Caribbean 360
Professor Avinash Persaud, an international expert on the financial services sector and chairman of the London Business School. (Credit: socialistsanddemocrats.edu)
ST JOHN’S, Antigua – The region has been struggling to keep up with evolving international regulations at the high cost of undermining its international financial services sector.
At the second meeting of the Caribbean Forum (CARIFORUM) Conference on the International Financial Services Sector in the Caribbean Region, held October 30 to 31 in Antigua, Baldwin Spencer, the Antiguan prime minister, said that while the Caribbean has been committed to developing financial services in a “responsible manner and investing in their good supervision and regulation”, developed countries are the ones that have dropped the “regulatory ball”, to devastating effect on the rest of the world.
Professor Avinash Persaud, an international expert on the financial services sector and chairman of the London Business School, told the IPS that the financial sector “is really quite significant” in Caribbean economies.
“They represent a major part of tax revenues. Over the past 10 years they have come under tremendous pressure by the larger economies” such as those of London, Zurich, and New York, which are under fiscal pressure themselves with little or no tax revenues and which now want to compete with Caribbean financial centres.
“They are trying to establish a set of global rules which they decide themselves and then impose on us,” said Persaud. “Then they judge whether we are fitting with those rules or not. Judge and jury. It is really ad hoc and it is really designed to close down the international financial centres coming from the Caribbean. It is certainly not a level playing field.”
Ivan Ogando Lora, the director general of CARIFORUM, which is comprised of the 15-member Caribbean Community (CARICOM) bloc and the Dominican Republic, said recent recommendations by the Financial Action Task Force (FATF) regarding international standards for combating money laundering and financing of terrorism, will also now pose new problems for the region.
“Compliance to international standards now seems to be the order of the day and Caribbean jurisdictions have been making strides in this regard,” he said, noting however, despite the efforts, that Caribbean countries “continue to attract negative attention”.
CARICOM countries have already developed a final draft of a Financial Services Agreement that if approved by mid-2013 would create a single financial space with common legislation, regulations, administrative procedures and practices and will also provide for cross border supervision and harmonisation of standards.
The United States, which has complained in the past of its wealthy citizens using the Caribbean to escape paying taxes, has itself introduced a range of changes to its financial regulatory environment that regional stakeholders fear could also undermine the financial services sector within CARIFORUM.
The Foreign Account Tax Compliance Act (FATCA), for example, would require US tax authorities to levy a 30 percent withholding tax on both foreign and non-financial foreign institutions where new reporting requirements have not been met.
The requirements would affect traditional financial institutions such as retail and commercial banks as well as investment banks, securities and brokerage firms, private banks and wealth management firms that do business in the United States. Any institution doing business with US individuals and entities would have to immediately adopt procedures, processes and systems necessary for FATCA compliance.
Persaud said that this latest strategy underscores the struggle facing the Caribbean in recent years.
“They have essentially moved land and water to try and comply with the new rules and when they do so, the rules then change again and the costs are extremely burdensome. The cost for the Caribbean financial centre complying with international rules is ten times as the per cent of GDP as the cost of the larger rich countries complying with the rules they have set.
“The problem is we can’t abandon the sector because it is an important sector,” he said, urging the Caribbean “to fight a better fight”. With reporting by the IPS.
