[dropcap]R[/dropcap]ecent times have seen the Caribbean’s financial sector at an epicentre of global debate surrounding offshore banking and tax havens. This debate has always existed in the region but, following the revelations in recent years from the mass-leak of documents commonly known as the Panama Papers and the Paradise Papers, a new dynamic has arisen. One where there’s renewed pressure on institutions locally and globally to crack down on the excesses and abuses that can occur in the local financial industry. This can drive local nations to revolt at receiving orders from foreign capitals, the practice hearkening back to the bad old days of colonialism. Let’s look now at the latest on the state of local banking and global pressure.
Tax Havens Defined
Because the financial industry is so complex as a standalone – and this made even more complex when it shifts from a national to global perspective – many different views can swirl around just what a tax haven actually is. That’s why it’s essential that a clear-cut definition is in-hand here, in order to recognise where the pressure points exist. Put simply, a tax haven is a sovereign country or place (such as an overseas territory of a large country) where the existing rate of taxation for foreigners is regarded as so low as to be ineffective. Hence why these havens appeal to many of the world’s wealthiest who wish to avoid paying a far higher rate in their home nation.
The traditional culture of secrecy (what some may call ‘discretion’) that surrounds these havens has further incentivised clients while angering government accountants, criminal investigators and social activists around the world who often point to tax havens as a source of global evil. The reality of the matter can see more shades of grey, especially when it comes to a global business being attracted to the region after it previously headquartered in a place that may have had very high rates of tax. Also, many nations actively cut or keep low certain tax rates (such as the Republic of Ireland to incentivise foreign tech companies to headquarter there). Nonetheless, in an era that sees the greatest global rich-poor gap since the beginning of the 1900s, few ‘regular citizens’ have an appetite to hear about how billion dollar businesses and individuals are hard done by.
Paradise and Panama Papers
Most regular citizens would understandably find the revelations contained within the Paradise and Panama Papers odorous. The idea that, even if offshore banking and tax minimisation may be totally legal, it may be done exclusively to avoid a regular rate of taxation in an individual’s native nation, can be unpalatable, not only for people in the individual’s home country but throughout the Caribbean. The old adage ‘I’m not rich enough to pay no tax’ is often cited as a lament here. It’s a reality, too, that offshore banking at its worst can provide a safe haven for the ill-gotten gains of despots, thieves and hypocrites. Oftentimes they are one and the same.
Commonly, powerful authoritarian individuals, who patronise the poorest of the poor in the world, decrying all ‘the evils of the West’, will, at the same time, make use of a financial avenue that the western world provides, in order to ensure that their huge wealth (often gained by thievery or exploitation of those same vulnerable people) is secured under the rule of law in a nation with a stable democracy. History shows that irony is never lost on criminals.
Nonetheless, many people in the Caribbean are ready to work in good faith and look to common-sense reforms of issues in the region’s various financial sectors. It’s also true that people in the Caribbean family want to see that there is a level playing field globally when it comes to tackling this issue, and recent times have seen doubt thrown on that possibility.
The EU Elephant in the Room
When the European Union announced in December 2017 its blacklist that ‘named and shamed’ tax havens, it was no surprise that a number of Caribbean nations caught publicity on the list, with Panama, Barbados, Grenada and Saint Lucia (among other nations) featured. But the absence of one tax haven was especially noted: the UK. British academic and accountant Professor Prem Sikka went so far as to say the list ‘smacks of imperialism’. Many people of the Caribbean felt the same, wondering why the region’s little nations had been encircled when sizeable powers far closer to European shores had been overlooked.
Since then, some common ground has been found and inroads made – in May the EU removed the Bahamas, Saint Lucia and St Kitts and Nevis from the blacklist and shifted them to a lesser ‘grey list’. But the EU’s process has also (ironically) faced criticism for its ambiguity, prompting Brussels to ultimately release further documentation surrounding how the tax status of a nation on the blacklist is assessed. The elephant in the room here is the Brexit negotiations. Just as it was the day after the vote, it’s plain and clear that the negotiating power in this matter resides with the European Union. Great Britain now confronts a difficult and uncertain future, and Brussels knows that whatever London achieved via Brexit, it must come with a powerful form of deterrence to ensure that other nations flirting with the idea of an EU exit know it will leave them licking their wounds. That said, the EU also recognises that Britain will remain a key trading partner in the European bloc. It will also remain important as a security partner and diplomatic ally. And ultimately, Brussels cannot afford to alienate London totally, given it is presently the second biggest economy in the EU, sitting between Germany and France.
Getting Everyone in the Conversation
This absence on the blacklist of the UK is a key example of inequality when it comes to reforming global tax havens. If such a two-tiered approach to reforms is allowed to grow, it in turn increases the risk that many people in the Caribbean, who would have otherwise been ready to support change in good faith, instead revolt against it. They believe that whatever issues may exist in the financial sector, it doesn’t provide license for an overseas power to issue edicts and demands from afar while overlooking issues closer to home. Furthermore, unlike the more wealthy and affluent nations that function as tax havens, for many Caribbean nations the financial industry is a lifeblood (alongside tourism) that runs their economy.
There’s no suggestion that this grants permission to commit any crime; just, instead, that reforms need to be pursued with good faith and partnership with regional nations. Demonisation and declarations from afar not only generate painful reminders of history, but could represent a huge economic risk to the livelihoods of people in the Caribbean family, if recklessly handled. That’s unlikely to win support locally, especially if people of the Caribbean feel there’s no global understanding of the region’s concerns.
