The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas will have “to make some trade-offs” in negotiating an Intergovernmental Agreement (IGA) with the US, a leading accountant said yesterday, adding that his clients were “more comfortable” taking this route to meet Foreign Tax Compliance Act’s (FATCA) requirements.

Lawrence Lewis, the Deloitte & Touche (Bahamas) partner who is leading his firm’s FATCA work, said this nation would have to choose the financial service industry categories where it wanted to have “a more favourable compliance structure”.

He told Tribune Business that he “definitely agreed” with Ryan Pinder, minister of financial services, and Aliya Allen, the Bahamas Financial Services Board’s (BFSB) chief executive, that this nation should go the IGA route to FATCA compliance.

Explaining that moves in this direction had been put off until the US Treasury Department/Internal Revenue Service (IRS) finalised FATCA’s regulations, and the IGA models, Mr Lewis said going the latter route would give Bahamas-based financial institutions legal “cover” from breaching client confidentiality agreements.

He told Tribune Business: “In interaction with most of our business clients, they felt far more comfortable with the Bahamas going down the IGA route.

“It provides a legal framework for covering their interaction with an agency here or the IRS, rather than them sort of going it alone or just having to rely on the agreement with the client being sufficient to permit such direct interaction.

“If I was sitting as a director of a financial services institution, I would want some level of protection here for what I am doing.

The Deloitte & Touche (Bahamas) partner added that the Bahamas had to wait on the US to determine which IGA model would “be most beneficial” to its financial services industry.

But he warned: “As a jurisdiction, we have to make some trade-offs between which parts of the financial services sector we want to protect in any IGA.

“That’s the work that has to be done. What are the pieces we need to protect, what are most expensive and people understanding it.”

Mr Lewis explained that given the Bahamas’ focus on private wealth management, this jurisdiction may find it beneficial for the likes of trust structures to have “a more favourable compliance structure”.

“The Government will want to protect as much of the financial services sector as possible, but ultimately it’s going to have to make some trade-offs in the negotiating process. We need to understand what those are,” Mr Lewis told Tribune Business. “Unfortunately, I think that’s the way it will ultimately play out.”

He added that areas of the financial services sector, and products, where such ‘protection’ was not negotiated in an IGA, might face more onerous and costly FATCA compliance requirements.

Mr Lewis said there had been “an uptick in the last three months” when it came to Bahamas-based financial services providers preparing for FATCA.

He added that the second IGA model’s release had given them a good sense of what would be required, and the final regulations and Obama’s re-election had provided a further spur. Some institutions had also been waiting on the Government to decide its, and the jurisdiction’s, position.

Mr Lewis called on Bahamas-based financial services providers to lobby the Government on the type of IGA this nation needed to negotiate with Washington.

He warned, though, that the Bahamas did not currently have “the infrastructure”, in the form of a government agency, to collect the required information from all local financial institutions and pass it on to the IRS. This would require investment on both industry and the Government’s behalf.

“There’s a lot of moving parts to be figured out in how we take this forward,” Mr Lewis added.

From a competitive standpoint, he said FATCA implementation would create a ‘level playing field’ for all countries.

“It won’t put us at a competitive disadvantage, and if we are agile and smart in how we negotiate it and respond to it, in some areas it could put us at a competitive advantage,” Mr Lewis said.

And, although FATCA would increase due diligence and compliance costs, he explained the trick was for institutions to use their existing anti-money laundering and Know Your Customer infrastructure to minimise these.