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BEHIND THE HEADLINES: Status report – the financial services sector


BEHIND THE HEADLINES: Status report – the financial services sector

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PARLIAMENTARIANS ON DIFFERENT sides of the aisle of the House of Assembly in Bridgetown aren’t expected to agree on anything.

So, it didn’t come as a surprise when Minister of International Business Donville Inniss and Edmund Hinkson, the Opposition St James North representative, looked at the contents of the offshore sector’s glass and came to different conclusions.

Inniss found the glass half full; Hinkson suggested it was half empty.

“The truth of the matter is that the international business and financial services sector is making an immense contribution to Barbados,” Inniss told the House when it was considering proposed legislation designed to give the green light to the establishment of incorporated cell companies which can bring an additional $2 million into the nation’s treasury.

“We estimate that we are currently contributing in excess of $900 million per year to the Barbados economy and over 4 000 jobs directly to the sector and several thousand indirectly,” added the minister.

Hinkson turned Inniss’ comments on their head.

“Yes, the minister did speak about $900 million being brought into the economy by the international business sector every year and we should not be satisfied with that alone,” Hinkson argued.

“We have been hearing that figure certainly from the time this…minister had the mandate at the political level for this sector of the economy, but we certainly should be looking to increase this sector by over a billion dollars by the end of the year.”

In other words, international business is under-performing. Who is right? The Central Bank’s latest report suggests Hinkson is on to something.

“The business environment for international banks continued to be a challenging one,” observed the bank. “During 2015, no new banks were licensed and two wound up their operations. At the end of December, total assets under management were $75 billion, representing a decline of around ten per cent compared to assets at the end of December 2014.”

That decline was on the cards for some time. But unlike The Bahamas, the Cayman Islands, Bermuda and the British Virgin Islands, the average Barbadian seems unwilling to grasp the enormity of the sector’s contribution to the country.

Bajans perk up when a conversation brings into sharp focus the sugar industry, which is on life support, but ignore the activities of offshore banks, trusts and captive insurance entities which earn tens of millions of dollars in tax revenue.

In addition, before Inniss became minister, the serious challenges facing the industry seemingly went unattended.

Another thing. Canada’s decision to open up its offshore financial doors to more players in the Caribbean diluted Barbados’ competitive tax edge which it had enjoyed for decades; America’s Foreign Account Tax Compliance Act legislation has heightened the threat to the annual movement of trillions of dollars in United States (US) investment through the Caribbean and elsewhere; and Europe’s increasingly aggressive efforts to undermine the existence of so-called “tax havens” in the Caribbean and the Pacific while ignoring those on its soil were not only hypocritical but damaging.

As if those headaches weren’t bad enough, the increasingly negative portrayal of Barbados and its neighbours as places where large firms and wealthy individuals in Canada and the US hide money and avoid paying taxes in their homelands is taking a heavy toll on Barbados’ public image.

In Canada, Barbados is seen as a lovely vacation spot but there is an increasing sensitivity by the public to suggestions that it is a centre for Canadian tax avoidance. Never mind that the facts tell a different story.

That brings the saga of Pierre Karl Peladeau, Quebec’s Opposition leader in the National Assembly into sharp focus.

Peladeau is the man who hopes to lead Quebec to independence from Canada and he is facing enormous criticism across the province because a company in which he has the controlling interest and which he once headed has an offshore company in Barbados and two in the Cayman Islands.

Peladeau, a wealthy Canadian, has vigorously denied media reports that Quebecor, a Canadian media giant, which he headed before becoming leader of Parti Quebecois has seen his party’s political fortunes tumble in recent weeks ever since two major media organisations, La Presse and Radio-Canada linked his firm to companies in Barbados and the Cayman Islands.

The Opposition Leader has aggressively denied that he set up the companies in the Caribbean, asserting that Quebecor Limited Cayman Islands, TCG Videotron Cayman Limited and Le Group Videotron Limited in Barbados were not created or operated by the firm when he was the corporate head of Quebecor. He contends the offshore firms were created before Quebecor bought them from their owners.

Why the fuss and the loss of public support?

“Companies that make use of havens avoid Canada’s higher tax burden, thus depriving the government here of revenue,” wrote Phillip Authier in the Montreal Gazette. “Politicians seen condoning such practices will rapidly find themselves in hot water in the court of public opinion.”

All evidence indicates the Opposition leader didn’t do anything wrong, meaning that he didn’t break the law but the image of a powerful political figure doing business in Barbados and the Cayman Islands was enough to cause serious damage.

Little wonder that he has threatened to sue the media houses that ran the story which he said contained “falsehoods”. The Peladeau saga underscores Barbados’ vulnerability to events over which the island has no control.