MANY CARIBBEAN PEOPLE, including Barbadians, admired former United States (US) President Barack Obama, although there is a view by some that his eight years in office did not result in meaningful support for the region.
Beyond its apparent indifference, if there was one thing the Caribbean did not like about the Obama administration it was what some saw as its disregard for how important the international business and financial services sector is for the islands.
The controversial introduction of the Foreign Account Tax Compliance Act (FATCA), its impact on that sector, and the related loss of correspondent banking relationships is generally seen in a negative light here.
FATCA was passed as part of the US HIRE Act, and, the US Internal Revenue Service said it “generally requires that foreign financial institutions and certain other non-financial foreign entities report on the foreign assets held by their US account holders or be subject to withholding on withholdable payments”. “The HIRE Act also contained legislation requiring US persons to report, depending on the value, their foreign financial accounts and foreign assets,” it added.
From 2010, when its planned introduction was announced until now, FATCA has been controversial.
The US views FATCA as an important measure to track tax dodgers, but American taxpayers who have bank accounts in Barbados and other countries view it as an invasion of their privacy.
International business domiciles like Barbados have been caught in the middle of the storm, since the higher risks emanating from the increased scrutiny meant that some banks in the region have lost the vital correspondent banking relationships they need with counterparts in the US.
In late 2014, Barbados and the US signed an intergovernmental agreement (IGA) to give effect to FATCA. Minister of International Business Donville Inniss said the agreement was not a deviation from Government’s belief that “businesses and investment must be allowed the flexibility to thrive”. He saw it as an effort to strengthen the regulatory framework.
Earlier this month, Antigua and Barbuda’s Parliament approved that country’s enforcement of a similar FATCA IGA with the US. Like Barbados, it would affect Americans with at least US$50 000 in foreign bank accounts.
Enforcement of IGAs also meant that nationals from Barbados and other islands would be subjected to similar scrutiny.
Prime Minister Gaston Browne was reported as telling Parliament the legislation was not beneficial to Antigua and Barbuda, but the country had agreed to comply.
“What seems to be happening is every time there is a meeting of the G20 leaders, they drink their wine; they have fun and then they come up with these initiatives as to how they can stop the flow of capital from the respective countries, and almost invariably they look to countries in the Caribbean, even in most instances we don’t have a lot of deposits,” he said.
Trinidad and Tobago’s effort to have its own agreement approved has generated major controversy in recent weeks. Leader of the Opposition Kamla Persad-Bissessar recently wrote new US President Donald Trump and asked if his administration intended to nullify FATCA.
In her January 13 correspondence, the former prime minister reminded Trump that the Republicans, on whose ticket he was elected, opposed FATCA and had started efforts to repeal the legislation.
Others weighing on the issue recently included the Caribbean Association of Banks. It “remains concerned about the number of Caribbean countries which do not yet have IGAs in force” and again called for Caribbean countries “to enact the necessary legislation for the implementation of FATCA”.
“Failure to do so, has far-reaching implications for banks in terms of an increase in sovereign risk and its impact on their ability to conduct business,” it warned.
The problem for the Caribbean is that so long as FATCA remained in force, the correspondent banking problem would not be resolved.
In an editorial on the issue recently, the Jamaica Observer observed that “FATCA adversely affects all international financing provided by correspondent banks. Adverse impacts include choking international investment flows, trade financing, transfers of remittances, debt servicing, transfers of profits and royalties”.
“Some US banks have either withdrawn or restricted some of these services to 16 banks in the Caribbean inspite of FATCA compliance by Caribbean jurisdictions.
There have been meetings between the US Treasury and Caribbean ministers, but the region feels there is insufficient empathy,” it added, while calling for Trump to repeal the law.
