly in reflection of Justice Allen's ruling in the "FIU case". No treaty is valid which has no enabling legislation or that is in competition with the Bahamas Constitution and the rights it affords property. In addition, any provision which interferes with lawyer/client privilege has been shown in recent cases in America and Canada to be void and of no effect and I believe this will be confirmed at the Privy Council, and in an upcoming case framed by distinguished counsel Mr. Maurice O. Glinton and Ms. Leandra Esfakis".

He continued: "Having said, that the Agreement contains all the points confirmed in The Institute's analysis of other agreements, and it contains the general protections confirmed in Justice Allen's ruling in the FIU case. However, the Attorney General's response to that case, and the government's insistence on appealing that decision implies that it will challenge in the courts, exactly what the Agreement allows". Moreover, as Mr. Glinton points out, the discreet definitions of privileged communications may be more onerous than appears on its face. Altogether, The Institute concedes that The Agreement - as written - imposes a less strenuous regime than the Cayman Islands Agreement for instance. But we advise caution in the analysis, given the limits of Justice Allen's ruling, the public reaction to the same from
the government and in respect of several new initiatives emerging from the US Congress and the OECD in the wake of the Enron bankruptcy".

Responding to questions about the international trends, Dr. Morris replied: "At the Nassau Institute (NI), we have maintained contacts with the international players in Global Financial Services. We have written about Swiss policies, and you see.the Swiss only recently defending banking secrecy and confidentiality. This is because they signed an agreement that was part of a larger strategy which the banks and the Swiss Banking Commission (SBC) have formulated going forward. In addition, the international conversation over territorial taxation in the US is gaining ground. And what has happened here today, without broad knowledge or participation of the Financial Services Sector and without the Bar Association, or other financial services professionals.will suggest to the world that we are not serious.and that doing business with us put them at risk of sudden alterations in our systems without warning".

Asked whether he thought that the Nassau Institute (NI) or he himself would be seen by the Americans as supporting financial crime, he replied: "I will answer only for the Institute, since I do not defend myself. This Institute has argued for the rule of law and anti-corruption when some of those who speak with a different voice - about clean banking systems were - quite happy with the way things were. We have argued an intelligent approach to re-positioning. We have suggested areas such as Custodial Banking, Rent-a-Captives and Protected Cell Companies as open for new capacity. We have talked about e-Commerce but very differently than is discussed currently. The Institute condemns any corruption from private sector organizations and government to international agencies. And since we defend the constitution as the guarantor of lawful conduct, we defend the principle of sovereignty which we believe this Agreement is likely to offend, if only in spirit".

He concluded: "A government cannot shove its actions down the throat of its citizens and the nation's distinguished organizations on the flimsy basis of vague "globalization" or some secret knowledge that it is the best thing to do.and perhaps now, those who believe in protective "insider" deals will understand now what the Institute has been saying".

The Institute will produce an analysis of the Agreement at its web-site www.nassauinstitute.org.

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