The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government’s political opponents and financial industry executives yesterday questioned whether it had “dropped the ball” and provoked the European Union (EU) to deploy its “nuclear weapon”.

Reacting to confirmation of the Bahamas’ ‘blacklisting’ by the 28-nation bloc, many sought an explanation for why the EU reacted as suddenly as it did given the Minnis administration’s belief that it had done everything necessary to keep this nation safe.

Arinthia Komolafe, the Democratic National Alliance’s (DNA) deputy leader, acknowledged that the EU and other international organisations were known to alter ‘the rules of the game’ in relation to the Bahamas and other small island financial centres when dealing with tax matters.

However, she urged the Government to explain “what went wrong” after the EU justified its ‘blacklisting’ of the Bahamas by stating this nation had failed to given “a high political level commitment” to address its concerns over corporate vehicles and structures being used for tax avoidance purposes.

And, pointing to the EU’s January 26, 2018, letter to the Government, Mrs Komolafe called on it to confirm whether it had met the February 28 deadline to provide an ‘action plan’ and implementation timetable to tackle the so-called “deficiencies” identified.

“While multilateral and international agencies are known to engage in the continuous shifting of the goal post in relation to tax co-operation or compliance, the EU’s commentary begs the question: Did the Government of the Bahamas drop the proverbial ball in this matter?” she asked.

“The Government must confirm that our nation’s response was delivered to the EU by the February 2018 deadline. The Bahamian people are hopeful that the Government did not put our financial services sector in jeopardy, and the country’s reputation at risk, due to a lack of focus, deficit of competence or a lackadaisical approach to governance.”

Mrs Komolafe acknowledged that the Bahamas had signed on to two Organisation for Economic Co-Operation and Development (OECD) tax information exchange and transparency initiatives, and its Base Erosion and Profit Sharing (BEPS) initiative - actions that were thought to have brought this nation into compliance with the EU’s anti-tax avoidance campaign.

“It is unfortunate that the Government, having expended much effort and resources in collaboration with the private sector to avoid this adverse listing, was unable to prevent the Bahamas from being blacklisted. Exactly what went wrong? The Bahamian people need to know,” she argued.

The Government, in its own statement, said the Bahamas had been ‘blacklisted’ “without discussion” yesterday by the EU. K P Turnquest, deputy prime minister, added that the EU’s comment over the “lack of commitment at the highest political levels” was “regrettable”.

He added: “The Bahamas government, through the Ministry of Finance, has consistently been engaged with the EU’s Code of Conduct Group and has responded to its requests.

“Prior to today’s meeting, at the level of the Deputy Prime Minister, the Bahamas reiterated its commitment by formal letter and is on schedule to meet the December 2018 deadline set by the European Council for implementation of the areas of concern indicated.

“The Bahamas remains committed to complying with international regulatory standards and initiatives, and will continue to hold discussions with the EU to determine how we can work together to ensure a better understanding and facilitation of the process to be removed from this listing in the shortest time possible.”

Financial services industry executives, too, were suggesting that “something went wrong” in the final weeks during the run-up to yesterday’s ‘blacklisting’ confirmation.

One high-level executive, speaking on condition of anonymity, said many in the sector believed the Government was “delinquent” and missed the EU’s February 28 deadline to respond.

While agreeing with the Government that the Bahamas’ time on the ‘blacklist’ “may be shortlived”, the source said: “Even if we come off this list some damage will have been done, as it could have been prevented.

“Something went wrong. It doesn’t add up. Either we did something or didn’t do something, or they [the EU] moved the goal posts to our detriment. The test will be how quickly we’re removed from the list.”

Another financial industry source, also speaking on condition of anonymity, added: “One of three things must have happened. Either somebody dropped the ball big time, there must have been a lack of communication and everyone thought we had until the end of the year, or the EU changed the goal posts on us again.”

They questioned why the EU “went straight to the nuclear weapon and put us on the ‘blacklist’ when the likes of British Virgin Islands (BVI), Dominica and Anguilla were placed on a ‘grey list’ of nations that are non-compliant but have committed to do so.

The source said the Bahamas now needed to implement “damage control” and assess whether there was likely to be any “substantive” impact for the financial services industry and wider economy aside from the “immediate reputational hit”.

Once any fall-out has been “mitigated”, they said the Bahamas needed to focus on escaping the EU’s ‘blacklist’, “get out of reactive mode and get ahead of this curve” to focus on business and growth opportunities.

“This is a significant reputational hit that we have to mitigate the best we can,” the source said, “and this could result in a higher scrutiny for transactions originating in this jurisdiction. We will have to assess in real terms how that affects the flow of business.”

They then echoed Mrs Komolafe in questioning why the EU would rush to ‘blacklist’ the Bahamas within two weeks of its self-imposed February 28 deadline to receive a response from this nation, especially when its previous statements had given countries until year-end 2018 to comply.

With the Government in constant communication with the EU in Brussels, and having seemingly addressed the three “deficiencies” identified in the January 26 letter, the source suggested this showed the “game has been changed” on the Bahamas.

“Why the big shift from the December deadline to the current date?” they asked. “It is a major shift by the EU for some reason. It’s very strange. What changed, caused them to behave in this arbitrary way?”

While questioning whether the EU became frustrated and “lacked confidence” in the Bahamas, the source also suggested that the 28-nation bloc deliberately leaked its ‘blacklisting’ intentions to the Reuters news agency last week in a bid to pressurise this nation into bowing to its demands - and possibly going even further.

“They were trying to get the Bahamas to come cap in hand and say: ‘How high do you want us to jump?’,” the source suggested.

Chester Cooper, the PLP’s deputy leader and finance spokesman, yesterday expressed concern that the EU was seeking to force the Bahamas to implement a corporate income tax.

“Is the EU suggesting we radically alter the model that has attracted billions of dollars in honest, fruitful foreign direct investment for fear that it somehow infringes on its ability to regulate the behaviour of its citizens?” Mr Cooper asked.

“I have foreshadowed that the actions of the EU and OECD will ultimately threaten the way we conduct business with foreign investors, which will be directly scrutinised and attacked.”

Calling for every effort to “be made to have the Bahamas delisted as soon as possible”, Mr Cooper said the Bahamas needed to look past this and “proactively and progressively examine our economic model” to address both organisations’ concerns and position itself for future growth.

Pointing out that the Government’s last-ditch bid to avoid the ‘blacklisting’ through its mission to Brussels “appears to have been in vain”, the PLP deputy leader also urged Mr Turnquest to explain the EU’s allegation that the Minnis administration had been “non-responsive”.