The Tribune

The Bahamas is now being blacklisted for implementation deficiencies rather than weaknesses in its financial laws, a Cabinet minister said yesterday.

Minister of Economic Affairs Michael Halkitis said that thousands of hours of work had been put in to achieve compliance “only to have the goalposts move again”.

He said the country had recently been rated on the final two recommendations for compliance and had been largely compliant, adding: “That’s what it took to get through the seven years and speed of new restrictive legislation, thousands of hours of work as a technical team at the OAG and into finance and elsewhere. And, again, an unfunded mandate, a lot of resources expended, only to have the goalposts move again.”

He added: “And while working to achieve those ratings we faced the EU who recently found The Bahamas non-compliant due to technical deficiencies in the commercial economic substance requirements.”

He said: “We call them unfunded mandates in public policy, today you get these mandates, you have to do these things but nobody’s giving you any money. So you have to use your resources to amend the law [and] hire people to do all these things.”

Mr Halkitis announced that BDO was contracted to implement a new reporting portal to deal with technical deficiencies identified by the OECD and EU.

He said: “The CESRA [Commercial Entities Substance Requirements Act] was entered into force in The Bahamas with effect from January 1, 2019, and requires commercial entities engaged in certain technical activities to have economic substance in The Bahamas and European code of conduct during its annual monitoring of the effective implementation.

“We were notified shortly after when this administration came in that we were non-compliant in certain areas. We work diligently to satisfy the concerns, however, not all of the deficiencies could be addressed before our review and they added us to the list of non-cooperative jurisdictions.

“The deficiency primarily lies in the reporting portal and the methodology that was put in place. The substance reporting was put through the Department of Inland Revenue framework and it proved to be ineffective and presented many, many problems with the actual administration of the reporting and this was a challenge, given the shutdowns related to pandemic and the lack of human capital working at the time.”

He added: “To remedy the situation, we thought it appropriate to start from scratch and have an entirely new reporting portal and framework we put in place.”

He said the government solicited proposals for a separate substance reporting portal and platform.

He said: “We have decided on BDO to develop a new portal for economic substance reporting, the contract is signed and they are working. This is the same company who implemented and manages the BOSS system. And so we believe that this is the proper way to do it. And we will be in compliance with what is expected of us for the effective implementation of the systems reporting regime. So we have acquired a portal, they are working and they will continue to roll out elements of the forum in the coming weeks. 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, the use of the substance reporting. This is also an important element. And we look to be in a position to be rerated by the EU as compliant later this year.”

Mr Halkitis suggested the legislative changes coupled with the new portal should ensure the deficiencies are taken care of.

He said “There are no complaints from the people you’re exchanging information with about the adequacy of the information. But we want you to be able to go back and audit and verify that information that is being provided is accurate. And so, we have amended some legislation already and then there’s more legislation to be to be amended to deal specifically with the holding company, some things that the OECD and the EU found offensive.”

He added: “The focus of the blacklisting and discriminatory blacklisting is shifting from judgment based on if you have the applicable laws in place to meet their standards of effective implementation. And now they’re shifting to how we implement and operate. And so The Bahamas has been determined recently to be non-cooperative by the EU not because we have failed to pass the necessary laws, not because we have failed to give a commitment and stay engaged, but because what they see as deficiencies in implementation.”

The minister went on to assure compliance professionals that the government will ensure legislation and technical advancements will be implemented to ensure the country’s financial sector remains strong.

He said: “But until we can change the existing global financial architecture, we must continue to work towards compliance. And while continuing to innovate and being agile and constantly developing new products, and improved service delivery, I believe that in this we will maintain our position as the destination of choice for financial services. And so in short to get off, we will amend the legislation.”