“Sometimes economists in official positions give bad advice; sometimes they give very, very bad advice; and sometimes they work at the OECD.” — Paul Krugman
Since 2000, The Bahamas government has enacted numerous pieces of legislation in Parliament that have seriously, if not irreparably, eroded our offshore financial services sector. Those developments represent a prolonged and sustained assault by the Organization for Economic Cooperation and Development (OECD) on our sovereignty and our way of life.
Armed with OECD-inspired and directed legislation, those initiatives are justified in parliamentary debate that is often full of sound and fury, signifying absolutely nothing but full of veiled platitudes and gratuitous accolades about how the government of the day effectively staved off The Bahamas’ inclusion on the OECD’s infamous blacklist.
The compendium of OECD-inspired and directed legislation enacted by successive governments 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 the OECD’s threats to blacklist us if we did not kowtow to their wishes. We acquiesced to all their demands and bought ourselves a little more time. Or so we thought. And the band played on.
The Christie administration continued its dance with the OECD and the European Union to obtain its “permission” to sanction domestic gaming ownership and operation by Bahamian entrepreneurs in their own country.
Imagine that: we went, cap in hand, to beg our former colonial masters’ permission to do something that is ours by right of membership in the community of nations. The OECD relented. And the band played on.
The current (Minnis) FNM administration continues its predecessors’ performance by persisting in acquiescing to the further erosion of the second most important, decades-old, historically robust pillar of our economy: financial services. And the band continues to play on.
The future legislation that will undoubtedly come will be designed to further weaken our competitive advantage as a thriving offshore financial center.
Therefore, this week we would like to consider this — have the OECD, and the European Union (EU) demonstrated a degree of hypocrisy by continually threatening to blacklist us if we do not submit to their dictates to amend our financial laws for their benefit?
The Organization for Economic Co-operation and Development is comprised of 37 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 primarily comprised of developed European democracies but also includes the United States, Canada, Australia, as well as several Asia-Pacific and South American countries.
Eliminating tax havens
One of the OECD’s primary objectives 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. 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 home countries’ tax liability by depositing cash and other investments in offshore financial centers. The result is that the home countries experience reduced income tax from their citizens, thereby shrinking their tax revenue.
Accordingly, the OECD has forced offshore financial centers to amend their laws to facilitate access for OECD member countries to their citizens’ personal and corporate bank accounts and financial data. This is done 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” and branded as uncooperative, a fate that has seriously impaired such centers’ ability to participate competitively in a globalized world.
Accordingly, over the past 21 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 to allow OECD member countries to gain access to their citizens’ banking and financial results of operation.
In its initial efforts in 2000 to impose their will upon offshore financial centers, the OECD cited 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 to pursue such “noble” objectives. 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”. Hence, they 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, the OECD planned to get their citizens to repatriate their tax dollars, something which they 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 goalposts, 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 strict legislation and regulations on the offshore centers, are guilty of the very abuses they have sought to eradicate from offshore centers.
For example, while The Bahamas and other offshore centers were compelled to eliminate bearer shares from our laws, bearer shares are still permissible in some OECD member states.
Besides, 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 offshore financial centers. It has become patently clear that The Bahamas has lost significant stature as an offshore financial center over the last two decades.
In 2000, we abolished our bank secrecy laws and consented to eliminate 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.
Without any real resistance, we have benignly submitted 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 and the financial services sector, a significant pillar of our economy, second only to tourism.
That new reality is that we have become a vassal state of the OECD and the EU and have willingly and determinedly acquiesced to becoming their colonial economic state.
As a result of our surrender, the new reality is that The Bahamas has diminished its standing as a premier offshore financial center that we once enjoyed. Many persons employed in this sector will now have to find jobs elsewhere, 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, which will undoubtedly come.
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 in the future, 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 for the best interests of our nation.
If that were not so, they should tell us exactly what they have gotten for The Bahamas from those negotiations, other than the further erosion of our financial services sector, our diminishing GDP from this sector, as well as the ongoing deterioration of our national sovereignty.
In our next column, we will review some of the countries that have hypocritically imposed their will on us while remaining guilty of the very charges that they have levied on us.
Also, 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.