BEHIND THE HEADLINES: Barbados should brace for Panama fallout
IT’S THE KIND OF ADVICE Barbados and its Caribbean neighbours can’t afford to ignore. And it came from two key sources which have, at the very least, the 50-year-old sovereign state’s best interest at heart.
“It’s an issue that has cast a cloud over all . . . offshore financial centres and it must be taken seriously,” said John Beale, Barbados’ top diplomatic eyes and ears in Washington DC.
“It highlights what has been happening in Panama and it can have implications for other countries.”
Beale didn’t stop there.
“Although Barbados has never been a tax haven and we don’t encourage tax evasion, the mere suggestion of wrongdoing can have a significant impact on everybody,” added Beale, Ambassador to the United States and the Organisation of American States.
Bruce Zagaris, a prominent tax law expert, university law professor, and a partner in a well-known Washington law firm, Berliner, Corcoran & Rowe, LLP, agreed.
“Barbados wasn’t listed in the world’s top ten jurisdictions when it comes to shell companies, but it is going to be affected by the heightened international scrutiny caused by the leaking of the documents,” added Zagaris, an adviser to successive Barbados Governments. “This is not something that is going to go away any time soon.”
Both Beale and Zagaris were focusing attention on the “Panama Papers”, a cache of 11.5 million leaked files that belong to one of the world’s leading providers of offshore legal services, Mossack Fonseca, headquartered in Panama. The documents shed considerable light on the pathway many well connected and powerful public figures and wealthy individuals take to avoid paying taxes to their home countries.
But tax avoidance, as distinct from tax evasion, is perfectly legal in most countries and the Panama Papers, which were leaked to a German publication but analysed and published by the International Consortium of Investigative Journalists, exposed the names of such people as David Gunnalugsson, Iceland’s Prime Minister; Vladimir Putin, Russia’s President; David Cameron, Britain’s Prime Minister; Mauricio Marci, Argentina’s President, and a brother, and Simon Cowell, the British music tycoon. Another person whose name surfaced in the papers in connection with Barbados was Sir Mark Thatcher, son of Lady Thatcher, the late British Prime Minister.
Zagaris, who advises Invest Barbados, told BARBADOS BUSINESS AUTHORITY the Panama Papers would “heighten the risks for banks and financial institutions and will make them even more cautious to do certain transactions with either offshore entities or certain types of businesses”.
He insisted Barbados “didn’t come out in the Panama Papers as being even in the top ten” of domiciles where shell companies exist.
Other Caribbean jurisdictions that range from Panama and The Bahamas to the Cayman Islands weren’t so fortunate.
“As for Barbados, I don’t see a direct impact. There will be more pressure for Barbados to adhere to various international standards on money laundering and tax transparency, such as adhering to the [Organisation for Economic Cooperation and Development] Convention on Tax matters and implementing the common reporting standards of the OECD,” the expert stated. “To the extent that there are transactions by financial institutions in the metropole having to do with entities that are perceived as being offshore such as international business companies or captive insurance companies, there could be some negative impact.”
Indeed, a recent CARICOM document showed that already there was heightened scrutiny of transactions involving banks.
“In the last month, we have already seen two Cayman Islands entities pleading guilty to US charges of tax crimes,” said Zagaris.
However, Barbados isn’t getting a free pass. Dennis Howlett is executive director of the Canadians for Tax Fairness, a non-profit organisation that lets Canadians know how the rich and powerful there are not paying their fair share of taxes to Revenue Canada.
“Barbados and the Cayman Islands are the two biggest tax havens where Canadian money goes,” Howlett claimed. “They need to put those on the list as well.”
But Panama is fighting back. It is arguing that it wasn’t alone in the offshore tax avoidance game.
With more than 14 000 banks, law firms, insurance companies, corporations and individuals from more than 100 countries, Barbados among them, it’s clear, said Juan Carlos Varela, Panama’s president, there was enough blame to go around.
“Despite their name, the Panama Papers are not mainly about Panama,” Varela wrote in an Op-Ed commentary in the New York Times a few days ago. “They are not even primarily concerned with Panamanian companies. The more than 11 million documents, illegally hacked and released last week, relating to previously undisclosed offshore corporations are roiling the world with revelations of the vulnerability for rampant abuse of legal financial structures by the wealthy.”
What’s particularly stunning about the papers is that they show that contrary to what is said by many of the major business and financial publications in London, New York, Paris and Toronto, small Caribbean countries aren’t the only ones used by prominent public figures to reduce their tax liabilities.
Cameron, the recently re-elected British leader, who has campaigned vigorously against small jurisdictions that supposedly facilitate tax evasion and money laundering, allegedly turned out to be a beneficiary of some of the same tactics he criticised.
Admittedly, there is no evidence that Cameron broke British laws. However, he ranks high on the scale reserved for those who see small countries and attribute the worst to them.
That brings us back to Beale.
“We have to wait and see how things evolve,” said the envoy.