I had never heard of Richard Hay, but apparently he has a reputation for being a great speaker on the global financial services industry. Okay, the offshore sector.
At the recent International Week Business Conference put on by the Barbados International Business Association at the Hilton Barbados, Mr Hay was one of the speakers I was told to specially look out for.
“You need to hear Richard,” they all said, and the twinkle in their eyes suggested I would be in for a treat.
I was not disappointed. Mr Hay, who in real life is the head of Stikeman Elliott, a British private capital group, was able to explain succinctly not only how the global financial services industry has changed over the past decade, but also how the Barbados offshore sector will need to adapt in order to retain and build on its excellent position, as they say, going forward.
‘Dark forces’
What I learnt was that the whole thing was very much in play at the moment, and the “dark forces” (that would be the collective G20) are not with us, although individually they are not all against us.
It can be complex; so who better to guide our way through the darkness than Mr Hay, some of whose basic points I will try to summarise, taking full responsibility, dear reader, for any misrepresentation or misunderstanding that might occur.
I think one of the main things that Mr Hay said in his presentation to that overall excellent conference was that power was shifting from the old guard (London, New York) to the developing world (Beijing, Seoul, Shengzen and Singapore).
“What is more important than being able to control the flow of global capital?” he asked, rhetorically (“Nothing! Nothing!” cried the phantom chorus). The cities of this developing world, he said, among the world’s fastest growing financial centres.
That was why China vetoed the efforts of Britain (under Brown) and France (under Sarkozy) to eliminate tax havens.
Perhaps the major worrying difference between what was happening a decade ago and the direction of events today, said Mr Hay, is that “the crew that runs the world”, by which he meant the G20, had become more directly involved in the effort to squeeze the financial centres industry. This came about in 2007-2008 with the onset of the world’s financial crisis, and things really changed.
Mr Hay said it was strange to admit that he looked back on those earlier days with some nostalgia. At that time, although the watershed Harmful Tax Competition report had overturned the previous international principle that no country had to help another collect its taxes – and plunged the countries with financial centres into fear of being blacklisted – there was an upside.
“I never thought I would look back fondly on the days of dealing with the OECD,” he mused, “but at least they would respond to inconsistencies pointed out by us.”
Remember, Barbados was at first on the blacklist, but due to heroic efforts by the Arthur administration which benefited not only Barbados but other countries as well, we were removed from the list.
Although there may be people in our fair land with convenient memories who are unable to give credit where it’s due, this saved our offshore sector for another decade, ensuring the flow since then of perhaps $1 billion in corporation taxes into the Treasury, not to mention saving untold numbers of professional jobs and preserving the consumption and additional employment they generated.
Now, continued Mr Hay, it is the G20 itself which is in charge of regulating the financial services industry, with the OECD acting as its agent. He said the OECD was now just a “glorified” trade association whose mission was to protect the commercial interests of its 31 member countries. It cannot discipline the United States because America controls its purse strings, he noted.
Given a scenario in which developed countries are facing mounting debt and the need to pull in more taxes, the global financial services sector needed to state the benefits it brings to the world economy, said Mr Hay.
Facilitate jobs
“Offshore financial services facilitate jobs and growth,” he declared, adding that in the face of criticism “we tell them that if they rip out the plumbing, they will suffer”.
Furthermore, destroying offshore centres would have the opposite effect intended, he said, because “if they disconnect us from the world economy it will direct footloose capital to the BRICs (Brazil, Russia, India and China)”.
“So we need to show that we make a positive contribution by channelling investment into their economies that otherwise might go to other places.”
Finally, and I apologise that the scope of this column cannot do justice to Mr Hay’s noteworthy remarks, the top investment manager said that although Barbados had played a major role in the international finance sector, it was facing a challenge, as Canada was looking to expand the treaty which Barbados has with it to other countries. “Barbados is very well positioned for competitive advantage due to the quality of its services and its tax information network,” he said, and its contribution to the functioning of the world’s offshore sector was crucial, but the pressures were likely to continue.
What makes the world go round, he said, was the reduction of non-resident withholding taxes, and there, he noted, “Barbados has an excellent advantage”.
The empires are striking back.
