Sears: OECD reforms help big countries, disadvantage small

By MARTELLA MATTHEWS

The initiatives taken by the Organization for Economic Cooperation and Development represent the "dark side" of globalisation, especially for small and vulnerable countries, a top Government official said Saturday.

Giving the keynote address to a group of bankers attending The Bahamas Institute of Financial Services awards ceremony and dinner held at Sandals Royal Bahamian Resort and Spa,

Attorney General and Minister of Education Alfred Sears discussed the issue of The Bahamas remaining competitive in the international financial services market.

While globalisation leads to trade liberalisation and certain benefits, Mr. Sears said, it can also have adverse effects on small and vulnerable countries, such as the removal of any protective or comparative advantages that these countries formerly enjoyed, while at the same time exposing them to unequal power relationships that left them at the mercy of more powerful countries.

According to Minister Sears, the OECD initiatives on the Elimination of Harmful Tax Practices, and the Financial Action Task Force's review of non-cooperative countries with respect to money laundering, which resulted in the publication of a blacklist of jurisdictions in 1999 was an attempt to "name and shame" these jurisdictions into compliance with the standards these organisations had formulated.

He described the subsequent threats by these organisations to take collective punitive economic actions as "most probably a derogation from the principle of non-interference", as the ability of these organisations and their member countries to take such action did not admit "any clear basis in public international law."

He described the OECD initiatives as one of the "major challenges" facing the financial services industry in the future, but affirmed that an "upshot" of these initiatives was that they forced fundamental reforms and restructuring in the financial services industry in countries like The Bahamas.

So while the process of reform had already begun, it acquired a new urgency in the context of the initiatives by these organisations.

While acknowledging a need for improvements in international financial operating procedures and regulatory standards to counter financial crimes, Mr. Sears said, the rationale behind the initiatives must not be forgotten.

"The underlying rationale for the OECD's initiatives is that offshore jurisdictions are perceived as having a negative impact on the revenues available to other countries, particularly those OECD member countries," he said. "Thus the overarching objective is to remove the comparative or strategic advantages of offshore financial centres and force the return of capital onshore in those countries."

When viewed in the context of small economies that are extremely vulnerable to international or external influence like The Bahamas, the significance of OECD's initiatives "could spell economic doom", he said.

For example, he said, in The Bahamas, that lacks a "significant agricultural base" and "natural resource endowment," heavy dependence is placed on service industries such as tourism and financial services.

The Government of the Bahamas responded to OECD initiatives by creating a new legislative regime to provide stronger regulations and improve the capacity for law enforcement to take action with respect to financial crimes.

He estimated that it has cost the Government over $45 million to implement the legislative regime and similar or increased expenditure is estimated for the coming years.

He conceded that certain provisions of the regime were impractical and "imposed unnecessary costs" on many financial institutions. "We will continue to review such legislation as international standards develop and make the necessary adjustments," Mr. Sears said.

Remaining competitive as a jurisdiction in the face of challenges designed to erode The Bahamas' competitive advantage depends heavily on maintaining the best practices and offering first class services, he announced.

He shared the results of a survey conducted by Private Wealth Management 2001/2002, which asked clients to rate offshore jurisdictions based on 15 criteria they considered important. The factors that were rated most important were: accessibility - 72 per cent; communication - 60 per cent; Government - 42 percent, and banking secrecy - 33 per cent. "The level of regulation attracted merely 10 per cent of votes as an important factor in rating an offshore jurisdiction," Minister Sears said.

Conceding that the successful offshore banking jurisdiction of the future must be predicated on a well-regulated sector, Mr. Sears said, "This is necessary to prevent the system being abused by persons whose motives are questionable and to restore and maintain investor confidence and the goodwill of the international community."

In addition to awarding certificates and diplomas to current students, the Bahamas Institute of Financial Services also honoured 30 alumni in recognition of the thirtieth anniversary of Bahamian Independence.

Among the 30 alumni honourees were George Rodgers of the Bahamas Development Bank, Theresse Hudson of SG Hambros and Dale Thompson McCleod of the Royal Bank of Canada.

Caption:Attorney General and Minister of Education Alfred Sears

Posted Monday 15 September, 2003