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The Bahamas - Virtue Rewarded

By Jeremy Hetherington-Gore
13 May, 2002

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.

Paul O'Neill US
Treasury Secretary

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.'

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:

  • International Business Companies Act 2000
  • Financial Transactions Reporting Act 2000
  • Financial Intelligence Unit Act 2000
  • Central Bank of the Bahamas Act 2000
  • Banks and Trust Companies Regulation Act 2000
  • Financial and Corporate Service Providers Act 2000
  • Criminal Justice (International Cooperation Act) 2000
  • Dangerous Drugs Act 2000
  • Proceeds of Crime Act 2000

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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