“I, I, I, going to Panama” – David Rudder
THE LATEST SCANDAL to engage the news is the giant leak of the financial records of Mossack Fonseca in Panama. While it is incumbent on Barbados to demonstrate to the world by whatever means that those who do business with the island are required to disclose who are the ultimate beneficiaries of companies established, the offshore industry has had a serious setback. Legitimate offshore companies will begin to wonder how safe their information is. Illegitimate ones will live in fear.
Our Financial Services Commission, as is reported in the last SATURDAY SUN, does not seem to understand the problem. Foreign people do business in Barbados primarily because they can pay less tax than in their own country. Just look up what is the meaning of “haven”. You can talk “hoosey” about how well regulated you are, and you may require full disclosure of the ultimate beneficiary, but you are still a haven. The whole Caribbean is under scrutiny. The real hue and cry is the avoidance of full taxes. The problem is the exposure of secrecy. Close down all tax havens is the call.
According to the headlines, “millions of documents show heads of state (not Barbados so far), criminals and celebrities using secret hideaways in tax havens”. The clarion call now is to close all tax havens since they allow people to get away with not paying their fair share of tax. The story continues: “Files reveal the offshore holdings of 140 politicians and public officials from around the world, current and former world leaders in the data, including the prime ministers of Iceland and Pakistan, the president of Ukraine and the king of Saudi Arabia.” More than 214 offshore entities appear in the leak, connected to people in more than 200 countries and territories. Thirty-four names are connected to Barbados.
The cache is of 11.5 million records. These records are held in Panama, but somehow the information was first revealed in Mexico. The findings are referred to as the “scourge of tax havens”, as one American university economist is quoted as saying. This is really revealing since New York is one of the biggest tax havens.
Now I am sure that those calling for the closure of tax havens know full well that the Caribbean has had to lean on tax havens for survival for the last 30 to 40 years. This is how it developed. First there was an attack in Europe and the United States, and the sugar industry that had a captive market there was brought down to dwindling proportions. Then there was the American destruction of the banana industry that humbled St Lucia, St Vincent, Grenada and Jamaica as the Americans funded entities in Bolivia and Ecuador. The advice that countries got was to build seaports so that the tourist industry can fill the breach. However, megaships offer everything that could be purchased in port at more attractive prices. People come ashore, but to look around and enjoy the beaches. We improve our offshore industry and canvas far and wide that we offer a low-tax regime and a trainable labour force, good governance, healthy facilities and low crime; now this.
But the attack does now stop there. President Obama, as if he is king of the world, proclaims FATCA. This law requires banks in some countries (including Barbados) to declare to their tax authorities the taxable liability of Americans doing business in Barbados. Failure to do so will incur heavy penalties for the Revenue Authority and the particular bank. On top of that, the corresponding bank in the US incurs a heavy fine. The result of this is that banks in the Caribbean have to beef up with due diligence officers for fear of failing tests when correspondent banks visit. This has “skin up” banking in Barbados.
There is no doubt that the Panama files will increase the vigilance of correspondent banks especially in countries known for tax haven offerings. The toxic mortgages in the US came with large institutions at the centre of the fallout. Banks had to be rescued by the Obama administration. As a result the Patriot Act was given more attention with repercussions all over the world. Banks were then required to have more capital in the balance sheet and recently all banks have been affected, including banks that had nothing to do with the US toxic mortgages. For example, Barbados and the wider Caribbean.
Take it from someone who has worked over the last 25 years in the offshore banking field in the Caribbean and in South America. There is going to be fallout in the industry. I agree with my friend Mr Donville.
• Harry Russell is a banker. Email: quijote70@gmail.com