Bahamas: Strength in Depth

At a recent senior management strategy meeting, Oceanic Bank and Trust sets itself the goal of becoming the premier provider of wealth management solutions from the Caribbean to a global client base. An ambitious plan and no easy task, especially considering the strength in depth of the private banking industry in The Bahamas and surrounding region. So how does Oceanic accomplish such a goal? Put rather simplistically, there are arguably a number of key drivers that will distinguish one operation from another in an increasingly competitive wealth management environment – solid international structure, progressive management, creative solutions and, perhaps most importantly of all, a top-class service ethic.

Unfortunately, every private bank rather misleadingly claims these as its creed, and therefore sifting the wheat from the chaff is no easy task. It is therefore interesting to note that Oceanic Bank and Trust, the Bahamian-born and based private bank, presents a more human and realistic ethos: "We see our essential and enduring qualities to be: fairness, loyalty and respect in all relationships; uncompromising quality; innovative spirit; enjoyment in what we do; and principled with family values," says Bruce Bell, its Nassau-based managing director.

"I appreciate that even this may seem rather clichéd today, but at Oceanic we are determined to walk the walk," he adds. "I am a great believer that people do business with people and that for an enduring relationship, clients must be comfortable with our culture."

Moreover, when describing this culture, the Oceanic management uses terms such as ‘reality-check’ and ‘compliant and defensible’ – from this, it would seem, Oceanic is an institution that is aware of the new parameters under which the international private banking world is now operating. International initiatives have created an environment that defines and clarifies the strengths and weaknesses of a low-profile industry. As the eyes of professional advisors, government bodies, and both private and corporate clients become more intensified on both the jurisdictions and the banks that operate from them, a flight to quality should result, separating the men from the boys.

Nonetheless, Oceanic is sure of its credentials, and Bell is firmly of the belief that the business is going in the direction of high margin, high quality and legitimate activities. Bell says, "This will mean the loss of many industry players, consolidation and ultimately a strengthening of the financial services industry. Oceanic is committed to being one of the strong survivors of the changing environment."

"We are not in the hide and seek business – everything we do is compliant and defensible," he continues. "The majority of the legislative and regulatory changes that are happening have had no effect on us because they are simply codifying the practices we have been following for years." Thus, despite the efforts of bodies such as OECD, FSF and the IRS, Oceanic has not seen any diminishment in the appetite of private clients to use jurisdictions such as The Bahamas, in fact it states it has found "the opposite".

The management put this increase in demand down to a number of key factors which they delineate as: Knowledge – many people were totally unaware until OECD came along that high-net-worth individuals could manage their personal affairs on a tax-free basis in a jurisdiction such as The Bahamas. Secondly, the transition of trillions of dollars of inherited wealth from a generation who were keen savers to a generation that is well educated; well employed; and, frankly, do not need the money. Many have thus become custodians of these funds for future generations, using tax-efficient structures in jurisdictions such as The Bahamas.

The third factor is that the world has become a much smaller place. The internationally wealthy are part of a global community – the parents might live in Canada, educate their children in the USA and have a home in Europe. The whole process is accelerating and as a consequence, there is an ever-increasing amount of planning that goes into today’s global families and how best to manage their wealth using the tax neutral platforms available through offshore centres.

Lastly, it is becoming ever more popular for people to join their money, and The Bahamas is clearly a very pleasant place to live. Oceanic notes that the new government has been very active in developing linkages between the financial services industry and tourism and investment and real estate development.

The hard times that lie ahead for some – mostly smaller operations struggling to meet rising due diligence and compliance costs – will mean opportunities for others, and hence Oceanic does not exclude the possibility of opening new marketing offices and/or making further strategic acquisitions ina rapidly consolidating financial services industry. This would fit a pattern already created of growing the firm through professional intermediary referrals, development of new areas of expertise and by acquisition of other businesses. Hence in 1998, Oceanic acquired New World Trustees (Bahamas) Limited (formerly Rawson Trust), and in 2001 it completed the acquisition of PricewaterhouseCoopers’ Barbados trust business.

This latter purchase in particular expands Oceanic’s potential for providing region-wide wealth management solutions, plus, as a jurisdiction, Barbados offers a wide range of tax treaty related opportunities, a valuable counter to more specific Bahamian offerings. Nonetheless, Oceanic emphasises its long-term commitment to The Bahamas as the hub of its operation: "Our trust, corporate, mutual and hedge fund administration, operational and investment management activities are and will continue to be conducted in The Bahamas, as will the overall management and control of the organisation."

A further sign of its commitment to the domicile was the recent opening of a Freeport, Grand Bahama office (see The Freeport story). It also has opened a London marketing subsidiary (see The London link). Bell explains: "These developments were made to enhance our corporate goal of growing our business through relationships with high-net-worth individuals and entities. Such relationships are based on innovative solutions and excellent personal service and will, in the majority of cases, transcend generations. Central to these relationships is making sure our clients are totally comfortable with what Oceanic represents."

Incorporated in Nassau in 1982, Oceanic was granted an unrestricted bank and trust company licence by the Bahamian Ministry of Finance in 1990. Its main services are trust administration, corporate management, investment management and mutual and hedge fund administration – essentially, the entire component parts of an international wealth management solutions strategy. Combined assets under administration currently exceed US$5 billion.

"In our business, there is no substitute for the face to face meeting with clients and intermediaries and senior management are constantly making client relationship management trips to the USA, Canada, the UK and the Far East," states Ken Clowes, chief operating officer. Oceanic’s relationship building strategy is focused on creating a secure web of contacts and intermediaries who trust Oceanic to provide quality services, which are complementary to those of the intermediary.

Central to Oceanic’s approach to developing secure client relationships is establishing an equally close relationship with the client’s professional advisers. Clowes explains that Oceanic only seeks to do business with clients that have been referred to it by highly reputable professional intermediaries who have been tried and tested over the years. The business that flows from these intermediaries is clients who have already been domestically advised. This successful approach provides Oceanic with another essential layer of due diligence that is central to effective cross border client management.

"One of the fascinating things about The Bahamas is that over the centuries, it has constantly re-invented itself to take account of changing internal and external forces," says Bell. Evidence of this is a strategic plan for the financial services sector in The Bahamas that is presently being actively debated between the government and the private sector. As a private bank, Oceanic in particular is encouraged by the government’s stated desire to ‘replace red tape with red carpet’.

Moreover, Bell points out that The Bahamas is now starting to think more internationally, with practitioners at The Bahamas Bar now considering inviting international lawyers to join the Bar, whereas before it was more introspective. Thus, The Bahamas is positioned to compete against the likes of Cayman and Bermuda, rather than the Turks and Caicos and British Virgin Islands of old.

"We continue to view The Bahamas as a well regulated blue chip international financial jurisdiction," Bell explains. "The country is politically stable and has well established, seasoned and tested laws and regulations. There is a growing strength in depth within the legal, accountancy and investment fields, and a well educated and motivated workforce." He adds that during Oceanic’s time in The Bahamas its relationship with the government and regulators has been particularly cordial and central to these relationships has been total openness and candour on both sides. Thus, Oceanic and its peer group are confident there is a viable future for The Bahamas as a successful, sustainable and well-regulated financial centre.

Oceanic will likely be at the heart of this industry. Its stated corporate ideology of not necessarily trying to be different or the biggest, but striving to be the best. ‘The task of becoming the premier provider of wealth management solutions from the Caribbean to a global client base’ is a challenging one. "But it is achievable given the exceptionally high level of professionalism and dedication that is continually exhibited by our management and staff," counters its managing director.

He continues: "All business decisions are made by using this goal as a fundamental and perpetual point of reference. We also view this goal as a reality check, ensuring that we do not stray away from what we do best – innovative wealth management."

In 1994, Bell was appointed managing director of Oceanic Bank and Trust. Before moving to Nassau, Bell was a partner with the law firm Russell & DuMoulin (now Faskin Martineau DuMoulin) in Vancouver, Canada and was chairman of Lyall McKercher Hanna prior to its merger with Russell & DuMoulin in July 1989. In 1996. Bell was registered as a member of the Society of Trust and Estate Practitioners.

"This successful approach provides Oceanic with another essential layer of due diligence that is central to effective cross border client management"

Oceanic is the only bank headquartered in The Bahamas with a London presence. According to David Barron, managing director of the office, "from an early stage, it became abundantly clear that for a Bahamian bank to develop meaningful business relationships in London, we needed to be physically there."

Oceanic has traditionally had a European client base, but wished to increase it and its access to neighbouring regions. The concentration of legal and accountancy intermediaries based in and around the City of London was a natural attraction to Oceanic, given its professional intermediary focused approach. In turn, many of these have branches or affiliates based in Europe and the Middle East and Far East, but generally turn to London for international estate planning advice. Barron states that Oceanic decided to adopt the business development model used in Nassau of only dealing with professional intermediaries to ensure that the taxation and structural advice to prospective clients was domestically defensible. The London office’s role thus includes identifying client-related business opportunities through intermediaries and scoping out the off-shore services required; interfacing with The Bahamas or Barbados as to whether the business meets Oceanic’s risk profile and if so what the terms and fees would be. It then maintains a watching brief while the transaction is being documented, through to completion. London’s main relationship is with the intermediary, whereas client relationship management rests with the offshore offices. The main services of its Bahamian and Barbados offices that are being promoted are trust administration, corporate management, investment management and mutual fund administration - which with Barbados may have a taxation treaty element. "The main business flows have been trust administration, from a cross section of international private individuals all seeking to protect their assets; tax and estate plan; and have their investments managed in a tax neutral and stable environment by a highly reputable organisation," says Barron.

"The office is centrally located in Covent Garden, which is a mere 15 minutes walk away from the vast majority of professional intermediaries with whom we are seeking to develop relationships. The intermediary driven model has proven to be successful and we are looking to increase our marketing to areas such as UK regional centres, UK offshore islands and mainland Europe." It is critical from a regulatory and compliance, standpoint that mind and management and client relationship management remain offshore, but Barron emphasises, "there are presently no impediments on the current range of services that can be marketed in the UK to professional intermediaries on behalf of The Bahamas and Barbados."

André Feldman explains great future possibilities The opening of a Freeport office in March 2000 was an opportunity for Oceanic to expand into a relatively new market and one that it felt was under-served in terms of international financial services. "Second-homers, international businesses and overseas executives make up our target market," explains André Feldman, its manager, "but the Freeport story also offers great possibilities for the future."

The city of Freeport was designed and constructed back in the late 1950s and early 1960s as a major industrial city, focused on the benefits of a deep-water industrial port. Today, Freeport has become a rapidly growing hub of international air-sea transhipments, oil bunkering, manufacturing, warehousing and cruise ship repair facilities – all strategically located 90 miles off the US coastline for global access. Freeport is also home to one of the largest privately owned harbours in the world and the world's largest privately owned airport, which offers daily flights into major east coast cities. Many international banks, accounting firms and law firms also boast Freeport offices. "And Freeport has one further advantage," adds Feldman. "The 1955 Hawksbill Creek Agreement between The Bahamas government and the GBPA, established a 230 square-mile free trade zone known as the ‘Port Area’ and most importantly, complete tax immunity from income, capital gains, real estate and business taxes until 2015 and from all customs and excise taxes until 2054." The large level of commitment both investors and government has shown in the project has translated into a vibrant level of confidence in the island. Like many other business investors, Oceanic is keen to play an important role in developing the unlimited potential of young and dynamic Freeport.