By NEIL HARTNELL
Tribune Business Editor
THE Bahamas’ chief WTO negotiator yesterday said ‘fronting’ will “become far worse”, with local businesses overrun by foreign rivals, if this nation stays outside the rules-based trade regime.
Raymond Winder, Deloitte & Touche (Bahamas) managing partner, told Tribune Business that the WTO-related laws and regulations that this nation will be required to implement will afford local entrepreneurs far greater protection than the current policy-based regime.
Acknowledging that the ‘fronting’ of foreign-owned businesses by Bahamians was occurring, Mr Winder argued that this nation would be better able to combat the problem post-WTO accession. He added that ‘fronting’, especially in industries supposedly reserved for exclusive Bahamian ownership, was extremely difficult to detect and prove because the country’s tax system - and its lack of direct taxation - meant there were minimal disclosure requirements. Mr Winder, responding to concerns voiced by Organisation for Responsible Governance (ORG) principal, Robert Myers, told Tribune Business: “I’ve heard various comments made about ‘fronting’, and ‘fronting’ as it is now would grow more in this environment for more than an environment where we are a member of the WTO.
“That’s because the WTO is all about rules and regulations. The matters that are currently being discussed as regards Bahamian-owned industries, they are only reserved from a policy point of view.
“That’s why previous governments have had no reservation about amending these policies. Bahamian businessmen have no say in the matter. Once certain industries are reserved for Bahamians, in accordance with WTO rules and regulation, local businessmen - whenever there is a violation of these rules - will be able to sue the Government,” Mr Winder continued.
“Today, Bahamian businessmen can’t sue the Government for alleged fronting that they know about. Bahamian businessmen will do better than they do now [under WTO]. If things remain the way they are now, I agree that Bahamian businesses will be left behind and, before they know it, industries once reserved for Bahamians will be taken over by foreigners.
“The position is that we will do better in a WTO environment than in the one we currently have.” The National Investment Policy currently reserves 12 industries for exclusive Bahamian ownership, including retail/wholesale; real estate; restaurants; and media.
However, it is just that - a policy that has been waived on numerous occasions to allow foreign companies into these sectors. Under WTO, the Bahamas will have to convert such a policy into statute law that cannot be easily changed, thus providing more certainty and protection for all concerned - especially Bahamian investors.
Mr Myers, speaking to Tribune Business earlier this week, had warned that ‘fronting’ would likely become more “ferocious” once this nation joins the WTO.
He added that Bahamians will find themselves in a “subservient economy” unless the Government and private sector move quickly to enforce the law, and warned that the National Investment Policy was constantly being undermined by local attorneys, accountants and politically-connected persons acting as ‘fronts’ for businesses that were really owned and controlled by foreign companies/investors.
‘Fronting’ is the practice of disguising foreign beneficial ownership of companies, typically operating in industries covered by the National Investment Policy, by using a Bahamian nominee or ‘front’ to act as the owner.
Mr Winder yesterday agreed with Mr Myers that ‘fronting’ does occur in the Bahamas, but admitted it was “something very difficult to detect and prove”.
“One of the reasons it is so difficult is because we do not have a variety of taxes that result in a framework that forces all parties to be honest in their disclosures,” he told Tribune Business.
The chief WTO negotiator said the Bahamas’ reliance on indirect, consumption-based taxes such as VAT and import tariffs meant it lacked the network of federal, state and local taxes - often income-based - that were paid in the likes of the US.
This, Mr Winder added, not only provided a web of disclosures that could be cross-checked for compliance, but also further mitigated against ‘fronting’ because the ‘fronts’ did not want to be exposed to paying income taxes on someone else’s behalf.
“It makes it very difficult for individuals to front for each other without violating a slew of laws,” he told Tribune Business of tax systems such as the US’s. “You expose yourself to multiple laws, so most people don’t do it.
“Because we have an environment where we do not have all these different taxes that force a more transparent approach to all these activities, ‘fronting’ is happening in our economy.”