Bahamas Blacklisting ‘Came Out Of Left Field’


Tribune Business Editor


EUROPE’s planned ‘blacklisting’ of the Bahamas has “come out of left field”, a former financial services minister expressing fears over the potential fall-out for correspondent banking and custodial relationships.Ryan Pinder, now a Graham, Thompson & Company attorney and partner, warned that the European Union’s (EU) branding of this nation as ‘non-cooperative’ in the fight against tax avoidance could result in foreign financial institutions viewing the Bahamas as ‘high risk’. Should this happen, he told Tribune Business it could lead to the loss and/or severing of international relationships that the Bahamian financial services industry - and wider economy - rely upon for the smooth conduct of cross-border commerce and capital flows, especially with Europe.

The Government is undertaking an extensive series of ‘11th hour’ moves in a bid to ward off the threatened ‘blacklisting’ before it is ratified tomorrow(see other articles on Page 1B), but Mr Pinder said he was “not very surprised” at the stance taken by the 28-nation EU.

He argued that the EU and other groups representing the world’s most powerful countries had “never had the Bahamas’ best interests at heart, only their own” when it came to the never-ending international regulatory initiatives affecting the financial services sector.

And, while the Bahamas “can bend over backwards as far as we want to bend”, the EU and its fellow travellers will never be satisfied unless this nation refashions itself according to their design and wishes.

“Certainly it’s the name and shame game, just like every other ‘blacklist’ is a name and shame game,” Mr Pinder told Tribune Business.

“The question is to what extent it affects correspondent banking relationships with institutions in the Bahamas, and custodial relationships - the holding of securities - in Europe.

“Does that mean institutions will see us as high risk and don’t want to do business between ourselves and them, and will that affect custodial relationships and cross-border relationships?” the former minister continued.

“That’s the risk to the Bahamas. Perception, and whether these institutions will see the Bahamas as high risk and want to do business with the Bahamas.”

The concern is that inclusion on the EU’s ‘blacklist’ could make the Bahamas more vulnerable to global ‘de-risking’ trends that have already seen local financial institutions, especially standalone entities that are locally owned, lose correspondent relationships with foreign banks.

The Bahamas has to-date avoided the worst effects of correspondent bank ‘de-risking’, which has hit the Caribbean particularly hard, with affected institutions here largely able to find new relationships to replace ones they have lost.

Correspondent banks are foreign institutions that enable their Bahamian counterparts to provide services in their countries, using their physical and electronic banking infrastructure. They give Bahamian banks, and their clients, access to the international capital markets and financial system, enabling transactions to clear and be settled on a timely basis, and foreign currency deposits to be taken.

Given the Bahamas’ status as an international business centre and services exporter, maintaining such links are vital to the sustainability of its economic model. For this reason, Mr Pinder said the ramifications of an EU ‘blacklisting’ stretch beyond the financial services industry.

He added that it could potentially impact industries, such as the crawfish sector, that trade with the EU, as well as tourism from that market given the need for currency conversion.

“It has a lot of ancillary affects,” Mr Pinder said. Besides reputational damage, any EU ‘blacklisting’ could also result in European financial institutions applying extra scrutiny to transactions originating from the Bahamas, thus delaying their completion.

The ex-financial services minister said the EU’s action appeared to have “come out of left field” and blindsided everybody, including the Government and Bahamian financial services industry.

He said the sector had “assumed” the Bahamas was on track to satisfy both EU and Organisation for Economic Co-Operation and Development (OECD) concerns, following the upbeat message presented when K P Turnquest, Deputy Prime Minister and minister of finance, and Brent Symonette, minister of financial services, returned from Europe late last year.

During that trip, the Bahamas signed on to the OECD’s Mutual Administrative Assistance in Tax Matters convention while also committing itself to compliance with the same organisation’s Base Erosion and Profit Shifting (BEPS) initiative.

Yet there were warning signs. Dr Hubert Minnis, in a statement to Parliament before Christmas, revealed that the EU ‘Code of Conduct’ group responsible for running the anti-tax avoidance initiative was already expressing concerns that the absence of corporate income tax meant the Bahamas was non-compliant with its demands.

“The issue that has given the [Government’s] review group pause, and will now require focused consideration, is the OECD’s [really the EU] directive that jurisdictions should not facilitate offshore structures and arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction,” the Prime Minister said then.

“The Code of Conduct group has advised that the absence of a corporate income tax or a nominal corporate tax structure in the Bahamas is a matter of concern. Further, the lack of substance of some legal arrangements was highlighted.

“These matters have been the source of discussion, and are being reviewed to ensure that a plan of action is formulated to allow the Bahamas to remain off the OECD [and EU] blacklist that was recently published.”

Mr Pinder told Tribune Business that while implementation of a Bahamian corporate income tax was something the EU would like, it was unlikely to be something this nation had committed to as it would represent “an abandonment of sovereignty”.

“I’m not sure that’s something we committed to and made that commitment,” he added. “I’m sure the EU would want us to impose the tax system they’re comfortable with.

“That’s their modus operandi; something that fits them the best, but doesn’t fit the Bahamas the best. I never thought these institutions [EU and OECD] had the best interests of the Bahamas at heart; they only had their best interests at heart.”

Mr Pinder said he was “unfortunately not very surprised” at the EU’s ‘blacklisting’ move given how the Bahamas has been treated in the past.

“We can bend over backwards as far as we want to bend, but unless we conform in every respect to what the EU and other multinationals think we should be, rather than what we think we ought to be, we’re going to face this. It’s an unfortunate scenario,” he told Tribune Business.

Mr Pinder said the rationale for the EU’s ‘blacklisting’ was “perplexing”, and he queried whether the Bahamas had either failed to live up to a commitment previously made or simply been deemed unsatisfactory when it came to execution.

Mr Turnquest, in a statement issued on the Government’s behalf, revealed that the ‘blacklisting’ was proposed because EU officials felt the Bahamas has not done enough to prevent its financial products and structures from being used for ‘tax avoidance’ purposes by multinational companies.

This concern falls squarely under the OECD’s BEPS initiative, which aims to ensure that the profits of multinational companies are taxed in the country where they are generated.

Multinational companies often use legitimate tax avoidance strategies to “exploit gaps and mismatches” between different countries’ tax rates and rules, and “artificially shift profits” to low or ‘no tax’ jurisdictions despite conducting no or minimal business there. This enables them to minimise their tax exposure by paying a lower rate than they otherwise would in countries where they do conduct business.

It is these activities that the EU is also determined to crack down on, and compliance with anti-BEPS measures is one of the three ‘criteria’ it is using when judging whether to ‘blacklist’ countries.

Tribune Business previously reported that BEPS compliance had created both uncertainty and concern within the Bahamian financial services, given that it seemed to require that this nation implement a corporate income tax.

The four standards that the Bahamas selected to meet the minimum BEPS requirement are: (Action 5): Countering Harmful Tax Practices; (Action 6): Treaty Shopping; (Action 13) Transfer Pricing Documentation and Country-by-Country Reporting; and (Action 14) Dispute Resolution.

Financial services industry sources told Tribune Business that compliance with Action 5 was especially problematic for the Bahamas

The OECD considers a corporate tax rate of 10 per cent or less to be a ‘harmful tax practice’, but the Bahamas - with no income taxes of any kind - has an effective corporate tax rate of ‘zero’ because it simply does not have this system.


Economist 2 years ago

I understand that they have a problem with the way the Numbers Industry operates.


Well_mudda_take_sic 2 years ago

They have a HUGE problem with the Minnis-led government's coziness with the corrupt racketeering activities of the numbers bosses, like Sebas Bastian and Craig Flowers, and the web shops they operate. The activities of these local criminal thugs meet every international definition of money laundering, as defined by the financial regulators of most countries.


joeblow 2 years ago

The potential backlash of legalizing numbers in the way the PLP did included the possibility of blacklisting. Only an ostrich (and the FNM's leadership) was surprised by this!


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