“Sometimes economists in official positions give bad advice; sometimes they give very, very bad advice; and sometimes they work at the OECD.” — Paul Krugman
Last week, The Bahamas government introduced several pieces of legislation in Parliament that will further seriously, if not irreparably, erode our offshore financial services sector. This latest action by The Bahamas government represents another assault by the Organisation for Economic Cooperation and Development (OECD) on our sovereignty. It will likely culminate in a parliamentary debate that will be full of sound and fury, signifying absolutely nothing but veiled platitudes and gratuitous accolades about how the government was able to stave off The Bahamas’ inclusion on the OECD’s infamous blacklist.
This recent compendium of legislation is nothing more than a continuation of a theme that began in 2000 under the second term of Prime Minister Hubert Ingraham. During that time, our financial services legislation was radically and irreparably altered, primarily because of threats by the OECD to blacklist us if we did not kowtow to their wishes. We acquiesced to all of their demands and bought ourselves a little more time. And the band played on.
The Christie administration continued its dance with the OECD and the European Union in order to obtain their permission to sanction the ownership and operation of domestic gaming by Bahamian entrepreneurs in their own country. Imagine that: we went, cap in hand, to beg our former colonial masters to do something which is ours by right of membership in the community of nations. The OECD relented. And the band played on.
Now the current FNM administration is about to further erode the second most important, decades-old, historically robust pillar of our economy, financial services, by the enactment of legislation that was recently tabled, again driven by the dictates of the OECD and the European Union. It seems that the band is still playing.
Therefore, this week we would like to Consider this… Have we surrendered our sovereignty in the face of threats by the OECD and the European Union to blacklist us if we do not submit to their dictates to amend our financial laws?
The Organisation for Economic Co-operation and Development is comprised of 34 member countries and was supposedly formed to discuss and develop economic and social policies impacting its member states. OECD members are democratic countries that ostensibly support free market economies. Its membership is largely comprised of developed European democracies, but also includes the United States and Canada.
Eliminating tax havens
One of the primary objectives of the OECD is to eliminate tax havens from the face of the earth. Tax havens, now more appropriately called “offshore financial centers”, offer foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Historically, offshore financial centers disclose or share limited or no financial information with foreign tax authorities. Also historically, these jurisdictions have not required residency or business presence for individuals and businesses to benefit from their tax policies.
Because of the globalization of business operations, an increasing number of individuals and corporations have sought to minimize their tax liability in their home countries by depositing cash in offshore financial centers.
Accordingly, the OECD has forced offshore financial centers to amend their laws to facilitate OECD member countries to gain access to their citizens’ personal and corporate bank accounts and financial data. This is being done in order to increase the tax base and tax revenue in these OECD member countries.
Offshore financial centers that have failed to comply with the OECD’s wishes have been “blacklisted” as uncooperative, a fate that has seriously impaired the ability of offshore financial centers to competitively participate in a globalized world.
Accordingly, over the past 20 years, The Bahamas, like many of its competing offshore financial centers, has fallen in line with the OECD’s desire to remove their competitive advantages by compelling such centers to change their laws in order to allow OECD member countries to gain access to their citizens’ banking and financial results of operation.
Continuously moving the goal posts
In its initial efforts in 2000 to impose its will upon offshore financial centers, the OECD employed the noble objective of rooting out and curbing money laundering and terrorist financing as its excuse to impose its will on such jurisdictions. It was difficult to argue that we should not change our laws in pursuance of such noble objectives, and consequently The Bahamas introduced a compendium of legislation to achieve that objective.
The OECD realized that it had the offshore financial centers by the ‘short and curlies’, so it devised a more pernicious plan to compel those offshore centers to facilitate the collection of the taxes on income that its citizens had spirited away offshore. This time, its plan was to get the EU’s citizens to repatriate their tax dollars, something which they themselves could not achieve in their own countries, effectively relegating the offshore centers to policing these citizens where their native countries could not.
By constantly moving the goal posts, the OECD has effectively devastated the competitive advantages that have long existed in offshore financial centers, despite their member countries professing to support free markets. What hypocrisy!
Furthermore, some of the same OECD countries that imposed tough legislation and regulations on the offshore centers are themselves guilty of the very abuses that they have sought to eradicate from the offshore centers. For example, while we and other offshore centers were compelled to eradicate the use of bearer shares from our laws, bearer shares are still permissible in some OECD member states. In addition, it is a well-known fact that some of the biggest money launderers operate from and within OECD member states, notwithstanding the latter’s pronounced commitments to eradicating money laundering and terrorist financing.
The new reality
These developments have created a new existential reality for the offshore financial centers. It has become patently clear that, over the last two decades, The Bahamas has lost significant stature as an offshore financial services center. In 2000, we abolished our bank secrecy laws and acquiesced to the elimination of bearer shares from our corporate arsenal. We also imposed strict regulations on our financial services stakeholders, which has adversely affected our competitiveness in a globalized world.
We have submitted, without any real resistance, to the will and wishes of the OECD and the EU and, accordingly, now find ourselves confronted by a new reality: the erosion of our sovereignty.
That new reality is that we have become a vassal state of the OECD and the EU and have willfully and determinedly acquiesced to becoming their economic colonial state.
The new reality is that, as a result of our acquiescence, The Bahamas has diminished the standing as a premier offshore financial center that we once enjoyed. Many persons employed in this sector will now have to find jobs elsewhere, some possibly even out of the country.
The new reality is that we have allowed successive governments to deliberately and consciously facilitate a lowering of our per capita GDP from financial services, with even further erosion on the horizon with the enactment of the new legislation. More importantly, it is quite unlikely that Bahamians who have worked in this sector will continue to enjoy the same quality of life and income in their remaining years and, for those who want to work in this sector, for the remaining years of this century.
The new reality is that our politicians who have negotiated with the OECD and EU powerhouses on our behalf, compared to their counterparts in those organizations, are woefully ill-equipped, outmatched, out-smarted and out-maneuvered when negotiating on our behalf. If that were not so, they should tell us what they have gotten for The Bahamas from those negotiations, other than the further erosion of our financial services sector as well as our national sovereignty.
Next week we will review some of the new legislation that the government has recently introduced in Parliament. This will enable us to clearly determine whether this government has further surrendered our sovereignty. In addition, we will explore what options remain for us to reverse this perverse attack on our patrimony and examine what we can do to regain our lost stature as a premier offshore center. It is not too late.
• Philip C. Galanis is the managing partner of HLB Galanis and Co., Chartered Accountants, Forensic & Litigation Support Services. He served 15 years in Parliament. Please send your comments to firstname.lastname@example.org.