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Editors’s note:Sir Ronald Sanders is a business executive and former Caribbean diplomat.

INTERESTING READ:It is a classic case of “passing the buck”, but Caribbean jurisdictions that offer offshore financial services will be the victims of lax regulation by the OECD countries – the UK and US in particular. 

Britain’s Prime Minister, Gordon Brown, and the US Senate and Congress have both now shown their intention to close down offshore financial services which they call “tax havens”.

Speaking on March 4th to the US Congress Brown asked: “’But how much safer would everybody’s savings be if the whole world finally came together to outlaw shadow banking systems and outlaw offshore tax havens?”   Implicit in what he said is that so-called “tax havens” are a threat to people’s savings even though it is poor banking and investment practices and inefficient regulation in the US and UK in particular that led to the present global financial crisis.

So, Mr Brown has passed the buck and has fingered jurisdictions that offer offshore financial services as the culprits. 

Equally, as I predicted some weeks ago, the “Stop the Tax Havens Abuse Act” introduced in the US Senate two years ago by then Senator Barack Obama and Senator Carl Levin, was reintroduced in the US Congress the day before Brown made his statement. I had hoped that the re-introduced Act would have removed the names of countries that were listed as “tax havens”.   No such luck.  Not only did the Act retain all the countries, it added three new very onerous sections for liability.  The intention is clear – if banks and other financial institutions in these jurisdictions are going to continue to operate, they will do so only at great expense.  Few will be able to afford the additional costs of compliance.

The Caribbean jurisdictions named in the US Act are: Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Dominica, Grenada, St Kitts-Nevis, St Lucia, St Vincent & The Grenadines and Turks and Caicos. When Jamaica, Trinidad and Tobago and Guyana begin their international financial services for which they have all legislated, they can expect to join the list.

It seems irrelevant to the US Congress that some of these countries have Tax Information Exchange Agreements (TIEAs) with the United States under which the US can request – and are obliged to receive information – concerning tax inquiries.  To my certain knowledge Antigua and Barbuda, Barbados and the British Virgin Islands have such agreements.  Others may also have.

But, if the US Act is passed in its present form, it seems that TIEA is not enough and the US Treasury Secretary will be given extreme powers to act against jurisdictions that he deems to have “ineffective information exchange practices”.     

The G20 countries – none of which are jurisdictions considered as “tax havens” – will meet in London on April 2nd and on their agenda is the matter of “tax havens”.  The discussion and its conclusions will take place without the benefit of any of the affected jurisdictions at the table.  Among the missing “tax havens” will be all those I have named earlier from the Caribbean plus Switzerland, Luxembourg, Singapore, Malta, Cyprus, Panama, Hong Kong and a few others in Europe and the Pacific.  

It is a curious kind of international democracy that allows rules and punishment to be created by a few – and imposed on the many – simply because the few have the power to do so.

It is even worse that the few are yet to admit that it is lax supervision and regulation in their own jurisdictions that has caused the present global financial crisis.  They are also yet to demonstrate that they are taking effective action within their own systems to correct and improve their deficiencies. 

In his speech to the US Congress, Brown said, “Let us agree in our G20 summit in London in April rules and standards for proper accountability, transparency, and reward that will mean an end to the excesses and will apply to every bank, everywhere, all the time”.

No one would quarrel with that position.  Indeed, in light of two events in the Caribbean – surrounding CLICO in Trinidad and Tobago and holdings of R Allen Stanford  in Antigua – there would be few who would not agree wholeheartedly with the need to tighten up rules for banks.  But, Mr Brown did not mention regulation which is sorely in need of improvement in Britain and the US.  Instead, he focused on “outlawing” tax havens.

During the week all this was taking place, along with three other persons, I was asked by a publication in Washington, Inter-American Dialogue, whether the civil complaint by the US Securities and Exchange Commission against Stanford “shows a need for stricter regulation of financial services companies in the Caribbean?  The following was my published reply: 

“The matter of the SEC prosecuting a civil suit for alleged fraud against R Allen Stanford points to the absolute need for stricter regulation not only in Antigua and Barbuda but also in the United States.  Court documents about this matter claim that the alleged fraud relates to the sale of products by the Stanford International Bank (SIB) in Antigua and by the Stanford Financial Group in Houston.  The regulators in both jurisdictions are, therefore, culpable.

While the smallness of its resources does not absolve the Antigua regulators of responsibility, the vastness of the resources available to the US regulators condemns their failure to recognise the danger signals in the operations at a much earlier stage. The Stanford allegation should not be used to stain Caribbean regulators while ignoring the fact that deficiencies also existed in the US system.

No Caribbean jurisdiction should wish to remain in the business of hosting companies that offer financial services without strong, relevant and appropriate legislation and supervision that protects the interests of customers.  In this regard, independent statutory bodies that are free of political interference and are overseen by bipartisan committees drawn from the legislature should be established to raise their credibility and give confidence to domestic and international clients”.

My point was that the alleged Stanford fraud occurred as much in the US as it did in Antigua and Barbuda.  So, while there is a need for stricter and fearless regulation of financial services in the Caribbean, there is also such a need in the US.

Unfortunately, while the G20 meets in April to make their pronouncement, the so-called “tax haven” countries have made no attempt to meet to devise an appropriate response.  The countries of the Caribbean Community and Common market (CARICOM) have no excuse for not doing so, and if there any among them who feel that they are capable of stopping this juggernaut alone, they should think again.  Caribbean countries should act on this now and together or see their offshore financial services wither.

What are your views? Are Caribbean countries with off-shore financial services and CARICOM responding effectively? Share your comments and Let’s start the debate.

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