The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A top Central Bank official has accused the OECD of trying to “hobble” the competitiveness of The Bahamas’ economic permanent residency regime by including it in an arbitrary “quasi-blacklist”.

Charles Littrell, the regulator’s inspector of banks and trust companies, in a speech to a Turks & Caicos financial services conference, suggested that listing The Bahamas’ key investment product among regimes that could undermine global automatic tax information exchange was an act of gross hypocrisy by the Organisation for Economic Co-Operation and Development (OECD).

He argued that “all or nearly all” OECD members offer similar schemes to attract high net worth investors and capital to their shores, yet none of these made it on a list of 21 countries that included The Bahamas and other major international financial centres (IFCs).

Mr Littrell said The Bahamas had “ignored” the OECD’s attack on its economic permanent residency regime to the extent possible, but conceded that this nation has no choice but to “comply or starve” when it comes to meeting the demands of the OECD, European Union (EU) and other groups representing the world’s most powerful economies.

While acknowledging that their initiatives can be branded “unfair, colonialist, and inconsiderate”, the senior Central Bank conceded that resistance was futile given the reputational damage and loss of access to the global financial system that can be inflicted by “blacklistings” and associated sanctions.

Mr Littrell, echoing arguments voiced previously by many in the Bahamian financial services industry, said this nation will only be able to counter the “harmful” effects of international regulatory initiatives if it joins forces with other Caribbean nations and IFCs.

Speaking on “how The Bahamas is managing its interactions with the sometimes helpful, and often intrusive, international groups who seek to impose their version of an optimal order on the world,” he said the OECD and EU - in particular - were forcing their anti-tax evasion offensive on this nation without providing any implementation help and thought for the consequences.

“Increasingly, and particularly from the EU and OECD, we are seeing demands that small states make their local tax regime less attractive to foreign companies and investors,” Mr Littrell said.

“We also have the recent example of the OECD issuing a quasi-blacklist of countries maintaining, to the OECD, questionable citizenship by investment and residency by investment schemes.”

Identifying multiple problems with the “listing” of The Bahamas’ economic permanent residency regime, Mr Littrell said the OECD did not properly consult before releasing it and failed to distinguish between residency and citizenship regimes.

He added: “All, or nearly all, OECD countries maintain similar schemes but, not by coincidence, none of these schemes made the OECD list.

“It is hard to see this action as anything other than an attempt to hobble non-OECD competition for OECD member investment schemes. It is very much a case of the OECD seeing the mote in small country eyes, and not seeing the beam in their own members’ orbs.”

Mr Littrell said The Bahamas had sought to ignore the OECD’s listing of its permanent residency regime “to the degree reasonably possible”, although government ministers moved to emphasise that this nation did not grant such status for tax purposes, or on the basis of taxation, when they visited the Paris-based group recently.

The OECD listing sparked major concern within the Bahamian financial services industry when it was published, with many viewing it as a further broadening of its efforts beyond pure tax information exchange and transparency to investment products and regimes it deems potentially harmful to the global crackdown on tax avoidance and evasion.

For the OECD, which represents the world’s largest and strongest economies, included The Bahamas’ economic permanent residency programme among investment incentive regimes it identified as potentially harmful to its Common Reporting Standard (CRS) automatic tax information exchange initiative.

The listing report called for “financial institutions to undertake enhanced due diligence on clients that are citizens or residents of countries with [investment citizenship or investment residency] programmes to prevent cases of [tax] avoidance and tax evasion”.

Apart from creating negative perceptions of The Bahamas in the minds of potential investors, the OECD listing’s demand for enhanced scrutiny, and likely extra costs, time and exposure involved, threatens to deter wealthy investors from applying for permanent economic residence - thereby undermining a key component of the foreign direct investment (FDI) regime that has been in place for decades.

Mr Littrell, meanwhile, also addressed the impact of the Financial Action Task Force’s (FATF) anti-money laundering and counter terror financing initiatives on The Bahamas and other small states, with this nation recently cited for “structural deficiencies” in its defences.

The Central Bank executive argued that while the FATF’s intentions were pure, execution of its 40 compliance - and 11 technical - measures was “unattractive” for smaller states because its assessment methodology favoured larger states where more illicit activity occurs.

“The FATF compliance scores are typically the largest input into correspondent banking risk models,” Mr Littrell said. “Because the 51 scores do not differentiate between the banking system and the rest of the economy, one can too easily imagine, and in The Bahamas we are currently living, the case where poor scores on relatively trivial matters such as used car dealers and jewellery stores reduce international acceptance of well-regulated sectors such as banking. This is not the FATF’s fault, but it is a direct result of the FATF’s mutual evaluation methodology.

“There is also the major consideration that, over the past decade or so, international correspondent banks have become gun-shy about maintaining relationships with respondent banks.

“For small island states, de-risking is not so much about banking, but the risk of loss of access to the international payments system, which in turn is loss of access to the imports we need to maintain a modern society.”

With the OECD and EU willing to impose their demands on The Bahamas and others through sheer power, Mr Littrell said: “Faced with overwhelming economic force, we comply where we must and optimise where we can......

“In the short term, The Bahamas, Turks & Caicos, and other small states must comply with rules imposed on us by large states. We can agree that this is unfair, colonialist and inconsiderate, but the reality remains that we must comply or starve.

“In the longer term, small states need to get better at sorting out what is useful from these impositions from what is not. Those aspects that are useful should be implemented, despite any resentment at the way they are imposed, because they are good for our societies,” he continued.

“Those aspects that are not useful, and at times actively harmful, can only be resisted if the small states become better at collective action. But that is a conversation for another day.”