Madam Speaker,
I rise today on behalf of the people of Cat Island, Rum Cay, and San Salvador in support of a compendium of Bills to be debated in this House today to strengthen our financial services sector and secure our standing as a leading financial services jurisdiction.
We have a total of six Bills before us:
The Commercial Entities (Substance Requirements)(Amendment) Bill, 2023, also known as CESRA, and The Register of Beneficial Ownership (Amendment) Bill, 2023, also known as ROBO, collectively address remaining reforms to become compliant with economic substance reporting standards to ensure that we are off the non-cooperative list for the OECD and EU.
Both bills strengthen our anti-money laundering and counter-terrorism financing framework.
The Exempted Limited Partnership (Amendment)(No. 2) Bill, 2023, The International Business Companies (Amendment)(No. 2) Bill, 2023 and The Investment Condominium (Amendment) Bill, 2023 reflect innovative structuring opportunities in response to certain tax and structuring changes in key markets, specifically Brazil. They reflect innovations that are keeping The Bahamas at the cutting edge in the global financial services landscape.
Finally, the Financial Intelligence Unit Bill (2023) modernises our Financial Intelligence Unit according to today’s best practices and standards to provide adequate oversight and financial investigation rigour to ensure compliance with international financial services standards and best practices.
Madam Speaker,
The Commercial Entities (Substance Requirements) (Amendment) Bill, 2023 otherwise known as CESRA seeks to amend the Commercial Entities (Substance Requirements) Act, 2023, which, in turn, repealed and replaced the Commercial Entities (Substance Requirements) Act, 2018.
Madam Speaker,
Given the short interval between this amendment and the last, I know the question may be asked, “Why are we attempting to adjust CESRA so soon after it was brought into force?” The short answer is that we are committed to reflecting the highest standards in our financial services industry.
Madam Speaker,
The Bahamas fell within the scope of the Organisation for Economic Co-Operation and Development’s Forum on Harmful Tax Practices – the FHTP – in December 2017, when we became a member of the OECD’s Inclusive Framework on Base Erosion and Profit Shifting – known as “BEPS”.
The Bahamas agreed to implement the BEPS four (4) minimum standards, one of them being Action 5 Countering Harmful Tax Practices and Preferential Regimes.
The Bahamas is now monitored by the Forum on Harmful Tax Practices ( the “FHTP”) with respect to the implementation of the global standards for economic substance reporting.
This is for all activities related to financial and other service activities, such as, banking, insurance, fund management, financing and leasing, headquarters operations, shipping, and distribution or service centres. Intellectual property assets and patents are also included in this grouping.
What this means is that we are required to adhere to the highest international standards when it comes to the provision of these services within our borders whether it involves a resident or non-resident entity.
Where there are issues that emerge, we have committed to addressing them directly in recognition of our commitment to transparency and compliance. This includes the requirement that all companies operating in The Bahamas demonstrate adequate presence and conduct business activity in The Bahamas as the jurisdiction in which they are tax resident in fulfilment of economic substance requirements. This is intended to curtail tax avoidance efforts by any entity.
As you know, Madam Speaker, the issue of Economic Substance Reporting has been going on for some time. Shortly after taking office in September 2021, we were informed of the EU’s intentions to add The Bahamas to its blacklist for concerns related to economic substance reporting.
As we sought to address the matter, a number of issues emerged regarding the previous implementation of an Economic Substance Reporting Process that could not meet the strict standards of the EU and OECD.
Now, I’m not pointing any fingers, Madam Speaker. After all, government is continuous and there are experts working across administrations. However, there were some serious concerns about the government’s approach to compliance with these reporting standards during the years prior to this administration coming into office.
We discovered that the entire implementation of the process was subpar:
· The reporting system was routed through DIR’s system which didn’t meet the unique requirements for economic substance reporting – in fact, a new, dedicated portal was needed.
· There were major issues with functionality, as well as the management and analysis of data – the way the system handled data had to be completely overhauled.
· At one point, Madam Speaker, it was so bad that the system was completely reliant on manual entries – imagine a system this important to our financial services sector being run manually.
It was a system that was directly non-compliant with the OECD’s standards. It simply failed to meet the mark – a failure placed solely at the feet of the ineffective leadership from the political directorate. A brand new portal had to be designed and introduced because the entire implementation of the process under the previous administration was a complete failure.
These are the facts as outlined by the EU and uncovered by our own analysis, Madam Speaker.
With the state the system was in, we are not talking about minor tweaks but the development of a completely new approach from scratch.
This meant that we were not able to make the April 2022 deadline to avoid being placed on the EU’s blacklist. That is because fixing a mess takes far longer than doing it right the first time, Madam Speaker.
But we knew that if we worked swiftly and thoroughly, the blacklisting would be a temporary setback.
Madam Speaker,
We quickly drafted the necessary changes to our approach and re-developed a dedicated portal for economic substance reporting. Earlier this year, after several months of work, The Bahamas underwent a preliminary assessment by the FHTP. I must inform you, that during the FHTPs’ October meeting, The Bahamas’ economic substance regime has been rated as “Not Harmful”, with a few recommendations to make key changes.
These include soft recommendations on the verification of data and more intensive reviews of certain entities, as well as a hard recommendation urging us to “undertake the required exchanges of information under the standard.”
The takeaway here is the fact that The Bahamas has now been classified as “not harmful,” and we will build on our current momentum by ensuring that we address the Secretariat’s recommendations.
While all of the recommendations are important, it is the third “hard” recommendation that is crucial. The third recommendation is the reason for the imminent amendment to CESRA.
It is also the reason why we are making an amendment to the ROBO Act. The key issue that both of these amendments address is the need for these portals to interface with one another to facilitate the exchange of information.
We were able to speak to the OECD and committed to making this exchange of information possible by the end of the calendar year. We fully intend to honour that commitment. Since then, we have organised, cleaned, and compiled data and migrated it to facilitate the exchange of information between the portals.
We are doing all that they asked us to do, and, as a result, we expect that we will be removed from the EU’s blacklist, as long as the goalposts are not moved once again.
That brings us to the Commercial Entities (Substance Requirements) Regulations, 2023 (“Regulations”), that was laid today. These regulations will support and strengthen the exchange of information legislative framework. In response to the call for greater clarity on this area of the law, the amendment to section 29 of the Principal Act will allow the Minister of Finance to provide comprehensive regulations with further clarifications and explanations.
We’ve had to develop these regulations because the former administration failed to put in place an effective monitoring mechanism. Whereas, our approach is completely compliant and meets the required standards.
There are a number of other notable changes related to the reporting of information by parent entities, the requesting of additional information from entities, the spontaneous exchange of information, and the removal of reportable jurisdictions from the Act to the regulations to allow for faster changes when the need arises.
The demands made by the international regulatory bodies are onerous; yet, at every level The Bahamas complies.
Madam Speaker,
Unfortunately, it is inevitable that some entities may have difficulty complying with these standards. However, we must make it clear that the purpose of these changes is not to discourage entities or individuals from conducting or establishing businesses in The Bahamas.
In fact, our aim is to attract bona fide business people who will conduct and engage in legitimate business activity while demonstrating to the world that we are serious about adhering to the highest and most stringent global standards. That is why we remain optimistic about being removed from the EU’s list during the next review. And we are also optimistic about our long-term prospects for sectorial growth based on our existing competitive advantages.
Of course, there may be those confused by our optimism given the fact that The Bahamas was still listed on the EU non-cooperative list just over a month ago in October.
However, it should be noted that this assessment was based on the OECD’s report completed in April, so at the time the EU made its decision, the information was already over six months old.
In fact, the EU had their council of Ministers meeting in October and made a decision not to remove us from the blacklist and the very next month in November the OECD agreed that based on our approach to compliance, we’d be removed.
Surely, you’d think that these two European institutions would talk to each other in the interest of ensuring that the decision regarding our continued presence on the non-cooperative list was made fairly and was based on the most current and accurate information.
Instead, the decision was made using outdated information with disregard for the impact that this inaccurate decision could have on us.
This behavior is indicative of a wider trend in which unfair standards are applied to countries like ours.
From day one, I’ve been advocating on the world stage for a change to the existing financial services regime.
At my very first meeting with the UN, I raised this point with the Secretary General just a few days after the 2021 election. It was during that discussion that he promised to set up a task force to address this issue. That task force was set up, and we have now seen progress on this front so that the UN will play a larger role in the oversight of global financial services standards.
In September, I wrote a letter to the UN Secretary General, applauding him on the progress that the UN has made with the Resolution on the Promotion of Inclusive and Effective International Tax Cooperation.
I also highlighted how the current system favours the interests of the global north over the global south, and I pointed out the inequality embedded in the current tax architecture. Just as I have with climate change and a number of other issues, I will continue to speak up on behalf of this nation.
We’re not asking for special treatment, you know. Madam Speaker, we only want to be treated as equals and have the same opportunities and same standards applied to us as everyone else.
And even while we fight for change, we will continue to demonstrate, within the current unfair system, that we can still comply with any standard.
This is why, a month from now, in January, 2024, when the EU reviews The Bahamas’ position once again, we believe that we will be removed from the non-cooperative list thanks to the efforts of this administration.
Madam Speaker,
As we maintain our place as a top financial services jurisdiction, we are cognizant of the need to keep adapting and improving on the strengths that make us so appealing to investors around the world.
Our strengths as a jurisdiction give us a natural competitive edge on the world stage. We have a strong economy, political stability, and a tax neutral approach – all inherent competitive advantages.
We also have arguably the most financial services talent per capita in the world, led by Bahamian professionals working at every level of the corporate structure of local financial institutions.
And this expertise has resulted in one of the world’s most robust, responsive, and innovative legislative and regulatory frameworks. We see this with our world leading trusts laws and investment fund legislations.
Years ago, we launched the SMART fund legislation, which was truly innovative for its time.
And we followed the SMART Fund up with the launch of the Investment Condominium Act or ICON, which took the Latin American market by storm when it was rolled out.
One of the defining features of the Act allowed other entities to convert to ICONs – it was a strong selling point allowing existing funds to easily adapt to take advantage of the ICON’s strengths. Today, in response to changes made in Brazilian legislation which can impact funds operating as ICONs if not addressed, we have proposed the three amendments before us:
· The Investment Condominium (Amendment) Bill, 2023
· The Exempted Limited Partnership (Amendment)(No. 2) Bill, 2023, and
· The International Business Companies (Amendment)(No. 2) Bill, 2023
… which allow us to convert ICONS into Exempted Limited Partnership and IBCs.
We have been quick to respond to the changes in Brazil as one of our major markets. This is critical, Madam Speaker, because responsiveness is a key quality that allows our financial services product to stand out. It is a strength of ours that is now further established by this compendium of Bills.
These amendments demonstrate our nimbleness and ability to provide structuring alternatives for the financial service industry in response to a constantly changing global environment.
Madam Speaker,
The final Bill before us is the Financial Intelligence Unit Bill (2023), which essentially empowers the Financial Intelligence Unit to more effectively do its job. At its core, this Bill represents a complete modernisation and evolution of the Financial Intelligence Unit’s operations in full compliance with international best practices.
Last December, The Bahamas became one of only six countries in the entire world to become fully compliant with the Financial Action Task Force’s 40 recommendations. Even with that success under our belt, we continue to review and monitor our systems for areas of improvement.
A recent review of our compliance efforts suggested certain amendments to maintain our status as compliant with best practices. This Bill incorporates those amendments to maintain our position among the world’s most compliant jurisdictions.
I invite all interested members of the public to review this Bill, along with the others debated in this House today, at laws.bahams.gov.bs to get a sense of how truly comprehensive our approach has been.
As always, these amendments have been made in full consultation with public and private sector stakeholders, as well as with international stakeholders where appropriate.
I thank the teams at the Attorney General’s Office, the Ministry of Finance, and the Ministry of Economic Affairs for their work in strengthening our financial services laws and regulations and demonstrating to all observers why we consistently maintain our place among the best financial services jurisdictions in the world.
This administration remains fully committed to adhering to the highest global standards. We look forward to seeing the positive results that we are certain this compendium of Bills will deliver to bolster financial services as our second-largest industry.
Thank You, Madam Speaker.
And may God continue to bless The Commonwealth of The Bahamas.