CONTRIBUTION TO COMPENDIUM OF FINANCIAL SERVICES COMPLIANCE BILLS
CHESTER COOPER, EXUMAS AND RAGGED ISLAND MP, PLP DEPUTY LEADER
DECEMBER 5, 2018
Mr. Speaker,
I am delighted to rise today on behalf of the people of the Exumas and Ragged Island to contribute to a compendium of bills to bring our financial services sector in line with requirements of the European Union (EU), the Organization of Economic Cooperation and Development (OECD), and, more broadly the giant players in the world economy constituted in the Group of 20 (G20).
I will say, at the outset, as I hope to establish as my tradition, that in the national interest I will support these bills, as will the Progressive Liberal Party (PLP), despite some reservations among our members and those in the financial services sector.
The fact of the matter, not to overstate the point, is that our very way of life is at stake; and our sovereignty is under threat.
I often lament in here that we spend an inordinate amount of time dealing with things that should not take up entire days of the people’s precious time.
Now, here we are to debate something of extreme consequence, a watershed moment, perhaps, that we will have to wait and see what the result will be.
Will we continue to be the poster child for the bogeyman-filled nightmares of the world’s economic powers that seek to beat us into submission?
I suppose we shall see.
Will we have to come back to this House in another 20 years to again deal with these concerns as our industry dwindles?
You may recall that others came to this place roughly 20 years ago in 2000 to overhaul our financial services sector in order to address money laundering and corruption concerns.
Yet, here we are again.
And though we are here to debate something critical, Mr. Speaker, I cannot help but have a tinge of annoyance for the reasons behind what has brought us here.
We are here because for some reason, the world’s largest economies, nations whose wealth affords them the ability to build empires, somehow perceive us as a threat. How flattering.
And through all our challenges, which in short hamper our ability to develop as fast as these nations, we are asked to essentially abandon that which has seen our fortunes grow dramatically over the past 50 years.
But what of the next 50 years?
Is The Bahamas, an independent nation last I checked, not allowed to offer legitimate services to those seeking to do with their money what they wish in a legal, reasonable manner?
Are we to forever be painted as some corrupt people offering financial services for insidious purposes for those who wish to operate solely under the shroud of night?
I will state for the record: The Bahamas is not a corrupt nation. We are not a corrupt people.
I maintain this, despite the claims of the member for Killarney, who seeks the need to travel abroad to remind the international community of our so-called corruption.
Are there those in our society who do wrong and flout the law?
Of course, but in no greater percentage than most places. And far fewer instances and in much less measure than in many of the places that continue to place us on so-called blacklists for breakfast, lunch and dinner.
I will say that while we support these bills, we have serious reservations about some of these measures included, and we feel that further amendments were perhaps needed before we got to this point.
However, I will put it as plainly as I can: our reservations are trumped by the realities of what will undoubtedly befall us if we do not move on this before the end of the year.
To not act, to not implement these measures, that we may see the need to amend in the future, we are advised, will surely mean blacklisting.
It is almost as if we are acting with a gun to our heads.
To be blacklisted will mean an almost immediate loss of clients who don’t want to be in a jurisdiction perceived to be less regulated and that may attract sanctions.
To not act will mean the loss of international banking relationships for the very same reasons.
To not act means that even outside of the financial services industry, banks will have to do additional due diligence, even on Bahamians and residents.
To not act means that even local insurance companies will be forced by re-insurers to do additional bureaucratic steps to sign new business. To not act means that banks will very seriously risk losing their correspondent banks.
If they don’t have correspondent banks, local banks will be disconnected from the international network of banks and will effectively be out of business.
To not act means that businesses and business persons operating in The Bahamas will be viewed with a jaundiced eye since they are perceived to be operating in a shady jurisdiction.
To not act is not an option.
Therefore, the opposition supports these bills, though they contain some bitter pills that, at this time, it appears we must swallow.
So, let us examine these bills, in a brief and critical way so that we can at least understand what is before and what may need closer scrutiny as the impacts make themselves clearer in the future.
We have before us today: The Register of Beneficial Ownership Bill, the Commercial Entities (Substance Requirements) Bill, the Removal of Preferential Exemptions Bill, the Penal Code Amendment Bill, the Non-Profit Organizations Bill, and the Business License Amendment Bill.
I will go through these one by one, noting some of the major issues, but by no means is this an exhaustive critique of the implications, good or otherwise, contained in this legislation.
The Register of Beneficial Ownership Bill will create a non-public database for the collection and retention of demographic information of the beneficial owners of all incorporated entities.
In short, it will create an electronic, encrypted list of who the beneficial owner of a company is.
The beneficial owner legislation intends to create a private, closed beneficial ownership registry for Bahamian companies.
We must ensure in doing this to comply that we do not make ourselves less competitive that Cayman or the British Virgin Islands.
It is also important that this registry be offline and not public to preserve confidentiality and guard against data protection risks.
We must also look at amending data protection laws if necessary.
To preserve the integrity of our industry and sanctity of privacy, it also important that the framework is in place to have it closely monitored and secured.
I will be frank.
This bill, which, again, I do support, has the potential to be problematic for The Bahamas.
The database, as I understand it, is to be managed jointly by government and the private sector and it is anticipated to be extremely secure and only accessible by persons designated under the Act.
However, there are many locally and internationally, involved in the finance sector who are skeptical and believe that regardless of how secure the database register is it will be capable of being hacked.
The glaring lesson of the controversial Panama Papers comes to mind, also let’s not forget the “Bahamas Leaks”.
This will no doubt weigh on the minds of investors considering The Bahamas as a financial service jurisdiction.
The fact that you will now have to disclose the requirement for this electronic register to clients and investors will potentially give prospective clients pause before choosing The Bahamas.
However, it should be noted that if this is the coming requirement in all our competing international financial service jurisdictions, such as Cayman, British Virgin Island, Delaware, Nevada, Channel Islands, Switzerland, etc., then the damage will not be as severe as some might imagine. However, I am not certain that Delaware and Nevada are saddled by these requirements. So much for fairness and leveling the playing field.
I won’t be all doom and gloom on this, however.
If there is a silver lining, it is that the information to be kept in the electronic register is in fact already available for the most part as a result of current high due diligence regulations currently in place.
In some instances, many financial services institutions are required to retain beneficial ownership information under the current law and regulations.
Let me also add a word of caution here. This database creates great anxiety in an industry that values privacy.
I hope that for all our sakes, those who have access to it are very carefully monitored and this information is most jealously guarded.
I point out that all of these bills have local implications. As such, I would shudder to think that anyone in a position to access its information would wield for purposes of political retribution or to victimize anyone because of what may be gleaned from this list.
I would also hope that this information will not be subject to leaks or held over anyone’s head.
We would be seen in the eyes of the international community, and locally, to be a very sloppy and slipshod nation self-inflicting damage to the industry if this information were to be used for any other purposes than to fulfill an international mandate of compliance.
Suffice it to say, that the register needs to be monitored closely, and all and sundry should be reminded that violations of confidentiality carry with them fines and possible prison time.
I re-emphasize for posterity, that our IT systems must be as impregnable as possible. If we experience a major data breach, confidence in the system and our jurisdiction will collapse overnight.
The Commercial Entities (Substance) Bill 2018, as the minister of finance pointed out last week, will require that commercial entities that engage in specific activities to demonstrate that they have real economic substance through having substantial economic presence and real economic activity in The Bahamas.
This legislation could actually prove to be a positive thing for The Bahamas.
The fact of the matter is that we are not alone in having to implement such measures.
However, substance is the way to go and the way to grow real international business.
This legislation will potentially grow activities that have to be resourced and create numerous opportunities for Bahamians.
This might be particularly positive for trust entities and create family office type business growth.
Before this debate ends, we will propose an amendment to clarify that passive holding companies do not have to meet any of the requirements in the legislation.
But, keeping that in mind, we can’t force anyone to do business in The Bahamas.
We must persuade them.
We must market ourselves to attract high net worth individuals to make The Bahamas their headquarters and their home.
We will have to compete and capitalize on our relationships developed over the years and provide efficient, cost effective services.
We will be able to capitalize on these new opportunities if we can improve ease of doing business and the costs of doing business, especially in the areas of telecommunications reliability and the cost of electricity – something I discussed in detail as we meandered over a half-baked measure regarding BPL last week.
One of the ways to perhaps address this would be a government incentivized solarization program throughout the capital and our Family Islands.
Not only would this reduce costs but it would immediately make the Bahamas more environmentally sensitive and creating new innovative green industries.
The current system we have, results in numerous leaks which is destroying our seabed in addition to its high costs and unpredictable pricing based on fossil fuel markets being manipulated.
We must leverage the fact that we have a beautiful environment, a climate to die for and that The Bahamas generally is an attractive place to live and work and play. We need to encourage real economic activity where possible by those who have chosen to call The Bahamas home. Let’s call it Financial Services tourism, if we will.
This, again, will only happen through ease of doing business and reduced costs of doing business and cost of living and the managing of crime to maintain The Bahamas as a great place to live, work and play.
I suggest that we look at the success in Cayman where they have a low crime rate, zero unemployment, have fairly significant success in enterprise city Cayman where hundreds of companies have relocated their offices on the ground in Cayman.
I would suggest we put more study into the Singapore model. I know our government officials love to travel, for fact finding missions or whatever they might be, but when was the last time we brought back anything more than airport souvenirs.
Singapore is a country with a diverse population that encourages migration, yet jealously guards citizenship and praises order, education, family and achievement.
We in The Bahamas can get there, but it takes long-term planning and systematic movement.
It also takes scholarship. Something we could definitely use more of in this House.
With respect to the Removal of Preferential Exemptions Bill 2018, this will most likely radically alter the way we do business with International Business Companies.
The removal of preferential tax regime legislation proposes one of the greater risk of this package of bills.
If we inadvertently impose tax on IBCs and non-resident entities as a result of the legislation, then we risk losing a significant portion of or IBC business.
Our message on this must, therefore, be crisp and clear so as not to cause panic in the market, notwithstanding the three-year transition period.
The importance of communicating consequential amendments cannot be overstated.
As we have done so far, we urge wide consultation on the viable options to avoid uncertainty on the issues.
From what I have canvassed, there has been wide industry feedback on these bills, and on this one in particular, the industry is of the view that there needs to be consequent amendments to the Business License Act and Stamp Tax Act.
I have heard it recommended that we equalize the tax position for locals and revise taxes that locals pay to mirror those exemptions given to non-residents.
To impose taxes on non-residents/IBCs would pose a serious threat to business.
Needless to say, this is a slippery slope and it is a work in progress.
We are also passing this bill without understanding where the government is headed with regard to possible corporate tax. It seems unwise to have lingered this long on corporate tax while the government readily manipulates the rate of value-added tax.
It is time this administration come clean on its intentions for corporate tax in The Bahamas.
Also, as a point of clarification, it would be good if the minister of finance, at some point, could clarify what “almost zero” is supposed to mean in section 3(1) of this act.
It seems nebulous.
The Business License amendment.
I’ll be honest with you, this one seems nothing to do with the EU issues, as suggested by the PM last week and more like a bit of egg on the face of the government.
Why no longer require an audited financial statement or bank statement for business licenses purposes when you snuck it on to businesses earlier this year?
Perhaps had this administration properly consulted with businesses instead of trying to shove things down their throats that they seem to not have a full understanding of, this massive backtrack wouldn’t be necessary.
I trust that it’s a lesson learnt for next time.
The Non-Profit Organizations Bill 2018.
Well, I noticed you got the churches in here and left political parties out of this legislation.
So much for the need for political campaign finance reform eh?
You promised it. You marched for it. We March marched for it.
Well, I wasn’t among the “we” there, but the prime minister was.
He marched with We March and he promised campaign finance reform.
It’s been 18 months since that glorious day and still crickets on the subject.
About this bill, I don’t quite understand some of the logic.
Mind you, I do understand the international pressure to regulate unincorporated organizations, and I don’t really get the skepticism with our religious organizations, but I’m really strained to understand why non-profit companies are seemingly being required to re-register under this law. Non-profit companies like the Bahamas Chamber of Commerce, of which I’m a past president, and Bahamas Faith Ministries International and many others, are already subject to additional scrutiny and the direct approval of the attorney general as required by our existing Companies Act. Is government asking non-profit companies to duplicate their regulatory requirements by registering under both acts?
Asking non-profit companies and all non-profit organizations to identify their assets on a balance sheet and a profit and loss statement does away with any semblance of confidentiality.
This is a completely new paradigm for The Bahamas, which will, honestly, be very unpopular and be met with much push back from non-profits and, in particular, the churches who will view this as a severe and sudden intrusion. Some might likely see it as a suppression of small churches which are the bedrock of some small communities.
I do need to understand why this level of disclosure is needed by non-profits.
Is there something I’m unaware of? Have they been conclusively linked to terrorism or money laundering for drug cartels? Is this a phenomenon in The Bahamas?
The business license amendment reverses the requirement for for-profit companies to reveal a balance sheet to the government.
There is, in fact, no existing tax regime that requires this.
I’m struggling with the justification for non-profits having to reveal their revenue. Perhaps someone on the other side would be so kind as to help me with this.
Again, I will support this compendium of bills, but that the government seeks such deep insight into non-profits like churches, lodges and fraternities, but does not seek to have political parties subject to the same disclosure is troubling.
I will say that the government bears responsibility in explaining to civil society, the ramifications of this.
And must be careful not to damage organizations that stood in the gap where the government itself is unable to.
And then there is the Penal Code Bill 2018.
With this, I do hope the government understands that this has widespread local implications.
If I’m reading this right, if you put incorrect information on your customs form when you arrive at the airport, you will be subject to imprisonment for up to six months.
Whilst we don’t condone these type of errors, tell me, does the government plan on building a bigger prison to accommodate the ramifications of this?
Is that the plan? Or did no one really think this through?
This law needs to be more specific.
Please consult our good attorney general and fix it before any inadvertent harm is done to unsuspecting citizens.
Clearly, even though we are debating these bills, they will pass with or without our support, and you do have our support.
But in the midst of our fervor to pass them before the year ends, what we must not forget is that The Bahamas has a right to forge its own destiny.
The Bahamas has a right to develop its economy.
The Bahamas has a right to pursue laws and policies that benefit The Bahamas in legitimate ways.
We will, today, do what we must to survive this onslaught.
But a very pertinent question is, again: what of the next 50 years?
Will we remain at the beck and call of the powerful, scrambling to defend ourselves after assault upon assault?
Or will we use this latest lesson as an opportunity to transform ourselves into something indispensable in the world financial services sector?
Or, at the very least, will we ensure that this industry, which those who came before us built so that we might enjoy its benefits, survive to provide for future generations of Bahamians?
With this constantly changing landscape, the good news is that except for rogue financial services centers like USA, Delaware in particular, there appears to be a push for all international financial centers to compete on a level playing field.
Our almost 100-year track record in this business validate the fact that we can effectively compete with the best of the best.
Our offerings extend beyond tax advantages but asset protection to fill various needs and of course our vintage trust services.
We have innovated our way through many a crisis. We can do it again.
As industry and political leaders, we must refine and articulate a vision for financial services. This might include opening up the legal profession as I articulated as Chamber chairman in 2012, or the constant product innovation to take advantage of our relatively stable political, judicial and economic environment.
We must also invest in developing local expertise to deal with increasingly complex legal and regulatory infrastructure for financial services to maintain competitiveness.
We must not discourage and sideline our homegrown experts who move on to advise other jurisdictions like Dubai, when they could be leading our efforts.
We must invest more in our foreign embassies and hiring international emissaries of firms of consultants to proactively build relationships and negotiate on our behalf.
This will be vital in the years ahead to successfully moderate the economic aggression that has been waged against us for the past twenty years.
We must streamline approval processes to make us competitive as an international business hub. Not just in words. The delays, inefficiencies and fragmented government agency approach is nothing short of a disaster.
We have pioneered before.
We have re-invented ourselves over and again.
We can and will do so again.
We have asserted our will for self-determination in the insurance industry. We can and will do likewise in domestic retail banking and international financial services too.
We must persevere with sober diligence, working together with government, opposition and industry to proactively develop a strategic plan for the financial services industry to thrive into the future.
For if we are to evolve, we can only achieve that by first surviving.
But I believe it was Frank Sinatra who said, “the greatest revenge is massive success”.
On behalf of the people of Exuma, the Exuma Cays and Ragged Island, thank you for this opportunity.
