The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

THE ATTORNEY General says The Bahamas’ efforts to comply with the European Union’s (EU) economic substance reporting demands became “non-functional” with corporate filings having to be entered manually.

Ryan Pinder blamed a “complete failure of implementation” by the former Minnis administration for The Bahamas’ recent blacklisting by the 27-nation bloc, asserting that the Government is “closing all gaps” in a bid to ensure the country escapes this designation as rapidly as possible.

The EU blacklisted The Bahamas because it was unable to correct deficiencies in its economic substance reporting regime prior to the April 2022 deadline. This relates to the Commercial Entities (Substance Requirements) Act 2018, which requires companies conducting “relevant activities” to confirm they are carrying out real business in The Bahamas via annual electronic filings.

These companies must show they are doing real, legitimate business in a jurisdiction and are not merely brass plate, letterbox fronting entities acting to shield taxable assets and wealth from their home country authorities. Mr Pinder yesterday told the Senate that “shortly after the general election” on September 15, 2021, the Davis administration was “informed of deficiencies” in The Bahamas’ implementation, monitoring and reporting requirements for 2019 and 2020.

“Our administration has worked diligently to satisfy the concerns of the European Union,” he added. “However not all deficiencies could be addressed before the determination of our review. The EU has added The Bahamas to its list of non-cooperative jurisdictions. We are committed to closing all remaining gaps expeditiously and to seeking a re-determination of our status in the shortest possible time, again remedying the comedy of errors of the prior administration.”

Tribune Business previously reported that deficiencies with the economic substance reporting portal, and an inability to test, analyse and inspect the data, was the critical factor behind the EU blacklisting. Mr Pinder yesterday went further, saying: “To give some context, the deficiencies primarily lie in the reporting portal and methodology that was put in place.

“The former FNM government looked to put the substance reporting through the Department of Inland Revenue framework. This method was ineffective and presented many problems with the actual administration of the reporting. In fact, at a point in time the reporting was being done on a manual entry basis as the entire platform was non-functional. A complete failure of implementation, which led to the blacklisting of the country by the EU.”

Ministers in the Minnis administration have previously refuted assertions that nothing was done to correct these deficiencies. They have argued that the company which originally developed the portal was contracted to fix the weaknesses, and a plan was left in place prior to the September 2021 general election to remedy the EU’s concerns.

Kwasi Thompson, former minister of state for finance and others, have instead argued that the Government’s failure to follow through on this and act more rapidly led to the EU blacklisting. They have also asserted that the departure of Stephen Coakley-Wells, who headed the Ministry of Finance’s international tax unit, and the disbanding of the unit itself may have meant no one in government was focused on the EU issue.

Finally, the Government has yet to explain why three letters signed by the Prime Minister were sent to the EU over a six-week period between December 2021 and January 2022 promising that The Bahamas would comply with its demands by the April deadline. This suggests that either the scope of work was under-estimated or that there was an execution failure.

Mr Pinder yesterday said the Government has solicited several bids to develop a standalone economic substance reporting portal, and has finally approved a vendor that is in the implementation process. “We also look to put in place a framework to allow us to verify, whether through inspection or audit or some other acceptable method, the accuracy of the data being used in the substance reporting. This is also an important remediation element,” he added.

The Government is also “optimistic” that The Bahamas will be rated “compliant” or “largely compliant” with all the Financial Action Task Force’s (FATF) 40 anti-money laundering and counter terror financing recommendations when its regional affiliate meets next month. The Bahamas has attained such designations on 38 of the recommendations already, and has further enhanced regulation in the remaining areas - digital assets and non-profits.