CaribWorldNews, NEW YORK, NY, Weds. May 6, 2009: A former Caribbean ambassador is insisting President Barack Obama’s recent decision to enact into law, new provisions that would reduce offshore financial services’ attractiveness to US citizens will impact on the Caribbean and their financial services industry in distinctly harmful ways.
Ambassador Lionel Hurst, former ambassador of Antigua and Barbuda to the U.S., told CWNN Tuesday that Obama’s decision will drive a stake into the heart of Caribbean economies’ `third artery.` It like using a `sledge hammer to kill a mosquito,` said Hurst.
Some sixteen days after President Barack Obama completed his first Caribbean visit and meeting with leaders, he moved to make good on a campaign promise to crack down on U.S. companies operating in tax havens like the Bahamas and Barbados.
Under the plan announced Monday, the administration would remove tax advantages for investing overseas and close foreign tax credit loopholes.
The move comes just over two weeks since CARICOM leaders raised the issue with Obama during the Fifth Summit of the Americas from April 17-19th and as they insisted Obama would contact the regional bloc ahead of any decisions on the hot button issue. It also comes as the region continues to struggle to cope with the global recession, as many countries see a drop in remittances, tourists and real estate investors.
Hurst said the plan will increase the cost of capital significantly and highly regulatory regimes and Tax Information Exchange Agreement would count for zero.
The President’s plan is a form of protectionism which seeks to squeeze the Caribbean jurisdictions out of a market that will migrate to the USA,` said former Ambassador Hurst. `The end result will be higher rates for borrowing that will mean higher costs for the consumers of bank services. The cost of capital to all borrowers will increase significantly.`
Although the President and his advisers have spoken of all offshore financial services institutions as `tax havens` which allow many US taxpayers to avoid US taxes, their primary function has been to lessen the cost of capital to large borrowers, especially in bank-to-bank loans, said Hurst.
The `Overnight Fed Loans` that banks make to each other to allow banks daily to meet the liquidity criterion set by US regulators, could safely be deemed the major function undertaken by offshore banks, he explained.
`They provide the (highly mobile) capital to meet the lawful requirement which all banks must satisfy. The US banks use this facility because of the low cost. Shut off that spigot and the cost of overnight borrowing will escalate,` said the former ambassador.
Focusing on tax agreements, Hurst said `all the progress and law-making will count for naught if President Obama follows through on his announcement.`
The announced provisions sound draconian and will likely deal a blow that may be deadly to this significant economic sector, he added.
`The army of accountants, auditors, lawyers, and thousands of support staff in Antigua, Bahamas, Barbados, British Virgin Islands, Cayman Islands and others will see their economic opportunities disappear,` said the Bronx resident. `Bear in mind that the most feared arm of the US Government -by US citizens- is not its police or military. The Internal Revenue Service (IRS) is feared by citizens for its arbitrary ways and seeming immunity from judicial review.`
Hurst explained that when the US government sought to help Caribbean jurisdictions diversify their economies, three decades ago, US government officials encouraged Caribbean governments to engage in offshore financial services.
`In exchange, the US Government gave undertakings that it would enable Caribbean countries to prosper, reducing thereby the number of immigrants, both legal and illegal, that would seek to make US cities their homes,` he said. `As their economies prospered, relying on offshore banking and financial services (as well as tourism), the young professionals from the Caribbean found employment and other opportunities sufficient to encourage them to stay put in their own countries.
`Many Caribbean students studied at US higher education institutions but returned, after completion, to jobs and opportunities that were the equal that could be found in many US cities. The US was happy; the Caribbean governments were pleased. This symbiotic relationship would be reviewed periodically and legislation proposed to make the system free of dirty money and tax cheats. Nearly every parliamentary session in many Caribbean jurisdictions saw amendments to their offshore financial services regulatory framework.`
Hurst recommends that the tax information exchange agreements entered into voluntarily by many offshore Caribbean jurisdictions with the USA could be strengthened and other safeguards enacted instead of such a hard line move.
He also feels that the US has many tools in its arsenal to curb tax evasion and the concealment of money abroad.
`It would seem that President Obama is pursuing an ambition that gripped him when he was a Senator from Illinois. He joined with Senator Levin to draft legislation intended to eliminate offshore financial services. Now that Mr. Obama is President, the moral weight of his office, and his guarantee of 60 Senate votes, allow him to complete his agenda,` added Hurst. `We will have to wait to see what the legislation actually requires but the prognosis is not good. In fact, if Mr. Obama is not engaging in protectionist practices, he ought to end the USTR’s dilatory tactics on the WTO ruling in the Antigua Gaming dispute and permit access to US markets.`
White House press secretary Robert Gibbs says he was aware there was a discussion on the subject of tax havens at the Summit of the Americas in Trinidad but reiterated that while the administration might understand the Caribbean viewpoint, it did not change the administration’s position that, for fairness purposes, these tax havens have to be dealt with. – By CWNN staffer