The Tribune

By Fay Simmons

jsimmons@tribunemedia.net

A Cabinet minister yesterday called for the creation of an independent multilateral body to review all tax-related blacklistings of The Bahamas and other small jurisdictions over what he described as “technical deficiencies”.

Michael Halkitis, minister of economic affairs, urged that the United Nations (UN) take over responsibility for all international tax matters in his address to the Bahamas Association of Compliance Officers (BACO) as he lashed out at the European Union’s (EU) decision to brand this nation as non-cooperative on tax matters.

Noting that not a single European state was given such status, despite known weaknesses in their regulatory frameworks, he warned that the tactics adopted by the likes of the European Union (EU) and Organisation for Economic Co-Operation and Development (OECD) threaten “immediate, destructive economic consequences” for nations such as The Bahamas whose economies are based on cross-border international business.

“We have recently been judged as non-cooperative for what we think are technical implementation reasons,” Mr Halkitis said. “Not because we don’t have the necessary mandated laws, and not because we don’t have a commitment at the highest political level to be compliant, and not because we don’t have a history of co-operation - but because we were found to be deficient in certain technical implementation areas.

“We no longer have time when listed to work through the process. We no longer have the luxury of time. Penalties to cross-border business will have immediate, destructive economic consequences.” The Bahamas is currently on an EU tax blacklist because of deficiencies identified with its economic substance reporting, which it hopes to address in time for an October 2023 review and thereby escape this designation.

And the OECD also found The Bahamas non-compliant on one aspect of its Common Reporting Standard (CRS) for automatic tax information exchange. “That single deficiency failed the entire review, despite a clear recognition that there were no issues with our legislative framework or methodology and actual exchange of information. And so that is where we are at; that is the framework of the way that game has evolved,” Mr Halkitis said.

“Unfortunately, the evidence suggests it will continue to evolve and shift, penalising for what they view as technical deficiencies. And so we will do what we need to do, and we will be rated as compliant because we have to, and the Government has to do it for the success of the [financial services] industry. But it is a process that we are pretty sure we will have to go through again.

“I believe that part of the solution to this issue is that we must be unified diplomatically and have a single message to the world. Even though there are 15 members of us in CARICOM, there is a movement afoot to have someone else other than the OECD determine who is employing unfair tax practices. And so I believe we must embrace independent multilateral institutions such as the United Nations, and encourage them to take up this fight against this economic and financial discrimination.”

Speaking to the reputational damage inflicted by so-called ‘name and shame’ blacklisting tactics, as well as the increased time and cost associated with international financial transactions, and the potential loss of correspondent banking relationships, Mr Halkitis said: “We are all too aware that these decisions have significant, and immediate, reputational and economic consequences in relation to the overall health and prospects of our economy, international trade, the ability to attract investment and basic aspects of cross-border payments.

“Multiple financial institutions in Thw Bahamas and other Caribbean jurisdictions have lost significant correspondent banking relationships as the result of being blacklisted. And this trend is aggravated by other factors affecting the banking industry, including growing pressure on banking institutions to increase their capital, streamline their business models and re-evaluate their risk profile.”

With $3trn in illicit financial flows estimated to be laundered annually through EU and OECD member states, Mr Halkitis said: “For those countries who have been subjected to blacklisting and similar designations, the only way to counter the adverse impacts discussed is to work expeditiously to get off that list every time before the goal posts move again.

“Coupled with the moving goalposts and the absence of a level playing field, the saga of blacklisting promises to persist and get worse with increasing adverse economic consequences, and the difficulty we have is there’s not a level playing field with respect to these matters of blacklisting. We have no choice but to conclude otherwise.”

Citing The Bahamas perfect ‘40 out of 40’ compliance with the Financial Action Task Force’s (FATF) anti-financial crime recommendations, Mr Halkitis said: “There is no G-7 country that has a 40 out of 40 compliant rating. There’s one EU country that is 40 out of 40; that is Malta, and of the 65 jurisdictions ‘grey listed’ or blacklisted by the FATF from 2010 to 2020, none are in the Group of Seven industrialised nations.

“Only two, Argentina and Turkey, are in the G-20, and the vast majority of those blacklisted countries hail from the global south. Twenty-eight rank in the bottom half of economies as measured by GDP. After the Paradise Papers, the EU’s Code of Conduct group blacklisted 17 countries. Not one European country was listed; they all got a free pass. In February 2019, the EU published an updated version of the anti-money laundering and counter-terror financing list. Again, not a single European country is listed.

“And in 2022, the EU identified jurisdictions with strategic deficiencies in their anti-money laundering and counter-terror financing regimes that pose significant threats to the financial system. And again, not a single EU country, but yet we developing countries all fight tooth and nail, with limited resources, limited technical ability and support. And we fight tooth and nail to comply with a standard, quite frankly, that might change in the next six months or less.”