The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian financial services practitioner yesterday urged this nation to bar international firms from using this jurisdiction solely to incorporate companies in the wake of the ‘Panama Papers’ revelations.

Paul Moss, president of Dominion Management Services, told Tribune Business that blocking international banks and trust companies from forming companies for their clients would ensure greater scrutiny was applied to these clients.

Apart from enhanced due diligence, Mr Moss said such a policy would “get Bahamians in the game” when it came to financial services industry ownership, as company formation would be handled by law firms and financial/corporate services providers.

And Mr Moss argued that, ironically, one of the ‘Panama Papers’ revelations backed two of his key demands - for the Bahamas to change its international financial services model, and upgrade the Registrar General’s Department.

Documents obtained from the Panamanian law firm, Mossack Fonseca, show how a company headed by a major donor to the UK’s governing Conservative Party, switched one of its subsidiaries from the Bahamas to the Mauritius.

The transfer, according to the UK’s Guardian newspaper, was done to enable Heritage Oil to avoid a massive tax bill on a Uganda-based acquisition.

While its then-Bahamian subsidiary would have been exposed to such a liability, re-domiciling it to Mauritius enabled it to exploit that country’s ‘double taxation agreement’ with Uganda.

By being taxed at the lower Mauritius rate, the Heritage Oil subsidiary was able to avoid the much higher Uganda tax bill.

Mr Moss has long called for the Bahamas to implement a low income or corporate tax regime for its international financial services clients, as such a regime would enable it to enter into double tax agreements and attract customers seeking to do legitimate, cross-border business.

The Bahamas’ current ‘no tax’ excludes it from this market, and The Guardian article painted a less-than-flattering picture of efficiency at the Companies Registry (Registrar General’s Department).

This government agency is the hub around which the Bahamian financial services industry functions, and Heritage Oil was seemingly less than impressed with apparent bureaucratic delays that held up the Mauritius switch.

“Records show that, at one point, the company’s [Heritage Oil’s] chief financial officer demanded a junior member of the Mossack Fonseca team be sent to sit in the Bahamas registry office in order to speed up the process, saying the delay was ‘ridiculous’,” The Guardian in London reported.

Telling Tribune Business that he felt “vindicated” by such documents, Mr Moss said the Government appeared not to understand why the Bahamas’ financial services business model was not appropriate for the current global environment.

Hope Strachan, minister of financial services, yesterday reiterated how the Government was working to remove the Bahamas’ from all remaining financial services ‘blacklists’.

Yet Mr Moss said: “She has no appreciation of the link between these blacklists and the model we are targeting. That’s where the correlation is off.”

Following the ‘Panama Papers’ revelations, the Dominion Management chief said the Bahamas needed to change its business model further by separating company formation activities from banking and other niches.

He advocated that such work could be performed entirely by Bahamian-owned companies and practitioners, thereby simultaneously boosting customer due diligence and local ownership.

“They ought to run away from companies coming in to do company formation,” Mr Moss told Tribune Business.

“That is something that we need to look at; this whole notion of allowing people to come in. They have to be doing real work, not forming companies. That’s not real work, and does not require expertise. It can all be done locally.”

Mr Moss said international banks and trust companies should focus on their core activities, banking and wealth management/preservation, and outsource the formation of clients’ corporate vehicles to Bahamian practitioners.

“Allow other intermediaries to do that,” he argued. “That will also provide another level of due diligence. You’ll have more checks on the business.

“There needs to be separation. If you are a bank, you must do banking business. You must not be permitted to set up investment funds, and there should be complete separation of the administrator and custodian roles.”

Mr Moss said these moves would also boost Bahamian ownership in a sector where the major institutions are largely foreign-owned, albeit with exceptions such as The Private Trust Corporation and Ansbacher (Bahamas).

“This is a way of putting Bahamians in the train,” he told Tribune Business. “I think for Bahamians, this will be a way for them to get in the game. Company formations, administration, these are things that Bahamians can do, and that’s why we can jump start.”

Mr Moss conceded that the Bahamas could not change its financial services model overnight, and would have to carefully explain any changes - and why they were necessary - over a five-year period.

“We have to indicate to the market that we are turning a new page, are no longer a tax haven, and are setting a date in the future to implement this regime,” he added.

“It will open the doors for people wanting a double tax regime, and to participate in international business.”