PM slams ‘aggression’ toward offshore sector
Guardian Business Editor
Published: Sep 30, 2013
The prime minister has mounted a rigorous defense against the "economic aggression" of developed world economies towards the offshore financial sectors of countries such as The Bahamas, arguing that if this industry is destroyed "social destabilization...of the most ominous kind" will emerge.
He called on the UN to develop multilateral global mechanisms for the governance of the offshore financial services sector that can meet the demand of the developed world for the protection of their fiscal systems while allowing offshore economies to continue to grow in a regulated manner.
Addressing the 68th session of the United Nations General Assembly on Saturday in New York, Prime Minister Perry Christie said that the Bahamian
offshore financial sector has a more "robust" regulatory regime than that which exists in many of the countries which would seek to have it shut down on the grounds that it allows "immoral" accumulations of wealth by their citizens, and facilitates criminal activity.
He condemned "unilateralism and diplomacy-by-coercion" as the approach of many developed world countries towards reducing the existence of this sector in countries such as The Bahamas.
His comments may represent the most strident to date by a Bahamian head of state in defence of the offshore sector, linking the crackdown on financial services to possible social destabilization given its role as a key provider of jobs to the Bahamian middle class.
The prime minister's statements are likely in recognition of the seemingly accelerating evolution of demands from groups such as the G8 that chip away at the foundation of confidentiality that once defined the basis of Bahamian competitive advantage in financial services.
This has been reflected in a shift from demanding countries like The Bahamas sign tax information exchange agreements that will allow for provision of key client details if specifically requested, to recent statements by the G8 arising from their June meeting that governments must commit to establishing mechanisms for "automatic" exchange of tax information as a global standard.
Such shifts have recently led Financial Services Minister Ryan Pinder to suggest that The Bahamas is repositioning itself as a "full service business center" that facilitates financial services as one important component of a suite of product offerings.
Pinder has also recently highlighted steps by his ministry and the Bahamas Financial Services Board to seek out more business in regions such as Asia, Latin America and the Middle East – in part a response to the fact that traditional markets in the U.S. and UK are becoming less accessible in light of their governments' shrinking tolerance to the shifting of wealth offshore by citizens.
Christie’s comments point to a real dilemma for the government, as global efforts to shrink the sector raise the question of where many middle class Bahamians who work in the offshore financial sector or in positions which generate wealth from it indirectly will find work and revenue should countries such as the U.S. and UK continue their march toward ever greater information sharing.
In his address, Christie that the international community must "become more conscious of the practical outcomes" of their push for change along these lines.
"Too many times, in the headlong rush for change, we damage the vulnerable and the weak," he said.
"Let us not forget that the destruction of these offshore financial service economies will destabilize the countries that depend upon them for their livelihood. To destroy this sector in the Caribbean would effectively cause tens of thousands of newly empowered middle class citizens to slip back into poverty or to migrate to the developed world.
"The middle class of which I speak constitutes the anchor of social stability for the countries in our region. Take that away, and social destabilization emerges as a risk of the most ominous kind. And should that risk materialize, the developed world may well end up finding that it has only solved one problem by creating an infinitely bigger one for itself."
Christie said that the offshore sector can be responsibly regulated, and hit back at the assertion that there is anything intrinsically wrong with it on moral grounds, as proponents of an end to the offshore industry have argued.
"We reject that premise and we criticize in the strongest possible terms the efforts of some to maim and cripple, if not destroy, the offshore economies within our region.
"Ironically, the anti-money-laundering, anti-terrorism funding and anti-criminal regulatory regimes of many of our counties are far more robust and demonstrably far more effective than the corresponding regulatory regimes in many of the same countries that are leading the fight against us," he said.
A 2007 study by consultancy Oxford Economics on the financial services sector in The Bahamas determined that financial services account for 27 percent of GDP in The Bahamas. Of this, the majority of the impact was created by the domestic banking component.
However, the international or offshore banking sector was found to contribute, either directly or indirectly, just over nine percent of GDP.
Direct Bahamian employment in the sector amounted to 1,885 jobs at that time, while with other related jobs and “catalytic” effects on growth in the economy accounted for, the employment generated by the offshore sector rose to 5,300.
The average wage in the sector in 2004 was $70,000.