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Bahamas: Offshore Business Sectors


Banks in the Bahamas must be licensed under the Banks and Trust Companies Act 1965. The Central Bank of the Bahamas applies stiff criteria to incoming banks in order to exclude money laundering and criminal activity. Banks cannot use the Bahamian International Business Company form, and operate either as branches (usually representative offices) or subsidiaries, necessitating the formation of a Bahamian company under the Companies Act (see Forms of Company). The minimum capital requirement for a full, public banking licence is $2m; there are various categories of restricted license with lower requirements. For further details of licensing requirements and procedures and fees payable see Law of Offshore and Offshore Legal and Tax Regimes.

New legislation enacted in 2000 in response to pressure from the OECD increased the degree of Central Bank supervision over the banking and trust sector.

The Bahamas is one of the world's top ten international banking centers, with 278 licensed banks from more than 30 countries, and a total asset base nearing BSD588.3bn. Capital ratios average over 27%. The country's improved legislation and regulatory structure, its highly-skilled workforce, and its stable government have attracted some of the most prestigious financial institutions from around the globe. About half of licensed banks are incorporated locally, and more than half offer trust services alongside banking activity.

Evidently, private banking is a major component of the Bahamian banking industry: asset protection rather than tax avoidance as such is the driving force, so that the stability of the Bahamas alongside stringent banking secrecy and its sophisticated investment environment are very attractive to wealthy individuals, particularly those from the US where the Bahamas have a very good reputation.

In 2004 the Central Bank of the Bahamas announced the official launch of the county's new interbank electronic settlement system, designed to modernise the jurisdiction's payment system and reduce clearing times.

Former Minister of Finance, Senator James Smith, explained that the launch of BIBS represents the completion of the first phase of the larger Payment System Modernisation Initiative (PMSI) which commenced in 1999. Its objectives are to bring the country's payment system in line with international practices, mitigate risks, increase efficiency and encourage the development and growth of new financial products.

"Consistent with international best practices, funds transferred through BISS are immediate, final and irrevocable, bringing the system in line with generally accepted principles for safe and efficient national payment systems," observed Senator Smith. Phase 2 of the PMSI programme worked towards the creation of an Automated Clearing House system, and was scheduled to come online in the first quarter of 2005.

In June 2004 Bahamian Attorney General Alfred Sears told an IMF conference that the country's Central Bank is taking a tough stance on the licensing of banks and trusts, in order to bring its shell bank rules into line with international standards.  Mr Sears observed: "One conclusion that can be clearly drawn from this march towards increased supervision and an increasingly strict regulatory environment is the attrition rate in the number of banks and trust companies registered in The Bahamas, a decline that is largely explained by the attrition of the managed banks."

He went on to explain that this policy has been "aggressively" pursued by the Central Bank, leading to a decline in the total number of banks and trust management companies registered in the Bahamas from 415 in 1999 to 284 in 2003, with the number of licenses revoked growing from 14 in 1999 to 29 in 2003. Sears also noted that this was achieved without a significant impact on the numbers of people employed in the country's financial services sector.



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