There is one thing the Organisation for Economic Co-operation and Development (OECD) and G-20 countries have made clear in the past few decades: they will stop at almost nothing to curb what they deem tax avoidance and evasion.
The reasons are many, but the effect is clear. The Bahamas has had to comply as ever-changing standards have forced us to adopt measures to remain off harmful lists that hurt our national interests.
The debacle that is FTX has drawn worldwide attention and worldwide commentary along with it.
Much of it involves finger pointing and demonization from American politicians and business people, no strangers to regulation in the wake of catastrophes born in the United States.
But the spotlight is solely on The Bahamas for at least two reasons: the US will not want to readily admit that they may have dropped the ball with regard to oversight of Alameda Research Limited – former FTX CEO Sam Bankman-Fried’s US hedge fund; and the opportunity for a newly Republican-controlled US House of Representatives to grill Bankman-Fried and his friends in the Democratic Party to whom he gave tens of millions of dollars for campaigns.
If The Bahamas gets tarnished in the process, many in the US would consider it simple collateral damage.
There will be vigorous discussions moving forward about how The Bahamas should have seen it coming.
Even our Caribbean counterparts where FTX has not done any business – though it appears those are few – may sacrifice our reputation to woo business of their own.
One of the effects of the FTX fallout will likely be the fast-tracking of measures outlined in the OECD’s Crypto-Asset Reporting Framework (CARF) and Amendments to the Common Reporting Standard report released earlier this year.
“One major development that the OECD has sought to address is the emergence of Crypto-Assets, which can be transferred and held without interacting with traditional financial intermediaries and without any central administrator having full visibility on either the transactions carried out, or the location of Crypto-Asset holdings,” the OECD noted.
“These developments have reduced tax administrations’ visibility on tax-relevant activities carried out within the sector, increasing the difficulty of verifying whether associated tax liabilities are appropriately reported and assessed, which poses a significant risk that recent gains in global tax transparency will be gradually eroded.”
CARF, the OECD said, “is a dedicated global tax transparency framework which provides for the automatic exchange of tax information on transactions in crypto-assets in a standardized manner with the jurisdictions of residence of taxpayers on an annual basis”.
The framework will consist of rules and procedures that we will have little choice but to codify into law.
These rules will collect information from Reporting Crypto-Asset Service Providers, such as crypto exchanges.
They will require we report the scope of crypto assets in our country; identify which entities and individuals are subject to data collection and reporting requirements; which transactions and the information therein that are subject to reporting and the due diligence procedures to identify who is using the crypto; who is controlling the crypto-asset service providers and the relevant tax jurisdictions of those persons and entities that information should be exchanged with.
The OECD said last month it would begin working out the legislative mechanisms to implement CARF.
Last month, it seemed years away before CARF could take effect.
But the crypto world was vastly different at the beginning of last week, not to mention last month.
We are likely to take a bruising in the FTX saga, but we have to remain resilient and willing to embrace compliance, though we are weary.
The Bahamas is still the leader in the crypto-asset space in the Caribbean. There is no need to for us to lose our competitive edge.
We can begin to prepare now for what is to come.