Judge: 'Resist' fraud label on offshore centres

By NEIL HARTNELL

Tribune Business Editor

A BAHAMIAN Supreme Court judge has urged observers to "resist" pinning the 'fraudster' and 'tax evader' labels on persons who use international financial centres such as this nation for legitimate purposes, warning that some demands from the G-20/OECD were contrary to Bahamian laws.

Justice Neville Adderley, in dismissing a claim brought by the Ecuadorean banking authorities against Ansbacher Bank & Trust and several Bahamian International Business Companies (IBCs) over an alleged $150 million financial fraud, set out an impassioned defence of the Bahamas' right to participate in the global financial services business through providing products that facilitated legitimate, lawful tax minimisation.

Arguing that the G-20/OECD initiatives were being driven by "frustration" in high-tax countries about their inability to keep pace with legal tax avoidance structures and products devised by the likes of the Bahamas, Justice Adderley railed against the heavy-handed 'sanctions' threats that were designed to force this nation and others into Tax Information Exchange Agreement (TIEA) compliance.

Noting that the financial services industry was the second most important to the Bahamian economy, in terms of its contribution to national employment and gross domestic product (GDP), Justice Adderley said: "We must resist the temptation to pin a badge of fraud on persons who make use, legitimate use, of offshore jurisdictions like the Bahamas.

"It has long been settled in English and international law that there is nothing wrong with a person so ordering his affairs to lessen his burden of taxes by lawfully avoiding (in contradistinction to evading) or otherwise making lawful use of offshore jurisdictions."

He added that "prudent professional advisers", who devised legal tax avoidance (minimisation) schemes for high net worth individuals and companies, would be unlikely to discuss their work with home country tax authorities because this would lead to legal loopholes becoming blocked off.

This, Justice Adderley said, would happen even if the schemes run from international financial centres were "valid and lawful". He added: "The court does not accept, therefore, without other admissible evidence, that failure to discuss with or disclose to the regulators of their home countries the details of lawful schemes of avoidance (or which they believe to be lawful) set up in international financial centres like the Bahamas is in itself a badge of fraud or an indication of dishonest intent."

The Bahamas and its financial services product menu had proven very attractive to wealthy Ecuadoreans, Justice Adderley noted, with International Business Companies, investment funds, trusts and other vehicles facilitating lawful tax avoidance, proper wealth and estate planning.

Diving into what was driving the anti-international financial centre onslaught by the G-20/OECD, Justice Adderley said in his judgment: "We see today the manifestation of frustration of the high-tax countries in not being able to keep up with the various legitimate schemes devised by and for international financial centres like the Bahamas.

"Specifically, what some have called a heavy-handed and unilateral approach has been taken by the countries of the OECD vis-a-vis the international financial centres (which when located outside the OECD have the depreciative label of 'tax havens')."

Then, warning that many of the G-20/OECD impositions seemed to run counter to, and possibly contravene, Bahamian law, Justice Adderley added: "They have devised various lists: the 'white' list, the 'grey' list and the 'blacklist'. These initiatives appear to be designed to set new evolving standards of disclosure in financial services required by the OECD countries, irrespective of the legislative framework of the respective offshore jurisdictions........

"Damaging sanctions critical to their survival are threatened against those jurisdictions that do not comply."

Justice Adderley's comments came in a judgment that dismissed an action brought by the Central Bank of Ecuador, which involved an Ecuadorean commercial bank, Banco Continental, that at its height had more than $555 million in assets, 260,000 deposits (about 16 per cent of all Ecuadorean bank deposits) and 18 per cent of all bank loans.

That was prior to its 2008 collapse, and the Ecuadorean banking regulator alleged that the bank's wealthy controlling family, the Ortegas, committed a fraud on Inter-American Asset Management Fund (IAMF), a Bahamian-domiciled mutual fund, which they purportedly asset-stripped of $150 million to prop up their bank in the mid-1990s.

The case, which was brought against Ansbacher (Bahamas) and its fellow defendants well before the bank was acquired by A. F. Holdings (the latter has no connection to the affair, was dismissed by Justice Adderley. Ansbacher (Bahamas) was drawn into it because it acted as IAMF's fund administrator.

Published On:Wednesday, August 18, 2010