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The Bahamas blend experience and new regulations to offer strong
offshore financial services
The Bahamas has been dealing with offshore business for more than 60 years and offers a wide array of services in the financial services sector. Re-establishing itself as a reputable jurisdiction for business was one of the key objectives of the current Free National Movement government. The government has worked diligently with the private sector through the Bahamas Financial Services Board to reform and update several pieces of legislation to make doing business more efficient and better regulated. One key law is The Money Laundering (Proceeds of Crime) Act of 1996, which was one of the first among offshore jurisdictions to make money laundering a crime. Julian Francis, governor of The Central Bank, explained that while The Bahamas has agreed with the United States, Britain and other countries to exchange information in cases where fraud, money or other suspicious activity is alleged, concrete evidence must exist against an individual. He makes it very clear that The Bahamas does not allow for "fishing expeditions" to find out who has an offshore account and how the transactions in the account are used.
Because The Bahamas has been a long-established financial services jurisdiction, numerous highly qualified professionals, most of them Bahamian, are available to help individuals wishing to do business in the jurisdiction. Banking, private banking, setting up International Business Companies, establishing trusts and investing in mutual funds and other offshore vehicles can be established via a bank, legal council, an investment group or an accountant. The following is a short summary, highlighting some of the products and services offered in The Bahamas. Banking Banking is the pinnacle of The Bahamas financial services offerings. The country's independent status gives it an advantage in protecting its client's interest in strict confidentiality from other countries or entities.
Today, more than 418 banking institutions from more than 36 different countries are licensed to do business in The Bahamas. A typical banking unrestricted banking and trust license costs $25,000 per annum for an institution and requires up to one million dollars in paid-in capital. For a restricted license, the required minimum paid in capital is generally $100,000. "The vast majority are branches, subsidiaries or affiliates of major banking institutions in North and South America and Western Europe," explained the William Allen, minister of finance. He noted that many have a physical presence in the country, not just a nameplate on the door. Most banks provide private banking services and investment management services, including investment counseling, financial analysis, stock trading in currencies and precious metals, management of trusts, mutual funds and pension fund assets. Private banking Pascal Hammerer, chief executive officer and head of private banking for the Americas for SG Hambros, noted that due diligence is of the utmost importance. "The first rule is 'know your client.' We do not accept clients that come to The Bahamas with suitcases of money. The person must be referred to us by a reputable source before we will take them on as a client."
Bill Jennings, president of Leadenhall Bank and Trust Co., noted that many of his Latin American clients desire an offshore account so that guerrilla groups and other armed bands cannot access bank records, find out their net worth, and then kidnap and ransom them. Many people who have set up offshore accounts wish to access their money. "There were more than 400 regulated banks and trusts here in The Bahamas and none of them offered a credit or a debit card," said Axxess International's Managing Director Christopher Donnachie. Axxess International and now another company, Nexxus International, provide banks the opportunity to co-brand cards and offer them to their clients. Now clients with offshore accounts can access their money 24 hours a day. Transactions of this sort remain confidential. According to Dickson, Nexxus will be establishing an offshore processing center for the marketing, processing, issuing, acquiring and settling of credit/debit card transactions. Trusts Trust legislation has been updated with the enactment of The Trustee Act, 1998, which clarifies the role of trust settlers and the rights of beneficiaries to information about trusts, as well as the rights and duties of professionals, while enhancing the use of the trust as an investment vehicle. Trusts set up in The Bahamas allow individuals to maximize payments to beneficiaries because of The Bahamas tax-free status. While the tax benefits of setting up a trust in The Bahamas may be limited for Americans, many are using the vehicle for protecting assets, transferring assets to non-U.S. beneficiaries, holding foreign securities that cannot be offered in the United States, holding foreign property, or holding assets of a non-resident grantor during his/her lifetime for ultimate distribution to U.S. beneficiaries. "We tell our U.S. clients that they should always seek the advice of their domestic tax adviser before they decide to do business in The Bahamas," said Bruce Bell, managing director for Oceanic Bank and Trust Limited. The trust business is growing in The Bahamas and Hammerer reports that more trust officers are needed to handle the increase in business. He also noted that women dominate the industry. IBCs Since The International Business Companies Act of 1990 was passed, The Bahamas has become the premier center for IBC Incorporation with more than 100,000 companies currently registered. A Bahamian IBC allows an investor to conduct business globally with complete anonymity. Shareholders and the company itself are exempt from all Bahamian taxes and exchange controls for 20 years from incorporation. Board meetings may be held by electronic means anywhere in the world. IBCs may merge with other companies, even non-IBCs. A Bahamian IBC provides:
An IBC may be incorporated in The Bahamas within 24 hours from the time the proper documents arrive at the Registrar General's Department. The documents must include a bank reference indicating that the individual has been a client in good standing for at least three years and confirming the beneficial owner's address and signature; a character reference; confirmation of permanent address by notary public; and two positive identification pieces verified by a notary, legal counsel or financial institution. Once approved, incorporation documents must be submitted, including the memorandum of association and the articles of association. Fees for registration are $250 if the authorized capital is less than $50,000 and $1,000 when authorized capital exceeds $50,000. Exempted limited partnership companies cannot transact business with the public in The Bahamas, but that does not prevent an ELP from doing business with IBCs or foreign companies registered in The Bahamas under the Companies Act, 1992. Because of the criticism that IBCs can carry on business with little transparency, Minister of Finance William Allen noted that regulatory control over the IBC is currently being reviewed and new legislation will likely be enacted. "We have an obligation to be diligent and to maintain our integrity,” said Caryl A.E. Lashley, counsel and attorney at law, Depuch & Turnquest & Co. Mutual funds The Mutual Fund Act, 1995, established reporting, disclosure and monitoring requirements on mutual funds operating in or from The Bahamas. It provides that either the Securities Commission or a mutual fund administrator must license funds with an unrestricted license. Authorized mutual funds must have a minimum equity interest purchase of $50,000 and its equity interests must be listed on a recognized stock exchange. An exempt mutual fund is one where the equity interests are held by 15 or fewer investors, and that is licensed in a prescribed jurisdiction. Most funds are established by financial institutions with a local banking presence and marketed to their own clients or established by small groups as private funds. While Bahamian mutual funds are tax-free, individuals investing in the funds must comply with the rules of their own jurisdiction. According to statistics from The Central Bank of The Bahamas, mutual fund assets as of June 30, 1998 reached more than $88 billion dollars in 584 funds. Stephen Hancock, director of Cardinal International, an offshore financial services adviser who administers mutual funds, noted that the opportunities for U.S. and international investors are huge. Funds listed in the Bahamas allow U.S. investors to participate in funds that may not be listed in the United States. After Templeton Funds established its base in The Bahamas, many funds followed. A sophisticated and growing infrastructure under the supervision of The Bahamas Securities Commission provides a solid foundation for industry growth. Insurance The insurance industry is a rather small portion of the financial services industry in The Bahamas. In the 1980s legislation passed that was seen as prohibitive and much of the captive insurance business fled to Bermuda and other jurisdictions. The government has listed captive insurance as one of the areas especially targeted for overseas investment and is working closely with The Bahamas Association of International Insurance. The domestic insurance market is strong and growing. Currently, seven local and 49 foreign-owned insurers operate in the domestic market. Emphasis is being placed on life insurance and the offering of new products such as health insurance. There is some concern with the coming of the Free Trade Area of the Americas, that local insurance companies will have difficulty competing against global companies. "We will have to keep abreast of changes in the market and be sensitive to our clients," said Gerald P. Strachan, president, Family Guardian Insurance Co., one of the largest companies in the local market. He noted that increased legislation is needed. The future With the coming securities exchange, the financial services sector is expected to grow exponentially. "We are a highly professional jurisdiction with a diverse range of services to offer. We have a politically and socially stable environment of which we are proud, and we will continue to improve our services," states Francis.
investbahama@batelnet.bs BFSB@bahamas.net.bs |
T he Bahamas prides itself on being one of the leading offshore
jurisdictions in which to do business. Offshore banking and finance
account for 15 percent of the country's gross domestic product.
Nassau, the capital of The Bahamas and the financial center for
the country, ranks highly in the Top Ten offshore jurisdictions
worldwide.
Other
important new laws are the Companies Act, 1992; the Amendments to
the International Business Company Act, 1994; The Securities Board
Act, 1994; the Mutual Funds Act, 1994; The Exempted Limited Partnership
Act, 1995; The Securities Industry Act, 1999 and the Trustees Act,
among others.
Banking
secrecy is looked upon as very suspect by OECD countries who think
that secrecy means that a client is hiding something. In fact, it
simply allows high-net individuals the ability to conduct business
in an efficient, discrete manner.
"While
individuals may have been interested in moving accounts to an offshore
jurisdiction for tax reasons before; now these same people are moving
them for privacy reasons," said Nexxus International's President
Stephen Dickson.