Bahamas: International Law

Since the OECD/FATF report, the Bahamas has been at the centre of fierce controversy like no other jurisdiction on the blacklist.

The Bahamas government elected to co-operate with the FATF and take immediate steps in seeking to remedy its failure to efficiently combat money laundering.

In August, 2000, the Bahamas' Prime Minister, Hubert Ingraham, embarked upon a 12-day mission to meet with government and banking representatives in the United States and Canada in an attempt to restore the Island's reputation and remove the Bahamas' name from the OECD blacklist.

In Ingraham's absence, opposition leaders Dr Bernard Nottage of the Coalition for Democratic Reform and Perry Christie of the Progressive Liberal Party both expressed concerns over the PM's trip. An annoyed Mr Christie complained that the the PLP had not been consulted as far as Mr Ingraham's talks with key players in the financial services sector were concerned.

Upon his return, Ingraham insisted that The Bahamas must endeavour to implement new laws to uphold the island as a major international financial centre, beginning with amendments to the Evidence (Proceedings in Other Jurisdictions) Act 2000, to allow evidence to be gathered in the Bahamas for proceedings in other jurisdictions for both court cases and investigations.

But, of course, the opposition had something to say about this - in a lively debate in the Senate, the FNM Government of the time was berated for its handling of the OECD-induced crisis facing the country's financial services sector, and there were calls for the resignation of the Finance Minster at the time, Sir William Allen. The amendment to the Act was passed despite fierce opposition in a debate which raged for just under four hours and concluded with an opposition members' walkout in frustration that their fears of such an important Act being amended too rapidly without due care were being ignored.

The amended act allowed international investigators to obtain details of bank account holders in The Bahamas more readily than before, a provision which understandably caused controversy both politically, and in the wider financial services community.

Undeterred, Ingraham then revealed plans for further reforms, with the country's financial institutions in the spotlight this time. The reforms, which were enacted later in 2000, afforded the Governor of the Central Bank more responsibility for vetting companies who apply to provide banking services.

The Banks and Trust Companies Regulation Act 2000 enhances the role of the Central Bank Governor; expands the licensing criteria for banks and trust companies; provides enhanced supervisory powers for the Inspector of Banks and Trust Companies; provides for cross-border supervision by foreign regulators; and increases the number of expressed exceptions to the statutory duty of bank confidentiality.

More than half of the registered managed banks in The Bahamas (124 at that time) decided to remain in the country and comply with this broad-ranging legislative package.

The remaining registered managed banks - banks which are incorporated in the Bahamas, but which have no office, employees or records there - ceased operations.

A total of eleven new laws were passed during Bahamas' response to the FATF and OECD initiatives, including:

• A new Financial Intelligence Unit Act 2000. The Financial Intelligence Unit has the authority to request a bank to hold the money of an account holder suspected of criminal activity for up to 72 hours while it goes to court for an order to confiscate money or block transactions.
• A new Criminal Justice (International Cooperation) Act 2000.
• Central Bank of the Bahamas (Amendment) Act 2000. The Central Bank of The Bahamas Act 2000 provided for improved supervision, including an appropriate level of on-site inspection of banks, full cooperation on cross-border supervision of banks, and enhanced cooperation between the Central Bank and overseas regulatory authorities. The new Act also provided extensive information gathering powers for the Central Bank.
• Banks and Trust Companies Regulation (Amendment) Act 2000. The amended Bank and Trust Company Regulations required all licensees to be physically present in the Bahamas. Companies must maintain their banking records locally; existing offshore companies were required to conform to these regulations within 3 years.
• Banks (Amendment) Act 2000.
• A new Proceeds of Crime Act 2000.
• A new International Business Companies Act 2000.
• A new Financial Service Providers Act 2000.
• Mutual Legal Assistance (Amendment) Act 2000.

While the new legislative package was expected to eliminate 'fringe' elements from the most highly-developed international financial centre in the region, Bahamian Government policy targeting managed banks had been in the works prior to the various supranational initiatives that emerged during 2000.

By the end of 2001 the raft of new legislation had been fully implemented. Looking back on a turbulent but, for the Bahamas, ultimately successful year, Wendy C. Warren, CEO & Executive Director of the Bahamas Financial Services Board observed that:

'Money laundering is a global problem, not one restricted to offshore centres. We recognise that we operate in a globally integrated market for financial services and, it must be emphasised that the sole interest of The Bahamas is legitimate international business. As a result, our counter-money laundering legislation is as advanced as any OECD country and, in some cases, more advanced. In fact, counter money laundering vigilance and measures have been a priority in The Bahamas for a number of years and received additional attention in the past year when the government passed new legislative initiatives to ensure all financial institutions are, by law, required to 'know-their-customers' and to report any suspicious transactions.'

In March, 2004, the Financial Action Task Force said it was pleased by the Bahamas' progress on legal assistance treaties. Attorney General Alfred Sears confirmed that: "The executive director of the CFATF (Caribbean Financial Action Task Force) informed me that the Financial Action Task Force members are generally pleased by the progress of The Bahamas in dealing with judicial requests."

It was finally announced in October, 2005, that the Bahamas had been removed from the Financial Action Task Force’s monitoring list of countries with weak anti-money laundering or terrorist financing laws.

Attorney General, Alfred Sears said that the process of complying with FATF demands had been lengthy and costly, but had led to mainly positive changes for the islands' financial industry.

Minister Sears said the years of working to remove the Bahamas from the FATF’s list had led to the build up of a remarkable level of expertise, and that the Bahamas' Director of Public Prosecutions has been recognized by the FATF as “a specialist”, assisting with the evaluation of other countries.

In October 2007, Minister of Legal Affairs and Attorney General, Senator Claire Hepburn reiterated the government's belief that a national strategy for the prevention of money laundering and terror financing is central to the Bahamas's goal of sustaining its place as a well-regulated financial services jurisdiction.

'It is accepted that the first step in the fight against money laundering must be the enactment of effective anti-money laundering and financing of terrorism legislation,' Sen. Hepburn told a seminar hosted by the Bahamas Financial Intelligence Unit (FIU).

Acknowledging the aforementioned legislative changes put in place to strengthen the Bahamian anti-money laundering regime, the Attorney General noted that further legislative amendments may become necessary in the future to address both local and global developments.

However, Hepburn stressed that when determining the need for any such changes, the government’s overriding consideration will be to act in the best interest of the Bahamas and its people.

The Bahamas has an ad hoc 'Task Force' which serves to review and make recommendations to the government on AML/CFT matters at a policy level. Comprised of representatives from various government agencies, the Task Force meets on a monthly basis, with special meetings scheduled as necessary. Efforts were underway now to formally establish the Task Force by way of legislative statute, positioning it as an “umbrella” review group, Hepburn explained.

With regard to tax matters, in January 2002, the Bahamas signed an information exchange agreement with the United States in order to allow both countries to pursue tax evaders and money launderers more effectively.

The agreement, which followed the establishment of similar arrangements between the US and Antigua, Barbuda, and the Cayman Islands, marked the latest stage in the Bush administration's campaign to clamp down on terrorist financing. It allowed the US Internal Revenue Service to pierce stringent banking secrecy rules in the Bahamas in certain circumstances.

Part of the tax and information exchange agreement (TIEA) between the United States and the Bahamas came into effect on January 1 2004, giving the latter the status of a permanent Qualified Jurisdiction.

The US gave The Bahamas provisional QJ status in 2000, but made an extension to the full six years conditional on the Bahamas signing a TIEA with the US before the provisional period expired. This led to extensive negotiations during 2001, which ended in the TIEA being signed in January 2002.

The TIEA is not, however, retroactive and applied to criminal matters only from January 1, 2004. Civil tax matters were covered by the TIEA from January 1, 2006.

In March, 2002, just ahead of the OECD's 'final' deadline, the Bahamas signed a commitment letter. Former Bahamas' Minister of Finance, Sir William Allen, issued a statement describing the terms of the islands' commitment:

'The OECD has signaled its acceptance of The Bahamas' form of commitment on transparency and effective exchange of information on Friday, 15th March, bringing to an end months of intense negotiations on a mutually acceptable form of undertaking which fully recognises The Bahamas' right to protect its economic interest by conditioning The Bahamas' commitment to the application of a level playing field in relation to all jurisdictions with which The Bahamas is materially in competition in the provision of cross-border financial services.'

'I have today therefore formally submitted the Bahamas' commitment to the OECD in the form now agreed as acceptable. This commitment represents a framework within which bilateral treaty negotiations may take place, provided that all OECD member and non-member countries and jurisdictions with which The Bahamas is materially in competition have, likewise, assumed obligations equivalent to those assumed by The Bahamas.'

'The Government of The Bahamas believes strongly that the success of this OECD initiative rests on the adherence to the principle of parity in the obligations assumed by all jurisdictions, OECD and non-OECD member countries in relation to standards and timelines in the move to greater transparency and information exchange. Clearly, if this principle is not observed, financial services business will migrate from one financial services centre to another and the stated objectives of the OECD initiative will, thereby be defeated.'

'On that basis and with that understanding The Bahamas is participating in the process and is pleased to have concluded with the OECD a form of Commitment which meets our mutual interests. This also brings to a close speculation regarding the possible inclusion of The Bahamas on a list of non-cooperating tax havens.'

In May, 2002, the Bahamas' Progressive Liberal Party, led by Perry Christie, ousted the incumbent Free National Movement in a general election (although the situation was once again reversed in May 2007, placing Ingraham back at the helm). Ministers in the new administration moved swiftly to review aspects of the controversial legislation put in place by the outgoing government to win acceptance from the FATF, the OECD and the US.

'The Progressive Liberal Party government recognizes the need for The Bahamas to meet international standards', explained then Finance Minister, James Smith on national television. But he said the government would review the laws to accommodate complaints from the country's offshore banking industry; businesses had said that complying with the new standards was costly, cumbersome and full of red tape. There had also been challenges to the constitutionality of the new laws, said Mr Smith.

Speaking in June at a meeting of the Bahamas Association of Compliance Officers (BACO), then Financial Services and Investment Minister, Allyson Maynard-Gibson elaborated on the concerns which had prompted the Progressive Liberal Party to promise a review of financial services legislation enacted under the previous administration.

Inviting comments from organisations within the finance sector on amendments needed to restore the jurisdiction's banking industry to its former glory, and suggestions for streamlining the provision of financial services in the Bahamas, Minister Gibson announced the government's intention to provide a 'red carpet' experience for businesses located in the region, both international and domestic.

'As you would be aware, the platform of my government identified a review of the financial services legislation. This view will be broad in scope to ensure that the legislation supporting the industry fits within the five year plan to be formulated by my government in partnership with industry,' she told delegates, continuing: 'Further, there will be a particular emphasis in the short term to remove those provisions ruled unconstitutional by our courts and to streamline the administration of the anti-money laundering framework.'

In May, 2004, the then Governor of the Central Bank of the Bahamas, Julian Francis, urged small states to cooperate more closely with one another to ensure that their presence is felt by the OECD and onshore jurisdictions when new tax initiatives are being discussed.

'The OECD have sought to isolate small states by accusing them of engaging in harmful tax practices, notwithstanding the fact that countries like The Bahamas do not engage in the direct taxation of the income of its citizens or residents,' Mr Francis told an audience of finance industry professionals at the annual Society of Trust and Estate Practitioners Caribbean Conference.

By working more closely, small states would be better positioned to present a unified strategy and oppose those initiatives which may be harmful to the interests of many less powerful nations, Mr Francis pointed out.

In September, 2004, the Bahamas government announced a decision not to enter into any more tax information exchange agreements in the near future. Said Minister of State for Finance at the time, James Smith: 'Until we have a level playing field with regard to tax information exchange we are not entering into any treaties with other OECD members.'

In September 2006, Sir Ronald Sanders (Antigua and Barbuda's representative on the Working Group concerned with the OECD initiative on Harmful Tax Competition) argued that Governments and financial sector authorities in the Caribbean should be very watchful of the European Union's attempt to broaden the scope of the Savings Tax Directive.

Earlier that month it had been reported that European Union Commissioner for Taxation, Laszlo Kovacs, was seeking to extend the Directive to Hong Kong, Singapore, Japan, Macao, Bahrain, Dubai, Canada and the Bahamas.

The legislation, which extends to a number of 'third countries' such as Switzerland, the Channel Islands and Caribbean offshore territories, was introduced in July 2005. It facilitates the exchange of information between EU tax authorities on certain types of savings and investments held by EU residents in their territory so that interest earned can be taxed in the resident investor's home state.

The legislation also allows some jurisdictions to apply a withholding tax instead of exchanging information. However, these jurisdictions had, by that point, reported relatively paltry withholding tax revenues, prompting the EU to take action to plug the directive's many loopholes.

Sir Ronald suggested that the Bahamas had been named because, apart from Cayman and the BVI, which were already captured in the EUSD, it had the most financial institutions in the region.

In May 2008, the UK House of Commons Committee of Public Accounts published a report arguing that the Foreign and Commonwealth Office (FCO) was not doing enough to manage the risks arising from the UK's liability for the 14 Overseas Territories choosing to remain under British sovereignty, according to Edward Leigh, Chairman of the House of Commons Committee of Public Accounts.

Edward Leigh, Chairman of the Committee, observed that:

'In most of the Territories, the standards of regulation across areas such as banking, money laundering, insurance and securities are not as good as those in the Crown Dependencies. The FCO, actively supported by other relevant agencies, must do more to help the Territories, especially the smaller ones, strengthen regulation. Where necessary, this should include bringing in more UK investigators and prosecutors.'

The report, using evidence from the Foreign and Commonwealth Office and the Department for International Development, examined the oversight of offshore financial services in the Territories; the balance between UK and Territory funding and responsibilities; and governance and management of the Territories' external relations.

While the report noted that the UK government is attempting to increase capacity for oversight of Territories' financial services industries, it argued that regulatory standards in most Territories are not yet up to those in the Crown Dependencies (Jersey, Guernsey and the Isle of Man).

It also found that limited capacity reduced the ability of Territories to investigate and prosecute money laundering.

Echoing this, in late June 2008, the Commons Select Committee on Foreign Affairs in the UK published its seventh report addressing issues surrounding overseas territories and offshore centres.

On the subject of the regulation of offshore financial services, the Commons Select Committee (CSC) observed that the UK has strong reasons to ensure that Overseas Territories' financial industries are well regulated.

According to the Committee report, Bermuda, the British Virgin Islands (BVI) and the Cayman Islands were the largest financial centres. Bermuda is the international leader in insurance, BVI is a leading global player in licensing international business companies, and the Cayman Islands are a leading world player in financial services, particularly banking and hedge funds.

In addition to this, the CSC reported that it had received mixed evidence about the quality of financial regulation in these Territories.

It was found that Bermuda, BVI, the Cayman Islands, and Gibraltar, were "leaving in their wake the weaker regulatory capacity" of these three financial centres, according to the report.

The report further announced that the Public Accounts Committee had concluded that the FCO, the Financial Services Authority, the Treasury and the Serious Organised Crime Agency, needed to "deploy their expertise and capacity jointly to manage the risks better".

In particular it highlighted a lack of investigative capacity properly to scrutinise suspected money laundering activity.

In October, 2009, the Bahamas’ Deputy Prime Minister, Minister of Foreign Affairs and Attorney General, Brent Symonette, presented an amendment to the Criminal Justice (International Cooperation) Act, 2000 in parliament that will allow other countries' tax authorities to gain access to Bahamian tax records in cases that relate exclusively to tax crimes.

Under the 2000 Act, the Bahamas provides assistance in criminal matters to countries with which it does not have a treaty to provide mutual legal assistance. The Bahamas currently has mutual legal assistance treaties with the United States, the United Kingdom and Canada, under the Mutual Legal Assistance (Criminal Matters) Act, Chapter 98.

The amendment, which was adopted by parliament on October 15, will allow the Bahamas to exchange tax information under OECD model treaties with third countries, allowing it to enter into further tax information exchange agreements to gain a place on the OECD "white list" of territories that have substantially implemented the internationally agreed standard.

Under the Act, the Attorney General is designated as the authority to receive requests, which emanate from a court or tribunal exercising criminal jurisdiction, or a prosecuting authority, or any other authority which appears to him to have the function of making requests of this nature.

The Act stipulates that the court, tribunal or authority should ensure that an offence under the law of its country has been committed or that there are reasonable grounds for suspecting that an offence has been committed before submitting information to aid in the investigation of a tax crime by a third country’s authority.

“This change to the law of the Bahamas is in line with prevailing international standards,” Symonette explained. “There has been pressure from international organizations, namely the Organization for Economic Cooperation and Development (OECD), for offshore countries to increase the transparency in tax structures, facilitate requests for information on tax matters, and assist countries in tax enforcement initiatives.”

“The Bahamas has always held in the highest regard the international legal principles of comity and cooperation. Thus, the Bahamas is now seeking to extend the scope of the Criminal Justice (International Cooperation) Act, to provide for assistance to be granted to foreign countries in tax matters.”

“The amendment to the Criminal Justice (International Cooperation) Act to remove the restriction of the Bahamas not being able to provide assistance in requests relating to criminal tax fiscal matters is a necessary step to achieving the goal of effective exchange of information in tax matters,” Symonette said. “The Government is committed to implementing the standards of transparency and information exchange in tax matters as developed by the OECD, and providing the fullest measure of cooperation in requests relating to tax matters.”

In another announcement this week, the Bahamian Prime Minister, Hubert Ingraham, said that the territory had concluded technical agreements with eight additional countries. He added: “We expect to be in a position to begin signing TIEAs during the period beginning the last week in [October] leading up toward the end of this year."

“We are not yet in a position to publicly disclose the names of the countries that we have concluded technical agreements with because they too, have their own internal processes that they must go through in order to conclude formal TIEAs," he concluded.

The country was placed on the OECD's 'white list' in March, 2010 after signing more than the required 12 TIEAs.

The Bahamas signed a Tax Information Exchange Agreement (TIEA) with Germany on April 9, 2010. The Agreement was signed by Brent Symonette, Bahamas Deputy Prime Minister and Minister of Foreign Affairs, and Jurgen Engel, Germany’s Ambassador to the Bahamas.

Symonette noted that the conclusion of the agreement with Germany is further evidence of cooperation between the two parties, following the work they shared in the previous Committee on Level Playing Field Issues. Symonette said: “It is evident from the involvement of both of our governments in the international cooperation work of the UN and the OECD, as well as the conclusion of this TIEA today, that there is mutual commitment to the effective implementation of accepted international standards for financial regulation and cross-border cooperation.”

The agreement is the twenty-first tax information exchange agreement that the Bahamas has concluded, fifteen of which have been signed with OECD members and eight with members of the G-20.

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