Need for Meaningful Consultation | Sir Ronald Sanders

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By Sir Ronald Sanders

WASHINGTON, United States, Monday November 13, 2017 – The absence of meaningful consultation between governments and private sector organizations in the Caribbean is leading to the implementation of externally-driven laws and regulations that will not serve the region well. This situation is becoming increasingly prevalent in the haste by regional governments to comply with rules set by the Global Forum of Organization for Economic Cooperation and Development (OECD) on tax matters and the Financial Action Task Force (FATF), both bodies created by the world’s richest developed nations.

Threatened by these bodies with the spectre of their jurisdictions being black-listed as ‘non-cooperative’, governments have adopted legislation, established costly regulatory bodies, and implemented rules governing money laundering, terrorism financing and tax matters with little or no discussion with private sector organizations in their own countries. The result is that private sector organizations discover these new rules only after they have been implemented, and the opportunity to contribute to their formulation have long passed.

Caribbean governments don’t even discuss the demands of these external agencies among themselves before each of them accepts and implements them. In part, the absence of inter-governmental discussion is due to each jurisdiction trying to get an advantage over the other. Each wants to avoid being black-listed in the belief that this will give it an edge over other Caribbean jurisdictions with which it is in competition.

Some will argue that inter-governmental discussion does take place about OECD and FATF demands in the councils of the Caribbean Financial Action Task Force (CFATF) and the OECD Global Forum. But those discussions are not regional discussions; they are discussions that take place with the representatives of the OECD and FATF present in full force and well- prepared, whereas representatives of Caribbean governments turn-up, having had no preparatory meetings among themselves and with no agreed position.

By contrast, extensive consultations take place between OECD governments and with their private sector in their countries. When the governments of OECD countries make proposals, it can be taken as given that they are representing the best interests of their own private sector bodies which are the engines of their economies and huge movers and shakers in their political systems.

Accountants, tax advisers, auditors, estate planners in the Caribbean are often surprised when they learn that they are now expected by the FATF to be ‘whistle blowers’ on their own clients and to establish unprecedented machinery to guard against being charged for facilitating money laundering, tax evasion and the financing of terrorism.

The FATF and the OECD Global Forum now require all jurisdictions to identify and name beneficial owners of financial assets. This requirement covers not only International Business Corporations; it also envelops companies incorporated in domestic jurisdictions. The FATF has issued “High level principles and procedures for accountants” to guide them on ‘the risk based approach to combatting money laundering and terrorist financing’.

In effect, accountants and lawyers, who have provided services to clients for years, are now required to be ‘gatekeepers’ and they are obliged to report on their own clients if they suspect activities such as money laundering, terrorist financing or tax evasion. But the playing field is not level. One OECD jurisdiction does apply anti-money laundering laws to ‘gatekeepers’, and the court in another has repeatedly said that AML/CTF requirements, such as reporting on clients, violates the attorney-client relationship.

In any event, huge obligations are being placed on accountants in the Caribbean to know the business of their clients in far greater detail than ever before, and to exercise extreme caution in providing a range of advice to them. To do this efficiently, practitioners need to invest in systems, including software, to know and understand their clients’ business much better than in the past so as to protect themselves. Consequently, their costs will rise if they are to safeguard themselves from the risk of one or more of their clients acting illegally.

Both the costs and risks could well result in a decision by some accounting firms that the rewards are not worth the risks. In other words, some small accounting firms could opt for closure, leaving the accounting business in the region only to very large firms that have the capacity to conduct extensive checks on clients and their business. The danger also arises that small businesses would not be able to pay the fees charged by large accounting firms, resulting in a large number of small businesses being deprived of accounting services for many activities.

What is remarkable is that these heavy-handed rules, devised by the OECD and the FATF, are hardly necessary in the Caribbean. More than 90 percent of the world’s financial transactions occur outside the region in which only about two per cent of all global financial dealings occur. So, unless, in the most unlikely possibility that all illicit transactions in the world take place in the Caribbean, the one-size shoe that is being forced on to the feet of every Caribbean jurisdiction has to be less about money laundering, terrorism financing and tax evasion and more about an intense level of control.

The recently released, so-called “Paradise Papers” are full of references to Caribbean countries in the media as if it were Caribbean jurisdictions that own the accounts, corporations and trusts that have been named. Yet, all that has happened in the Caribbean is that various entities have been set-up in these jurisdictions where the beneficial owners must be known by law, and which have signed-up to OECD and FATF rules to provide the tax information of those entities either automatically or on request.

The “Paradise Papers” might themselves turn out to be no more than a damp squib. The papers, consisting of 13.4 million documents, are alleged “to show how the rich got richer through offshore manoeuvres”. But tax experts are not convinced that the documents reveal any such thing. Even Pascal Saint-Amans, a top tax official at the OECD, said the schemes were “mostly if not all legal”, adding that “some are not even questionable from a legitimacy point of view”.

Note should be taken that while anonymity of ownership and sharing of tax information is law in the majority of Caribbean countries, this is not so in several OECD countries. According to leading tax lawyers in the US, for example, several states including Delaware, South Dakota and Wyoming enforce anonymity and are, consequently, swallowing-up trust businesses that have migrated there to avoid disclosure.

Of course, the Caribbean has an obligation to the global community to fight money laundering, terrorist financing and tax evasion. They are doing so, and must continue to do so whatever double standard exists among others. At the same time, Caribbean governments should do no less than OECD governments. They should meet regularly to discuss the demands made of them, and they should consult their private sector organizations in fashioning their response.

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 Sir Ronald Sanders is Antigua and Barbuda’s Ambassador to the US and the OAS.  He is also a Senior Fellow at the Institute of Commonwealth Studies at the University of London and Massey College in the University of Toronto.

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