The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A prominent QC yesterday said he was “very disturbed” that the OECD again appeared to have “moved the goal posts” on The Bahamas and other international financial centres (IFCs).

And Brian Moree QC, senior partner at McKinney, Bancroft & Hughes, told Tribune Business that it was important that a critical investment product not be “jeopardised” by the Organisation for Economic Co-Operation and Development’s (OECD) latest anti-tax evasion offensive.

He spoke out after the Paris-based body, 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 (see article on Page 1B).

Mr Moree said it was “a little premature” to determine the likely economic impact of the OECD’s actions, adding that it was critical for The Bahamas to first understand “the level of objection” it has to residency-based investment incentives.

He explained that this nation needed to work out whether the OECD’s concerns were “across the board”, which seemed unlikely given that the US and other major OECD members have similar regimes to economic permanent residency, or if it had specific issues with The Bahamas’ product.

Nevertheless, Mr Moree said the OECD listing published yesterday appeared to be 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.

“It does seem to once again to be moving the goal posts and stretching the scope,” the well-known QC told Tribune Business. “I have to find out more about this, but it does seem to me that it is potentially very disturbing, as it appears to be stretching the scope and moving the goal posts on a product - the economic permanent residency programme - that has been around for a very long time.

“One would hope this is not going to jeopardise the economic residency programme that has been operated in The Bahamas for many decades without objection.”

Mr Moree conceded that the OECD’s listing, featuring investment-related residency and citizenship regimes offered by 21 countries including The Bahamas, had been “somewhat of a surprise to me”.

He added that himself, and others in the financial services industry, had been focused on the seemingly more pressing issues of complying with the OECD’s CRS and Base Erosion and Profit Shifting (BEPS) initiatives, plus meeting the year-end timeline for addressing the European Union’s (EU) economic substance and “ring fencing” issues.

“We thought these were the issues we were working on, and felt we were fully prepared to comply within the timeframe,” Mr Moree said. “For me, it is absolutely a surprise and particularly disappointing because we thought we were doing very well. The Government has passed some parts of the legislation, and others are out for public consultation.”

The Ministry of Finance, in a statement issued last night, said OECD officials had assured it that yesterday’s listing did not amount to another “blacklisting” of The Bahamas. It described international media reports suggesting this as false and misleading, adding that this nation was “under no obligations” or pressure to change its economic permanent residency regime.

And, while the report attached to the OECD listing made no mention about imposing sanctions or financial penalties against named countries, the potential negative consequences of being included cannot be overlooked.

The Ministry of Finance itself conceded that the OECD 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, could 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 Moree said it was too early to determine any potential fall-out, adding: “We have to see whether or not there is an objection to the product across the board or if there are specific concerns about residency-based investment (RBI) programmes.

“What I need to understand before ascertaining the economic impact of this is whether the OECD is making across the board objections to residency-based investment programmes, or are their certain aspects of that programme they are concerned about? In that case, we will have to take a look at it.”

The Ministry of Finance’s statement last night suggests there are no particular concerns with the Bahamas’ economic permanent residency regime, which yesterday found itself in the company of investment incentives offered by the likes of Monaco, Malta and Cyprus, plus a host of other Caribbean nations.

The OECD’s main target appeared to be investor citizenship programmes, where wealthy investors can acquire citizenship - and a country’s passport despite not living/residing there - if they make a substantial enough donation to a sovereign wealth fund, or purchase property and government bonds.

International media reports yesterday suggested investor citizenship programmes were particularly vulnerable to abuse by financial criminals, such as money launderers and tax evaders, because they enabled these people to hide and move assets around the world.

Mr Moree, though, pointed out that The Bahamas has never operated an investor citizenship offering and needs to make this clear, given that foreign media were yesterday grouping this nation with those that do.

The UK’s Guardian newspaper, for example, wrote: “Also on the OECD ‘blacklist’ are a handful of Caribbean nations that pioneered the modern-day methods for the marketing of citizenship. These include Antigua and Barbuda, The Bahamas, Dominica, Grenada, St Lucia and St Kitts and Nevis, which has sold 16,000 passports since relaunching its programme in 2006.”

“We do not have citizenship by investment in The Bahamas. That needs to be made clear,” Mr Moree said. “We have to assess what the level of objection is here, and we need to differentiate between residency by investment and citizenship by investment. We do not have a citizenship by investment product ourselves.”

The creation of a Bahamian investor citizenship programme has been raised in the past, most recently by Sean McWeeney QC, the former attorney general. He floated the idea at the 2014 Society of Trust and Estate Practitioners (STEP) Caribbean conference, but emphasised that it would involve a “quality over quantity” approach targeting only the world’s wealthiest.

Mr McWeeney said his plan would offer select investors permanent residency with a “guarantee” of Bahamian citizenship once strict criteria were met. These conditions included fulfilling commitments to take up residence in the Bahamas, and invest in its economy, with a ‘high bar’ set for the investment dollar value that would be require.

Others, including realtor Marion Carey, also subsequently called for The Bahamas to adopt an investor citizenship programme, but the idea has never taken off due largely to domestic opposition and the perception that Bahamian citizenship should be earned not bought.

The OECD report, meanwhile, suggested that Tax Residency Certificates cannot always be trusted - and should not be taken at face value - as proof that someone has resided in a particular jurisdiction for a certain period of time, thereby making them liable to its tax laws rather than those of an OECD nation.

The report also gave a list of suggested checks and questions that should be asked to determine of a Tax Residency Certificate is genuine. The Bahamas is currently developing just such a certificate, but the final details have yet to be decided.

One potential positive is that the OECD listing may have no impact on its main high-end real estate market, the US, as that country is not part of the CRS initiative.