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Bermuda: Business Environment

Banking Confidentiality

This page was last updated on 5 August 2019.

Developments in 2008-09

In February 2008, the IMF has urged the Bermudian authorities to speed up the process of updating anti-money laundering and counter-terrorist financing laws (AML/CFT), after an assessment suggested that legislation had not kept pace with the FATF Recommendations.

In a report based on its mission to Bermuda in 2006, the IMF concluded that there had been little legislative change since the AML laws and Guidance Notes (GNs) were brought into force in 1998, and the last IMF assessment in 2003.

"Apart from a few changes to the Proceeds of Crime Act (POCA) and the GNs, the only significant new legislation enacted was the Anti-Terrorism (Financial and Other Measures) Act 2004 (ATFA). New draft GNs, prepared soon after the last IMF mission, are still to be finalized and implemented," the report noted.

"The current AML/CFT regime has, therefore, not kept pace with changes in the FATF Recommendations, and the authorities have been slow in implementing a number of key recommendations from the last IMF assessment, particularly with respect to the reporting entities in the financial and non-financial sectors," it added.

While observing that the criminalization of money laundering and terror financing is "generally comprehensive", with offenses applying to both natural and legal persons, the IMF found difficulty in assessing the effectiveness of the legal framework because there have been limited money laundering investigations, and only one prosecution for this offence in the previous five years. Meanwhile, there have been no investigations into suspected terror financing.

However, the IMF took account of the fact that several pieces of new legislation were under consideration by Parliament to address a number of weaknesses in the regime at the time of the mission in 2006, and these were enacted in June 2007. The updates include amendments to the Proceeds of Crime Act, the Criminal Justice International Cooperation (Bermuda Act), and the Financial Intelligence Agency Act (FIA Act) to establish an administrative financial intelligence unit.

"Once implemented, these new laws will address a number of the weaknesses in the AML/CFT legal framework identified by the mission," the IMF observed.

Despite the report's highlighting of shortcomings in Bermuda's AML/CFT laws, the jurisdiction's government welcomed its conclusions, and Finance Minister Paula Cox responded that the island "has nothing to be ashamed of".

"The Government of Bermuda recognises the important international role that it must maintain to safeguard the security and economic wellbeing of Bermudians and people of other nations from the global threat of organised crime and terrorism," Cox said in a speech commenting on the IMF report.

She went on to add that the government "is committed to completing the process of updating Bermuda's AML/CFT regime to reflect the most recent developments in financial crime and the revised international standards from the FATF".

"Our objective in Bermuda is to establish and maintain oversight arrangements that are transparent, consistent with international standards, suited to the risk profile of our industries and effective in encouraging prudent conduct and high standards of corporate behaviour," Cox stated.

In May 2008, Bermuda announced that it would file a submission to a new UK parliamentary investigation into the operation of offshore financial centres.

According to Cox, the Bermuda Finance Ministry's submission will aim to highlight the island's positive role as an international financial centre, and attempt to underscore the effectiveness of Bermuda's 'know your customer' rules and its ongoing commitment to improving its anti-money laundering regime.

"In this instance, Bermuda as a jurisdiction has an open opportunity to make a timely intervention that will underscore the enduring quality of our domicile as a premier international financial centre," she said at the time.

The House of Commons Treasury Committee announced on 30th April 2008 that it would to undertake an inquiry into offshore financial centres, their impact on global business and investment, and the international fight against money laundering.

The inquiry, the submission period of which closed on 19th June, 2008, formed part of the Committee's ongoing work into Financial Stability and Transparency. The inquiry also looked at the role that offshore territories play in UK tax policy, and the Treasury's ability to collect revenue.

The Treasury Committee's launch of the new inquiry was made shortly before the publication of a report by another parliamentary committee, the House of Commons Committee of Public Accounts, which argued that the UK Foreign and Commonwealth Office (FCO) is not doing enough to manage the risks arising from the UK's liability for the 14 Overseas Territories choosing to remain under British sovereignty, particularly in the area of financial regulation.

In November 2008, Financial Secretary to the UK Treasury, Stephen Timms, praised Bermuda for its commitment to the standards that the OECD has set out on issues like tax information exchange and anti-money laundering.

Mr. Timms’s comments came during the Overseas Territories Consultative Council (OTCC) meetings in London that month.

After his presentation to leaders of the Overseas Territories, Timms said: “If on tax information exchange everyone had made as much progress as Bermuda the world would be better off.”

“The UK Financial Secretary’s comments are a strong endorsement of the work we’re doing as a government,” said Bermuda Premier Ewart F. Brown, “and the stewardship of the Finance Minister (Paula Cox) who has dedicated a lot of her focus to this issue. Now more than ever it is important for the country to know its economy is directed by strong and steady hands.”

Cox commented: “We’re not stopping here. The relevant personnel recently returned from Europe where more critical negotiations are underway that will further enhance Bermuda’s reputation in the finance arena.”

Following the conclusion of the G-20 summit at the beginning of April 2009, Finance Minister Paula Cox released a statement regarding Bermuda’s placement on the OECD’s 'grey list' of uncooperative territories. The OECD’s list features Bermuda in the second tier of compliant territories who have not substantially implemented the OECD standard.

She expected, however, that Bermuda would be in the top tier of ‘fully compliant’ countries by the end of 2009.

Bermuda had at that point concluded three Tax Information Exchange Agreements following its adoption of OECD principles of transparency and information exchange on May 15, 2000, with the United States, Australia and the United Kingdom.

Cox said that although Bermuda had not yet achieved the benchmark 12 TIEAs required to be placed on the OECD’s list of fully-compliant jurisdictions, eight were in the pipeline with the seven Nordic countries and New Zealand. “A TIEA with Germany is planned for the near future, bringing Bermuda's total to 12 in fairly short order. At least two more TIEAs are expected to be signed by the end of this year or early next year,” reassured Cox.

"Based on our understanding that the OECD standard was very recently set at 12 treaties, Bermuda will have met the standard before the close of 2009 and most probably ahead of the next G20 Summit Meeting which is scheduled for later in the year,” Cox concluded.

New Zealand and Bermuda signed their bilateral agreement providing for the full exchange of information on criminal and civil tax matters between the two countries on April 16, 2009.

"I welcome the signing of this important agreement with Bermuda, which was one of the first international finance centres to engage in partnership with OECD countries in the worldwide effort to achieve greater transparency and co-operation in tax matters," said New Zealand Revenue Minister Peter Dunne.

"The TIEA will enable tax authorities to access information about any persons who are seeking to evade payment of tax and will also help disclose assets that have not been reported in their home country," he added.

Information to be exchanged includes information on beneficial ownership of companies in the whole ownership chain; settlers, trustees and beneficiaries of trusts, and information held by banks and financial institutions.

"Recent weeks have seen major developments worldwide in tax co-operation as an increasing number of financial centres have announced that they will adopt OECD standards for exchange of information," Dunne went on.

"These developments are expected to further the negotiation of an extensive network of exchange of information arrangements, making it increasingly difficult for people to hide income and assets offshore. Bermuda agreed to work with New Zealand towards the conclusion of a TIEA long before the recent developments. I congratulate Bermuda on its progressive stance, and look forward to strengthening the spirit of goodwill that has developed between our two countries," he concluded.

Jeffrey Owens, Director of the OECD’s Centre for Tax Policy and Administration, welcomed these developments. “Bermuda is an important financial centre that played a constructive role in developing the standards now endorsed by all major financial centres," he said. I am very pleased that it has taken another significant step in implementing the standards. I know that it is determined to implement the standards fully and that other agreements will follow shortly.”

Developments in 2009-10

In January 2010, the Bermuda government announced that it had been chosen as the host nation for next year's meeting of the Organization for Economic Cooperation and Development's (OECD) Global Forum on Transparency and Tax Information Exchange.

The announcement was further recognition of Bermuda as a leader amongst offshore territories in the field of tax information exchange, having concluded 18 Tax Information Exchange Agreements since being temporarily placed on the OECD "grey list." Bermuda was chosen as the host nation following a vote by members of the Steering and Peer Review Groups.

Despite initially being placed on the grey list of territories that had not yet substantially implemented the internationally agreed standard on tax information exchange, Bermuda received recognition by the OECD through its placement on the white list on June 8, 2009, and was then elected to the position of Vice Chair of the Steering Group of the new Global Forum at its 5th Meeting in Mexico City on 1-2 September 2009.

A statement from the Bermudian government noted that it marked another significant milestone for the territory, one of a number of significant international achievements for the island. Commenting on the decision, Bermuda’s Finance Minister, Paula Cox, observed: “Bermuda is honoured to host the 2011 event particularly for a small offshore jurisdiction such as ours. The Ministry of Finance officials who first indicated Bermuda’s desire to host the Forum and then represented Bermuda so remarkably during the voting process are to be commended."

Cox added: “This meeting will probably be the first opportunity for the Global Forum to fully discuss the effectiveness of the OECD’s Peer Review process and the outcomes of those reviews in terms of our agenda of promoting the adoption of international standards of transparency and exchange of information."

"The 2011 meeting will be the first Global Forum meeting from which Phase 1 Peer Review will be substantially completed and many Phase 2 reviews will also have been undertaken. Further, this meeting is expected to start the process of exploring the role of the Global Forum in providing assistance to those who are not fully compliant as well as other issues around the interests of developing countries meeting standards in tax transparency and information exchange.”

Bermuda continued to sign TIEAs during 2010, and in June Bermuda and Indonesia concluded negotiations towards a TIEA, the text of which incorporates the Organization for Economic Cooperation and Development (OECD) standard on transparency and tax information exchange in civil and criminal tax matters.

The TIEA is expected to be signed later this year after both countries’ internal approval processes have been completed.

Negotiations took place at the Ministry of Finance, in Hamilton, in the week of June 7, at which time discussions on a number of issues of common interest also took place.

Welcoming the agreement, Bermuda’s Minister for Finance, Paula Cox, said: “I am delighted today for Bermuda to [initial] this agreement with the Republic of Indonesia. Indonesia has the remarkable distinction of having outperformed its regional neighbours and joined China and India as the only G20 members posting growth during the recent financial crisis. Together, Bermuda looks to the Republic of Indonesia as a key strategic relationship we are keen to foster.”

“Indeed, as the negotiations for this TIEA were held in person in Bermuda, a valuable opportunity was provided for the Indonesian Ministry of Finance to get a more rich and fulsome view of Bermuda, our strong regulatory regime, and our success as a well-established and well-regarded financial centre.”

“Currently, there are 62 entities in Bermuda with an Indonesian interest, and we expect this number to grow exponentially as our economic and political ties with Indonesia are strengthened and deepened. This agreement is a significant step forward both in enhancing business ties and investment opportunities between Bermuda and Indonesia but it will also facilitate Bermuda expanding our offerings in the realm of Islamic structured finance, including both conventional and sharia investment funds. It is likely that the global market for Islamic insurance, or Takaful, will continue to grow, opening exciting possibilities for Bermuda reinsurers.”

Bermuda currently has 21 signed agreements with provisions for the exchange of information for tax purposes. Bermuda has signed TIEAs with the United States, Australia, the United Kingdom, New Zealand, the Nordic countries (Sweden, Norway, Finland, Denmark, Iceland, Greenland, the Faroe Islands), the Netherlands, Germany, Ireland, the Netherlands Antilles, France, Mexico, Aruba, Japan and Portugal. Further, Bermuda has a double taxation agreement with Bahrain.

Bermuda’s proposed TIEA with the Republic of Indonesia includes all standard means to ensure due process is followed in tax information requests to Bermuda, including, for example, provisions to protect the confidentiality of information provided and provisions related to protecting legal privilege. The agreement also ensures that requests for information from Indonesia are relevant to tax investigations being conducted by Indonesian authorities.

 

 

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