Carib offshore financial services: is nurturing necessary?

Wilberne Persaud, Columnist

As some think of The Bahamas, Barbados, Bermuda, British Virgin Islands (BVI) and Cayman Islands, their memory or imagination conjures up beautiful white-sand beaches, breathtaking sunsets and a laid-back population that is for the most part welcoming.

There are others though, whose first association is financial and business services.

Some recall Hollywood icon Tom Cruise, as Mitch McDeere, from John Grisham's novel The Firm, who works his way through Harvard Law School to land a dream job with a prestigious firm in Memphis, Tennessee. He's got it made.

Unfortunately, the firm's major client is a Chicago crime family whose mob money they launder. By the way, Jamaican cinema goers will certainly recall the big push for Red Stripe beer residing conspicuously in the luxury hotel room's fridge. The filming occurs on location in the Cayman Islands.

Aficionados of Law and Order: Criminal Intent or Special Victims Unit and other United States TV series may think only of these aspects of the Caribbean financial services industry.

Passing mention of the Cayman Islands usually refers to a place where people stash money for nefarious purposes. It is hidden from a wife in divorce proceedings, the proceeds of drug dealing, or an anonymous payment for a mob hit. To be fair, in some of these TV series and movies, we do see London depicted as the hoard of Russian Mafia holdings and illicit gains of corrupt third world politicians. Yet, this is not the full story.

We can't tell it in this column, but we can sketch outlines of a more realistic picture.

First, the name 'offshore financial services' or 'centre' tends to be used in reference to financial service activities geared to non-citizens of a particular country or jurisdiction. In this sense, you have the Channel Islands, Malta, Singapore, Luxembourg, Ireland and the Caribbean countries and territories named in the beginning. Recently, Qatar and Dubai have joined the club.

The very term offshore financial centre, however, could quite correctly and appropriately be used to refer for instance, to London or Miami. Many non-British citizens, individual and corporate, make use of London's financial services, while it is well known that Miami is a preferred port of call for wealthy South Americans seeking safe haven for their holdings. Of course, some of these funds may include proceeds of illicit activities.

Beyond these perceptions, however, there lies another reality.

Financial and business services in the Caribbean employ thousands of people including highly trained professionals involved in the fields of insurance, investment and risk management, regulatory and compliance activities, along with the army of collaborative and complementary services required for these activities.

Bermuda, for instance, is the world's largest captive insurance market.

BVI boasts a company registry second to none relative to its jurisdiction's economic activity.

Lesser Caribbean players in financial services include Anguilla and Belize.

Financial services are a lucrative business in which we have developed expertise and generally a good reputation despite Allen Stanford in Antigua. If this was a field of play welcoming all, however, the gates have been closing not with a clang, but quietly as if on oiled rollers.

The Organisation for Economic Co-operation and Development - the club of the developed countries - issued warnings and created compliance lists.

In April 2009, G20 leaders in London announced their aim to strengthen financial supervision and regulation.

In part, this was their response to the Wall Street meltdown of September 2008. The problem, however, of offshore financial centres, low- or no-tax jurisdictions, money laundering, terrorism financing and job shipping overseas had been on their minds for at least a decade.

A critical aspect of their initiative is the exchange of tax information. They created three categories: a 'white list' — jurisdictions that have substantially implemented the internationally agreed tax standard; a 'grey list' — jurisdictions that have committed to the internationally agreed tax standard, but have not yet substantially implemented; and a 'black list' — jurisdictions that have not committed to the internationally agreed tax standard.

In 2009, only Barbados and Bermuda of all Caribbean jurisdictions made it onto the white list. As of May 2, 2011 our representation on the white list includes Anguilla, Antigua and Barbuda, The Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Dominica, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines, and Turks and Caicos Islands.

Neither Jamaica nor Trinidad and Tobago feature in the lists although recently, there have been expressions of interest in the field of offshore finance.

Possibilities do exist, but time is of the essence. A sound regulatory financial environment including both laws, institutional capacity and qualified personnel to oversee the activity are essential.

It should not be thought that the domestic financial regulatory environment could sensibly be isolated from that governing offshore activity.

As The Gleaner deliveryman told my colleague upon offering to pay for his trousers torn when his Ford Cortina hit the carrier bicycle on the Queens Way one Sunday morning at UWI, Mona: "But sar, yu know sey mi pants form part of a suit!"

Undoubtedly, an altogether smart move.

wilbe65@yahoo.com