The Bahamas will likely be added once again to the European Union’s (EU) list of non-cooperative jurisdictions when the European Council meets in October, the government revealed in a statement on Friday.
The Ministry of Finance, the Office of The Attorney General and the Ministry of Legal Affairs released the joint statement outlining the country’s current compliance advancements and deficiencies in the financial services sector, after an article from tax research, management and planning website Orbitax.com began widely circulating on Thursday, announcing that the EU could add The Bahamas to its list.
The announcement that the country could be put on the EU’s list of non-cooperative jurisdictions was met with surprise by the opposition, which released a statement outlining the measures the Free National Movement (FNM) left in place only a year ago to ensure The Bahamas was not included on these kinds of negative lists issued by the EU.
The Orbitax.com article explained: “The EU Council will reportedly add Anguilla, The Bahamas and the Turks and Caicos Islands to the EU list of non-cooperative jurisdictions during an upcoming meeting in October 2022.
“Anguilla was previously added as non-cooperative in 2021, while The Bahamas was added and later removed in 2018. This will be the first time the Turks and Caicos Islands is listed as non-cooperative.
“Currently, nine jurisdictions are listed as non-cooperative, including American Samoa, Fiji, Guam, Palau, Panama, US Virgin Islands and Vanuatu.”
The statement explained that while the government was attempting to make the necessary compliance upgrades before this country was reviewed earlier this year, they were unsuccessful.
“Our administration has worked diligently to satisfy the concerns of the European Union, however not all deficiencies could be addressed before the determination of our review in April 2022,” the statement said.
“As of now, it is anticipated that the European Union will add The Bahamas to its list of non-cooperative jurisdictions. We are committed to closing all remaining gaps expeditiously and to seeking a re-determination of our status in the shortest possible time.”
The joint statement explained the government’s compliance statuses with the European Union, the Organization for Economic Cooperation and Development (OECD) and the Financial Action Task Force (FATF).
With regard to the EU, the statement explained that The Bahamas enacted the Commercial Entities (Substance Requirements) Act, 2018 (CESRA), with effect from January 1, 2019; but the EU noted some deficiencies with CESRA during annual monitoring in 2019 and 2020, which the current government said it was only made aware “shortly after the general election”.
In the opposition’s statement, penned by the opposition’s Shadow Minister for Finance and Member of Parliament for East Grand Bahama Kwasi Thompson, the government is asked why it dismantled the special tax unit at the Ministry of Finance and why it disengaged the government’s lead adviser on tax and compliance matters.
Stephen Coakley-Wells, the Bahamian who represented The Bahamas at the Steering Group of the G20 and the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS), was disengaged at the Ministry of Finance in December 2021.
He was recently appointed as commissioner of Belize’s Financial Services Commission, and as is customary with the OECD working group, took this designation to Belize, which now sits at the table with the OECD.
Coakley-Wells was appointed to the G20/OECD body in December 2020.
During the last administration he was special policy advisor to the minister of finance and was brought on by the former government during a time when the country was placed on several blacklists.
As an expert in financial services, especially on the regulatory side, he and his team were able to have the country removed from those lists.
The current government was forced earlier this month to send Minister of Economic Affairs Michael Halkitis and Attorney General Ryan Pinder, along with technical officers from both of those ministries, to an OECD peer review report presentation in Paris and to advocate for the group to reconsider its positions on The Bahamas.
“While the OECD Peer Review Group did not change the overall finding on the effectiveness of the implementation of the AEOI (automatic exchange of financial account information) standards in practice as non-compliant, there was agreement on a strategy to remedy all deficiencies identified in the peer review report in the shortest period,” the government’s joint statement explained.
“We will then seek to be re-assessed in early 2023.”
The joint statement added: “In 2016 The Bahamas committed to the automatic exchange of information under the Common Reporting Standard, enacting the Automatic Exchange of Financial Account Information Act, 2016 (amended in 2017 and 2019).
“The Bahamas commenced exchanges under the AEOI standard in 2018. The Bahamas was tasked at the time with commencing exchanges with the effective implementation and monitoring of AEOI.
To ensure the AEOI standard is fully effective, the Global Forum reviews each jurisdiction’s domestic and international legal frameworks to ensure they are complete and reviews the effectiveness of the implementation of the standard in practice. The Global Forum conducted such a peer review spanning 2020-2021.
“The peer review evaluated the process for effective and timely exchanges as well as ensuring that reporting financial institutions correctly adhere to the due diligence and reporting procedures.
“Shortly after coming to office, the government received a report regarding the peer review conducted in 2020-2021. The report from the Global Forum indicated The Bahamas is compliant with respect to exchanging information in an effective and timely manner.
“However, there is a need to ensure that reporting financial institutions correctly conduct the due diligence and reporting procedures. Despite meeting the standard required in one of the two areas reviewed, the overall rating of the technical effectiveness of the implementation of the AEOI standard is anticipated to be rated as non-compliant.”
Thompson said in his statement that his government upon losing the general election a little more than one year ago, left instructions with the incoming government to handle certain matters with global financial watchdogs with urgency.
He asked in his statement why some of these things were not done and contended the government’s failure to comply has led to these actions by the EU.
“The former FNM administration approved enhancements to the economic substance reporting system prior to the 2021 election, which this current administration was advised by the technical adviser to follow through with to ensure that The Bahamas received a favorable rating by the international taxation standard setters,” said Thompson.
“Why did the government not proceed with the former administration’s planned upgrades, which were approved by the technical staff?
“The press release does not answer why the recommendations that the lead technical adviser presented to the government to upgrade the compliance monitoring protocols and statistical reporting systems for tax exchanges with foreign jurisdictions, which was a critical element in The Bahamas’ assessments by the EU, along with amendments to the substance reporting legislation, have not been completed even after being given an additional six months from the original deadline of March 2022.
“It is this lack of substantial improvements on these measures which now leaves the country vulnerable to this negative action.
“The FNM is advised that had the recommendations been treated with the urgency required when the Davis administration was first made aware of the issues, they were achievable in the required time.”
The government said in its joint statement that it is “cautiously optimistic” that during the Caribbean Financial Action Task Force’s (C-FATF) re-rating evaluation in November, “that it will achieve a re-rating for Recommendations 8 and 15, which would result in being compliant or largely compliant in all 40 FATF recommendations.”
