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February 14, 2019

The Bahamian Government seems to have been caught by surprise by the punitive action taken by the European Commission against The Bahamas on Wednesday February 13, 2019, alleging that The Bahamas has 7 strategic deficiencies in its AML/CFT regime, based on Article 9 of the European Union’s Directive 2015/849.

I caution the Prime Minister, the Attorney General, the Minister of Finance and the Minister of Financial Services, Trade & Industry against rushing off to Brussels, in a panic, to make any ill-considered appeasements and secret agreements.  The Cabinet of The Bahamas should assess the nature of this problem, weigh policy options, geo-strategic factors and lay out to the Bahamian people a rational policy response, informed by empirical data and the best technical advice, detailing how the Government will secure the short, medium and long-term national interests of The Bahamas with respect to the moving goal posts by the European Union relating to The Bahamas’  AML/CFT regime and tax policies.

As a former Attorney General, who led the team that succeeded in getting The Bahamas removed from the Monitoring List of the FATF in 2005, I appreciate that this matter is complex.  Short-term panic-driven acts of appeasement by the Government will not produce a permanent resolution of this matter.  The very foundation of the financial services sector, its organizing assumptions since its construction under Stafford Sands in the 1950s, is being challenged.  

In this context, I propose that the Government consider the following recommendations.

Immediate Steps:

The Government should immediately address the seven deficiencies identified by the European Union in order to remove any pretext or basis for any further hostile actions being taken against The Bahamas.  The following steps should be taken:

(a)    Engage advisory services team of local and international multi-disciplinary group (including Mr. Calvin Wilson, immediate past Executive Director of CFATF, Mr. Wilson has been engaged with the removal of The Bahamas from the various negative listings from 2000).

(b)  Form an Advisory Policy Group, comprising former Prime Ministers, Attorney Generals, Ministers of Investments and Financial Services, heads of regulatory agencies and representatives from the Financial Services Advisory/Representative bodies, to review the current threat, assess the likelihood for further punitive measures, share knowledge and  contacts and advise appropriate response, based on  considerations of proportionality, competitive advantage, niche opportunities and international obligations.

(c)   Coordinate Collaboration amongst the various regulatory agencies in the financial services sector to prepare a technical brief for the Cabinet’s review and determination.

Medium/Long-term Steps:

Simultaneously, I propose that the following measures, with bipartisan political consensus, be considered and undertaken to avoid future external threats and punitive measures by ad hoc bodies against the Bahamian financial services sector and while The Bahamas repositions its financial services sector to be more competitive in a rapidly changing global environment:

1. The Bahamas should, with the support of CARICOM, initiate and lead an international lobby for the convening of a global forum calling for the formation of a United Nations treaty to cover issues of money laundering, terrorist financing and unfair tax competition.  Have we forgotten the pivotal role The Bahamas played, through the Bahamian diplomat George Stewart under the Pindling Administration, in the lobby for, drafting and implementing of the United Nations Convention on the Law of Sea?  The Attorney Generals of the Caribbean in CFATF, in 2003 while I served as Chairman of CFATF, passed a resolution calling for the convening of a global forum to put anti-money laundering under a United Nations’ treaty (Prime Minister Mia Mottley, who was then Attorney General of Barbados and I worked very closely in getting this resolution passed).  The Christie Cabinet in about 2004 authorized Senator Mitchell, as Minister of Foreign Affairs, to promote the convening of a global forum on anti-money laundering during United Nations General Assembly presentations and in bilateral with member countries of the United Nations.  In this regard, Barbados joined The Bahamas in these efforts.  It may be useful to work closely with Prime Minister Mia Mottley to lead this campaign, with The Bahamas.  From my recollection, certain members of the OECD, such as Canada and South Africa, were very helpful to The Bahamas during this period and were sympathetic to the concept of a United Nations’ Treaty on anti-money laundering.

2. The Bahamas, as the leading financial services centre, should host an international forum on the topic “A New Paradigm for Anti-Money Laundering, Anti-Terrorist Financing and Global Tax Issues:  A Call for a Global Treaty”.  Invitations should be extended to all IFCs, leading scholars, NGOs, as well as multi-lateral organizations dealing with AML/CTF and global tax issues in order to build global opinion in favour of a global treaty on anti-money laundering and tax regulation under the United Nations.

3. Examine the feasibility of mounting a legal challenge, in concert with CARICOM, in the International Court of Justice at the Hague against the measures mounted by the European Union against The Bahamas, a non-member of the EU and a competitor in financial services to European and American onshore financial centres.  Under customary International Law, it is illegal for a state or group of states to engage in acts of retorsion, retaliations, reprisals, intervention, or coercion to control smaller states, who are member of the United Nations, to force a change their internal or foreign policy.    This principle is clearly stated in the Declaration of Principles of International Law Concerning Friendly Relations (adopted by the United Nations General Assembly in 1970) which provides:  “No State may use or encourage the use of economic, political or any other type of measures to coerce another State in order to obtain from it the subordination of the exercise of its sovereign rights and to secure from its advantages of any kind.”  Further, the United Nations Charter itself, at Article 2 (4), declares that: “All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any State, or in any other manner inconsistent with the purposes of the United Nations.”  Save and except for secret agreements between The Bahamas and the European Union, the European Commission would lack any legal/juridical basis to take punitive measures against The Bahamas.  Sir Lynden Pindling warned us that if we are not prepared to fight for our sovereignty, then we do not deserve to have it.

4. The Bahamas should make evidence-based policy decision in this area.  In the past, under successive government, its decisions relating to the deployment of resources, adjustment of regulatory practices and the enactment of legislative measures have, in every instance, been frantic responses to hostile external threats of negative listing by either the US Treasury Department, FATF, Financial Stability Forum, the OECD, etc.  To shift policy decision making to a more rational basis, in the interest of the peace, order and good governance of The Bahamas, I propose that the Government:

(a) Engages the University of The Bahamas to conduct a research project by a multi-disciplinary team of scholars to review the policy measures undertaken by the Government in the area of financial services, the nature of the external environment, the growing protectionism of onshore financial centres in OECD member countries,  the niche opportunities for and future role of offshore financial centres in the rapidly changing global economy and to produce findings and recommendations to guide public policy formation in this anti-money laundering and terrorist financing.

(b) Establishes a permanent Financial Services Institute at the University of the Bahamas, as a regional centre of excellence, funded by the Government, private sector and multi-lateral funding agencies, to review, assess, identify niche opportunities, areas of innovation and product development and make policy recommendations to the Government to ensure the sustainability of offshore financial centres, such as The Bahamas.

5. Streamline the current uneven regulatory performance in the financial services sector, the Government should create one Supra-Regulatory Agency for the financial services sector, inclusive of the Central Bank, Securities Commission, Gaming Board, Compliance Commission, Insurance Commission and Intelligence Unit.  

6. Increase Bahamian Government representation on all multi-lateral bodies dealing with financial services to build influence and assure an advanced warning system of any potential threat to The Bahamas and deploy professional Bahamians on the professional staff of all international and multi-lateral bodies, of which The Bahamas is a member, in order  to extend the influence, prestige and reach of The Bahamas in the international community.

7. Finally, the Government should use this crisis as an opportunity to dismantle the ring-fencing of foreign direct investment in The Bahamas, based on the Stafford Sands Model’s assumption that foreign direct investment is the sole basis for national development.  Based on that assumption, incentives, Crown Land, exemptions from taxes and subsidies are given almost exclusively to foreign investors, while Bahamian investors and entrepreneurs have restricted access to comparative venture capital, and denied equal consideration for incentives, tax exemptions, Crown Land and state subsidies.  There should a level playing field both domestically and internationally.