Legislating Caribbean Tax Havens:
An Interview with Mr. John Beale, Barbados Ambassador to the US

By Karen Byer

The blame is almost limitless. Ask anyone what caused the United States (US) financial meltdown and you’ll get answers along the lines of Wall Street greed, consumer overspending, government deregulation, the housing bubble bursting, bad banking principles and a whole lot more.

And while the blame game seems to have no limit, what also seems endless is the varying ways in which this economic collapse is affecting lives and livelihoods around the globe. And not just individuals, entire nations and regions are feeling the burn of this US crisis.

I’m sure that we can all think of a number of ways the Caribbean region is being affected by what’s going on here in the US. But one way that not many of us are aware of, is the impact that proposed regulation would have on off shore businesses in the Caribbean. I recently met with Mr. John Beale, the newly appointed Barbadian ambassador to the US, to discuss this issue.

Off-shore companies, or tax-havens as they are also known, have become an increasingly popular option for corporations who want to do business with the US and other nations without being subjected to the sometimes prohibitive taxes associated with such businesses. Off-shore finance is an industry where you can scale up without land and labor. And with a combination of large finance and relatively low overheads from small states, tax rates can be low.

The Caribbean has become the 4th largest banking sector in the world, led by Bermuda, Cayman, Bahamas and the BVI. But even in Barbados off-shore banking is of major importance. 60% of corporate taxes in Barbados come from the off-shore sector. However, the impact and influence are much greater because of the linkages—housing market, employment of professionals (accountants, lawyers, etc.), local directors, hotels, restaurants, shops, taxi drivers etc.

But, according to Ambassador Beale, the US Internal Revenue Service (IRS) and the State Department are now seeking to make these tax shelters illegal across the board. They have initiated legislation (the Levin and Baucus bills) in Congress that if passed, would make sweeping changes and eliminations of current laws. Their ultimate goal is to collect corporate taxes that they see as being owed to the US government. And the idea that government is going after large corporations that are avoiding taxes is one that will win favor on Main Street America.

But of course there are always two sides to a story. While the IRS sees outlawing tax shelters and collecting taxes as a win for the US government, what goes unnoticed is the devastating impact such action would have on Caribbean nations. In addition to taxes lost for us, jobs would disappear, tourist industries would be hurt and economies could crumble.

Says Ambassador Beale, “We can understand that there is a sense of outrage as countries slide into recession, unemployment rises, and already strained budgets in the US and Europe come under more intense pressure. However, what seems to have been ignored is that the crisis is not rooted in the off-shore centers. The crisis is due mainly to debt taken on in the US. What is ironic and unfair is that those jurisdictions where regulation failed should threaten to close down centers that in many instances are well regulated and which did not contribute to the financial crisis.”

As a former CEO of a Caribbean bank, Ambassador Beale can attest to the stringent rules that apply for anti-money laundering and the required and on-going training that the banks must to do to satisfy bank regulators and internal and external auditors.

Major academic studies by a number of highly respected institutions have shown that many of the top off-shore financial centers have more rigorous anti-money laundering regulatory regimes than the US or any member of the European Union. Research has consistently shown that they also have tougher standards than do most on shore jurisdictions.

“The global economy leaves little policy space for small developing states to exploit. So for many small states in the Caribbean the area of services, including financial services is one of the few niches in which we believe that we can be globally competitive. Any attack on or misrepresentation of our sound and legitimate regimes would have a devastating effect on our economies at a time when the resilience of the small and vulnerable is already being pushed to a limit”, says Ambassador Beale.

The Caribbean Community (CARICOM) is naturally willing to partner with the US and all like-minded countries to strengthen regulation, enhance transparency and information exchange and guard against tax evasion, money laundering and transnational crime, both in developed and developing countries. But this cannot be achieved through unilateral and discriminatory action by the large and powerful against the weak and small.

Ambassador Beale and his counterparts believe that one alternative to the strict regulation that has been introduced would be to convert the United Nations committee of experts on international cooperation in tax matters into a universal intergovernmental body that would facilitate equal participation by all countries in the setting of norms on cross-border taxation matters.

CARICOM ambassadors do plan to meet with State Department and Treasury officials so that they can get their side heard before the legislation goes forward. They also intend to launch an informational campaign by contributing articles to financial journals, meeting with members of Congress and securing the support of allies.

No one disputes that if there is corruption, it must be rooted out, but in doing this we must ensure that the baby isn’t thrown out with the bath water. Instead, it would be ideal to have a fair and impartial international body to establish and set standards and ratings in a transparent manner for all to follow.

(Karen Byer is a contributor to Island Vibes Magazine. For comments, please feel free to contact her at karen@islandvibesmag.com.)