By NEIL HARTNELL
Tribune Business Editor
The Bahamas was yesterday urged to take all necessary measures to “avoid” being placed on a European Union (EU) financial services ‘blacklist’, after this nation received two ‘red flag warning’ scores.
The EU, in rating 81 different jurisdictions for their co-operation on tax matters, last week ‘red flagged’ the Bahamas and nine other countries - mainly its fellow international financial centre (IFC) rivals - for having either no, or a zero rate, corporate income tax.
The Brussels-based EU Commission also placed a ‘red flag’ against the Bahamas when it came to transparency and the exchange of tax information, although on the third and final criteria - the existence of a ring-fenced preferential tax regime - this nation received a clean bill of health.
The EU, though, made clear that the ‘scorecard’ is merely the first stage in efforts by itself and its member states to create a ‘shortlist’ of nations who will be considered for inclusion on a “list of tax and secrecy havens” set to be published at end-2017.
Countries that make the final ‘blacklist’ will be subjected to EU financial sanctions and penalties, such as ‘withholding taxes’ and the removal of tax deductions.
Given the great reputational and practical damage that such a ‘blacklisting’ could inflict, senior members of the Bahamian financial services industry said this nation would need to “engage” the EU and satisfy its concerns prior to 2017.
Michael Paton, a former Bahamas Financial Services Board (BFSB) chairman, told Tribune Business that this nation’s priority was to avoid any EU ‘blacklisting’ come next year.
He suggested that its primary concern was the exchange of tax information, meaning that the EU initiative was inextricably bound up - and linked - to the OECD’s global Common Reporting Standard (CRS) drive.
The Bahamas has committed to implementing the CRS’s automatic tax information standard on a bilateral basis come 2018, and Mr Paton indicated that fulfilling this obligation and associated timelines may also help to satisfy the EU.
“We are now on a scorecard, which means that the EU wants to negotiate with the Bahamas on tax transparency and the exchange of information,” Mr Paton said.
“We have to see how that plays out, and what the Bahamas has to do to avoid being on the EU ‘blacklist’ in 2017.
“I expect that in the next 12 months, we will need to sit down with the EU and figure out how to move forward, not be on their ‘blacklist’ and meet their requirements. As a jurisdiction, I don’t think we want to be on an EU ‘blacklist’ at the end of 2017.”
Acknowledging that the EU’s latest bout of sabre-rattling is “a concern”, Mr Paton added that the Bahamas could ill-afford to expose itself to unknown financial sanctions and penalties.
“We have to take it seriously and deal with it appropriately,” he told Tribune Business of the EU’s so-called ‘scorecard’. “In the interim period, we have to move forward on the CRS and engage in conversations with the EU.”
Mr Paton added that he already saw the necessary commitment from the Government to avoid such an outcome, and emphasised that the Bahamas “will end up in a good position” as long as it delivers on its promises to implement CRS and other international standards.
The EU’s initiative, though, threatens to further increase the pressure on the Bahamas and its financial services sector given that it coincides with the Organisation for Economic Co-Operation and Development’s (OECD) latest offensive against this nation.
The OECD, which represents the G-7 and G-20 groups of the world’s most powerful nations, appears to have endorsed - and may even have encouraged/instigated - the publication of an article in The Economist magazine on September 201 that accused this nation of being a ‘haven’ for “tax dodgers”.
The article appears to have been the first salvo in a campaign to try and force, or bounce, the Bahamas into abandoning its preferred ‘bilateral’ approach to CRS implementation - something that was approved by the OECD itself - in favour of a ‘multilateral’ approach.
And Tribune Business can reveal that further media pressure is imminent, with more negative articles about the Bahamas and its financial services industry set for international publication in the coming days.
This newspaper was alerted by multiple industry contacts to the recent presence in Nassau of a Dutch journalist, said to have played a role in the recent ‘Panama Papers’ revelations.
Sources said the journalist had attempted to obtain an interview with the Bahamas Financial Services Board (BFSB), but had been turned down, while questions submitted to the Ministry of Financial Services had yet to be answered.
While no one knows the journalist’s precise assignment, the assumption is that he was in Nassau to “paint an unflattering narrative of the Bahamas” similar to The Economist article - with publication of his piece possibly occurring as early as this week.
Tanya McCartney, the BFSB’s chief executive, acknowledged to Tribune Business that the BFSB was “aware” of the journalist’s presence, although she declined to go into further detail.
She added that the EU initiative, and its implications for the Bahamas, were being reviewed by the BFSB and wider private sector in order to present potential policy recommendations to the Government and determine how this nation should respond.
“Change is constant, and we have to reinvent and adapt where necessary,” Ms McCartney told Tribune Business.
“Concern is not a response we ought to have. What we ought to do is reposition the sector to maintain our position as a transparent, compliant and co-operative financial centre.
“The Bahamas is a responsible IFC, and we’re going to do whatever is required to ensure we achieve international standards.”
Tribune Business sources have suggested to this nation that the best defence may be to ‘take the offensive’, and not wait until 2018 to start automatic tax information exchange talks.
They have suggested that this nation ‘get ahead of the curve’ by starting CRS-related talks now, especially with the EU member states, who would have to be given ‘participating jurisdiction status’ under the CRS.
This would both show that the Bahamas is serious and ‘kill two birds with one stone’, given that it would help to address both OECD and EU concerns.
Tribune Business was told that an EU ‘blacklisting’ was the last thing the Bahamas needed, given that it would exacerbate the ‘de-risking’ environment and potentially lead to this nation losing more correspondent banking relationships.