The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An ex-Attorney General believes the financial services industry will survive even if the automatic exchange of tax information becomes the global standard, warning that this nation “can’t stand apart” from the initiative.

John Delaney, now managing partner at Delaney Partners, said the Bahamas’ resilience in withstanding previous global tax/regulatory initiatives would position it in good stead to deal with an initiative some are describing as “more impactful” than the US Foreign Account Tax Compliance Act (FATCA).

He warned, though, that the G-20/Organisation for Economic Co-Operation and Development (OECD) drive for all nations to adopt the automatic exchange of tax information would “increase compliance costs” for Bahamian financial services providers it if became the global standard.

Mr Delaney added that it would also require Bahamian institutions to amend their client contracts, or for wholesale amendments to be made to this nation’s financial services regulatory regime to accommodate automatic information exchange.

The concept of ‘automatic exchange’, he warned, could also open the door to the “misuse and abuse” of information provided by Bahamian institutions on their foreign clients in the latter’s home countries.

Mr Delaney’s comments, in a recent interview with Tribune Business, come as the OECD gears up to present its ‘standard’ for the automatic exchange of tax information to G-20 finance ministers at their meeting in Cairns, Australia, which is scheduled for September 20-21.

Many observers, including Tribune Business, have long predicted that the OECD and its G-20 sponsors would ‘shift the goalposts’ from the current global standard to automatic tax information exchange. Indeed, it claims 65 nations have already signed up to adopt this as the world benchmark.

Currently, the global standard is ‘information upon request’, which the Bahamas’ complies with via its existing network of 30-plus Tax Information Exchange Agreements (TIEAs).

These permit the Bahamian regulatory authorities to provide information sought by other countries on their taxpayers, but only if a strict set of criteria are met.

The automatic exchange of information, though, contemplates the ‘en masse’ or block exchange of information on foreign taxpayers with their home countries, doing away with the ‘checks and balances’ contained in the TIEAs. Effectively, it is pushing for a worldwide FATCA - implementing globally what the Americans have done individually.

Aliya Allen, the Bahamas Financial Services Board’s (BFSB) chief executive, told Tribune Business that it had been clear for several years that the G-20/OECD were pushing in this direction.

“I think the Bahamas has acknowledged for some time that we’re in an ever-evolving environment from an information exchange standpoint,” she said.

“We have certainly evolved with it, in the sense that we signed on to FATCA and are going through measures to implement information exchange along those lines.

“It will be as impactful, if not more so, that FATCA is, and it is certainly something the Bahamas and financial services industry is discussing at the highest policy levels. The industry should be assured that the Bahamas is certainly prudently addressing the issue.”

Ms Allen said FATCA was “obviously the model that they’ve built the common reporting standard around, though there are some key differences”.

She added that the Bahamas and its financial institutions had been “redefining” their business models for years, knowing that its future lay in tax compliant planning and products.

Mr Delaney, meanwhile, told Tribune Business that the Bahamas could not ignore, or stand outside the automatic exchange of tax information, should it become the global standard.

“The Bahamas, being engaged in international financial services, is bound to keep abreast of this,” he said. “We cannot stand apart from it eventually.”

The former Attorney General said the Bahamas’ financial services legislation, such as the Banks and Trust Companies Regulation Act, and Data Protection (Protection of personal information) would need to be amended if the automatic exchange of tax information became the global standard.

“That’s the first impact,” Mr Delaney said. “The other impact is going to be increasing compliance costs to report that information, which aligns with what institutions are having to do with respect to FATCA.”

More data would have to be collected on their customers, and he questioned whether there was the potential for “non-mature” home countries to “misuse and abuse” information exchanged automatically.

Still, Mr Delaney expressed confidence that the Bahamas could cope with whatever was thrown its way in terms of the automatic exchange of tax information.

“Our financial services industry has already evolved tremendously from what it was 10 years ago, when we had to change,” he told Tribune Business. “We have dealt with the really major ones, in particular, when I think to 2000 and FATCA.

“FATCA is not as big as 2000, but this [automatic information exchange] has similarities to FATCA, except FATCA is for one country as opposed to many. It requires substantial effort, but this industry has been doing it, keeping abreast of the international regulatory environment.

“We’re up to it, and I think the international financial services business will continue.”