Bahamas News

Offshore finance centers (OFCs) like The Bahamas are seeking to shed their image as places wealthy individuals use to evade taxes, and according to some, the change in image is succeeding.

It’s a trend marked by jurisdictions promoting themselves as “well-regulated” and “transparent,” whereas the image of the OFC used to be almost exclusively tied to impregnable bank secrecy laws and regimes.

Former governor of the Central Bank of The Bahamas James Smith told the Journal recently that the times are changing, and that The Bahamas financial services sector – once a model of bank secrecy – is now among the leaders in touting its new regulatory regime.

Mr. Smith, who served as a Senator and State Minister for Finance in the Christie Administration, said the change is meeting with some success.

UK Wealth Bulletin, an online news and analysis service published by London-based eFinancialNews for the global wealth management industry, quoted Ernst & Young advisers, who reported an 11 percent growth in cross-border funds where tax had been declared, and a two percent reduction in undeclared capital.

Ernst & Young Head of Private Banking Ian Woodhouse said, “Everyone is tightening up. Traditional offshore centres are moving away from being tax havens towards being tax neutral, driven by government and client demands for better regulation.”

The Financial Action Task Force, an offshore regulator based in France, put together a list of 23 so-called non-cooperative countries and territories in 2000, including The Bahamas, the Cayman Islands, Lichtenstein and others.

Mr. Smith concurred with the Ernst and Young advisors’ conclusion that the effect of the so-called “blacklist” led to a new regime of self-regulation by the various offshore financial centers.

Jurisdictions were listed because they showed an unwillingness or inability to provide information relating to bank account and trading records commonly used in money laundering.

They were removed from the list when they supplied these details – their removal implied an assumption that the data they have supplied is correct. The Organisation for Economic Co-operation and Development (OECD) is reviewing levels of co-operation.

In October 2006, the FATF declared all offshore locations above board.

Phil Cutts, director of Royal Bank of Canada’s investment management unit, said the credit crunch was working in favour of the UK as there was a general flight to quality.

He said, “Clients are more nervous about their money and feel more comfortable speaking to a relationship manager in Jersey than one in The Bahamas.”

Gibraltar has the advantage of being in the European Union and therefore offers passporting through the union, but its tax regime is hanging in the balance pending European Court of Justice approval.

Malta and Cyprus can also trade on EU membership. They have low-tax regimes and are largely used as conduits for cross-border investments through tax treaty networks. Luxembourg and Ireland are primarily used for funds approved under European Union regulations.

Long-standing European jurisdictions such as Switzerland, Liechtenstein, Andorra and Monaco have competitive tax rates and large asset management bases.

Switzerland is often the first port of call for non-resident Asians seeking a European base, although erosion of secrecy is starting to change the picture.

Singapore, Hong Kong and Dubai are growing as offshore destinations, largely for structuring investment in and out of the Asian markets but increasingly for wealth management.

There has been a steady rise in business going onshore, partly as a result of tax amnesties. Woodhouse believes in a few years tax havens will cease to exist.

He said: “Tax havens grew in the post-World War Two era of political instability and the Cold War, where wealthy individuals needed somewhere safe to keep their money.

“They are less relevant in today’s environment and clients are gravitating to those centres that have made the transition.”

However, money is still moving into offshore funds. According to the most recent Merrill Lynch World Wealth Report, financial wealth among high net worth individuals is expected to reach $51.6 trillion (€32.8 trillion) by 2011, growing at an annual rate of 6.8%.

Source: Bahama Journal