How do you see the Foreign Account Tax Compliance Act (FATCA) affecting the financial service sector?

MOREE: I think that FATCA is certainly going to have a permanent impact on the financial services industry. The first obvious point is that it is going to increase the cost of doing business. It remains to be seen the exact impact, and how significant that will be. We are living in a time where the cross-border cooperation in the collection of taxes seems to be the expectation of all the major countries. When you look at the G20 countries, the Organization for Economic Co-operation and Development (OECD), the Financial Action Task Force (FATF), and all the other organizations involved in this, they are clearly expecting foreign governments and service providers in all countries to assist in monitoring the outflow of funds from their own countries. We are in a sense being deputized as tax collectors for the major industrialized countries. We are being conscripted into service. That affects compliance, the regulatory environment, the cost of doing business, and competitiveness.

As an International Financial Center (IFC), we have to be very careful about making sure that we respond in accordance to the reasonable expectations of the international community. We belong to the community of nations and we are a responsible, well-regulated jurisdiction. At the same time we must protect our competitiveness to make sure what is happening is happening across the board, so there is a level playing field. It has been difficult at times to keep abreast of the ever-increasing demands of the larger countries. Once you address one set of concerns, another set of concerns is articulated by the major industrialized countries. A good example of that is what has happens in the exchange of information. Several years ago the major industrialized countries were looking for arrangements for exchange of information on request. They were very happy to set up those arrangements. We set up a number of Tax Information Exchange Agreements (TIEA) to facilitate the exchange of information on request. We changed about 12 pieces of information in our major legislation to accommodate the legitimate concerns of the OECD, and particularly the FATF at that time, to ensure cross border cooperation, and exchange of information. It has become clear that the major countries are no longer happy with exchange of information on request. They now want automatic exchange of information. That is a good example of this creeping mission, and the moving the goal posts.

It is difficult to know exactly where this game is going to end. We try to do the best we can. Certainly FATCA has had an influence, under FATCA Model 1 IGA, that speaks to automatic exchange of information. Once you do that with one country, even though it is the United States, which is a very large country, it is only a matter of time before other countries are going to want similar treatment. We understand the concerns that these countries have to collect their taxes for the benefits of their own citizenry. Many countries have lots of commitments to pay because of their social net. We understand the concern to plug the leaks and to stop tax evasion. I am not sure that concern is reciprocated at all in favor of the IFCs. The major industrialized countries seem to want to close down the IFCs. In fact, the President of France made that statement, where he was refreshingly candid in saying that his objective was to close down the International Financial Centers. That is simply not a viable option.

If you look at the Bahamas, closing down our financial services industry would severely impact the economy of this country, and fundamentally change the Bahamas. We hope the OECD and the G20 countries would have a little consideration from our point of view, as they expect us to have of their point of view. We do not want to end up in a game where might is right. Clearly they are larger than we are. We are a very small country. If we end up playing this game on the basis of the biggest stick winning, obviously we will lose, and we will have to comply with demands under threats of sanctions. One would hope that in 2013, that would not be the way in which countries would expect sovereign governments to operate. I think there has to be mutual respect in understanding the issues, and there has to be a reasonable attempt made to avoid terrorist financing, which we are all against, and a reasonable effort made to stop tax evasion. We must do what we can, without going so far as to completely eliminate the industry.

The G20 is now officially on the record expecting automatic exchange of information. That is going to be an extremely difficult thing to achieve across the board. If you are expected to give automatic exchange of information to the United States, England, and many other countries, financial institutions and service providers are going to be spending most of their time trying to deal with compliance issues in order to meet these automatic exchange of information requirements, rather than conducting their business. At some point this becomes oppressive. If the intention of the G20 countries is to close down the offshore industry, then that is very unfortunate because that is shortsighted. It would not help the United States if the Bahamas was thrown into economic chaos, bearing in mind that we are 100 miles off the coast of Florida. I would have thought it was very much in the interest of the American government for the Bahamas to be a stable, well-governed, regulated jurisdiction, with a stable economy. To destabilize our economy in this way does not make much sense to me.

The Bahamas cannot implement FATCA without major changes to our legislation. The Banks and Trust Companies Regulations Act (BTCRA) is only one statute. We are most likely going to have to amend 10-15 statutes in order to facilitate the implementation of FATCA. That is going to take some effort on behalf of the government. At the moment, our legislation is incompatible with FATCA, so there will have to be some amendments. I am sure the government is planning to make those amendments. Today, any sense of privacy or bank confidentiality is perceived by the larger countries as being a bad thing. That is unfortunate because high-net individuals, and people in business, have privacy concerns for all sorts of legitimate reasons. This applies particularly to certain parts of the world where being a wealthy person exposes you to kidnapping, crimes against your family, and oppressive governments that are not all democratic. There are very legitimate concerns for business people to want a level of privacy.

We all accept that this cannot be absolute. When you have instances where there are cases of fraud, or violations of domestic tax laws, it is acceptable that there needs to be ways of obtaining information. If you get to the point where you want to completely eliminate privacy and confidentiality in business, I think that is going a bit too far. We will certainly have to amend major pieces of our legislation to accommodate FATCA. Those amendments will have to relate to those levels of privacy and confidentiality, which is basically codified in our statutory law. Those amendments will have to facilitate the exchange of information, either under Model 1 on an automatic basis, or under Model 2 on some other basis on the level of institutions. You cannot juxtapose the current statutory regime, which imposes on the banker a duty of confidentiality with the requirements of FATCA. That is not going to work. We know that FATCA is going to override, so we are going to have to amend our legislation. The impact that this will have on our industry is yet to be seen.

It is a very tough schedule. We will have to build the institutional capacity to make these changes. We have not seen a great increase in human resources. We have seen a lot of technology being directed in the area of compliance. A lot of the system and technology changes are going to have to take place at the level of individual institutions. These are being handled at the head office. It is then sent out to their subsidiaries and branches around the world. Enormous resources are being put into FATCA compliance around the world. All banks in the Bahamas are receiving a lot of help from their head offices in that regard. There will have to be some local tweaking of that. I have not seen a great inflow of human resources, either at the governmental level, or at the private sector level. This does not surprise me too much at the private sector level because a lot of this work is being done at the head office, and it will be made available in terms of systems, technology platforms, protocols, and procedures. This will be worked out at the level of the head office and disseminated through the group worldwide.

If we use the Model 1 IGA, that is going to require considerable resources at the governmental level. That is an issue that some of us are concerned about, to see if we have the capacity to build the infrastructure that is going to be required to comply with FATCA under Model 1 of the intergovernmental agreement. The government is aware of that, and one would expect that they are making the necessary plans to ensure that they have the resources to achieve what they must achieve within the specified time periods. Certainly, from the point of view of FATCA and the IRS, they are unlikely to be sympathetic to a request for an extension. They are holding the line very firmly at the moment, and they are expecting various governments to be ready to comply.

How do you view the level of investor protection in a general sense in the Bahamas?

MOREE: We are feeling competitive in that regard. There are some countries that have treaties that take it a bit further than we do in the Bahamas. I believe that when we complete the application to join the WTO, assuming they approve it, becoming a member will have certain implications in that regard because we will be required to build the investor protection regime that we have. At the moment, I would describe it as adequate, but not robust. I see it strengthening. Under the WTO, we will have to strengthen it.

It is a matter of competition. The current business model of The Bahamas revolves significantly around FDI. This is the engine of the economy. Looking at the statistics over the last 20 years, you can see that the growth in our GDP is directly correlated to the level of FDI coming into the country. Under our current model, FDI is critical to our economy. It is the major engine that drives the Bahamian economy. In order to be competitive, we are going to have to address that issue to make sure that when foreign investors are looking at investing in different countries, they will find that the Bahamas, for a number of reasons, is competitive. We are extremely competitive on many issues, but protection for investors is something we are going to have to fortify over the next 5-10 years.

What is your current business mix?

MOREE: The business mix of our law firm is 75% international and 25% domestic. We have a large litigation firm, which is probably the largest in The Bahamas, which makes up about 45% of our business. We are also involved in corporate and property work. We do cross border work, transactions, business law, financial services, banking, and consultancy. We are a full service law firm, except for criminal law. Financial services are a large part of our business. I personally do a lot of financial services. I have been involved in that industry for over 30 years. It is a good source of business for the firm. It has been a particularly busy area of business for us over the past decade because of all the developments that have been taking place internationally.

How would you like the international business community to view your firm?

MOREE: All of the law firms in the Bahamas are quite small. Relatively speaking, we like to think that our service platform is at least equal, if not better than many international law firms. We would like to think that in our area of specialty, that we provide practical expert and specialized advice through highly qualified lawyers. We think that in terms of costs, we are competitive. In terms of the international community, we wish to project a profile that we are an international law firm, we have highly specialized expert lawyers, practicing in specialized areas where they are very experienced, where they provide practical business advice. We provide smart solutions. We are competitive with our costs. We have a sophisticated technology platform, and a fairly well developed service platform. We think we can compete with our colleagues around the world. In a bad economy, professionals like lawyers and accountants find difficulty in growing. The economic climate is really important for us. FDI is very important to us because it produces mega projects. Foreigners undertaking touristic projects like large hotels, or resort and property developments, are major components of our work. Certainly, in the course of a 12-month period, you need to have your share of those mega projects.

On the other hand, the American economy is very important to us. We are inextricably linked in terms of proximity and geography, but also in terms of what is happening economically. So much of our business comes from America. Litigation is the largest practice area of our firm. Financial services, corporate property, private clients, all follow in terms of revenue they produce. Our major ability to grow and develop is ultimately linked to the level of activity both domestically, and primarily in North America. South America has been an emerging market for us, for my firm, and for the Bahamas in general. We have been spending resources to exploit the opportunities down there. With the Baha Mar project we are looking into Asia and China, which will obviously be affected positively once it is finished. Those are our major areas. There are some new areas of law that I think will emerge over the next 10-15 years. Compliance is a big practice area compared to 15 years ago. Computer law and technology law have become quite large. I also believe competition law will develop in the Bahamas, or anti-trust law as it is referred to in America. Until recently, when the telephone company was privatized, there were no anti-trust laws in the Bahamas. Under the legislation that was put in place with the privatization of the telecommunications sector, and certainly under the Economic Partnership Agreement with the EU and WTO requirements, the Bahamas will have to introduce a full regime of competition laws within the next 5 years. I think that is going to be a growing area for us.