The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas and other international financial centres (IFCs) will likely come under increasing pressure “to be the world’s tax policemen” as a result of the ‘Panama Papers’ leak, the Opposition’s deputy leader warned yesterday.

K P Turnquest told Tribune Business that the G-7/G-20 group of the world’s most powerful nations would exploit the released data to press for their long-cherished objective of turning the Bahamas and its fellow IFCs into ‘vassal collectors’ of their taxes.

Describing this as “a slippery slope”, Mr Turnquest said there was little more the Bahamas could do to satisfy those nations other than verify - on their behalf - that all its financial services clients are compliant with their home country’s tax laws.

With the European Union (EU) and others already ‘sabre rattling’ about new IFC ‘blacklists’ following the leaking of 11.5 million documents from Panama-based law firm, Mossack Fonseca, the FNM’s deputy said the Bahamas had to guard against the imposition of double standards.

In particular, he questioned whether the EU would ‘blacklist’ the US and/or individual states such as Delaware and Nevada, whose laws and financial services regimes provide much greater client anonymity than the Bahamas and other Caribbean-based IFCs.

Calling on the Bahamas to adopt a more “aggressive” stance in defending its interests and financial services industry, Mr Turnquest warned that with tourism also coming under growing competitive pressures, its two largest economic ‘pillars’ are coming under growing threat.

The FNM deputy said that based on the ‘Panama Papers’ contents leaked to-date, the problems seemed to lie with clients and their intermediary advisers (foreign attorneys and accountants), not the Bahamas and its financial services industry.

“From what I’ve gathered so far, the issues are not so much jurisdictional but home country, in terms of have clients disclosed back home,” Mr Turnquest said.

“There’s not much for us to do this side except co-operate state-to-state if we have Tax Information Exchange Agreements or some mutual co-operation agreements in place.”

He added, though, that the leak and subsequent media coverage was bound “to impose a strain on the relationship” between the Bahamas and major industrialised nations.

And clients may fear there is now greater risk associated with operating in the Bahamas, and that their private date may breached if based in an IFC.

The ‘Panama Papers’ leak has to-date drawn massive global media coverage, but nothing has yet been released to demonstrate wrong-doing by Bahamas-based financial services providers or executives.

Attention has mainly focused on Panama and the British Virgin Islands (BVI), and the most damaging revelations to-date have been that Mossack Fonseca was doing business with controversial or politically exposed persons (PEPs) who had been ‘blacklisted’ by the US and others.

A member of the ethics committee at FIFA, soccer’s governing global body, was forced to resign after it was revealed he was doing business with someone he was supposed to be disciplining, while Iceland’s prime minister was also forced to resign.

Transparency International’s Chile director was forced to resign after it was revealed he was connected to five Bahamas-domiciled companies, but that has been the most damaging connection to this nation to-date.

Many of the revelations have largely involved circumstantial evidence and innuendo, with nothing produced to show that the companies and clients - or their sources of funds - are associated with illegal activities.

Still, the likes of the EU and Organisation for Economic Co-Operation (OECD) have been quick to seize upon the ‘Panama Papers’ to justify a more hawkish, aggressive stance towards tax transparency and IFCs.

Pierre Moscovici, the European commissioner in charge of tax policy, who drove last year’s EU ‘blacklist’ of the Bahamas and 30 other IFCs, called for its member states to support such action.

The Commission wants an EU list of so-called ‘tax havens’, based on common criteria, to target any country it deems as resistant to its demands.

Mr Turnquest, agreeing that pressure was likely to be ramped up on all IFCs as a result of the ‘Panama Papers’, said: “They’ve always been looking for any reason to bring more pressure.

“Fortunately, I believe we’ve met all the international regulatory requirements, and we’re certainly compliant with international best practices. We’ve also passed peer reviews, and there’s not a hell of a lot they can do to us.”

He quickly acknowledged, though, that the Bahamas had to recognise the concerns of major industrialised nations about the loss - real or perceived - of tax revenues due to wealthy persons and companies hiding income offshore.

Mr Turnquest said that in the current climate, it may be prudent for the Bahamas to do due diligence on both clients and their advisers, to ensure all were compliant with home country tax laws.

“I imagine that is the next logical step; being asked to be the tax police of the world,” Mr Turnquest told Tribune Business.

“They only thing they can ask us to do is verify with these clients, and check to ensure they are reporting what they need to report. That’s a very slippery slope.”

Demands are already being made for the Bahamas to do this via the OECD’s Common Reporting Standard (CRS) for the automatic exchange of tax information, which this nation has to implement from 2018 onwards.

The OECD is likely to intensify this initiative following the ‘Panama Papers’ revelation, and Mr Turnquest said this would make the Bahamas and other jurisdictions “much more uncompetitive”.

The negative consequences flowing from this, he added, would be made much worse if the major industrialised nations employed the usual ‘double standards’ and spared their own IFCs, such as the US states.

“That’s the ironic thing about the whole blacklisting of these IFCs,” Mr Turnquest told Tribune Business. “It seems very much discriminatory, as those states have much more liberal laws in terms of disclosure, Know Your Customer and the use of bearer shares.

“We need to make the point that we have no difficulty in complying, but there has to be a level playing field and it can’t be one set of rules for us and one for the big boys.”

The ‘Panama Papers’ media coverage, and resulting public pressure, will inevitably force political leaders in the G-7 and G-20 nations to act against IFCs.

To counter this, Mr Turnquest said the Bahamas needed to be more “proactive and aggressive” in defending its financial services industry.

“We just have to put ourselves out there in a positive way,” he told Tribune Business, “and that we are a well-regulated, compliant jurisdiction for legitimate business.

“We have been somewhat timid, lax and not aggressive as we need to be. We need to be proactive in what we do, diversify our product mix and go out and vigorously defend ourselves and market the industry.

“The reality is that with this increasing pressure, and increasing pressure on tourism, we are looking at a very serious situation. It seems to me that we’re not being nearly as proactive as we need to be on both sides of the economic coin.”