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No hiding place for Caribbean tax havens as world re-regulates
Published on June 12, 2009Email To Friend    Print Version

By Alastair Macdonald

(Reuters) -- Caribbean tax havens want to be seen as part of a solution to the global financial crisis and refute complaints they offer loopholes through which over-risky, or even fraudulent, businesses can undermine world markets.

Several sent delegations to the annual conference of the International Organisation of Securities Commissions (IOSCO) in Tel Aviv this week, where they made or renewed pledges to common standards in regulating investment firms, banks and funds that seek low taxes and other advantages in offshore centres.

"We want to be a part of the solution to the world's problems," said Langston Sibblies, deputy managing director of the Cayman Islands Monetary Authority, after the country which is one of the most high-profile tax havens formally joined IOSCO, a body that is pushing for tighter global regulation.

"We try to maintain the highest standards of regulation," said Jacqueline Wilson, director, legal and enforcement, for the Financial Services Commission in the British Virgin Islands.

"We are refining our processes and trying to make the system better," she added, noting that as a member of IOSCO the agency had long cooperated with international regulators, including investigators probing abuses of tax and other legislation.

Caribbean states are already feeling the pinch of the general downturn in global markets, with those with big finance industries reporting job losses and concerns about the new US administration's push to cut down on American businesses and individuals avoiding US taxes by using offshore facilities.

"Jurisdictions like the US who want to tighten up loopholes in their tax regime are entitled to do so. We will have to cope with whatever changes the Obama administration invokes," said Hillary Deveaux, executive director of the Securities Commission of the Bahamas.

"But we believe we have a very, very sophisticated financial services sector. Our legislation is compatible with international standards," he said, adding that legislative moves in the works would bring the country into compliance with both IOSCO rules and OECD standards aimed at curbing tax evasion.

"We have certain obligations to the global community which we are prepared to oblige," said Deveaux, adding that an accord to exchange tax information with the United States would soon be followed by one with Canada and then with 10 other rich nations.

That would bring the Bahamas up to the dozen such treaties with OECD members demanded by the club of wealthy economies before it will to remove countries from the opprobrium of its "grey list" of tax havens who do not cooperate with it.

"It's very important for us to comply with the international initiatives. Currently we are in the grey area," Deveaux said, noting the "healthy competition" among offshore centres.

Cindy Scotland, managing director of the Cayman Islands Monetary Authority, said the government there hoped to secure their dozen OECD tax information sharing accords within weeks:

"The government is taking every action necessary to ensure they are taken off the grey list," she told Reuters.

While offshore centres need to maintain the low taxes and light bureaucracy that attracts business to remote destinations, they are keen to avoid disapproval in the world's big trading places that could deter financiers from using their services.

Scotland saw "absolutely no risk" of business deserting the Cayman Islands, despite the new international drive for heavier regulation and closer cooperation among major jurisdictions.

"There's always an issue of perception," she said of efforts by Cayman officials in the United States to respond to criticism over tax avoidance. "We win some and we lose some." ] "There's the distinction between tax evasion and tax avoidance," she said. "Cayman certainly doesn't encourage tax evasion. That's not what we're about. The fact we have no tax doesn't make it illegal. I think it's more a moral issue."

For the Bahamas, Deveaux said the push for more regulation and US criticism over offshore tax regimes could have an impact on a financial sector that contributes 15 percent, second only to tourism, to the island state's national income.

"We feel that it will be a threat to some extent but it's something that we have to abide by," he said.

"There's a thin line between tax evasion and tax avoidance and some jurisdictions pretty much look at tax avoidance almost as a criminal act. Obviously we don't believe that to be the case. But we expect to abide by all international standards."

As offshore centres jockey for business in a shrinking financial world, Deveaux remained upbeat: "It's a healthy competition, but there's business to go around for all of us."
 
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