BY TOSHEENA BLAIR, The Bahama Journal
As a result of the extension of this country’s Qualified Intermediary status by the U.S. Government, local financial institutions no longer have to worry about losing business to competitors, according to leading financial experts.
Since banks improved their “know your customers” rules in response to the country’s blacklisting by the Financial Action Task Force, the United States has granted financial institutions a four-year extension, allowing their non U.S. investors in American stocks and bonds – to retain their anonymity without American tax collection agencies withholding 30 percent of their income.
Experts say this is good news for a country that depends so heavily on the financial services sector.
According to Ian Fair, Chairman of the Bahamas Financial Services Board, being a Qualified Intermediary not only makes the Bahamas a more attractive financial service center, but allows it to maintain its competitive edge.
“Without it there is a substantial impediment in investing into the United States for clients,” Mr. Fair said. “Many, many of our clients – irrespective of where they are in the world – do invest in the New York Stock market in general and the U.S. in general, because that’s the biggest market in the world.
“We needed the Qualified Intermediary status because every other country in the world which we financially compete with has that qualified jurisdiction status and if we didn’t have it we would be at a serious, competitive disadvantage.”
The Ministry of Finance said in a press statement: “The grant of the six-year agreement reflects the U.S. recognition under its Tax Information Exchange Agreement, signed with the Bahamas, that the Bahamas know your customer rules are acceptable for purposes of the Qualified Intermediary regime.”
However, one economist still maintains that the international agreement allowing for the exchange of civil and criminal tax information is “unconstitutional.”
Although Dr. Gilbert Morris agrees that the Bahamas should have very strong know your customer rules, he believes a problem arises when the government enacts financial services legislation at the behest of a foreign government, which is outrageous to longstanding bank clients.
“When the Q.I. came into being I made the point that all over the world, these regulations would not stand up to constitutional challenges and I think I have been proven right.
“We have had cases in Canada, the House of Lords (U.K.), and the Supreme Court in Bermuda. In all these places government have
ﾠﾠbeen hammered and judges have chastised the Attorneys General for being too aggressive and forgetting their responsibility to the privacy of citizens,” he said.
In January, former Finance Minister Sir William Allen and Treasury Secretary Paul O’ Neil, signed a new agreement allowing for the exchange of information on tax matters between the United States and The Bahamas.
At that signing, Mr. O’ Neil noted that The Bahamas left no doubt that it should be counted among the financial centres of the world “that are committed to upholding international standards and simply will not tolerate the abuse of their financial institution for illicit purposes.”
The Tax Information Exchange Agreement is aimed at discovering all transactions conducted by U.S. citizens, who are guilty of tax evasion.
According to the United States Treasury Department, Bahamian financial institutions that wanted a Q.I. Agreement with the Internal Revenue Service would be granted such an agreement for six years.
The Treasury Department is also notifying those institutions that were previously granted interim Q.I. status for a two-year period, of their extension to a full six-year period.
There is even eligibility for renewal at the conclusion of the six-year term.
But Dr. Morris feels the Bahamas is making a big mistake. He believes
According to the United States Treasury Department, Bahamian financial institutions that wanted a Q.I. Agreement with the Internal Revenue Service would be granted such an agreement for six years.
The Treasury Department is also notifying those institutions that were previously granted interim Q.I. status for a two-year period, of their extension to a full six-year period.
There is even eligibility for renewal at the conclusion of the six-year term.
But Dr. Morris feels the Bahamas is making a big mistake. He believes that know your customer rules should remain with local banks, with other regulatory bodies obtaining a court order before that information is released to them.
“In our system of law, individuals have rights and governments can not have access to an individual’s private information without that individual’s consent, or it’s in pursuit of a criminal matter. The individual must be accorded the rights of innocence until proven guilty,” Dr. Morris said.
Other Caribbean countries whose know your customer rules have been approved include Antigua, Barbados, Bermuda, British Virgin Islands, Cayman, St Lucia, and Turks and Caicos.
ﾠ
