Barbados: International Law

When Barbados was black-listed by the OECD in early 2000, Sir Courtney Blackman, Barbados' then Ambassador in Washington, and his diplomatic colleague from Antigua, Lionel Hurst, described the blacklisting as an illegal act. Barbados insisted that its policy of rejecting the OECD demands to sign a letter which would have allowed the country to escape being cited as a tax haven was the correct position to take.

'This is all part of a power play by the OECD, and we have to wait and see what happens,' said Sir Courtney. 'We have to think about the options and prepare a strategy, presumably in concert with the other 'tax havens' and decide how we should deal with it. I don't think we should lie down and let people run over us but we have to move together on this. We should see it as a challenge and accept it as such. We shouldn't put our tails between our legs and go away.'

Barbados-based Caribbean Development Bank condemned the OECD's behaviour, labelling it as 'economic blackmail'. And Minister of Industry and International Business at the time, Reginald Farley, stated 'we do not need the OECD nor the FSF to give us instructions in these matters. Neither will we prostrate nor prostitute ourselves before these institutions merely for the sake of the love of the line of least resistance.'

The Central Bank of Barbados Governor, Dr. Marion Williams, however, pointed out that the international financial community had to be concerned about the instability of financial flows and money laundering - 'In line with international standards and best practices in the financial world, we will do our best to improve our regulatory and supervisory standards and to ensure compliance of our commercial banks and our financial system with what we regard as high standards which are to be complied with.'

In response to the pressure from the OECD, Barbados passed the Money Laundering Prevention and Control Act, 2000. The Act set up an Anti-Money Laundering Authority and a Financial Intelligence Unit.

As in all offshore jurisdictions, the events of 11th September 2001 led to a reappraisal of money-laundering defences in Barbados.

Attorney General, Mia Mottley, warned that lawyers in the jurisdiction would have their professional privileges revoked if they attempt to hide money in the accounts of their clients, following the introduction of new provisions which were added to the country's anti-money laundering legislation.

Introducing an amendment to the Money Laundering (Prevention and Control) Act, Ms Mottley stated that new money laundering provisions allowed the Anti-Money Laundering Authority to freeze suspect accounts for an initial 5 day period, penalise directors of financial institutions which fail to report to the authorities, and extended the definition of a financial institution to cover any person or institution whose business involves financial transmissions, such as the post office.

In July, 2005, CARICOM heads of government agreed a Mutual Legal Assistance Treaty, which aimed to increase cooperation in mutual legal assistance among Caribbean countries in respect of serious criminal matters and to combat criminal activity.

Despite these attempts to conform to international best practice on the money-laundering and legal cooperation fronts, Barbados initially took a leading role in the fightback against the OECD's parallel efforts on tax.

Prime Minister at the time, Owen Arthur was prominent in forming the 'OECD-Commonwealth Joint Working Group on Harmful Tax Competition' after the first OECD/Offshore multilateral meeting held in Barbados in January 2001.

In March of that year, Mr Arthur said that there were international conventions which speak to economic sanctions and Barbados was 'prepared to take the matter to the international courts of justice'.

'My hope is that this matter can be resolved, as it affects the viability of Barbados’ second largest sector, the International Business sector,' he said.

Arthur said all Barbados and other countries had been asking for was to have the same systems obtain for all countries in relation to cross-border activity.

Arthur also noted that the cross-border exchange of information should be limited, as countries should not be allowed to go on 'fishing expeditions'.

No doubt partly as a result of its tightened regulatory regime, Barbados was dropped from the OECD black-list in early 2002. A joint press release announced that:

'Following detailed discussions since the release of the 2001 Progress Report, Barbados and the OECD are pleased to announce that, for the reasons specified below, Barbados will not appear on the forthcoming list of uncooperative tax havens. These discussions have shown that Barbados has transparent tax and regulatory systems and has in place a mechanism that enables it to engage in effective exchange of information.'

'Barbados has long-standing information exchange arrangements with other countries, which are found by its treaty partners to operate in an effective manner. Barbados is also willing to enter into tax information exchange arrangements with those OECD Member countries with which it currently does not have such arrangements. Barbados has in place established procedures with respect to transparency. Moreover, recent legislative changes made by Barbados have enhanced the transparency of its tax and regulatory rules.'

'Both Barbados and the OECD acknowledge the importance of dialogue in addressing international tax issues. Barbados has played an important role in fostering such dialogue. Both parties look forward to a continuing and constructive dialogue on issues of mutual interest.'

Barbados was however attacked by fellow Caribbean offshore havens for letting the side down by agreeing to cooperate with the OECD, despite its earlier anger over the blacklist.

However, the Barbadian authorities denied that they had made any concessions to the multilateral organisation. Lynette Eastmond, the jurisdiction's then Director of International Business argued that: 'Barbados was not required to sign a memorandum of understanding with the OECD to change anything, as there was nothing to change.'

In March, 2005, a meeting of the International Trade and Investment Organisation (ITIO) was held in Barbados. The ITIO is an organisation which was founded to represent the interests of smaller jurisdictions after they were attacked by the OECD and the FATF in 2001.

The meeting expressed concern with the International Organisation of Securities Commissioners’ (IOSCO) endorsement of the Financial Action Task Force’s (FATF) past work that led to the labelling of a number of countries as non-cooperative.

In June 2006, the Organisation expressed continuing concerns, arguing that negotiation of agreements between countries that provide for the exchange of tax information need to proportionately benefit nations of all sizes.

"Small nations are still disadvantaged when it comes to negotiating tax related treaties and agreements," said Brenda Heather Latu, representing Samoa, Chair of the ITIO, in response to a report published earlier that month by the Organisation for Economic Cooperation and Development's (OECD) Global Forum on Taxation.

The OECD's report stated that important progress had been made towards a global level playing field, although it argued that more progress could be made to improve global tax transparency, and stated that some countries still placed constraints on international co-operation to counter criminal tax matters and a number continued to impose strict limits on access to bank information in civil tax matters.

Also in June 2006, the Society of Trusts and Estates Practitioners argued that small offshore financial centres were suffering financially because of the burden of international rules aimed at combating money laundering, terrorist financing and tax evasion, according to a new study.

Taking the case studies of Barbados, Mauritius and Vanuatu, the report suggested that offshore centres had lost business in spite of improving their reputations by complying with standards drawn up by the OECD and FATF. The costs of compliance substantially outweighed any benefits to their reputation, STEP argued.

In August 2007, the then Prime Minister Owen Arthur (subsequently displaced by the Democratic Labor Party's David Thompson as PM, in January 2008), argued that there is a need for an agency to establish rules to govern cross border taxation issues, and suggested that given its mandate, the United Nations (UN) is perhaps best able to perform this role.

Mr Arthur observed that cross border taxation issues were becoming more important, and had increased validity as countries moved towards a global economy. He acknowledged the existence of a committee at the level of the UN, but argued that its work should now be at the level of an agency.

He pointed out that Barbados did not want to be used for tax evasion or money laundering, but wanted to participate in legitimate business with international corporations. He said the country was therefore keen to work with the UN on matters related to international corporations.

In February, 2009, the International Monetary Fund published a report on the adherence of Barbados to the international standards governing the prevention of money laundering and terrorist financing.

The 'Report on the Observance of Standards and Codes on the FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism for Barbados' was prepared by the Caribbean Financial Action Task Force (CFATF), and contains recommendations on how the AML/CFT system could be strengthened.

The report stated that: "Barbados has criminalized money laundering (ML) broadly in compliance with international standards. However, while the definition of unlawful activity allows for a wide array of serious predicate offenses, human trafficking, corruption and bribery are not totally consistent with the requirements of the Palermo Convention."

"The low number of ML prosecutions and the factors attributed by the DPP (Director of Public Prosecutions) for this suggest an ineffective use of ML provisions. Terrorist financing (TF) is criminalized in accordance with the TF Convention. Relevant forfeiture/confiscation powers are provided for under separate statutes. While there is no specific legislative authority to freeze terrorist funds or other assets of persons designated in accordance with S/RES/1267(1999), relevant provisions to effect restraint of property can be utilized."

However, it observed that: "While the Financial Intelligence Unit (FIU) carries out its functions competently, it is hampered by a lack of resources. The law enforcement authorities and the Office of Director of Public Prosecutions are under-resourced in relation to their functions. The competent authorities continue to engage in a wide array of joint law enforcement initiatives."

The CFATF-compiled report went on to suggest that: "Preventive measures for financial institutions are comprehensive and generally in compliance with the FATF Recommendations. However, some of the requirements are set out in laws and regulations, while others are only enforceable on the licensees of the Central Bank of Barbados (CBB) and the Supervisor of Insurance."

"Regulation and supervision of the financial sector is shared among four regulatory authorities with varying supervisory powers. Except for trust and company service providers who are licensees of the CBB, there are no measures to monitor and ensure compliance of DNFBPs with AML/CFT requirements. While the Registrar of Companies maintains a register with information on directors and registered offices of companies, there is no legislative requirement to disclose beneficial ownership information."

And continued: "Domestic co-operation among law enforcement and supervisory authorities and other relevant government agencies is facilitated through the Anti-Money Laundering Authority (AMLA). While the Mutual Assistance in Criminal Matters Act (MACMA) allows for a wide range of mutual legal assistance for criminal matters, the instrumentalities of ML and TF are not included. Requests for mutual legal assistance are routed through the Attorney General who is the Central Authority."

Commenting in detail on the preventative measures in place, the report revealed that:

"Customer due diligence measures are generally comprehensive and include customer identification, beneficial ownership requirements, ongoing due diligence, measures for politically exposed persons, correspondent banking and new technologies and non-face to face customers. Requirements for introduced business are also detailed. These measures are generally applied by all financial institutions."

But reiterated that: "The main shortcoming is that some requirements are not set out in law or regulation as required by the FATF standards and others are only enforceable on the licensees of the CBB and the Supervisor of Insurance."

It continued: "While there are no secrecy laws inhibiting the implementation of the FATF Recommendations, certain regulatory authorities are limited in their ability to either share or access information. Recordkeeping requirements are extensive and generally observed. However, there is no requirement in law or regulation for account files and business correspondence to be retained for five years after termination of the business relationship or for financial institutions to ensure that records are available on a timely basis to competent authorities."

In October, 2009, the Barbados government drafted a two-year short- and medium-term action plan to support further expansion of the island’s International Business sector, and to preserve its reputation.

The plan was announced by Minister of Economic Affairs, Innovation, Trade, Industry and Commerce, David Estwick, while addressing the International Business Week Conference in Barbados.

Noting the critical role that the sector plays in the island's economic development, Estwick explained that the government would focus on diversifying and expanding the products and services it offers during the next two years, as well as expanding cooperation with other countries in order to reduce barriers to investment in the island. He said:

“This initiative will ensure the preservation of the integrity and reputation of key elements of the Barbados business brand, as well as to ensure that Barbados' products and services continue to meet the needs of the new environment.”

“The government plans to expand the tax and treaty network, and intensify cooperation with the OECD on taxation information exchange within the tax treaty."

In April, 2010, at the signing of a Barbados-Luxembourg Double Tax Agreement in London, Barbados Minister of International Business and International Transport, George Hutson, said that the continued expansion of the jurisdiction's tax treaty network is enhancing its reputation and attractiveness as a place to do business.

"I believe that coupled with our Bilateral Investment Treaty (BIT), this Convention will certainly enhance our investment infrastructure and product offerings," Hutson said. "Investors in our countries will have access to more opportunities with the added assurance of the promotion and protection of their investments.”

"It is also important to note that this Convention makes abundantly clear the commitment of our two countries to the principles of transparency and tax information exchange that we have agreed upon," he added. "I am pleased, therefore, that we have been able to take the opportunity to bring the language of our Convention into conformity with [this].”

"I look forward to investors taking advantage of the opportunities in areas such as financial services, tourism, cultural services, research and development, and educational services," Hutson added. "I am also hopeful to see our people collaborating in joint ventures to provide new and innovative solutions and fill niches in the respective markets.”

Barbados currently has double tax agreements with the Caribbean Community (CARICOM), the United States, Canada, the United Kingdom, Finland, Norway, Malta, Sweden, Switzerland, Cuba, Venezuela, China, Mauritius, Botswana, Austria, the Netherlands, the Seychelles, Mexico and Ghana.

Additionally, to promote and protect investments, Barbados has signed BITs with Cuba, Venezuela, China, Canada, Germany, Switzerland, the United Kingdom, Mauritius, Ghana, Belgium and Luxembourg. Furthermore, a list of priority countries has been devised for additional agreements, including Vietnam, the United States and Brazil.

Second round tax treaty negotiations are under way with India and Iceland. Treaties with Spain and Italy have been negotiated and await signature. Discussions on a conventions with Belgium and France have also been arranged, Hutson said.

New Financial Services Commission?

In February 2007, the government of Barbados announced that it was planning to establish a Financial Services Commission with the aim of enhancing the supervision and regulation of financial institutions in Barbados.

According to Minister of Commerce, Consumer Affairs and Business Development, Senator Lynette Eastmond, the proposed Commission would integrate regulators of the Co-operatives Department, the Securities Exchange Commission, the Business Development Unit of the Ministry of Economic Affairs and Development and the Office of the Supervisor of Insurance and Pensions.

In May 2007, the government also flagged up plans to establish a new Central Revenue Authority in order to assist in the crackdown on corporations failing to comply with their tax obligations.

In November, 2009, plans for the establishment of a Financial Services Commission (FSC) in Barbados were progressing fast, according to Minister of International Business and International Transport, George Hutson, who said that the proposal had gained parliamentary approval and a model for its implementation was to be received by month-end.

The FSC, which would become operational in 2010, would regulate the insurance subsector, the cooperative sector, the Stock Exchange, and all non-banking financial sectors in general.

"The careful and effective supervision and regulation of international business and financial services activity in Barbados constitutes a critical element of the government's policy for the development and expansion of this sector,” commented Hutson.

"Consequently, ensuring the adequacy and soundness of its legal basis, either through the revision of existing legislation or the introduction of new ones, is fundamental to the achievement of that objective."

The establishment of the FSC will help to regulate the sector, and "certainly increase Barbados' presence as a financial services domicile of good international repute,” he explained.

"Specific legislation will need to be enacted and the dynamics of the staffing and administrative matters determined. We project that the FSC will be established by the end of the second quarter of 2010," Hutson concluded.

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