BFSB Newsletter ~ Part 3

The aim of the meeting was to provide insight into how the aircraft finance industry operates and what factors encourage its development. Further, the Roundtable sought to determine if there would be commercial interest in developing a world-class aircraft registry based in The Bahamas, as well as promoting other aircraft finance and aircraft oriented businesses.

The study group clearly concluded that there is strong commercial potential for these initiatives, assuming the active support of the Government of The Bahamas.

The meeting explored the potential development of an aircraft registry and regulatory structure that would help promote a Bahamian aircraft leasing and finance industry. The group concluded that the growth of the aircraft register and associated aviation businesses would represent a substantial new opportunity for sustainable economic growth in the Bahamas.

• The Time is Right - The global aviation industry is experiencing the longest period of profitability in its 80-year history and the industry fundamentals are strong. This, in turn, has increased demand for aircraft, thereby creating new opportunities for aircraft registration, ownership and finance as well as associated service industries, such as aircraft maintenance.
• The Basic Framework is in Place - An objective analysis found that although The Bahamas clearly lags behind in terms of the number of commercial jet aircraft currently registered, the legal and regulatory structure is on par with, or exceeds, other similar jurisdictions.
• The Economics are Sound – The development of an aircraft registry would be self-funding, as well as a profit center, very much like The Bahamas Maritime Authority. In addition, it would lead to the creation of many skilled job positions for Bahamian nationals.

Based on the outcome of discussions, BFSB has recommended a 2-Phase approach, viz. (1) Investment in the Department of Civil Aviation to Create a Sound Platform for Growth and (2) Development and Promotion of Aircraft Registration, Finance and Associated Businesses.

BFSB has recommended, too, that The Bahamas follow up with ICAO on the potential of serving as the location in which the proposed International Aircraft Registry might be based. In 1998, ICAO in cooperation with Unidroit, an independent governmental association in Rome, began reviewing the concept of developing an International Registry to track the creation, priority and enforcement of security interests in aircraft equipment (including airframes, engines and helicopters). In July of this year, the International Registry Task Force released a report of their findings as well as a Request for Proposal for the International Registry System. It was the unanimous view of the Aviation Roundtable that The Bahamas' stature in the international community could only be enhanced by participating in this forum and competing for the registry to be situated in The Bahamas.

BFSB will continue to monitor the situation and to make further input to the government on this initiative, particularly on a cost-benefit analysis.

The Financial Stability Forum, the Financial Action Task Force, the U.S. Treasury Department (FinCen Advisory), the OECD and other international agencies and initiatives have raised a range of issues that challenge the status of The Bahamas as a financial services centre. The Bahamas Financial Services Board has established a Strategic Development Committee to evaluate these issues and, more importantly, to develop industry responses. The Committee formalised a BFSB working group which has been meeting for 3 months to define a strategy that would best assure a strong future for the financial services industry of The Bahamas.

While developing a comprehensive plan with both short and long term recommendations, an immediate focus of the Committee has been to define action steps needed to be taken immediately by the industry to assure elimination of current advisories. Anticipated changes in the international marketplace also reinforce the importance of strategic planning for ongoing development of the financial services sector.

Representation on BFSB's Strategic Development Committee comprises a cross section of the financial services industry -accountants, attorneys, banking and trust professionals, fund and investment managers, and insurance professionals. Additionally, the Bahamas Ambassador for Trade and Industry serves on the group.

The Bahamas is in discussions with US officials concerning application for Qualified Jurisdiction (QJ) status under new rules expected to be implemented next year.

As of January 1, 2001 it is expected that changes in the procedures governing withholding tax will become effective in the United States. The measures are targetted at US citizens owning US securities, with the intent of preventing tax avoidance on earnings or sale of such securities via foreign intermediaries, i.e. any financial institution operating outside the US.

This will impact Bahamian financial institutions holding US securities on behalf of clients, from the viewpoint of "customer confidentiality". For each payment being received by the owner of US securities via a foreign intermediary, various reporting forms will have to be completed - whether the owner is a US citizen or not. Such forms require the disclosure of the beneficial owner's identity in respect to earnings -- either payment of any dividends or proceeds of sale. Non disclosure could result in 30% of any payment to the customer being withheld in the US, even if the customer is non US and not liable to pay US taxes. Additionally, failure to comply with reporting obligations under the new regulations could result in penalties against foreign intermediaries.

Under a qualified intermediary (QI) system, the confidentiality of non US owners of US securities can be maintained, without subjection to substantial withholding. QIs are required to enter into a contract with the Internal Revenue Service of the US and to meet certain obligations. In order for a foreign intermediary to qualify for QI status, however, the jurisdiction in which it operates must be a qualified jurisdiction (QJ). QJ status is contingent on a certain qualifying standard of a "know your customer" regime being in place.

An application from The Bahamas for QJ status, a prerequisite for financial institutions in the country wishing to apply for QI designation, is under review by the IRS.

The Caribbean Community (CARICOM) has established a regional group to tighten regulations against money laundering.

Under its mandate, the association has challenged reports claiming that certain of its members pose harmful tax competition; specifically, the money laundering blacklist issued by the Financial Action Task Force (FATF).

The association also was charged originally with coordinating a legal defense against the 29-member Organisation for Economic Cooperation and Development (OECD). The OECD has identified 35 jurisdictions as harmful tax havens. CARICOM argues that the OECD has no legal standing and that tax competition is just another form of free trade in a globalised world.

During October, Caribbean leaders took their case to the Permanent Council of the Organisation of American States (OAS), charging that the international initiatives represented a "serious threat to sovereignty and national economic interest". The OAS responded, however, that the blacklistings fell outside its role and responsibilities. Although the discussions were described as "very useful", it was considered difficult for the OAS to act on financial and economic issues. Blacklisted nations were encouraged to engage in one-on-one consultations with the OECD.

CARICOM announced recently intentions of taking the case of its impacted members to the World Trade Organisation.