CARIBBEAN countries continue to face an uphill battle in shedding the image that their offshore financial sector is a safe haven for wealthy tax dodgers and money launderers who can easily walk through immigration with suitcases full of money.
Suspicion persists particularly from the Organization for Economic Co-operation and Development (OECD) to blacklist such countries described as tax havens, and which are also threatened with tough sanctions, including the withdrawal of investment funding by the World Bank or International Monetary Fund.
Last year’s international scandal surrounding 60-year-old Texas billionaire, Allen Stanford, a naturalised Antiguan accused in the American courts of a US$8B Ponzi scheme only served to bring renewed negative attention on offshore centres in the Caribbean.
Given the stigmatisation attached to offshore centres, a joint CARIFORUM-EU conference was recently held on financial services in Antigua to review the current status of the sector in the region, the challenges it faced, assess the demands being made on the regulatory environment and how to move towards correcting it.
Given the importance of offshore banking to countries in the Caribbean, it was a necessary conference to point the way forward for Caribbean jurisdictions, the fourth largest banking sector in the world, led primarily by Bermuda, Cayman, the Bahamas and the British Virgin Islands.
In Belize, which has a GDP of over US$1 billion, the international banking sector maintains deposits in excess of US$250M.
In Antigua and Barbuda, the offshore financial services sector, which comprises 16 international banks and one international trust, has a significant multiplier effect on the economy. Some 700 Antiguans are directly employed in the sector, with average annual salaries, statutory contributions and rental income amounting to approximately US$30 million.
A recent World Bank report also states that the Caribbean derives 45 per cent of its gross domestic product (GDP) from services.
Secretary-General of the Caribbean Community (CARICOM), Mr. Edwin Carrington spoke at the opening sessions, and reminded his audience that in the 1980s, international financial institutions encouraged revenue-strapped countries in the region to promote international financial services as a mechanism for economic diversification, income and employment generation and growth.
Many countries in the Caribbean, faced with economic decline because of the demise of the banana industry, their main revenue earner, or the need to diversify their mono-economy, took the advice and turned to the financial services sector to attract investment, reap some revenues, and generate employment.
Even the tiny Eastern Caribbean island of St. Kitts and Nevis ventured into financial services and areas of tourism following the closure of its sugar industry in 2005, which provided significant foreign exchange and was a source of employment for its nationals.
It should be noted as well that Caribbean countries are among the most heavily indebted economies in the world, with six having a debt that exceeds 100 per cent of their GDP, and St Kitts and Nevis close to hitting the 200 per cent mark.
Mr. Carrington pointed out that the success of a number of Caribbean countries in implementing international financial services seems to have attracted more punishment than reward.
Following the OECD 1998 Report on ‘Harmful Tax Competition: An Emerging Global Issue’, Caribbean countries, along with other targeted countries, have had to subscribe to the OECD Model Tax Convention by making amendments to their legislation and practices relating to international financial and banking activities and strengthen their network of double taxation treaties to remove themselves from a blacklist which sought to name, shame and punish those countries that did not comply with the requirements of the OECD.
The goalposts were shifted from time to time, according to Mr. Carrington, as Caribbean jurisdictions were required to show a certain degree of compliance by signing at least twelve Tax Information Exchange Agreements with major capital suppliers.
By July 2010, the vast majority of the CARIFORUM international financial jurisdictions were able to do so.
The in-depth and comprehensive monitoring and peer review, decided by the September 2009 Global Forum Meeting in Mexico, will create further problems for Caribbean jurisdictions, according to the Secretary-General, who added that these will continue to have negative implications for the Caribbean.
The stigmatising has also led to a loss of business in the Caribbean, as some that have established business in the region are already moving out to other locations.
Port of Spain-based Caribbean Financial Action Task Force (CFATF), an organisation of thirty states of the Caribbean Basin which have agreed to implement common countermeasures to address the problem of criminal money laundering, has also been pushing for the countries on the tax haven list to implement the principles of transparency and to an exchange of information as far back as 2002.
Although there were some bad practices in the past, many member countries have moved to strengthen their regulations to keep within international standards, have robust regimes in terms of anti-money laundering, and have been cooperating with their international counterparts.
Barbados, which is on the OECD ‘white list’ of countries complying with the global standard for tax co-operation and exchange of information, can also assist regional countries in ensuring compliance with international obligations.
Indeed, as Mr. Carrington pointed out, joint actions and strategies, and the operation of joint and common institutions provide the most effective means of developing and strengthening the region’s financial services sector.
Some of these institutions include the following: the Caribbean Association of Insurance Regulators; the Caribbean Group of Bank Supervisors; the Caribbean Group of Securities Regulators; and the CARICOM Committee of Central Bank Governors.
He suggested that working together with a ‘Caribbean College of Regulators’ would go a long way in addressing the credibility of the regulatory environment in the Caribbean for Financial Services.