The recent news that The Bahamas has been included in yet another European Union anti-financial crime blacklist will have been depressingly familiar to many. The subject seems like a never-ending saga in which our nation, as an international financial centre (IFC), is under unremitting pressure from the EU and the Organization for Economic Co-operation and Development (OECD) to satisfy their forever changing demands.
A brief look at the history of this thorny subject is revealing. It shows that, since the OECD started applying serious pressure on this country 20 years ago, The Bahamas has consistently co-operated in meeting the global standards for combating money laundering and terrorism financing set by the responsible body, the Financial Action Task Force – and it has always made clear it will comply with established international rules so long as they are applied evenly to other countries.
This was surely a sound policy because it was important to rid the country of its reputation as a tax haven and to minimise the threat of being cut off from international investment and banking.
Now fast forward to the current FNM government’s strategy of modernising, deregulating and diversifying the economy. At the same time, it has been committed to reducing the country’s vulnerability to financial crime by pushing through appropriate legislation with the aim of continuing to meet accepted international standards and to protect the nation’s reputation as a financial centre.
The Minister of Finance has stated often the Government’s wish to remain a leading such centre and its commitment to meet its international obligations; and, after leading a delegation to Brussels to convey this message in January last year the Prime Minister later issued a written statement - described as a response to the EU’s then ‘high risk’ list - setting out the steps The Bahamas had taken in relation to its regulatory regime.
It has become something of a cliché, however, that despite these best efforts the goalposts are constantly being moved and new demands made, beyond requirements for other countries where money laundering exists; and some say the EU is intent on a protectionist strategy to close down IFCs. More than a year ago, the Minister of Finance was quoted as saying it was a fact of life that the playing field for IFCs like The Bahamas will never be level.
Thus, beyond the FATF’s requirements - for example, about non-preferential treatment of foreign companies and investors - the EU is now pushing for a minimum level of taxation to combat tax evasion by multinationals, which seems to be a corporate income tax in all but name - and, even worse, countries like France and The Netherlands earlier this year issued their own separate demands for this. Unsurprisingly, Mr Turnquest responded that the nation would not be dictated to by a foreign state as to its taxation policy and structure.
The latest EU blacklisting seems to have moved the whole issue to a new level. The Attorney General has said it is ‘especially distressing’ that the EU appears to have ignored The Bahamas’ current standing with the FATF and its efforts to meet that body’s demands as the global standard setter in the fight against money laundering and terrorism financing. Moreover, the FATF had been due to make a ‘site visit’ to Nassau to assess progress but that had been postponed because of COVID-19.
He also described the European Commission’s action as a ‘hostile act’ while a member of the European Parliament has been quoted as saying ‘we won’t take our foot off your neck until you implement a corporate income tax’. The conclusion must be there is no chance of escaping from the EU blacklist even if the FATF is satisfied with The Bahamas’ actions.
This latest EU move has surely now created an impasse, since the demand for a corporate tax amounts to interference in another country’s right to determine its own tax structure and methods. That is clearly unacceptable to any sovereign nation. It should be for the Bahamian government alone to decide whether it is in the national interest to introduce a corporate income tax. Moreover, the call for such a tax has, of course, come at a particularly difficult time as the nation continues to suffer from the effects of Hurricane Dorian and is facing extreme economic hardship as a result of the coronavirus crisis.
So, has the time come to reassess the country’s approach to this issue? The small Caribbean nations mainly affected by the EU’s actions - it has also set its sights on Jamaica, Barbados and Trinidad - have little individual power to wield in dealing with an uncompromising bureaucratic juggernaut like the EU. To have any hope of resisting unreasonable and unacceptable EU demands, one way forward would be for those countries concerned to come together under the umbrella of CARICOM to strengthen their negotiating hand through regional solidarity.
Former Attorney General, Alfred Sears, has advocated elevating the issue to a global level through the UN – and, according to recent press reports, has called for money laundering and terrorism financing to be placed under an international convention.
I think the time may indeed have come to raise the issue to a higher political level, certainly above that of European Commission bureaucrats aided and abetted by a European Parliament which many regard as a bit of a toothless talking-shop. To this end, perhaps they should be emboldened by reports of the strong riposte from the US Treasury Department to possible inclusion in the EU blacklist of several US territories like Puerto Rico.
While respecting the right of European countries to protect their own tax regimes, it cannot be in the broader interests of the larger and richer countries of the West to see small Caribbean countries impoverished by the destruction of financial centres which are such an important part of their economies.
The question on everyone’s lips - how much longer?
Despite being heavily affected by coronavirus with high levels of infections and deaths and many weeks of lockdown, a host of European countries have now started easing their restrictions and are moving to reopen their economies. They are taking cautious steps towards a new post-virus normality. Apart from Germany, those who started loosening the lockdown a week or so ago have not reported an increase of new cases, though the proviso is that, if there is another surge, restrictions will be restored to prevent a second wave of the virus.
The reopening has varied in different countries - with Italy leading the way to recovery by allowing shops and even hairdressers to open up. Some have lifted travel restrictions and opened borders and have allowed people to move around, particularly with the onset of the summer tourism season. Others have also encouraged people to return to work and resume business activities while some countries have reopened schools and permitted cafes and restaurants to operate again – with even churches and museums opening in Austria. But the key has been that in all new activity social distancing measures have to be in place.
Studying what is now happening in European countries that were hit hard by the virus but have accepted that it is of paramount importance to restart their economies - and watching our Prime Minister’s televised address on Sunday - has made me wonder about the continuing cautious approach in this country when the number of confirmed cases has been relatively low and on Sunday there had been no new cases for four days.
Although it cannot be proven, it is likely the original tough restrictions here were a key factor in keeping the number of infections down. But many believe it is time to relax these measures further in addition to the easing of controls in the Family Islands and the setting of a target date of July 1 for reopening borders. It has been noticeable how disciplined people are being in keeping apart from one another in public and adhering to hygiene controls such as facemasks and use of hand sanitisers in places like supermarkets, banks and pharmacies. So they are becoming accustomed to social distancing requirements.
From what I have heard, the question now for most people is how many days without any new infections must pass for the Government to determine the virus has been contained - at least in the short term - and that the economy can be fully reopened as long as precautionary hygiene and distancing rules are observed.
Looking into the crystal ball at the world’s new normal
As the pandemic continues to cause unparalleled damage and human misery, no one can say with any certainty what the long-term effects may be. However, the mainstream media is full of speculation about what might happen in the US post-virus, so it might be interesting to look at some likely effects further afield in Europe.
First, the issue of what has been called ‘deglobalisation’. There are calls everywhere for more national self-sufficiency generally and, especially, in the supply of drugs and medical equipment as well as in seeking a treatment for coronavirus and a vaccine - and this is despite the genuine protestations about the desirability of international co-operation in fighting the silent and invisible killer. So there is likely to be a move away from using off-shore production and a corresponding increase in manufacturing in European countries. This may also mean an increased emphasis on broader national activity and greater control by individual countries over their own affairs - and that will probably bring back more authority and power to EU member states and result in a corresponding reduction in the influence of EU institutions based in Brussels.
The European Commission has appeared to struggle to deal with the virus crisis, not least in helping Italy when its epidemic was at a peak. So, as national leaders have been taking on more authority, people have looked to them rather than the EU to handle the crisis - and anti-EU sentiment has increased across the bloc.
Secondly, immigration. The Schengen Zone’s external border has been under threat as some individual countries have introduced checks at their own borders in order to control the virus better, and it could take some time to return to the original free movement within the Schengen area.
Thirdly, climate change. With the economies of many EU member states in free fall, most people on reduced incomes will be reluctant to pay for the extra costs associated with new measures to curb carbon emissions. So green policies may be affected.
More generally, COVID-19 is likely to widen the east-west division in the EU between countries like Hungary and Poland and the rest. Hungary is already at odds with Brussels about immigration quotas and its arbitrary rule by decree while Poland, which relies on coal to generate electricity, holds its own views about carbon emissions. There is also something of a divide between north and south, with countries like Germany and The Netherlands reluctant to provide substantial financial support to Italy and Greece.