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Stabroek News

Jamaica an offshore financial
published: Friday | August 17, 2007

Keith Collister, Business Writer


A man views stockpiles of containers at one of China's busy ports. - reuters

The issue of whether Jamaica should become an Offshore Financial Centre (IFC), as the JLP has suggested in its manifesto, is an issue that requires a debate, so that we can understand what it would mean for Jamaica both in terms of opportunities and any potential perceived threats.

The perception of these threats by local policy makers may be based on author, Somerset Maugham's famous description of Offshore Financial Centres as "A sunny place for shady people".

In this regard, Jamaica is extremely fortunate to have the benefit of the recent comments of a very high powered panel comprised of chief executives from the Caribbean's leading Offshore Financial Centres in Cayman, The Bahamas and the British Virgin Islands, at the recent Caribbean Investment Forum in Montego Bay put on by the world renownedLatinfinance magazine.

The CEO's included: Timothy Ridley, chairman of the Cayman Islands Monetary Authority; Wendy Warren, CEO and executive director of the Bahamas Financial Services Board and Robert Mathavious, managing director of the British Virgin Islands Financial Services Commission.

Latinfinance magazine organised the forum to ask why Bermuda and the Cayman Islands were so successful as offshore financial centres, and whether other Carib-bean emerging offshore centres such as those planned for Trinidad and the Dominican Republic would be able to take advantage of the "perceived excess demand."

The intentions of the Dominican Republic to move into this area are particularly interesting to Jamaica, bearing in mind their very recent financial crisis and associated debt default. Jamaica is currently virtually the only Caribbean country without such plans. This is despite, in the opinion of one international consultant involved in BVI's success, Jamaica being one of the most ideal locations in the Caribbean for such an industry.

Perception

At the forum, Ridley argued that the problems with many Inter-national Financial Centres (IFC's) have been based more on perception rather than reality. In addition to competing with the leading IFC which is actually London, much of the business of Cayman, Bahamas and BVI was really to facilitate London's business.

He noted that the Caribbean IFC's were therefore merely a small piece of the puzzle in the recycling of the world's money, which are dependent on getting the balance of regulation right for their success in the very competitive world environment.

He noted that Cayman operated on the principle that for each regulatory measure introduced, they must be satisfied that: it is necessary; it is appropriate for the nature of financial services business in the Cayman Islands; it is proportional to the identified risks; the regulatory impact is understood; and the benefits of the cost of the regulation outweigh.

Wendy Warren outlined the Bahamian national commitment required to make the business a success. According to her, this requires not just the cross party commitment of current and future policy makers, but the buy in of the general population.

Just as with the tourism industry, every Bahamian realises that they must not let something kill the golden goose of the offshore industry. In her view, the more intimate nature of small populations allows one to buy in on the benefits of the offshore industry much more rapidly than in larger jurisdictions.

Political stability

Key requirements to successfully conduct offshore businesses include political stability and a strong legal system. For Bahamas, this means specifically "Respect for the rule of law, due process and the right to privacy of personal financial information".

Other critical areas include: direct tax system, good telecommunications and the correct skill sets. In the case of The Bahamas, a historically attractive lifestyle is complemented by geographical proximity to the U.S. All agreed that, as in any business, the most important thing was to know who was your client, and what market you were in.

Mathavious argued that a successful offshore business required not "a light touch but the right touch", with the key being able to take advantage of opportunity when it came knocking. BVI's growth took place when Panama was in crisis, with BVI taking the unusual step of licensing Panamanian service providers. Their further growth had benefited from the uncertainty in the run up of the transfer of Hong Kong from British to Chinese rule.

Ridley again noted that at one time Cayman had been little more than a mosquito swamp, but had been almost handed the offshore business by Bahamas due to mistakes made by their then Prime Minister Pindling several decades ago. In the case of Panama, it was the invasion by the first President Bush that had really helped BVI.

Whilst all the panellists believed that OECD pressure on their jurisdictions was likely to continue, they argued their was a lot of hypocrisy in this pressure, as they claimed that all their jurisdictions met international standards, often exceeding those in OECD countries.

According to Cayman's background paper on the industry, it fully accepted that it should adhere to generally accepted and applied international standards - and not just as they are, but as they evolve. Cayman's experience has been that it was not the absence of regulation that has promoted business, but the introduction of sensible and balanced regulation as circumstances demanded.

According to the panellists, the most important thing to remember was that international financial services are a business, just the same as tourism. The market was, however, very sensitive, and countries looking to get into the industry needed to understand what was their advantage such as cost of labour, skills, geography, tax treaties etc.

They also needed to decide what was their target niche. Bermuda had successfully specialised in insurance, for example. Warren pointed out that much of the offshore business moved on the back of major international law firms, which had the power to move the business to various jurisdictions.

Mathavious believed that for a new jurisdiction to succeed, it would need a very strong partnership between the private sector and government. This point was echoed by Ridley, who stressed Cayman's culture of consultation and cooperation between the government and private sector.

Mathavious added that the jurisdictions that succeeded would be those, like the BVI, that "reputation was a currency".

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