Good morning Madam Speaker,
I am grateful for the opportunity to address the House this morning on these amendments to strengthen our compliance with international standards.
Madam Speaker, I would like to speak specifically on two essential legislative amendments that were tabled in Parliament this morning, in particular:
The first is the Automatic Exchange of Financial Account Information (Amendment) Bill, 2024; and the second is the Automatic Exchange of Financial Account Information (Amendment) Regulations, 2024.
Madam Speaker, The Bahamas committed to the implementation of the Organisation for Economic Co-operation and Development’s (“OECD’s”) Common Reporting Standard in relation to the Automatic Exchange of Financial Account Information in 2014.
In the latest Peer Review Report for The Bahamas, the OECD’s Global Forum Secretariat made a number of recommendations for the improvement of The Bahamas’ domestic legal framework. Our legal framework is determined to be “in place but needs improvement”.
During the year 2025, The Bahamas will undergo the second round of effectiveness review for the OECD and Global Forum’s Transparency and Exchange of Information for Tax Purposes Common Reporting Standard – Automatic Exchange of Information. For The Bahamas to be considered for the re-assessment of its legal framework, the legislative amendments have to be addressed, enacted and in force by June 2024 at the latest.
Madam Speaker, the amendments contained in the Automatic Exchange of Financial Account Information Bill include:
- the removal of the Bahamas Executive Entities from its list of categories of jurisdiction-specific Non-Reporting Financial Institutions; and
- the widening of the scope of the legal powers to prevent and address circumvention of the AEOI Standard in The Bahamas.
The amendments to the Automatic Exchange of Financial Account Information Regulations include:
- the granting of access powers to allow the Competent Authority to inspect records during an onsite visit;
- updating the list of participating Jurisdictions to include only those jurisdictions with which The Bahamas has activated the CRS-AEOI relationship; and
- updating the list of reportable Jurisdictions to include jurisdictions with which The Bahamas has automatically exchanged CRS-AEOI information.
Madam Speaker, The Bahamas has to demonstrate to its peers that it has an effective regime in place to monitor Financial Institutions with respect to their compliance with the Common Reporting Standard’s Automatic Exchange of Financial Account Information.
The Bahamas has to have provisions in the Act or Regulations that meet the requirements of the AEOI Standard. The Bahamas Executive Entities (“BEEs”) have been removed from its list of categories of jurisdiction-specific list of excluded entities because they do not meet the requirements of an excluded entity under the Common Reporting Standard.
Over the past few years there has been much debate among The Bahamas Financial Services Industry, the Competent Authority and the OECD on the function of a BEE and whether it meets the definition of a Reporting Financial Institution under the Common Reporting Standard. It is noted that the BEE acts as a trustee in the same manner as a Private Trust Company. They were formed to hold the shares of a private trust company. The BEE can function as a director or protector of the trust.
The Regulations define the BEE as entities that render investment advice and act on behalf of, or manage portfolios for, a customer for the purpose of investing, managing or administering financial assets deposited in the name of the customers with a Financial Institution or that performs or executes “Executive Functions” on behalf of a Reporting Financial Institution. Based on this divergence from the CRS, the OECD concluded that the categorization of the BEE under the heading as a Non-Financial Reporting Institution is incorrect and inadequate, as the accounts of the BEE will demonstrate incorrect values with respect to certain controlling persons of a trust. Therefore, the BEE should be viewed as a reporting financial institution.
Although the Act as it stands contains the CRS anti-avoidance provision, it is a requirement of the CRS to have rules that apply to Financial Institutions, persons and intermediaries that prevent them from adopting practices intended to circumvent the due diligence and reporting procedures.
Madam Speaker, to address this issue, we must provide greater clarity to the anti-avoidance or anti-circumvention provision. The CRS calls for the Competent Authority to be aware of schemes to avoid or circumvent the Common Reporting Standard. The CRS also requires the Competent Authority to have the power to ensure that, in the event of an anti-avoidance scheme, or through unwinding or ignoring the circumvention, the CRS information will be reported and exchanged by the Reporting Financial Institution as if the CRS circumvention had not taken place or in a manner that would be required in the absence of the circumvention.
For an effective CRS-AEOI monitoring regime, it is necessary for the Competent Authority to have access powers to inspect records during an onsite visit. The Competent Authority, for the purposes of verifying compliance with the AEOI Standard, has to ensure that the Reporting Financial Institutions are applying proper record-keeping procedures. In this vein, Reporting Financial Institutions should have the requisite documents on file such as self-certifications, samples of accounts and underlying documentation and proper due diligence documents. The Competent Authority also has a duty to ensure that Reporting Financial Institutions are adhering to the retention period for holding or retaining documents. In essence, there should be no limitations on the Competent Authority in exercising their access power that could restrict access to records held by a Reporting Financial Institution that are relevant to verifying due diligence and reporting, both for Reportable Accounts and those claimed not to be reportable.
With regards to the powers to sanction legal arrangements, there was a concern that because the legal arrangement lacks legal personality and, thus, property, a sanction could not be imposed directly on the legal arrangement. Therefore, clarity in the law was needed with respect to whether sanctions can be applied on the trustee or a person in a similar position, including the specific legal provision that would allow such sanctions to be applied to the trustee or a person in a similar position and not only on the legal arrangement itself.
While the Act contains a definition for a Participating Jurisdiction and includes a published list of Participants, The Bahamas regularly reviews the most recently issued list of Participating Jurisdictions identified by the Secretariat, and when appropriate, updates its notice of intended exchange partners to ensure ongoing alignment with the AEOI Standard. Moreover, the list of Participating Jurisdictions should align with those partner jurisdictions with whom there is an activated exchange agreement. As a result and for this purpose, a Reportable Jurisdiction List has been formulated and included in the legislative framework.
It is noteworthy to mention, that there have also been slight amendments made to the Guidance Notes on the Common Reporting Standard for Automatic Exchange of Financial Account Information on Tax Matters.
Madam Speaker, it has come to the attention of the Competent Authority that the European Union will be updating its list of non co-operative Jurisdictions for CRS-AEOI purposes during the year 2026. By now, Madam Speaker, we are all aware of the consequences of being listed on the EU’s list of non-cooperative Jurisdictions. For all intents and purposes, just as we did economic substance reporting, this administration will do what’s necessary to ensure that we are viewed as cooperative and compliant.
Addressing the legal gaps and developing and implementing an effective CRS-AEOI compliance strategy will improve The Bahamas’ AEOI rating. It is important to note that should The Bahamas not address the recommendations and concerns of the Global Forum’s Secretariat, The Bahamas will not be considered for the 2nd round of effectiveness review in 2025 and The Bahamas will maintain its rating of non-compliant indefinitely.
Madam Speaker, The Bahamas remains willing and ready to co-operate with the international regulatory bodies as well as its international exchange partners. At the same time, The Bahamas has to remain responsive to changes in global standards while preserving its invaluable financial services industry and superior financial products. We uphold the highest standards while also advocating for fairness in the application of these standards across all jurisdictions.
Our nation is always mindful of our strong regulatory framework and the need to secure our posture as a jurisdiction that is committed to integrity and ensuring international best practices in this area. As always, we are still recognized as a well-regulated, competitive global financial services centre. And we will do all that is necessary to maintain our good standing as a compliant, transparent, and competitive global leader for financial services and investments.
Thank you, Madam Speaker.