The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former Attorney General yesterday warned Bahamas-based financial institutions to familiarise themselves with this nation’s multiple disclosure regimes, warning that failure to do so could expose them to legal action by either the authorities or their clients.

Noting the rapid increase in avenues through which foreign authorities - criminal, civil and fiscal - could seek client information from Bahamian financial institutions, John Delaney urged them to be “vigilant” in ensuring they complied with legal requirements both in this country and abroad.

Speaking after a presentation to a Bahamas Association of Compliance Officers (BACO) seminar, the Attorney General under the former Ingraham administration said the environment was potentially “treacherous” for this nation’s financial industry - especially if they were confronted with information requests non-compliant with Bahamian law.

And he suggested the Government had to take a “policy decision” in deciding whether it would allow the Criminal Justice International Co-Operation Act to be used by foreign authorities to pursue criminal tax matters.

Amendments to this law in 2009 permit its use in this way, but Mr Delaney questioned whether doing so would be “inconsistent” with the Bahamas’ Tax Information Exchange Agreements (TIEAs).

“The reality is that against the backdrop of a confidentiality environment, which is essential to our financial services business, we have a number of gateways for disclosure,” Mr Delaney told Tribune Business.

“A lot of people found it interesting to see all the different avenues. While they all result in disclosure being made, they require it under different regimes and different authorities.”

Among the laws that can be used for obtaining client information are the Central Bank of the Bahamas Act; Banks and Trust Companies Regulation Act; Securities Industry Act; Financial Intelligence Unit Act; Proceeds of Crime Act; Evidence - Proceedings in Other Jurisdictions Act; Criminal Justice - International Co-Operation Act; Mutual Legal Assistance Treaties (MLATs); and TIEAs.

With many stipulating fines for failing to comply with disclosure orders, Mr Delaney said it was vital that Bahamian financial institutions responded correctly - and struck the right balance.

“While they are required to make disclosure, they have to make sure it’s within the parameters of what they are required to do, as they are still under the obligation of confidentiality,” Mr Delaney warned. “They’re still within the context of respecting the confidentiality of client affairs.

“Because there are differences, and each Act has separate legal authority, it’s important there’s a degree of legal analysis that goes on to make sure the response is the appropriate one.

“There are competing interests - the interests of the client and the interest of the regulatory authorities, which sometimes conflict, and institutions need to ensure you keep the right balance.”

The Delaney Partners head pointed out, for example, that sometimes procedural irregularities meant a disclosure request was invalid. But, until it was successfully challenged, Bahamian institutions had to fullfill their disclosure obligations.

Mr Delaney said the “genesis” for the various gateways had come from this nation’s 2000 ‘blacklisting’ by the Financial Action Task Force (FATF), and subsequent passage of 11 new laws.

These, he added, had “ensured the Bahamas kept in line with evolving international standards”, and were critical to “preserving our place as a credible international centre”.

Noting that both multilateral and unilateral initiatives, such as US Foreign Tax Compliance Act (FATCA) and upcoming French initiative, would keep disclosure at the forefront, Mr Delaney said: ‘The whole issue of financial institutions being called upon to disclose has become extremely dynamic from the year 2000, and has been evolving ever since.

“Our international institutions will have to be vigilant, both in terms of keeping compliant with local regulatory disclosure requirements as well as international initiatives.”

The disclosure landscape “becomes treacherous” for those institutions, Mr Delaney told Tribune Business, because their affiliates in other jurisdictions were exposed to the “dictates of foreign law”.

“It makes it a very challenging environment for them, and they need to determine [a response mechanism] if faced with foreign disclosure orders inconsistent with local requirements,” he added.

And, while the 2009 changes to the Criminal Justice International Co-Operation Act meant it could be used for criminal tax matters, Mr Delaney added that “whether or not it is availed of, that will be a policy decision”.

He questioned whether its use would be consistent with the ‘information upon request’ regime of the TIEAs, pointing out that the Act had none of the former’s restrictions - the fact that overseas nations could only got as far back as 2004 for criminal tax matters, and 2006 for civil.

“That regime does not exist in the context of the Criminal Justice International Co-Operation Act, and questions arise as to whether it might be inconsistent with our policy in relation to the exchange of information,” Mr Delaney told Tribune Business.