|
Introduction: 'The Year Of The Multilaterals'
News of the Bahamas' removal
from the FATF's list of 'unco-operative' jurisdictions at
the end of June was received with delight in Nassau as the
just outcome of a year-long battle by the jurisdiction to
'clear its name'.
| The FATF (Financial
Action Task Force) had subjected the Bahamas to an extensive
independent and transparent review of its anti-money laundering
systems, and the jurisdiction itself had responded by
passing eleven substantial pieces of new or updated legislation. |
|
"The de-listing provides
an authentication of the integrity of our systems", said
Wendy Warren, CEO and Executive Director, Bahamas Financial
Services Board (a joint venture by the financial services
industry and the government that acts as a catalyst for information
on each development of the industry). " We are very gratified
since the de-listing clearly supports the reputation of The
Bahamas as a credible financial services jurisdiction. However,
it is important to recognize that it is not only in the last
six months that the financial systems and institutions in
The Bahamas have been subject to adherence to counter money-laundering
procedures. For example, since the mid 1980s, the Association
of International Banks and Trust Companies (AIBT) in the Bahamas,
has subscribed to the codes of conduct including adherence
to the principles of the FATF."
As early as 1996 the Bahamas
Government enhanced its legislation by criminalizing money
laundering and requiring the reporting of suspicious transactions.
The improvements through the
enactment of legislation and their implementation are more
than cosmetic, says the Government. They ensure that all institutions
providing financial services in the Bahamas adhere to a standard
established by the FATF, and that all such institutions are
subject to a sound level of regulatory and supervisory oversight.
The implementation plan has seen a commitment by Government,
among other things, to fund the establishment of a Financial
Intelligence Unit (FIU), an organization that has now been
recognized by the prestigious Egmont Group.
"The financial services
industry has been operating within this new legislative and
regulatory framework since the beginning of this year,"
said Ian Fair, BFSB Chairman. " All business accepted
since the beginning of 2001 is in compliance with this framework
and the industry is currently bringing existing business into
compliance."
All new and existing regulatory
and supervisory agencies have likewise committed additional
resources to ensure adherence by financial institutions to
the legislative framework.
" We are pleased to have
the good name of The Bahamas restored, " said Ms. Warren.
"But we will continue to pay close attention to evolving
international standards to ensure continued compliance."
The OECD's Demands
With the eleven bills passed
in 2000 and implementation procedures commenced early in the
year, the Bahamas is now in full compliance with both the
FATF and FSF. The remaining irritant is the OECD's 'harmful
tax competition' blacklist, which includes the Bahamas along
with 34 other jurisdictions. Ten of those have signed 'commitment
letters' to the OECD which oblige them to conform with the
OECD's standards by 2005. The Bahamas has not signed a commitment
letter and considers that it has done what is necessary to
be removed from this list as well, saying that it has engaged
in 'constructive dialogue' with the OECD over a period of
years.
| Events during
2001, culminating in the forceful defence of tax competition
by US Treasury Secretary Paul O'Neill, have drawn the
OECD initiative's teeth as regards tax rates, and Prime
Minister Hubert Ingraham gave an assurance recently that
income tax would not be introduced. Mr Ingraham declared:
'The Bahamas will, I believe, come to terms with and adjust
to global changes and find the best way forward to expand
our special niche in the global economy. Let me say now
however that the way forward does not in my estimation
include the introduction of an income tax in this country
in the foreseeable future.' |
Paul O'Neill US Treasury Secretary |
He added: 'Our success in services
over the past thirty or more years has permitted us to enjoy
the third highest per capita income among independent states
in the Western Hemisphere, following only the United States
and Canada. Today, we can boast of higher levels of employment,
increased home ownership, rising personal and household incomes,
the lowest business loan interest rates in thirty years and
of increased entrepreneurial opportunities and small business
growth. Together, these permit and support our infrastructural
and social agenda.'
|
|
The final step
for the Bahamas to bring itself into line with the remaining
OECD issues of transparency and non-discrimination was
to address the question of 'ring-fencing', and this was
done as part of the package of legislation passed in 2000
by allowing IBCs to purchase an interest in real property
and Bahamians to own shares in an IBC. |
Now For The IMF!
| Not content
with having survived the terrible trio of FSF, FATF and
OECD, the Bahamas' Minister of Finance, Sir William Allen,
announced in June that he has invited the International
Monetary Fund (IMF) to conduct a review of the Island's
offshore financial services sector. Sir William was quick
to point out that the IMF review is by his invitation
only and will be constructive advice for the government
as opposed to the damaging effects of the multilaterals'
reports. He explained: 'In its work [the IMF] is obliged
to follow balanced, even-handed and objective procedures
applicable to all participating member countries. In its
reporting the IMF does not follow the obnoxious process
of naming and shaming as the G-7 related groups have done.'
|
Sir William Allen, Bahamas Minister of Finance |
'The naming and shaming process
invokes the prospect of coercion and imperialism,' said Minister
Allen, and is 'totally inappropriate to the construct of an
international community of like-minded democratic nations
committed to the rule of law.'
The IMF review of the offshore
financial services sector, expected later this year or early
in 2002, is likely to be followed by a full-scale Financial
Sector Assessment Programme - a review of the financial sector
as a whole.
The IMF has also recently been
in the Bahamas in the shape of an Article IV Consultation
Mission, whose report is to be presented to the IMF Executive
Board by August. Sir William commented on the last Article
IV Consultation with the Bahamas, which was conducted in August
1999, at which time it commended proposals in the 1999-2000
budget to generate more revenue by raising several taxes and
reducing tax exemptions. The IMF concluded with the suggestion
that a 'full review of the tax structure' be performed to
further strengthen the Bahamas' revenue base. The Consultation
recommended that 'such a review should include an assessment
of the desirability of lowering import duty rates, introducing
a value-added tax, or sales tax, and of increasing revenue
from property taxes.'
Sir William said: 'The replacement
of import taxes as the main form of taxation is inevitable
in light of the WTO and other likely developments in trade
liberalization. However any reform would have to be implemented
gradually and in a way that does not alter the overall level
of taxation.'
The Government will authorise
publication of the new Mission's Report after its consideration
by the IMF Executive Board, but in his Budget Communication
2001-2002, Sir William alluded to the preliminary findings
of the Mission: 'The Mission expressed strong support for
the key policies which we are implementing, particularly those
in relation to maintaining fiscal balance, streamlining of
the tariff structure which we commenced in 1996 as a prelude
to a review of the tax system, containing the budgetary demands
of the public enterprises, continuing with the strengthening
of the regulatory regime in the financial services sector,
and ensuring the continuing competitiveness of the Bahamian
economy. These are all matters to which the Government attaches
high priority.'
Qualified Intermediary Status
| In order to
maintain its position as one of the top locations for
US offshore investment, another key foundation stone for
the Bahamas is Qualified Jurisdiction status from the
US Treasury, and this approval was indeed given in January
after a cliff-hanger during December while the Treasury
agonised over whether the Bahamas' new laws would be effectively
implemented. |
|
Approved status for the Bahamas
means that financial institutions in the jurisdiction can
avoid imposing a 30 per cent withholding tax on US source
income for properly documented clients and can also deduct
reduced rates under tax treaties applying in particular cases.
Furthermore they will not be required to identify their non-US
clients to the IRS.
Ian Fair, chairman of the Bahamas
Financial Services Board, said: 'It is obviously very, very
good news because it clearly indicates recognition and acknowledgment
that the laws that we have put in place and amended meet international
standards.'
The Bahamas' application for
QJ status was submitted in mid-2000 but the US treasury deliberated
for some months over the "Know Your Customer (KYC)"
rules regarding the governing of bank transparency, the implementation
of which is a key condition for obtaining QJ status - it was
only recently that the Bahamas had given a firm legislative
basis to its KYC procedures, which had operated under a code
of conduct for many years. The Code, introduced by the Bahamas'
Association of International Banks and Trust Companies, provides
for 'standards of conduct and professional ethics governing
certain basic relationships between members and their clients',
and prevents the use of member companies for criminal purposes.
Additionally, international banks and trust companies operating
in the Bahamas are required to follow standards set by their
own head offices.
The QJ agreement has a duration
of 6 years after which time the agreement may be renewed upon
the signatures of both the jurisdiction and the IRS.
But What About The Clients?
Rapid and determined action taken
by Government has certainly achieved the desired effect with
the multilaterals, but has the baby been thrown out with the
bath-water? How is the market-place responding to the newly-stiffened
regulatory regime in the Bahamas?
Hubert Ingraham, Bahamas
Prime Minister |
Prime Minister
Ingraham had warned of the consequences of the new law,
saying: 'The reality is, IBCs, as we knew them, can be
no more. And because of this, there are going to be substantial
consequences to persons and entities engaged in this business
and the individuals employed in this sector of our economy.
There is no question that the amount of revenue the government
receives from IBCs will be reduced.' Under the new IBC
act, IBCs are required to submit the addresses and names
of directors and officers to the Registrar General's Department,
although the names of beneficial owners do not have to
be filed. |
Indeed, figures released early
in 2001 seemed to confirm his fears. January 2000 saw the
registration of 3,368 of the year's total of 17,000 new IBCs,
whereas in January 2001 only 781 new IBCs were incorporated.
This kind of fall could have
alarming repercussions for some segments of the financial
sector, since it comes at a time when operating costs are
rising as a result of compliance with the new laws recently
introduced by the government. However the Registrar General
has commented that the drop off in the numbers of new incorporations
of IBCs during the first four months of the year might be
attributed to persons adopting a "wait and see"
attitude with regard to the new Financial Services regulatory
regime, or delays caused by the need for financial intermediaries
to obtain more extensive background information on prospective
clients. The number of existing IBCs that have renewed licences
during the first quarter of 2001 has fallen, he said, but
not very heavily.
The Attorney-General's office
also made reassuring noises: 'In the long term, it is felt
that many of the "sensitive" IBCs will be replaced
by new business eager to find a niche in a Bahamas that is
a clean, well-regulated and fully recognised international
financial centre'.
News from the banking sector,
also highly important to the Bahamas' economy, is by no means
bad. The new legislation and Central Bank regulatory changes
had targetted 'managed' or 'brass-plate' banks - of the 400+
companies licenced to conduct banking and/or trust business
in the Bahamas, it is estimated that some 125 operate as brass
plates, i.e. with no physical office or employees in the country,
and it had been expected that many of these would choose to
leave rather than having to establish staffed offices.
Central Bank Governor
Julian Francis said that no new 'managed bank' licenses
had been issued in the past two years, and this category
of license was due to be phased out in favour of "management
agent" arrangements, subject to strict conditions
relative to management contracts and senior officer
staffing, maintenance of local records, and a requirement
for physical presence.
In fact, it seems that approximately
half of the managed banks will remain and comply with
local regulations - effectively establishing a physical
presence in the Bahamas and expanding their operations.
Central Bank Governor Francis has pointed out that these
60 or so remaining ex-managed banks will be providing
jobs in both senior and non-managerial positions, and
will also fuel demand for office space.
|
Julian Francis, Central
Bank Governor |
While tighter regulation could
have a dampening effect on 'asset protection' business including
IBCs and banks, it should have the opposite effect on the
securities business, one of the Bahamas' great white hopes
for the future. The Bahamas International Stock Exchange was
opened only in 2000, but the Government has made every effort
to construct a world-class regulatory regime around it, hoping
to encourage international listings.
Finance Minister Sir William
Allen recently told a COSRA (Caribbean Organisation of Securities
Regulatory Authorities) meeting that the government intended
to comply fully with the principles set out by COSRA's parent
group, the International Organisation of Securities Commissions
(IOSCO). He said: 'We wish to associate ourselves with your
effort and will take whatever measures are necessary to ensure
full compliance with your principles and our place as a respected
partner in the international community ... We are aware of
the enormous responsibility resting upon the regulators of
securities markets and the critical and delicate responsibility
which the market's institutions discharge in the nation's
financial intermediation process.'
He also took the opportunity
to confirm that the Bahamas' financial services sector will
be reviewed by the IMF/World Bank Financial Sector Assessment
programme (FSAP), saying: 'The securities industries will
be included in the initial review. Investor education, which
is a priority of COSRA, is also an important pillar of this
jurisdiction's regulatory efforts. The ultimate objective
is to enable the individual investor to become an important
force in the market. He then becomes the regulator's best
ally.'
He continued: 'The integrity
of the market and the protection of the investor are the objectives
of these efforts. In a similar vein, efforts are being made
to enhance information sharing with other local regulatory
bodies and to establish a supervisory regime for investment
businesses that do not have a physical presence in the Bahamas.'
The Bahamas Modernised Regulatory Regime
The new laws now in force, amounting
to a complete overhaul of most of the Bahamas' main financial
services legislation, are as follows:
Regulations under the Criminal
Justice (International Co-operation) Act and the Financial
Transactions Reporting Act also have entered into force.
Details of some of the more important
new laws are as follows:
International
Business Companies Act
The Bahamas introduced the International Business Companies
Act, 2000 (the "IBC Act") on December 29, 2000.
Key features of the new IBC Act are as follows:
- It prohibits the issuance
of bearer shares. From a practical perspective, the use
of bearer shares in the Bahamas varied by service provider.
Some service providers as a matter of policy did not issue
bearer shares, while others issued such shares, but insisted
that they maintain control over the shares. Other providers
delivered the bearer shares. The new law requires that all
bearer shares that were in issue at December 29 be cancelled,
with registered shares issued in their stead.
- The Act requires that the
IBC must maintain a register of Directors and Officers at
its Registered Office. The Act further requires an IBC to
file with the Registrar General (a public records office)
a copy of the Register of Directors and Officers. It does
not require that the register of shareholders or ownership
of the company be made public.
Wendy Warren, CEO and Executive
Director, Bahamas Financial Services Board, confirmed that
the IBC Act does not require two shareholders and that certain
requirements such as the need for two directors are being
reviewed. 'There has been some misinformation circulating
about our new IBC Act,' she said, 'In fact, it was an essential
step in strengthening the Know-Your-Customer regime in The
Bahamas, and towards full compliance with FATF recommendations'.
Emmanual Osadebay, Supreme Court Senior Justice |
There have however been
some teething problems in implementing the new Act.
In April, Supreme Court Senior Justice Emmanuel Osadebay
ruled that his court had no power to grant the Securities
Commission of the Bahamas' request to liquidate any
companies that are found to have operated without a
licence. He called upon parliament to clarify just what
powers the Securities Commission does possess under
the Mutual Funds Act 1995 and the International Business
Companies Act 2000.
Justice Osadebay had been
presiding over a hearing of two applications brought
by a group of International Business Companies (IBCs)
to question the powers of the Commission in its efforts
to close down the companies. The Court restored the
corporate status of the companies concerned and they
were allowed to continue their business.In fact the
companies have chosen not to do so.
|
However, these were mutual fund
companies, and licensing issues wouldn't arise in the case
of a regular IBC which the Registrar of Companies would normally
be able to have struck off if they infringed the terms of
the IBC Act.
Financial
Transactions Reporting Act 2000
This Act, which calls for written
documentary reports on many types of financial transaction,
has been the focus of many complaints from the financial sector.
Wendy Warren was quick to agree with the aggrieved institutions,
explaining: 'Instead of transactions that in the past were
handled electronically in merely seconds, the process can
now take days. It's a nightmare, and it causes business to
come to a halt.'
The financial industry's report
on the problem recognises the need for written confirmation
documents, but requests more clarity on the definition of
such a term and recommends that with some transfers, eg when
account holders transfer their funds into another account
or institution, it should not be necessary to 'go back and
verify the transfer again.' For example, the process of validating
transactions with the Cayman Islands has become a complex
one. Ms Warren says: 'It is almost amusing to consider that
it's easier to do business with on-shore countries now than
the neighbouring offshore jurisdictions. It has had a significant
impact on the way we do business and it has come down to us
almost competing with each other.'
Both the FATF and the Bahamian
government say they recognise these concerns but argue that
strict controls must be in place to deter money launderers
- and no account is free from such activity without the proper
regulations. However, in June the Office of the Attorney-General
provided the BFSB with a Letter of Comfort which addressed
a number of issues raised by the financial sector, and the
Government later tabled legislation to deal with them, including:
- an
amendment to the Financial Transactions Reporting Act relating
to occasional transactions and a broader definition of "cash";
- additional
amendments to this Act which clarify that the requirement
for verification applies to the establishment of a facility
with a financial institution or to transactions in cash
which exceed the prescribed limit of $10,000; and increase
the number of countries and territories deemed to have adequate
counter-money laundering rules;
- amendments
to the
Financial Transactions Report Regulations to address concerns
relating to the opening of new banking accounts and facilities
and the verification of ownership of existing accounts and
facilities.
Sir William
Allen, Minister of Finance, confirmed while the Government
is amending certain provisions of various Acts & Regulations
to address concerns relating to the ongoing practical implementation
of the new regulatory and supervisory regime, these issues
"do not go to the fundamental requirements of the anti
money laundering initiatives". Similarly, BFSB has reiterated
that the financial services industry fully supports the strengthening
of the anti-money laundering regime in The Bahamas.
Financial
Intelligence Unit Act 2000
Under the Act, The Bahamas FIU's
function is to receive, anlayse, obtain and disseminate information
relating to the proceeds of an offence; all disclosures of
information required to be made under the Proceeds of Crime
Act, 2000 will be made to the FIU.
The FIU Act was "benchmarked"
to ensure compliance with acceptable practices in multiple
jurisdictions. American, Canadian and Swiss banks - and all
other foreign banks operating in the Bahamas - are not expected
to have difficulty with the provisions and powers of the Financial
Intelligence Unit, as they all operate in jurisdictions with
similar procedures and powers given to the equivalent agencies.
Prime Minister Hubert Ingraham
confirmed that the new Unit will operate under guidelines
with which multi-national financial institutions elsewhere
are familiar. "We are not asking banking institutions
in the Bahamas to operate under rules that they are unfamiliar
with" he said, "We are not asking them to have a
reduced standard when they are in the Bahamas. We are asking
them to conduct business in the Bahamas as they would in Zurich,
or Toronto, or London or New York."
After its establishment, the
Director of the FIU issued a public notice indicating its
intention to issue suspicious transactions guidelines, in
accordance with sections 15 and 16 (1)(b) of the Financial
Intelligence Unit Act, 2000 coming into force on December
29, 2000.
The Egmont Group of Financial
Intelligence Units, which provides a forum for Financial Intelligence
Units (FIUs) as a support to their national anti-money laundering
programmes.describes an FIU as "a central, national agency
responsible for receiving (and, as permitted, requesting),
analyzing and disseminating to the competent authorities disclosures
of financial information (a) concerning suspected proceeds
of crime, and (b) required by national legislation or regulation".
| In June, Minister
of Justice Carl Bethel announced that the Egmont Group
had recently certified the Island's FIU as operational.
He claimed that although this did not guarantee the Bahamas'
removal from the blacklist, it was certainly a step in
the right direction. He said: 'If it is possible to paint
the Bahamas not merely as a tax haven but as a haven for
money launderers and financial criminals then it is possible
to demonize us and to exert maximum pressure and threats
of taking measures to protect themselves from the effects
of doing business with the Bahamas.' |
Carl Bethel, Minister of Justice |
Also in June, the Egmont Group
admitted the Bahamas as its 54th member Mr Bethel said he
hoped that this could spell the end of the country's 'nightmare'
caused by its inclusion on the FATF blacklist. Minister Bethel
commented that the Bahamas was blacklisted by the FATF mainly
because of its reluctance to co-operate with international
investigations.
Central
Bank of the Bahamas Act 2000
The Central Bank of The Bahamas
Act 2000 expands the powers of the Central Bank Governor,
provides 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 provides extensive information gathering
powers for the Central Bank.
Banks
and Trust Companies Regulation Act 2000
The Banks and Trust Companies
Regulation Act 2000, also 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.
The new provisions dealing with
cross-border supervision meet the recommendations set out
in the Basle Committee Report.
Financial
and Corporate Service Providers Act 2000
Only banks and trust companies
licenced under the Banks & Trust Companies Regulations
Act, and financial and corporate service providers licenced
under the Financial and Corporate Service Providers Act may
provide registration, management, administration, registered
agent, registered office, nominee shareholders and officers
and directors for IBCs. Both referenced Acts require their
respective licensees to obtain beneficial ownership information
and to comply with the Financial Transactions Reporting Act.
As a consequence, full application of the know-your-customer
regime required by the Financial Transactions Reporting Act
and Regulations applies in relation to IBCs.
The Bahamas' Economy
The Bahamas Minister of Finance,
Sir William Allen, proudly unveiled his 2001-2002 budget at
the end of May with the news that there were no new taxes
to be introduced and definitely no increases on existing taxes
either. During his two and a half hour speech, Sir William
informed the Members of Parliament that total expenditure,
excluding debt redemption, is $1,035 million and recurrent
revenue plus capital grants is also $1,035 million.
'Consequently,' said Sir William,
'we will enter 2001/2002 with a balanced overall budget, and
with no increase in government debt. This fiscal position
will again make a major contribution to presenting the Bahamas
as one of the soundest economies in the hemisphere and an
attractive location for high-quality inward productive investment.'
| According to
Sir William, the IMF has forecast an economic growth rate
of 3.5 per cent for The Bahamas and he is confident that
this can easily be achieved because the economy has increased
year on year since 1992 and by at least 3 per cent each
year since 1995. He stressed: 'It is evident that the
economy is today far more resilient, as a result of the
strong foreign investment inflows in recent years, which
together with the sound macroeconomics policies we have
just implemented have combined to promote sustainable
job growth and economic performance into the medium-term.' |
|
He added: 'The transformation
in the economy since 1992 has been truly dramatic. The productive
capital stock of the economy has been modernized and raised
to the highest levels by major inflows of international investment
and by the Government’s ambitious programme of infrastructural
improvement. Unemployment has been reduced to the lowest levels
ever recorded, living standards are approaching the levels
of the advanced OECD countries, and Bahamian society is prepared
to meet the future with greater certainty and confidence than
ever.'
'If I could bequeath one legacy
to the Bahamas,' Sir William stated, 'and I believe the Rt.
Hon. Prime Minister would also wish this as his legacy, it
would be that the standard of fiscal prudence achieved on
this government's watch is maintained and that this government's
commitment to sound macroeconomic fundamentals, which made
the success of our policies possible, continues into the foreseeable
future.
The Bahamas'
Financial Products
Shortly after the raft of new
financial services legislation described above had entered
into force, Governor of the Central Bank Julian Francis addressed
the Bahamas Business Outlook Conference 2001 on the topic
"Where Does The Bahamas Go From Here?". The Governor
said he was convinced that The Bahamas is on the threshold
of an entirely new period in its success as "a developing
center for the delivery of high quality financial services
to a global industry, which increasingly requires such services".
The Central Bank Governor commented
on the vulnerability of an increasingly globally integrated
economy and banking sector to influence from those who control
or can exert significant pressures on the international financial
system. He was of course talking about 'the multilaterals'
who had given the Bahamas its nightmare experience in 2000,
and the threats of 'sanctions', 'advisories' and other destructive
punishments risked by jurisdictions which didn't get their
'Acts' together. In front of an audience of top business figures,
none of whom would have much to say for extra regulation,
he knew he had to stress the vital importance of the legislation
which had been enacted.
'The impact of the sensitivity
and mobility of this business' said the Governor, 'was such
that:
- its lifeblood, the international,
that is to say dollar payment system can be made, for all
practical purposes, unavailable to it within weeks, and
even days; and
- any significant development
which disturbs the ease of major institutions doing business
from the jurisdiction -- for example, more than reasonable
and relatively short-lived concern on the part of home country
authorities as to the acceptability of the activity of their
institutions here -- could result in the rapid relocation
of business to other jurisdictions willing to accommodate
them.'
Mr Francis listed some of the
key action points for the financial services sector and its
regulators:
- establishment of significant
indigenous institutions which would be well on the way to
becoming internationally recognised banking institutions;
- institutionalisation of the
process for developing new industry products;
- recognition by the public
sector of the need to commit resources on the same basis
as the private sector to the administration, oversight and
regulation of financial services;
- adherence by all industry
professionals to a rigorous code(s) of conduct for doing
business;
- broad community support for
those policies which attract first class talent from wherever
it exists to assist in building our industry;
- investment by the legal profession,
especially the major firms, in the international representation
and presence needed to facilitate the growth and development
of the industry;
- a more comprehensive and
proactive approach to the technical training and development
of human resources for the financial services sector.
"The time has come for the
Bahamas to reassert its position as one of the leaders in
this business, not following but imposing innovative ideas
on an industry which is still hungry for a true leader,"
said Governor Francis.
The Governor addressed a similar
theme when he opened Bankers' Week at the end of May, saying:
"The Bahamas should no longer content itself with being
just a competitor in this industry, which in many real respects
we helped to develop".
The Banking Sector
In fact, the Bahamas' banking
sector is in quite a strong position to compete globally.
Out of the 400 licensed banks in the Bahamas at the beginning
of 2000, of which 124 were 'managed' banks, it seems that
about 340 will comply with the new rules insisting on local
staff and offices. This will confirm the Bahamas' place as
one of the world's top ten international banking centers.
Its total asset base is around $200bn, and capital ratios
average over 10%. 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.
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.
If proof were needed that the
Bahamas banking sector has survived the multilaterals' onslaught
unscathed, and even strengthened, it would have been provided
in April when Citibank officially opened its Global Corporate
and Investment Banking (GCIB) office there, representing the
Northern Caribbean region and offering a comprehensive range
of corporate banking and investment services. Speaking at
the GCIB launch, Carmen Butler, Citibank's country corporate
officer, said: 'Our Corporate bank offers both growing and
established businesses a variety of products and services
designed to enhance their financial operations. We have solutions
to meet virtually any need, and it is these solutions and
our unmatched advisory services that have made us a recognized
leader in the industry.'
| Vice President and Regional
Executive for Citibank International, Mr. Suresh Maharaj,
said that Citibank (which has an established presence
of over thirty years in the Bahamas) plans to 'assist
in the development of the local capital markets [and]
help sharpen the financial industry along with our colleagues
in other financial institutions who share our commitment
to the Bahamas.' |
 |
Prime Minister Hubert Ingraham
opened the new GCIB branch, saying that it was a clear expression
of Citibank's confidence in the jurisdiction's financial services
sector.
Another recent positive development
saw the introduction by the Global Private Banking Department
of the Royal Bank of Canada of a new US Private Wealth service,
described by the Prime Minister as a new and exciting venture
for the Bahamas. According to Jean-Claude Emard, Managing
Director of Global Private Banking, the service will assist
clients with identifying and correcting potential US tax and
estate problems. The service not only meets the needs of high
net worth ('HINWI') clients, he says, but is also fully compliant
with emerging best standards and practices for the industry.
'Adding to the diversity available through Bahamian licenced
financial service institutions', said the announcement, 'Royal's
Private Wealth Group will serve to strengthen the position
of the financial services industry in the Bahamas.'
The Stock Exchange and
the Mutual Fund Sector
 |
In May 2000,
the Bahamas' new stock exchange (BISX) went live, with
2 established brokers. By June, 2001, the exchange had
achieved 17 listings. But the potential importance of
the Exchange is more as a means of listing investment
funds than primarily as a finance-raising mechanism for
local companies, and in April 2001 BISX duly launched
a mutual funds listing facility in a bid to attract more
international investors. |
Gerry Ritchie, chief executive
officer of the BISX, said: 'The listing facility provides
an additional element to the services already offered in the
growing and highly competitive offshore funds industry and
a catalyst to the ambitions of the Bahamian funds industry
within that sector.'
The new BISX listing facility
offers both primary and secondary listings of Bahamian regulated
and overseas regulated mutual funds. It is estimated that
currently there are around 700 mutual funds in the Bahamas
with assets of at least $100 billion.
The chairman of BISX, Ian Fair,
says that the mutual fund listing facility demonstrates the
exchange's ambition to continue in its development: 'BISX
will be continuing to extend its facilities in both the domestic
and international sectors to ensure that the Exchange is able
to contribute fully to the continued emergence of the capital
market as a dynamic for growth within our economy.'
Although the size of the local
banking and mutual fund industries undoubtedly gives the BISX
a long-term advantage, it has competition in the international
offshore market from Bermuda, Barbados and Jamaica, to mention
only a few local island jurisdictions. Actually it's not possible
to discuss this subject without thinking about consolidation,
and there has been much deliberation among the Caribbean jurisdictions
about the desirability of a regional stock exchange. The subject
is due to be debated again at the CARICOM annual summit, due
to take place in Nassau on 3rd - 6th July.
The concern is that the Caribbean
will be left on the sidelines as globalisation proceeds apace.
The President of CAIC (The Caribbean Association of Industry
and Commerce), Charmaine Gardner says: 'The potential of seamless
connectivity and its manifestation in electronic commerce,
provides individuals and institutions with the power to sit
in the comfort of their homes or offices and to be able to
buy and sell on any exchange in the world.' She points to
the fact that share trading is increasingly available round-the-clock,
whether in New York, London or Tokyo, saying: 'right here
in the Caribbean, such facilities are not available to the
average investor.'
| Amongst the Caribbean Community
(CARICOM) countries, Barbados, the Bahamas, Jamaica and
Trinidad and Tobago have active stock markets. Suriname
and Guyana are considering the opening of exchanges, while
the Organisation of Eastern Caribbean States (OECS), comprising
Dominica, Grenada, St Lucia, St Vincent and the Grenadines,
St Kitts-Nevis, Montserrat and Antigua and Barbuda, is
in the middle of establishing an exchange. |
 |
In 1991, Barbados, Jamica and
Trinidad and Tobago started cross border trading in equities,
but not much has happened since, and it is generally thought
that some kind of agglomeration is long overdue.
It would probably be to the advantage
of the Bahamas to be part of an integrated Caribbean Stock
Exchange, because its main local competitors in the mutual
fund sector, the British Virgin Islands and Bermuda, have
only vestigial banking industries. The liquidity and scale
of a Caribbean stock market would in all probability drive
mutual fund listing business to the Bahamas, where the investment
fund and banking skills exist to handle very large volumes
of business.
Consolidation may however be
difficult without a common currency, or more movement towards
a single economic area - and both these initiatives have struggled
to make headway against the interests of individual territories.
Another possible problem is the
lack of e-commerce development in some parts of the region.
Any move towards an integrated Caribbean stock exchange would
inevitably mean a high degree of electronic sophistication,
and this in turn requires a high level of development of e-commerce
facilities. That's dealt with in a separate section below,
but the fear for the Bahamas has to be that the balkanised
condition of the Caribbean in political and economic terms,
and the relatively backward state of e-commerce infrastructure
might hobble an integrated stock market from the start.
Bahamians might therefore think
to themselves that they are better off making alliances with
global investment and banking players in order to launch themselves
on the world mutual fund market, rather than joining a local
consortium. It's a tough call.
The Bahamas and E-Commerce
The two key foundations of a
healthy e-commerce sector are a de-regulated and competitive
telecommunications sector, and a flexible regulatory structure
for electronic communications and e-commerce.
The Bahamas Government is well
aware of these two priorities. The Telecommunications Act
2000 paved the way for privatisation of the Bahamas Telecommunications
Corporation (Batelco), creating a new legal regulatory framework
for telecommunications in The Bahamas, removing the monopoly
rights of Batelco, and establishing a licensing regime for
telecommunications. Government will ensure that a majority
of the privatised Batelco will remain in Bahamian hands, through
share offerings and Government retention of a stake in the
new company.The telecommunications infrastructure is critical
to the Bahamas' future prospects.
| The Government is now in
the final phase of the privatization of Batelco, having
identified a short list of strategic partners. Government
is keen to ensure that any strategic partner will have
both the technical expertise and experience as well as
the financial resources to manage Batelco and develop
it into a state of the art telecommunications company.
|
 |
The new Public Utilities Commission
(PUC) created by the Act is an independent and transparent
regulatory authority, and has been crucial in jump-starting
the development of high-speed Internet access in the Bahamas.
Previously, the state-owned Batelco had done little to offer
more than the most basic of Internet services.
In April 2001 the PUC issued
a telecommunications licence to Caribbean Crossings Ltd (CCL),
a wholly-owned subsidiary of Cable Bahamas Ltd, to provide
bulk telecommunications transmission capacity over the licensed
systems for the carriage of data and internet services. This
new submarine fibre-optic cable system will link the Bahamian
Islands of Grand Bahama, New Providence, Eleuthera and Abaco
to the United States.
"We now have all the necessary licences required to provide
bulk telecommunications services," said André
Foster, the company's Vice President, Information Technology.
"The issuance of the licence by the PUC is the culmination
of an intensive regulatory approval process requiring approvals
and licences from Government and associated agencies including
the Environment, Science and Technology departments of both
The Bahamas and the United States," he added.
According to Mr. Philip Keeping, Chief Executive Officer and
Chairman of Caribbean Crossings Ltd, "We are all now
truly witnessing the Bahamas move into the ‘Digital Age’,
with world-class broadband Internet access built to the most
stringent of international standards. We believe this new
‘digital bridge’, which links the Bahamas‘
major centres and the United States, will bring more jobs
for Bahamians and reduced Internet access rates for all classes
of users, consequently, catapulting the country into a leadership
position in the race toward global access within the Caribbean
region," he added.
Mr. George Moss, Executive Director
& Secretary, the Bahamas Public Utilities Commission (PUC)
said, "This is the first major telecommunications licence
issued by the PUC and is a significant milestone in our providing
Bahamians with a wider choice in the provision of telecommunications
services."
Caribbean Crossings Ltd has substantially completed the construction
of a new submarine fibre-optic cable system. The first link
between the United States and Grand Bahama and the link to
New Providence have both been opened.
| Cable Bahamas is a publicly
traded Bahamian company owned by more than 3,000 Bahamian
shareholders and the Government of The Bahamas. The company's
basic product is the provision of cable television to
16 Bahamian islands and high-speed Internet service in
both New Providence and Freeport. |
 |
Progress is also being made
with the development of mobile services, with AT&T Wireless,
Teleport One and Ericsson recently finalizing a commitment
to extend AT&T’s existing U.S. based GSM/GPRS 3G
network and services, supplied by Ericsson, to customers in
the Bahamas before the end of March 2002, the deadline set
by the Government's Telecommunications Policy 2000.
 |
Customers in and around
The Bahamas will soon have access to AT&T’s nation-wide
network and rate plans like AT&T Digital One Rate,
the flat-rate pricing plan that revolutionized the wireless
industry. AT&T Wireless Services will also offer additional
services in its new markets, including Free2Go Prepaid
Wireless and AT&T Wireless Text Messaging, two-way
messaging services as well as other advanced 3G applications. |
These two alliances demonstrate
the Government's calculation that partnering with established
and technologically strong international telecommunications
providers is the only way to move quickly into a modern e-enabled
environment.
Legislation for E-Commerce
Meanwhile, the Government is
working on legislation to underpin e-commerce, but it is aware
of the risks as well as the opportunities. Finance Minister
Sir William Allen recently spoke about the the need for a
strict regulatory body to govern the process of online trading
based in the Bahamas, saying: 'Borderless e-Commerce in this
virtual environment can also mean uncertainty and risk, creating
new challenges for those charged with regulating the market.'
He said the regulatory body would uncover 'valuable opportunities,
gain competitive advantage, and build shareholder value in
the cyber marketplace, which requires systems that are aligned
and integrated.'
An internal e-commerce working
group within the Ministry of Finance has constructed a business
plan for the government's component of the transition to e-commerce
and the establishment of a government e-business office. Three
pieces of e-commerce legislation are making progress through
the legislative system:
- an Electronic Communications
Act, which will provide amongst other things for the legal
recognition of electronic transactions, electronic contracts,
electronic signatures, etc, on the same footing as their
paper based equivalents and the supervision of intermediaries
and e-commerce service providers;
- a Computer Misuse Act, which
would criminalize certain wrongful interventions involving
computers, their systems, and transmissions via computers,
such as hacking; and
- a Data Protection (Privacy
of Information) Act, designed to guarantee certain rights
to individuals in respect of the use of personal information
collected in relation to them, consistent with international
standards on such protection. This Act would allow the Bahamas
to gain 'safe harbour' recognition from the EU under its
data protection legislation - a vital component of international
acceptability for e-commerce purposes.
The Government is also focussing
on the need to create an e-literate population. An initiative
to promote e-learning is well underway with the commencement
of the computerization of primary schools. Currently a pilot
exercise is taking place to test an interactive instructional
system which integrates the use of computers into the teaching
process to reinforce instruction. Twenty-seven schools across
the Bahamas, both within New Providence and the Family Islands
have been chosen for the pilot, and seven of these schools
are now interactive and are utilizing the Internet for resource
purposes.
Discussions are also underway
with the College of The Bahamas to develop programmes that
will integrate into the existing curriculum, courses designed
to meet the demands and skills requirements of the IT industry
in the short, medium and long-term.
The Government's key objectives
for 2001 include:
- The development of a government
website, which in the first phase will focus on satisfying
informational needs of the business community in particular.
In this first phase also, it is proposed to make available
copies of some government forms which may be downloaded
for use.
- Construction of the on-line
component of the Registrar General's Office which would
enable the incorporation of companies online. It is hoped
that this service may be fully commissioned by the third
quarter of this year. Similar work is being undertaken to
move the filing of customs declaration and the processing
of business licences to the online environment.
The BFSB's E-Business
Working Group
For its part, the Bahamas Financial
Services Board has spearheaded the establishment of a private-sector
E-Business Working Group, with the intent of bringing together
all the diverse groups and companies currently involved in
the industry and to develop a cohesive approach to the long-term
development of e-business in The Bahamas.
"We see ourselves as a catalyst
stimulating a collective effort by the private sector. Such
a collective effort is essential if The Bahamas is to have
an opportunity to participate in the benefits to be found
in transitioning our society to participate fully in a digital
economy" says BFSB's CEO & Executive Director Wendy
C. Warren. She further points out that BFSB is well positioned
as an independent private sector organisation to cause companies
that may typically compete to explore issues and formulate
solutions necessary for industry and national development,
in strong dialogue with government.
Over thirty companies and associations
comprise the E-Business Working Group, representing interests
in financial services, infrastructure development and support,
evolving e-commerce ventures and consultancy services. Barry
J. Malcolm, Executive Vice President of the Grand Bahama Port
Authority, and a BFSB Director, serves as Chairman, with Ms.
Warren serving as Deputy Chairman.
The Working Group presently is
fine-tuning an assessment of e-business in The Bahamas and
plans to present an early report to Government on key issues,
including short to mid-term recommendations of action steps
considered essential for timely industry development. Sectoral
areas targeted for review in this process include Banking
& Finance, Connectivity, Credit Card Clearance, Education,
Fulfillment, Legislation and Regulation, and Promotion.
E-Commerce In Action
Aiming to assist the Bahamas in achieving its goal of making
e-commerce the third pillar of its economy, Emagine (Bahamas)
Ltd recently brought online the first purpose-built data centre
in the Bahamas to house e-commerce businesses. There are already
plans for expansion to larger facilities once the demand for
the centre's services has been established.
The centre houses servers that
can be used for all Internet business including Website Hosting,
ASP Services and Data Processing/Distribution. The centre,
which is located at the heart of the financial services area
of Nassau, can house up to 400 servers.
Andrew Pike, Technical Director,
said in a press release: 'We took everything into consideration,
such as necessary steps to protect against a fire, power outage
or even flooding. Events like these can cause major down time
and nobody wants their server to be down during vital working
hours. One of the most important items in our planning was
security. We are housing servers with vital company information
that cannot be accessed by just anyone so we have implemented
an advanced access control system.'
He continued: 'Many people have
asked why we decided to locate the centre in a high rent area
such as Bay St. The answer is a simple one; Power is the most
important requirement of a data centre, we researched power
outages over the island and downtown has the least power outages
on New Providence. Power outages can be managed with UPS and
generators but why rely on backup power more than you have
to?'
Emagine was established in 2000
and its clients range from financial institutions to law firms.
With the high-speed bandwidth available, Emagine has also
tapped into the offshore market. Mr Pike said: 'With unrivalled
speeds through 2 fibre backbone connections to the internet
and multiple satellite connections, the access speeds are
unbelievable. This combined with our strong financial and
legal sectors puts the Bahamas in a good position for e-commerce
initiatives.' Foreign as well as domestic companies can utilize
the data centre with no need to invest in infrastructure.
In another recent development,
Systems Resource Group (SRG), a leading information technology,
e-commerce and communications solutions provider in the Bahamas,
announced the formal opening of its network operation centre
in Freeport, Grand Bahama.
Through its new operating company
in Freeport, SRG's subsidiary Bahamas On-Line has already
started offering corporate level Internet services to the
Freeport business community. In a statement, Paul Hutton-Ashkenny,
president of SRG, said: 'Until today, Freeport has been starved
of the value added Internet services that have been available
in Nassau. I'm delighted to say that with the commissioning
of our state of the art network operations centre in Freeport
we are able to offer the kind of premium level Internet services
that any sophisticated market now demands.'
The planned expansion includes
full time staff relocation to Freeport, and significant build
out of technology and services, particularly around the Internet
and e-commerce. Marcus Hinsbey, SRG's Chief Technology Officer
who until now has been based in Nassau, has assumed the additional
role of Director, Freeport Services for the company. Mr Hutton-Ashkenny
told the local press: 'The fact that we have relocated our
Chief Technology Officer to Freeport is in no small measure
an indication of the significance we place on the emergence
of e-commerce in the Freeport market.'
Mr Hutton-Ashkenny explained
that a major feature of the Freeport operations will be the
ability to connect businesses that have Nassau and Freeport
offices: 'Clients who have branch or representative offices
in both Freeport and Nassau can now establish cost effective,
reliable communications using our Internet backbone,' he said.
'With the help of our professional services team, businesses
who previously were forced to rely on inefficient voice or
fax communications can now interconnect via the Internet and
both raise productivity, and reduce cost.'
SRG is the Bahamas' sole provider
of turnkey, project managed solutions that encompass business
equipment, software applications, systems and network integration,
consulting services, electronic commerce and wide area communications.
SRG's professional services group is the alliance partner
of KPMG Consulting in the Bahamas, and the Freeport offices
have been co-located on the first floor of the International
Building in KPMG¹s existing office space. Mr Hutton-Ashkenny
remarked: 'We are delighted to be sharing office space with
our alliance partner, KPMG. Their central location and available
office space helped to significantly reduce our time to market.'
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