The threat to the financial services sector of the Caribbean is growing everyday and is becoming more evident in reports by media who have swallowed hook, line and sinker that so-called “tax havens” are helping US, European and Japanese nationals, both persons and companies, to evade taxation in their home countries. There is no hard evidence to support this allegation about Caribbean jurisdictions.  Yet it persists from governments of the Organisation for Economic Co-operation and Development (OECD).

A recent BBC report claims that the British government “is broke – a record £44bn in the red – and yet one estimate is that the taxman loses £18.5bn a year thanks to tax haven abuse”.

The reports specifically identifies  British protectorates which it describes in derogatory terms “as the Bounty Bar island tax haven of the Caymans in the Caribbean and the fish-and-chip tax havens closer to home like Jersey, Guernsey and the Isle of Man”.   It says, “18 of the world's tax havens are Crown Dependencies like Jersey, Guernsey, the Isle of Man or British protectorates like the Caymans, a fag-end of the British Empire in the Caribbean”.

Dramatically, the report also states that “one man has targeted tax haven abuse in the Caymans – and his name is Barack Obama. So change for the world's tax havens seems on the way – whether the leaders of the micro-states like it or not”.

When the OECD first raised its so-called “Harmful Tax Competition Initiative” (HTCI) aimed at closing down the financial services sector of 41 small jurisdictions around the world which were giving serious competition to the financial institutions of the OECD countries, Caribbean countries were slow to move on the issue.

It was not until it was raised by Antigua and Barbuda at the 21^st meeting of the Heads of Government of the Caribbean Community (CARICOM) conference at Canouan in St Vincent and the Grenadines in July 2000,that CARICOM countries began to take the issue seriously. 

At that time, a statement was issued saying that Heads of Government took note that the OECD report “was based on incomplete information and on standards set unilaterally by these bodies. They deplored the fact that the lists were published with the objective of tainting jurisdictions in the eyes of the investment community and the international financial market. They condemned the actions of the OECD in particular as contrary to the tenets of a global market economy promoted by G7 countries. They reiterated that the proposed OECD actions have no basis in international law and are alien to the practice of inter-state relations”. 

Later a Committee was established headed by then Barbados Prime Minister, Owen Arthur, and present Barbados Chief Justice, Sir David Simmons, of which I was a part, to engage the OECD in a serious dialogue on this issue.  Eventually, the OECD dropped the blacklist of countries that they had produced, but only after coercing almost all of the jurisdictions to adopt many of the rules that the OECD had set unilaterally.  A so-called “Global Tax Forum” was also established to set rules for a level playing field for all jurisdictions.  But, a report two years ago showed that the main culprits ignoring these rules are the big players in the OECD countries themselves.  Poor regulation and supervision in the US and UK which contributed to the present financial crisis in both countries is ample evidence of that fact.

President Obama, when he was the Senator from Illinois, joined two other Senators in introducing the “Stop Tax Havens Abuse Act” in the US Congress.  Fortunately, the Act never became law.  Hovever, it names 34 jurisdictions as “secrecy” jurisdictions and among them are all the British Overseas Territories in the Caribbean, all the members of the Organisation of Eastern Caribbean States, the Bahamas and Barbados.

The fact that the Bill did not become law does not mean it has been dropped from the Obama administration’s agenda.  Every indication is that the legislation will be enacted this year and while the blacklist will be removed, it will be replaced by broad empowerment of the US Treasury Secretary to impose sanctions.  The belief persists that “the total loss to the (US) Treasury from offshore tax evasion alone approaches $100 billion per year, including $40 to $70 billion from individuals and another $30 billion from corporations engaging in offshore tax evasion”.

Caribbean jurisdictions are regularly examined by the Caribbean Financial Action Task Force (CFATF) and the International Monetary Fund (IMF) to ensure that they are compliant with the requirements set by the OECD. Many, if not all of them, have Tax Information Exchange Agreements with the US. Banks are required by law, and on pain of the toughest penalties, to make suspicious activity reports and to follow ‘know your customer’ procedures.  Persons trying either to open a second account with a bank they have dealt with for years, or transfer money anywhere, are well aware of the scrutiny to which they are subjected; the paper they have to sign and the identification they have to provide.

Recently, some of the OECD jurisdictions have begun luring customers away from Caribbean countries on the basis that they will give them better tax breaks, and, of course, they are “safe” jurisdictions. One of the latest companies to shift is the giant engineering and construction company, Foster Wheeler Ltd, which is moving its place of incorporation to Switzerland from Bermuda for “tax and other reasons”.

So far there has been no public indication that Caribbean governments are ready to jointly engage the OECD and the US government in particular on these new threats to their financial services sector.  Yet, they are all at risk, including Guyana, Jamaica and Trinidad and Tobago – all of whom have passed legislation to offer international financial services. 

Similarly, the Caribbean private sector who provide financial services and are in the best position to marshal the arguments and evidence to refute the charges of OECD governments are saying nothing.

When the crunch comes, therefore, those in the private sector, who seem to be sleeping instead of lobbying their governments for joint action, should wake up and start pressing the issue fast.  The wolf is already at the door.

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