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Antigua And Barbuda Pleads For Mercy From The UK And The US

Jeremy Hetherington-Gore, Tax-News.com, London

08 December 2000


The Caribbean offshore jurisdiction of Antigua and Barbuda has suffered considerably from the 'advisories' which were issued against its financial services sector by the UK and the US in 1999. The jurisdiction claims to have more than remedied the problems which brought on the advisories, and complains that, far from removing the advisories, the UK and the US are piling on more requirements which they didn't originally ask for, and which were not seen as necessary by the FATF.

Whatever the rights and wrongs of the particular case of Antigua and Barbuda, it's a fact that unilateral action by a powerful country like the US or the UK can have a massive impact on the 'livelihood' of a small jurisdiction which is dependent on its place in the international financial network - and there is no forum to which such an aggrieved, small territory can appeal.

At a conference in Trinidad this week on Global Financial Services Sectors attended by the member countries of the Caribbean Financial Action Task Force and representatives of the governments of Switzerland, Canada, France and the United States, the following statement was made on this issue by Wrenford Ferrance, the Head of the Financial Intelligence Unit of Antigua and Barbuda:


'The UK and US advisories have had an adverse effect on Antigua and Barbuda's financial services sector both onshore and offshore in three ways:

'1. They now cost the economy approximately 25% more to transact international business than prior to the Advisories. The sum is in the region of US$1 million per day.

'2. They have caused investment in the financial services sector to diminish.

'3. They have created an unwholesome image for the country generally which impacts investments in other sectors of the economy.


'Economic Cost

'As soon as the advisories were imposed, banks in both the US and the UK became troubled about their correspondent banking relationships with all banks in Antigua and Barbuda.

'Only Barclays Bank, which is a branch of a UK-headquartered bank, continued not to experience difficulty doing business in the US and UK.

'There are no banks in Antigua and Barbuda that are subsidiaries of US owned or US headquartered banks.

'Several US and UK banks terminated their correspondent banking relations with banks in Antigua and Barbuda on the basis that they could not afford to allocate the manpower to paying attention to transactions for reporting purposes. Their argument was that it was costing them as much to monitor one million dollar transactions from Antigua as it would ten million or hundred million dollar transactions from elsewhere, and the business from Antigua was too small relatively to make the allocation of resources worthwhile.

'Thus, Bank of New York, Bank of America and Chase Manhattan terminated their correspondent relations from the US. In the United Kingdom, HSBC, formerly Midland Bank, also terminated their correspondent relations.

'What is important here is that all of these banks indicated quite clearly that they were not terminating the relations because of any bad experience with banks in Antigua and Barbuda, but simply because it was becoming too expensive to continue the relationship.

'In any event, before those banks terminated their correspondent relations, they had raised their fees for each transaction that they handled. Today, the banks in the US and UK that are continuing to act as correspondents charge as much as 25% more per transaction than the charges in force in April 1999. These costs have been passed on to the customers, and when taken as an average across the board of daily transactions from the onshore and offshore banks, they add up to an additional US$1 million a day approximately.


'Loss of Investment in the Financial Services Sector

'Since the Advisories were imposed, there has been no new investment in the financial services sector which previously had been growing considerably.

'This means that government has lost revenue from licence fees, as well as from levies on salaries that would have been paid by workers in new financial institutions. The economy as a whole also suffered from the multiplier effect of more people earning and spending in the economy.

'Obviously, there was also a loss in potential employment of a range of skills to service new investment in the financial services sector.

'While it may be argued that the Advisories served to deter unsuitable investors who would be wary of scrutiny caused by the Advisories, it is equally true that the same concern would cause quite legitimate investors to turn away from Antigua and Barbuda.


'Further, the Advisories would have the effect of causing legitimate investors to view the jurisdiction with a jaundiced eye, and therefore to take their business elsewhere.

'When it is considered that Antigua and Barbuda had 72 offshore banks in operation at the end of 1999, and today it has only 18 actually operating and in good standing, it will be seen that the government and the economy lost a considerable amount of revenue that was not replaced by new investment.

'Note should be taken that while some of these banks were struck from the register by our regulatory action because of non-compliance with our rules, many others winded-up or became inactive because of the Advisories and moved to other jurisdictions.


'Effect on other sectors of the Economy

'A showdown in investment in the Antigua and Barbuda economy in sectors other than financial services can also be attributed, in great measure, to the Advisories.

'First, the general image that the Advisory conjures to the potential investor is not good. It suggests unhappiness with the jurisdiction by two powerful governments.

'Second, investors invariably consult their bankers and other financiers when making investments. The advice of their bankers is even more important when such an investment is being contemplated outside of the jurisdiction in which they live, particularly if it is a small state like Antigua and Barbuda.

'When they consult their banks, the bankers are obliged to advise them that the jurisdiction has an Advisory against it by the US and UK governments. Armed with such advice, investors who are being wooed by countries all over the world, are less likely to pursue an investment in Antigua and Barbuda, and more likely to choose a jurisdiction without an advisory.


'Third, investors who do decide to pursue investments in Antigua and Barbuda despite the Advisories then bargain even stronger for concessions from the government. Recognising that they are in a relatively strong position, they demand greater incentives, including tax breaks and concessions on duties. The result is a further loss to governments of revenue. This increased loss of revenue deprives the government of the funds it requires for its own investment in social and economic programmes in the country. Thus, the economy slows down even more.


Other Effects of the Advisories

'A further effect of the US and UK Advisories is that they lead to advisories by other jurisdictions which have no basis for imposing one.

'For instance, the Jersey Financial Services Commission has imposed an Advisory on Antigua and Barbuda simply because the United Kingdom has imposed an Advisory.

'The Jersey Commission freely admits that it has no basis for the Advisory except that the UK has imposed it. However, the net effect is to destabilise the financial services sector of Antigua and Barbuda in particular and the economy in general.


'Lifting the Advisories

'Lifting the Advisories has turned out to be extremely difficult no matter what Antigua and Barbuda does.

'Today, few will doubt that the anti-money laundering laws in Antigua and Barbuda, and its regulatory and enforcement machinery are consistent with the highest international standards. What is more our record of cooperation internationally in bringing offenders to justice and in extraditing wanted persons is without blemish.


'Yet, neither the US nor the UK have lifted their Advisories.

'In the case of the UK, its Advisory has been modified, but the net effect remains the same.

'What is troubling about the modification to the UK Advisory is that it has changed the goal posts from those which it established in April 1999 when the Advisory was imposed in the first place.

'On any objective matrix, Antigua and Barbuda has remedied the deficiencies in its anti-money laundering laws and in its regulatory and enforcement machinery. That is why we were not included in the Financial Action Task Force (FATF) list issued in June this year of jurisdictions that were judged to be non-cooperative.

'All of the conditions set by the US and UK in April 1999 have been met. Now, however, the UK has added two new issues.

'First, they say that we have identified some 30 changes we want made to our laws. Therefore, we must make these changes. These 30 amendments were not demanded by the FATF, nor were they required by the UK in April 1999. They are entirely the creation of our own regulatory body.

'Second, on the basis of no evidence to support the claim, the UK now also says that there is a "possibility" that clients of Internet Gambling operations may use their accounts for money laundering. On the basis of that "possibility" and with nothing to support it, the UK has added a new dimension to its Advisory.

'While we will now put laws, regulation and monitoring in place to address this new issue of the "possibility" of money laundering through client accounts with Internet Gambling operations, we feel that this new dimension is unfair, especially as it is unsubstantiated. But, it does raise the prospect that the Advisories may never be lifted and that the goal posts will continue to change as one condition after another is satisfied.

'The effect on the Antigua and Barbuda economy may therefore be protracted and extremely harmful.

'We hope it does not come to that, and we remain ready to cooperate with the US and UK governments to get the Advisories lifted.

'However, we are disappointed that, despite all that we have done, and regardless of the fact that the FATF considered us to be fully cooperative in the fight against money laundering, these Advisories continue.

'Trinidad
5th December 2000'

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