The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

While the US Foreign Account Tax Compliance Act (FATCA) represents a “huge cost burden” for Bahamas-based financial institutions, a well-known attorney said the industry can remain competitive by focusing on “quality service” and responding quickly to client needs.

Michelle Neville-Clarke, a partner in the Lennox Paton law firm, told Tribune Business that although ‘moving goalposts’ and timelines continued to characterise the FATCA process, all Bahamian financial providers “need to put their minds” to potential compliance/implementation strategies.

The moderator for the panel discussion on ‘Spotlight on Financial Centre, US’ at the upcoming Nassau Conference, Mrs Neville-Clarke said the Bahamas would get input from external experts on issues such as whether it would benefit this nation to comply with FATCA by signing an Inter-Governmental Agreement (IGA) with the Internal Revenue Service (IRS).

Acknowledging that FATCA’s impact on the Bahamian financial industry would vary between institutions, and depend a great deal on their respective client bases, Mrs Neville-Clarke told Tribune Business: “What is important is that the Bahamas decides what route to take.

“There’s so much talk in the Bahamas about which route the Bahamas should go. Should it enter into an IGA? Is implementing an IGA worth it for the Bahamas financial services sector?”

One option is for it to sign such an IGA with the US Treasury Department/Internal Revenue Service (IRS), whereby the Bahamian government will undertake to obtain the relevant information from its institutions and then pass it on to Washington.

Or it can let financial institutions enter into their own, separate agreements with the IRS.

Either way, Mrs Neville-Clarke agreed that FATCA compliance represented “a huge burden” for Bahamas-based financial institutions.

“The additional due diligence requirements and costs of having systems in place are going to be huge,” she added.

The Obama administration’s main aim in passing FATCA is to ensure US persons with financial assets, such as bank accounts, outside the US are paying their due taxes to the IRS.

To achieve this, Washington is effectively asking all Bahamas-based financial institutions - and those around the globe - to become reporting agents for the IRS. They must enter into contractual agreements with the US Treasury Department to identify and report all US persons, and their assets, otherwise a 30 per cent withholding tax will be imposed on all US-sourced income post-December 31, 2013.

Apart from changing procedures to deal with new clients, FATCA will force all Bahamian financial institutions to drill deep down into all accounts, investment funds and structures they oversee and manage, in a bid to detect whether there is even the smallest trace of US beneficial ownership.

Mrs Neville-Clarke said FATCA would impact the Bahamas more than many thought, given that many families were likely to contain someone with US ‘dual citizenship’ or ‘green card’ status. These persons, too, will be caught in FATCA’s net.

With so much uncertainty still surrounding FATCA, given that its regulations are not finalised and that the Bahamas has not selected its compliance route, Mrs Neville-Clarke acknowledged it was difficult for local providers to develop concrete plans.

“I think those that aren’t aware, and have not put their minds to the possibilities and affect of FATCA, need to become aware,” she told Tribune Business.

“We need to be aware and think about possible implementation strategies. It’s difficult for financial institutions to have final plans, but people certainly need to be thinking about the possibilities and have some strategies for implementation.”

But, despite the various international initiatives ranged against the Bahamas, Mrs Neville-Clarke said the industry still retained a competitive advantage and its role in international finance.

“The thing with the Bahamas and other international financial centres is that we’ve been able to continue because of the tax regime and our size,” she told Tribune Business.

“We can be more responsive to market needs. We’re a little more flexible, and countries like the Bahamas have that political and financial stability.

“But confidentiality used to play a huge part, and where to a certain extent we’ve held on to that, it’s a bit like the Emperor’s Clothes, with different layers being peeled away.”

Yet Mrs Neville-Clarke was quick to add: “I think international financial centres are remaining competitive because of the other benefits we offer, because of the flexibility, responsiveness and stability we offer.

“We’re compliant with the different laws and international initiatives. It’s arguable that some of the more powerful nations are less compliant.

“The Bahamas will always play a role, but it’s important people stay focused, and we provide good quality service and expertise.

“The goal posts keep changing, and it is difficult, but provided we stay focused on quality of service, flexibility and responsiveness, we’ll be able to remain where we are and compete.”

Mrs Neville-Clarke said the Nassau Conference panellists she will moderate, attorney Bruce Zagaris of Berliner, Corcoran & Rowe, and David Schwartz from the Florida International Bankers Association, would likely give an insight into the various international financial services initiatives and their drivers.

Many were driven by the US, and Mrs Neville-Clarke said Nassau Conference attendees would also likely hear about other extra-territorial legislation, such as the US Stop Tax Haven Abuse Act.