Transparency and compliance have become banking buzzwords in recent years. Pressure from global bodies such as the G20 have led to an era of regulatory restraint. First came the US Foreign Account Tax Compliance Act (FATCA), which introduced an international standard for automatic exchange of information in relation to US taxpayers, followed by the wider-ranging Common Reporting Standard (CRS) – a global reporting framework developed by the Organisation for Economic Co-operation and Development (OECD).
Both FATCA and CRS are landmark pieces of legislation which have transformed the business model for offshore jurisdictions. Smaller island states have no choice but to keep up with the ever more stringent demands if they want to shed the ‘tax haven’ label and avoid being blacklisted. Saint Lucia found itself on one such blacklist earlier this week when the Council of the European Union published its list of non-cooperative jurisdictions, naming and shaming those it felt had not done enough to prevent tax fraud and tax evasion. Saint Lucia was singled out for “harmful preferential tax regimes” and the country’s failure to apply minimum standards in Base Erosion and Profit Shifting minimum standards.
At press time J. Calixte Leon, Executive Director of Saint Lucia’s Financial Services Regulatory Authority, declined to comment on the blacklisting.
Shifting goal posts
The EU’s actions are just the latest in a long line of punitive tactics employed by international authorities who are constantly revising the rules. “It used to be a system of tax information exchange by request but the goal posts have shifted and the requirements now are for automatic exchange of information,” says Leon. “The standard keeps changing. That is the problem we are facing. The international community is bearing down on us and no sooner do we think we have put in place the mechanisms to comply, than something else emerges. It is very hostile for smaller countries like ours with limited resources.”
Saint Lucia’s financial services industry is not only small, it’s also relatively young. The sector was first launched in 2000, passing a raft of legislation that not only provided a regulatory structure, but charted a course for the industry going forward. This suite of laws, passed in December 1999, included The International Business Companies Act (IBC); The International Trust Act; The International Mutual Funds Act; The International Insurance Act and The International Banks Act.
Given the pace of change within the industry, however, legislation must be continually updated. In 2016 the government passed the Automatic Exchange of Financial Account Information Order to enshrine its commitment to tax transparency into domestic law. Saint Lucia has pledged to begin reporting under the CRS in the second half of 2018.
Being up to speed with international obligations is crucial if Saint Lucia wants to fully develop the potential of its financial services sector, which currently encompasses 5,000 IBCs and eight international banks. Leon believes the industry has a lot to offer the country, saying: “Our approach to economic development was predicated on the tripod of manufacturing, agriculture and tourism. Now we are predominantly left with tourism. The next level of economic development is financial services. I believe there is scope for growth; however, the approach has to be different now because of the barrage of requirements and commitments that are being thrown at us.”
Leon would like to see the region take a united stance against international regulators who are placing an onerous burden on small island states, and offering little to no assistance. “We must find the resources to comply with international obligations that are not of our making. There are substantial costs,” he says and adds that the country will need to use a 30,000 EUR software system to implement CRS. “Instead of competing against each other in the Caribbean, what we should look at is how we, as a region, can pool our resources with a view to confronting international requirements that are thrust upon us and which individual countries may not have the resources to rebut. We are being done a disservice in this part of the world by the international community.”
Leon suggests that a united Caribbean would have more bargaining power on the world stage, and says the region has already demonstrated its willingness to work with regulators. “We are being pitted against each other [because] we do not want to be blacklisted. We need a collective Caribbean response because we have all, mostly, satisfied the commitments. What more do we need to do?”
According to Leon, what Saint Lucia needs to do is shore up its reputation as a compliant hub and identify areas of potential growth. He says captive insurance is a particular area of interest, calling it “the niche market for us”, and hopes to attract US captives in particular.
A thriving financial services sector could bring many benefits to the country as a whole, moving away from the traditional, stalling industries into a new economic era.
Leon says: “What we need to do now is ensure the integrity of the jurisdiction so that the effort at economic development is not only underpinned by tourism activity but also broadened to cover the financial services sector as a growth-promoting component of our economy. If we can manage that, there should be some benefit in the form of employment, generation of foreign exchange, infrastructure development and more.”
For now, Saint Lucia is focussing on next year’s adoption of CRS. This latest iteration of tax transparency may not be the last but the country is ensuring it meets today’s standards, in the hope that it will secure tomorrow’s business. The STAR Businessweek will continue to cover the sector as it evolves, bringing you the latest on how it’s developing and how growth in this vital area will impact Saint Lucia.