The Business Blog – Panama Papers and the Threat to the Offshore Sector

Compiled by Due Diligence

Panama_LeakIn his April 28 column in The Nation, BEHIND THE HEADLINES: Time for Panama Papers fightback Tony Best wrote: –

Undoubtedly, Barbados will come under increasing pressure to reduce the presence of international investors in its offshore sector. And the heat will come from the US, Canada, Britain, France, and other OECD members.

There is no question that the small countries will be subject to new attacks, new blacklists and new sanctions because of all this. That’s what the high-tax nations and the international bureaucracies do. It is just like asking ‘why does a snake bite?

An April 29, article in the Toronto Star Canadians put $40 billion in tax havens last year quoting Dennis Howlett, executive director of Canadians for Tax Fairness, reinforced Best’s perspective.

Canada’s top two destinations for foreign direct investment are the United States and the United Kingdom. But rounding out the top five are three tax havens: Barbados, Luxembourg and the Cayman Islands.”

There might be a few resorts and golf courses (in those countries) but most of this money is not actually invested there,” said Howlett. “It goes through the tax haven and gets reinvested elsewhere. The returns on those investments are reported in places like Barbados, where there are hardly any taxes.

As a friend of Barbados and a taxpayer who has to write a cheque to Canada Revenue Agency in next couple of days for his 2015 Income Taxes, I am conflicted.

I recognize that the low income taxes paid by the Canadian offshore corporations and individuals domiciled or resident in Barbados comprise a significant share of the revenue that GOB requires to pay for its social services (and $7 million Independence celebrations).  And, of course, they also employ a couple of thousand well paid Barbadian lawyers and accountants.

I also recognize that if those Canadian corporations and Canadians resident in Barbados were paying income taxes in Canada, the cheque I have to write  would be smaller.

As Tony Best says “Undoubtedly, Barbados will come under increasing pressure to reduce the presence of international investors in its offshore sector.”

And that will undoubtedly lead to an exodus of international “investors” from Barbados’ offshore sector, and worsen GOB’s “cash flow” problem.

Finally, GOB should factor into its cashflow forecasting that with CIBC FCIB now about to sell insurance underwritten by the Trini insurer Massy United Insurance Limited, the revenue, profits and income taxes paid by the domestic insurers will negatively impact GOB’s cash flow.

Offshore jurisdictions were being placed under increasing scrutiny by the OECDs, the Panama leak will not serve to alleviate the scrutiny. Barbados has surrendered to a policy of transitioning to a service economy i.e. tourism and international business.

DD wants to see this matter discuss on BU.

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91 Comments on “The Business Blog – Panama Papers and the Threat to the Offshore Sector”

  1. Well Well & Consequences May 7, 2016 at 10:32 AM #

    Not only the silence emanating from the politicians in the Caribbean, but the fact that Adriel “Nitwit” Brathwsite was trying to influence the local media to do PR in the government’s favor when said governments are colluding with tax evaders and selling their countries for as little as 1.5% of what the tax evaders earn which easily equates to $ 1/2 billion bds or more annually….with just a little more push, they will sell the small island populations, right back into forced labor and mindbending slavery.

    Panama Leaks papers will put an end to that scam.


  2. Well Well & Consequences May 7, 2016 at 10:40 AM #

    And what is vexatious to the spirit is these bitches for leaders would be telling the people about recessions which they themselves created by taking money out of circulation and hiding it in tax heavens for their own self-enrichment, while people suffer.

    They should resume beheading for leaders, bring back the guillotine, the French and British had it right, pity they stopped..

    selling their countries for as little as 1.5% of what the tax evaders earn which easily equates to $ 1/2 billion bds or more annually……and the politians accept campaign contributions, which is personal pocket money to keep that theft and crookery of 1.5% tax in place for decades.

    That is what useless politicians do.


  3. Stuart Goodluck Freundel May 7, 2016 at 5:20 PM #

    A top aide to former Nigerian President Goodluck Jonathan was arrested by the country’s anti-corruption agency on Monday.

    Waripamowei Dudafa, who served as a special assistant on domestic matters to Jonathan, was picked up by agents of the Economic and Financial Crimes Commission (EFCC) at the Murtala Mohammed International Airport in Lagos, Nigeria’s Premium Times reported.

    Dudafa was wanted by the EFCC for his alleged involvement in an arms scandal in which $2.1 billion of government funds earmarked for fighting Boko Haram was diverted by government officials.

    Could this happen to Denis Lowe, Chris Sinckler or Michael Lashly


  4. Well Well & Consequences May 7, 2016 at 5:41 PM #

    Even international scam artists are using Barbados’ name to try to scam others around the world, because they know the leaders on the island and their bribers are corrupt and slimy.

    The president of Nigeria is right….Corruption Kills, Make the Connection.


  5. Well Well & Consequences May 9, 2016 at 8:37 AM #

    “Speaking on BBC Radio 4’s Today programme, Sachs said: “The UK and the US need to take the lead right now to end these tax secrecy havens. We see from the Panama Papers these are simply conduits for massive illegality, corruption, tax evasion and many other nefarious deeds. They just need to end.

    “If the UK and US and the European Union as a whole decided on Thursday at the UK conference that enough is enough … there could be a phenomenal change in a very short period of time.”

    Let’s hope these greedy large countries do the right thing, tax havens do disrupt economies and drives inequality. Besides, it’s time some island politicians start working for their salaries by actually using their brains, to develop the small economies.

    Exclaimer. ..I am looking at the bright side, at least pressure is being applied directly.


  6. Well Well & Consequences May 9, 2016 at 8:47 AM #

    “To counter this, they are urging governments to agree new global rules requiring companies to publicly report taxable activities in every country in which they operate, and ensure all territories publicly disclose information about the real owners of companies and trusts. A concerted drive by the EU is now under way to require companies to declare where their profits are made, and to ensure tax is paid there rather than in the country in which it is declared.”

    “Oxfam estimates that Africa loses about $14bn (£10bn) in tax revenues annually – enough money to pay for healthcare that could save 4 million children’s lives a year and employ enough teachers to get every African child into school.

    Mark Goldring, chief executive of Oxfam GB, said: “It’s not good enough for information about company owners in UK-linked tax havens to be available only to HMRC – it needs to be fully public to ensure that governments and people around the world can claim the money they are owed and hold tax dodgers to account.”

    “Corruption Kills, Make the Connection.”

    Shut them down or make them pay 10% as opposed to 1.5%….again, no intelligent person would agree to such a scam, just goes to show how steeped in corruption governments have become, it took me days to get over what they agreed to and kept in place for over a decade with Gildan.


  7. Due Diligence May 9, 2016 at 11:43 AM #

    A bit dated and off-topic, but interesting

    RBC faces tough questions over Panama connections


    TORONTO and MONTREAL — The Globe and Mail
    Published Wednesday, Apr. 06, 2016 10:37AM EDT
    Last updated Thursday, Apr. 07, 2016 6:41AM EDT

    Two days after an unprecedented leak linked some of the world’s largest lenders to alleged tax evasion and money laundering, Royal Bank of Canada went on the defensive over its ties to a Panama-based law firm used to set up offshore tax havens.

    The leaked documents, now known as the Panama Papers, stole the show at RBC’s annual meeting in Montreal on Wednesday. Chief executive officer Dave McKay faced a chorus of questions about the bank’s relationship with law firm Mossack Fonseca, through which the bank allegedly registered 378 shell companies.

    “You have to operate within the laws and regulations of a country. And you have to comply with them. We take that very seriously,” Mr. McKay said. RBC repeatedly stressed there is a difference between tax planning – a category that includes products such as tax-deductible RRSPs – and illegal tax avoidance. Mr. McKay also said the bank has a special team going through the data related to the bank’s use of Mossack Fonseca.

    For years, RBC pursued a growth strategy that pushed heavily into the Caribbean and Latin America.

    The bank’s wealth management platform also targets high-net-worth customers, who are the primary users of tax planning services. Its $5.4-billion (U.S.) acquisition of City National last year was designed to serve rich clients. At the same time, governments and regulators have increased their scrutiny of tax-avoidance schemes.

    The intensifying scrutiny has frustrated RBC executives for more than a year, according to multiple sources. Before the Panama Papers were leaked, France’s tax-evasion watchdog had alleged RBC’s Bahamian subsidiary participated in tax fraud and money laundering activities involving billionaire international art dealer Guy Wildenstein.
    RBC has never been proven guilty of any wrongdoing. In the French case, the leading prosecutor has repeatedly delayed the process and RBC has consistently denied participating in any illegal activities.

    RBC also prides itself on having avoided global scandals such as the rigging of the London interbank offer rate (Libor) and the sale of fraudulent mortgage securities, both of which resulted in multibillion-dollar settlements against several global banks. “We’re very proud of our culture,” Mr. McKay said. “We believe in doing the right thing.”

    Of Canada’s banks, though, RBC typically draws the most attention, given its standing as the country’s biggest company. Yet rivals have faced similar woes.

    Canadian Imperial Bank of Commerce also operates in the Caribbean, and three years ago the bank discovered it had potential problems within its regional wealth management operation, according to sources. To clamp down, CIBC separated its clients into two buckets: those who had a legitimate reason for a Caribbean bank account (such as to support local relatives or to buy a vacation home) and those who had not. Anyone without an obvious reason was asked to provide documentation of tax compliance – which upset many clients. Those who refused had their accounts frozen, and some were eventually dropped.

    After the three-year review, as much as one-third of CIBC’s Caribbean wealth assets under management were removed, according to someone familiar with the exercise. CIBC disputes that figure and says some accounts may have been closed simply as a preventive measure.

    Other Canadian banks have paid large fines. Between 2013 and 2015, Toronto-Dominion Bank paid $72.5-million to settle lawsuits stemming from an alleged Ponzi scheme it failed to spot in one of its Florida branches.
    The frustration felt by RBC and its rivals is largely rooted in the banks’ efforts to clamp down on clients’ bad behaviour in the past few years. People in the industry say HSBC PLC’s $1.9-billion penalty in 2012 over being used to launder Mexican drug cartel money sent ripples through the industry.
    The fallout has led to a push by global banks to build up anti-money-laundering (AML) teams. From 2013 to 2014, British banks created more than 2,150 anti-money-laundering jobs, a rise of more than 50 per cent from the previous year. At RBC, the AML group founded in 2001 had three people; by the end of 2016, it is expected to employ between 750 and 800 people, or more than half of its global compliance head count.
    “It is true they have lots of people; it is true they spend lots of money,” Christine Duhaime, a Canadian lawyer who specializes in anti-money-laundering rules, said of Canadian banks. The problem: “The level of sophistication and knowledge is a lot lower than anywhere else in the [developed] banking world.”

    AML specialists also admit that things can slip through the cracks. “Even for a bank that is really determined to be ethical, it is really difficult,” said Roy Cullen, a former parliamentary secretary who helped set up Canada’s anti-money-laundering regime. He also serves as the Canadian representative to GOPAC, the Global Organization of Parliamentarians Against Corruption.
    The corruption scandal ensnaring FIFA, soccer’s global governing body, illustrates the extent to which good intentions can backfire. When the scandal broke last year, the U.S. Justice Department revealed that some FIFA officials used CIBC FirstCaribbean International Bank accounts to move money. In one instance, relating to a $600,000 wire transfer in 2003, CIBC did its best to document the source of funds by asking for a paper track record. It was later alleged that FIFA executive Chuck Blazer and unnamed co-conspirators created a backdated consulting agreement with a Panamanian company to cover it up.

    In response to such difficulties, many banks have been cutting ties altogether. National Bank of Canada pulled out of the Caribbean in 2007 by selling its Bahamian subsidiary. “If you’re doing the due diligence you’re supposed to on each case, it’s not scalable,” said someone familiar with the decision.

    The standards for verification are now so high that it takes armies of people to research potential clients and payments – which eats into profit margins.
    RBC recently followed a similar route. Shortly after Mr. McKay became CEO in 2014, the bank started closing its Latin American and Caribbean wealth operations, and recently sold its Swiss private banking subsidiary. Sources say there were two key reasons for the moves: The bank lacked scale to expand in Latin American countries such as Chile and Brazil, and it also worried about reputational risks in the Caribbean.

    The way the system is designed, the buck stops with the banks, Ms. Duhaime said. “Whether they like it or not, they are the police force.”


  8. Well Well & Consequences May 9, 2016 at 2:09 PM #

    It’s getting hot in here!!!!!


  9. Due Diligence May 9, 2016 at 4:00 PM #

    “The secrecy specialists behind Panama Papers’ Canadian offshore dealings”

    “A sprawling industry of tax avoidance professionals — lawyers, financial planners, bankers and accountants — make a living advising the rich how and where to find places to lighten, or even eliminate, their tax responsibilities in Canada…………………..”

    Interesting no mention of Barbados in most of these Panama Papers stories.


  10. Well Well & Consequences May 9, 2016 at 8:15 PM #

    Chronic thieves and backstabbers.


  11. Crusoe May 9, 2016 at 8:35 PM #

    Just to reiterate, tax ‘avoidance’ is legal, tax ‘evasion’ is not.

    Before jumping to refer to prosecution, understand the issues.

    Change legislation if need be, but to scream for prosecution for what is not a criminal matter is…. criminal.


    ”Interesting no mention of Barbados in most of these Panama Papers stories.”

    Largely because Barbados is, contrary to lip-licking talk, adhering to its international tax treaties.

    Do, I sound harsh? Probably, because one must be careful to not run rampant with conclusions, without assessing properly first.


  12. Well Well & Consequences May 10, 2016 at 5:55 AM #

    Crusoe…there is an ongoing international investigation,,,,, not a Barbados investigation, which we all know will be useless anyway.

    Based on glaring criminality staring the investigators who did the initial investigation in the face last month, an international CRIMINAL investigation was launched mere days later…capeche..had there not been proof of criminality, there would be no criminal investigation.

    Now the ongoing investigation, because there are so many companies and individuals involved, will reveal who is evading taxes and who is NOT, until such time as it is proven that some companies are NOT evading taxes, but using a low tax jurisdication, they are ALL under suspicion, because it’s an international investigation, otherwise, what’s the point.

    All of them cannot be saints since proof of criminality was found last month, as I said previously, those companies who may be found to not have done nothing wrong, should welcome the international investigations.


  13. I Brathwaite May 10, 2016 at 6:21 AM #

    “Just to reiterate, tax ‘avoidance’ is legal, tax ‘evasion’ is not.”

    And all these revelation will revolve around just that.

    Unfortunately the mere mention of your name if you are a senior government official or politician will convict you. The public will execute their verdict and off to ‘jail’ you go.


  14. Well Well & Consequences May 10, 2016 at 11:27 AM #

    Just dont get your name mentioned…aren’t politicians supposed to be above reproach.

    What am I saying…ya talking about US, Canada, etc could never mean Barbados.


  15. Due Diligence June 17, 2016 at 4:15 PM #

    Pressure is building in Canada, to crack down on tax avoidance schemes.

    Tax loopholes cost Canada billions in lost revenue. Canada used agreements meant to crack down on tax evasion to open up corporate tax loopholes


    The popular T-shirt and sports apparel manufacturer has declared more than $1.3 billion (U.S.) in income over the last five years but has paid only $37.9 million in tax, according to its corporate annual reports. That is the equivalent of a 2.8 per cent annual tax rate.

    By its own reckoning, the company achieves this incredibly low tax rate almost entirely due to the “effect of different tax rates on earnings of foreign subsidiaries,” which reduced its tax bill by more than $384 million over that period.

    Gildan operated out of Montreal for years, but in the late 1990s it came under intense pressure to cut costs in order to compete with cheap imports, said vice-president Peter Iliopoulos in an interview. The company moved its manufacturing to Honduras, where labour is cheaper, and its business headquarters to Barbados, where the corporate tax rate is 1.5 per cent.

    “A company like Gildan that wanted to remain in the industry and maintain profitable margins — where it can drive its long-term growth strategy (was) essentially required to move their operations to countries where production costs were lower,” Iliopoulos said.

    While Gildan maintains its corporate headquarters in Montreal, it says all day-to-day business decisions are made at its office in Bridgetown, Barbados, which employs 200 people out of a global workforce of 42,000.

    “As part of that overall strategy for the company, we were looking at taking advantage of trade preference programs and trade agreements that were in place,” said Iliopoulos. “Canada has a long-standing income tax treaty with Barbados. . . The Canadian government has decided to have their foreign affiliate system function in order to provide Canadian multinationals with the best ability to compete on an international and global scale.”

    It’s not clear that any of the tax Gildan does pay — $4.9 million last year — goes to Canada. The company wouldn’t provide a breakdown of where its tax is paid.”


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