The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government must "act more decisively" to defend The Bahamas from the OECD's attack on its key investment product, which is "not positive no matter how you spin it".

Paul Moss, pictured, president of Dominion Management Services, told Tribune Business that the Ministry of Finance needed to focus on securing The Bahamas' removal from the Organisation for Economic Co-Operation and Development's (OECD) 21-country list as rapidly as possible, rather than argue over whether or not it was a "blacklist".

Mr Moss, who heads one of the few Bahamian-owned entities in the international financial services sector, said the inclusion of The Bahamas' economic permanent residency product among regimes deemed potentially harmful to the fight against global tax evasion could drive away the very business this nation is desperately seeking to attract.

Calling on the Government to "get serious" over its response to avoid "our lunch continually being taken", Mr Moss said the extra scrutiny economic permanent residents will attract as a result may lead them to minimise "their use of The Bahamas".

Revealing that worried high net worth clients had already contacted him to understand the implications of the latest OECD listing, he explained of the fall-out: "It means people coming from this jurisdiction are going to be scrutinised. It makes it more difficult for people wanting legitimate privacy to come to The Bahamas.

"I don't know why they're [the Ministry of Finance] saying it's not a 'blacklist' when, in fact, the ultimate effect is a de facto 'blacklist'. I can tell you so much so that I have got e-mails and international calls from clients in Europe. Some asked me if it was a 'blacklist', and some asked me for clarity on what it all meant.

"If it's reached the eyes and ears of clients, it should be of sufficient concern for the Government to go out and defend our position, but not by trying to pacify the local populace politically by saying it's not a 'blacklist'. The reality is that as a nation you cannot have this stigma attached to you."

The OECD caught the Government, as well as the financial services industry and wider private sector, off-guard last week by listing this nation's economic permanent residency offering among the investment incentive regimes of 21 countries that it says jeopardise "the integrity" of its Common Reporting Standard (CRS) automatic tax information exchange initiative.

While the OECD's list, and accompanying report, did not mention the imposition of sanctions or penalties against The Bahamas and 20 other countries, it did call on financial institutions to apply greater scrutiny to persons benefiting from their investment-related residency and citizenship programmes when it came to determining their tax compliance.

Although the Ministry of Finance conceded this point, it devoted most of its response to refuting and attacking international media reports describing the OECD listing as a "blacklist". It said officials from the Paris-based body, which represents the world's most powerful economies, had assured them it was nothing of the kind, and that this nation is under no obligation to alter its economic permanent residency regime.

The OECD, which allowed reports of a "blacklist" to persist for two days, eventually moved to clarify the situation by stating the "sole objective" of its "high risk" citizenship by investment/residency by investment list was to provide financial institutions with "guidance" on detecting persons exploiting them to evade due taxes.

Many in the Bahamian financial services industry, though, are unconvinced by the Ministry of Finance's efforts to minimise the implications for an investment products whose benefits touch virtually every corner of the economy.

One executive, speaking on condition of anonymity, told Tribune Business that The Bahamas' inclusion on the OECD list would increase the "risk rating" financial institutions attach to this nation's economic permanent residents regardless of whether it is considered a "blacklist" or not.

This, they explained, would result in The Bahamas' high net worth clients facing greater scrutiny and due diligence over their tax affairs - a situation that will "raise concerns sooner rather than later" in this small but extremely valuable community.

"I don't care how you spin it; ultimately it's not positive. Our efforts should be focused on being taken off that list," the executive said of The Bahamas' inclusion. "When institutions do anti-money laundering and PEPs (politically exposed due persons) from a CRS perspective, this will factor into the risk rating for these clients.

"It's nothing positive. I don't understand why they're seeking to downplay it. As long as The Bahamas remains on that list, the risk profile of these clients will increase. And as long as financial institutions continue to view our economic permanent residents that way, it will raise concerns in that community sooner rather than later, when they start dealing with financial institutions and they start applying those ratings. It's important the Government does something to get us off that list."

The executive added that Monaco would not have responded as rapidly as it did to secure its removal if the OECD list was of no concern, and had no economic implications. "Maybe we should pick up the phone to Monaco and ask what they did," they added.

Mr Moss agreed, telling Tribune Business: "It's going to have the effect where clients are going to try and mitigate as best they can their use of The Bahamas if it's going to mean extra scrutiny.

"You have people coming from high crime jurisdictions, Brazil and parts of Latin America, and they seek to avoid that at all costs. They don't need the extra scrutiny. We need to do the things necessary to go there and get removed from that list. To leave it hanging out there is foolish.

"When I do a transaction, everything is about timing and efficiency. When I make it I want some predictability, and for it to be done within the hour or end of day, When there's a delay it throws everything out of whack."

The Bahamas' inclusion on the OECD list, at the very least, will plant "seeds of doubt" and uncertainty in the minds of investors as to the benefits of holding/seeking economic permanent residency given that they will likely be subjected to greater scrutiny.

This will be especially unwelcome for investors who have legitimate privacy concerns, such as those from high-crime and politically unstable countries in Latin America, increasingly a key source of business for The Bahamas, who may fear that information extracted by greater CRS scrutiny could fall into the wrong hands.

As a result, the OECD listing threatens to negatively impact a wide cross-section of the Bahamian economy, not just the hard-pressed financial services industry. Besides attracting high net worth clients and their assets to this nation, economic permanent residency drives lucrative business for real estate developers, realtors and attorneys, and produces spin-offs affecting virtually all industries.

The Paris-based body is arguing that all the investment-related residency/citizenship products identified "can be potentially misused" to enable individuals to "hide their assets offshore by escaping reporting" requirements under the CRS.

It suggests that beneficiaries of this regime can manipulate products such as Tax Residency Certificates to say they were in low or 'no' tax jurisdictions for longer than the reality, and that such products should not be taken at face value.

Mr Moss, though, urged The Bahamas to respond aggressively to the latest OECD move rather than "capitulate" as it has done in the past. "I thought that the Ministry ought to have come out and be more decisive to say it doesn't matter what the OECD or any other organisation says," he told Tribune Business.

"This is a product, an investment tool, we use. It's one of many used around the world. We'll hold on to what we have. It's been huge, no question about it. We still do quite a bit of it, the 10 percent Stamp Duty that goes into the Treasury [on property sales] is incredible. They need to be seen to be defending the position, and not trying to pacify Bahamians in The Bahamas to say we're not blacklisted."

Mr Moss said the process for accelerated permanent residency, which is granted to foreign purchasers of property worth $1.5m or more, contains numerous safeguards including Interpol checks, police certificates and copies of passports and numerous other official documents.

Calling on the Government to explain such protections to the OECD, he said he remained concerned that it may one day "pull the plug" and announce The Bahamas is exiting the financial services industry.

"I think this is very serious. Having been in this business from 1994, I can tell you that every time there's a blacklist, grey list or white list, our response has been to capitulate and not defend," Mr Moss added, describing the financial services industry as having been placed "on a life support system".