Bahamas: A Leading International Financial Centre

An Overview

The 90s have brought a refreshing wind of change to all aspects of the economy of The Bahamas. While new hotel developments throughout the country provide the most striking evidence of this extensive national growth, there are many factors that have brought about a renewed confidence and interest in The Bahamas as a leading international business center.

Construction is at an all-time high in both of the main economic sectors – hospitality and financial services. Direct investment of more than $2 billion has been committed in the past two years. This is significant for an economy with a GDP of $3.4 billion.

The private sector of The Bahamas, with the engagement of BFSB, has played an increasingly important role in advising government and coordinating initiatives for promotion and development of the industry. A unique joint venture between government and the private sector and established in 1998, BFSB is a prime example of how The Bahamas has adopted a cohesive, multi-disciplined approach to the increasingly complex issues facing the financial services industry globally.

The more than 150 member firms of BFSB represent all sectors of the country's financial services sector including banks; private banks and trust services; mutual funds and capital markets; investment management services; accountants and lawyers; insurance and other related industries.

Not only does the board promote the jurisdiction, it ensures The Bahamas responds effectively to the changing needs and demands of the global financial services marketplace to remain competitive.

It also draws a clear distinction between promotion and regulation, the latter, in respect of financial services, being the sole responsibility of the Central Bank and the Securities Commission of The Bahamas.

Looking to the long term growth and development of the industry, the government and industry strongly endorse responsible legislation as a fundamental element of professional practice within the jurisdiction.

The Bahamas, in the scope and quality of services offered, has positioned itself not as an offshore tax haven but as a highly competitive, low tax international financial centre. It has enacted robust legislation which jealously guards and protects its reputation and recognizes its responsibility as a major financial centre.

As an independent nation, The Bahamas has enjoyed a unique ability to establish legislation that meets the requirements of an increasingly sophisticated financial services marketplace. But, unlike many centers, which are subject to legislative change determined outside their borders, The Bahamas can and does chart its own course.

The Bahamas reinforced this position when it advised the OECD in the summer of 1999 that it is prepared to continue to exchange views on the Report On Harmful Tax Competition with the understanding that OECD fully recognizes the sovereignty of the participants like The Bahamas and that any remedies sought are universal and non-discriminatory.

In its statement to the OECD The Bahamas expressed the view the Report lacks balance and discriminates against countries whose tax regimes are unilaterally declared by the OECD to be harmful.

The Bahamas also expressed concerns about the inconsistency of some of the conclusions in the Report and the OECD's heavy-handed approach to dealing with legitimate, properly regulated international financial centres.

The Bahamas said it is determined to safeguard the legitimacy and reputation of its international financial sector. " International financial services now account for such a substantial proportion of the Bahamian economy that we will take whatever steps necessary to ensure its integrity and recognize any balanced, non-discriminatory initiative whose objective is the sustainability of a reputable financial services sector."

As a sovereign, mature and responsible international centre with more than 60 years of experience in international financial services, The Bahamas has been careful to develop a regulatory and legislative infrastructure that will sustain a sound financial services environment, while allowing it to progress at the same time.

By example The Bahamas was the first international financial centre to criminalize money laundering and recently amended the original legislation to provide for the registration of confiscation orders in drug trafficking cases. The Government is also establishing a Financial Intelligence Unit to investigate and prosecute money launderers.

The Bahamas told the OECD that it would find the application of the term "harmful tax havens" in response to The Bahamas as deeply offensive. The Bahamas has not had throughout its entire history a direct tax on income and capital and does not hold the view that such taxes are inherently a natural component of an appropriate tax regime. "The Bahamas did not come, by experimentation or contrivance, upon the tax regime that it now has in place. We therefore do not accept that on the basis of our historic and established tax structure alone that we should be categorized as a harmful tax haven," the statement said.

The OECD was told that while a financial centre despite its best efforts at screening out criminality might be used for illegitimate purposes, that does not make it illegitimate. " It is only when a centre is not clearly taking appropriate action to eliminate and eradicate conditions for improper use of its services that its integrity comes into question. Onshore financial centres may also be used for illegitimate purposes as we discovered earlier this month at the Bank of New York. But this fact alone has never been sufficient to put their legitimacy in doubt".

The Bahamas also told the OECD that the desire of some jurisdictions to gain access to confidential banking information in the pursuance of investigations of crimes within their jurisdictions must be addressed in two parts: (1) assistance with criminal cases and (2) assistance in tax cases. The Bahamas said it is committed to providing full and complete legal assistance to OECD States as well as other countries in cases involving fraud, theft, embezzlement, money laundering, drug trafficking, corruption and other types of serious criminal activity. However since income tax has never existed in The Bahamas, it is unwilling and unable to provide assistance in income tax cases unless such cases involve an activity that is now a crime in The Bahamas.

A most important development now occurring in The Bahamas is the launch of the Bahamas International Securities Exchange (BISX). The Bahamas has spent the past three years evaluating the operations of other exchanges and seeking advice from leading experts in the securities area.

BISX will have three goals.

1. Provide a local capital market for Bahamian companies to raise money and for Bahamian individuals to invest their funds.
2. Enable international companies to have secondary listings and other financial service products in The Bahamas, especially those from Latin America, China and Eastern Europe.
3. Mutual fund listings of convenience.

BISX will have two tiers. The domestic exchange will be closed to international investors until the market is robust enough to handle the greater volatility of international money flows. The international tier, which will include international companies, listed exclusively on BISX as well as mirror listings for those with other home exchanges.

The Bahamas plans to introduce a new product called a Bahamas International Depository Receipt, or, BDR, modeled on the very successful ADR. It will be marketed to small and medium–size companies in emerging markets which cannot justify the cost and listing requirements associated with large exchanges in other financial centres.

Taken together these developments reaffirm the commitment of The Bahamas to providing a leading edge financial services setting for international businesses. Innovative and responsive legislation, the collaboration of government and private sector, and the country's sound infrastructure have combined to form the most competitive, business-friendly center in the international financial services industry.

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