By NEIL HARTNELL
Tribune Business Editor
The Bahamas must employ a “more sophisticated response” to its ‘blacklisting’, a former Attorney General yesterday urging it to lobby for United Nations (UN) oversight of the matter.
Alfred Sears QC told Tribune Business that the Bahamas should form a strategic alliance with other international financial centres (IFCs), and push for all taxation and anti-money laundering initiatives to be brought under an “international convention” governed by the UN.
He argued that this is the only way the Bahamas can guarantee fair and equal treatment, and participate in shaping “the rules”, instead of allowing the European Union (EU) and Organisation for Economic Co-Operation and Development (OECD) to act as judge, jury and executioner.
Mr Sears said his experience as Attorney General between 2002-2006, when he successfully led and co-ordinated efforts to prevent the Bahamas from being ‘blacklisted’ again by the Financial Action Task Force (FATF), had convinced him this nation will never obtain “a level playing field” if developed nations are permitted to “exclusively” craft the rules.
Speaking in the wake of this week’s EU ‘blacklisting’, Mr Sears said: “The Bahamas must lobby for the convening of a global forum so that we can establish an international convention on taxation, anti-money laundering and countering the financing of terrorism.
“It would then be under the supervision of the UN.... It’s only if it’s subject to an international convention that small IFCs like the Bahamas will have an opportunity to participate and ensure an even, uniform application of the rules.
“This is why I have consistently been calling for the Bahamas, as part of its response, to show more sophistication. We should invite all IFCs to a conference, meeting, and there should be a global lobby for the UN to make taxation and anti-money laundering subject to an international convention. That’s how international countries behave.”
The 28-nation EU this week ‘blacklisted’ the Bahamas on the grounds that it did not adequately commit “at a high political level” to satisfying its concerns over corporate products and structures being used to facilitate potential tax avoidance.
In adding the Bahamas to its nine-strong list of non-cooperative nations, the EU said Bahamian entities and structures could be used by multinational corporations to move, and book, profits and losses even if they had no physical presence - and conducted no substantial business - in this nation. It also raised concerns over so-called ‘ring fencing’ and the existence of a preferential tax regime for non-resident entities.
Mr Sears, though, told Tribune Business that his experience as Attorney General had taught him there were typically “two sets of rules” - one for the Bahamas and other small IFCs, and the other for EU and OECD members.
While the Bahamas and others “have to pay an extra cost” for any infractions, in terms of sanctions and penalties, developed countries with the same regulatory deficiencies normally escaped without such measures being imposed.
Further illustrating the ‘double standards’, Mr Sears said US states such as Delaware and Nevada had been allowed to keep the ‘bearer shares’ and other products that the Bahamas had relinquished in 2000 to escape the FATF’s ‘anti-money laundering’ blacklist.
With “the regulatory process exclusively controlled by onshore centres”, the ex-Attorney General said the Bahamas was confronted with a situation where the EU and OECD had taken on the role of “global regulator” even though they lacked the authority and representative membership to do so.
The UN, he added, was the only forum where small-island states stood a chance of equal participation, given the suspicion that tax-related initiatives were merely a pretext for trying to impair the Bahamas’ competitiveness and drive it out of the financial services business.
“Isn’t tax what the US War of Independence was about?” asked Mr Sears. “Is taxation not a fundamental expression of sovereignty? They’re saying to us: ‘You’re a low-tax jurisdiction; we can’t compete with you. We’ll eliminate you instead.
“You don’t have the choice to be a high tax jurisdiction, a medium tax jurisdiction or just a low tax jurisdiction. This issue goes to the very heart of sovereignty. It shows small countries need a forum to level the playing field. This is the role the UN plays.”
Making global tax matters subject to an international convention overseen by the UN, Mr Sears, would also make disputes subject to resolution by the International Court of Justice in The Hague.
“Because of ‘real politick’ we often ask ‘how high do we jump’, and many times we jump higher than required because we are so fearful and reactionary,” Mr Sears told Tribune Business’ of the Bahamas’ typical ‘blacklist’ responses.
“What the Bahamas needs is a government that behaves with some level of sophistication... How could a high tax jurisdiction come to me and say my taxes should be higher because capital is moving to my jurisdiction for the lower taxation?”
While agreeing that the Bahamas should address legitimate weaknesses in its financial services regulatory regime, Mr Sears said this needed to be balanced with the preservation of sovereignty and financial services competitiveness.
The Bahamas’ latest ‘blacklisting’ stems from belief of the EU and its member states that they are losing multi-million dollar sums in tax revenue to IFCs, thereby depriving their citizens of funds for public services and infrastructure.
But many observers, especially in the Bahamian financial services industry, feel that the EU states should address their own issues rather than make the Bahamas and other IFCs ‘vassal tax collectors’ on their behalf.
“We need to really lobby so we have a more sophisticated response, and safeguard the competitiveness of our country and the sovereignty of our country in the future,” Mr Sears told Tribune Business.
“In an interdependent world, we recognise there’s no absolute sovereignty for big or small countries. One of the things we have to insist on is that we can only guarantee a measure of fairness if we participate as members with a right of review, as well as supervise the even application of the rules.
“This is why small countries need sophisticated leadership. It’s not your size. We have small countries in the world that do extremely well, but we need to have an appreciation of the world, identify opportunities and build strategic alliances to advance certain issues.”