This month the Organisation for Economic Cooperation and Developments (OECD) proudly announced that the Bahamas was the latest tax haven to make the decision to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters:

"We very much welcome that The Bahamas has now officially expressed a strong interest in joining the Convention. Signing and ratifying the Convention will be a very significant step forward in implementing its commitment to tax transparency and effective exchange of information, in particular under the OECD/G20 Common Reporting Standard"

Pascal Saint-Amans, Director of the OECDs Centre for Tax Policy and Administration

The Bahamas indication that they intend to implement the treaty (note that nothing has in fact been signed) follows significant pressure exerted on the archipelago by the OECD to honour its commitments under the Common Reporting Standards (CRS) which require financial institutions to automatically exchange information regarding their clients to their clients local tax authorities. The Convention is seen to be the gold standard measure for tax-cooperation and key to the fight against global tax evasion and avoidance. 111 countries have now signed up to the convention with 52 Countries (including the UK) commencing automatic exchange of information with other jurisdictions in September 2017 (see our related blog: 'United Arab Emirates the latest tax haven to sign up to enhanced tax transparency' ).

That the OECD has felt the need to publish the decision to sign the convention follows extended political wrangling between the OECD and the Bahamas Government. The OECD was not happy that, although the Bahamas was part of the CRS, they had chosen to implement bi-lateral treaties on a country by country basis rather than the all-encompassing multi-lateral version. The Bahamas argument against a multilateral approach related to concerns over security and data leaks. However this received short shrift from the OECD. Following negotiations with the Bahamian cabinet last year Mr Saint-Amans announced, if they play games they will lose. Their reputation will be hit.

It seems his words were headed by the campaign group the Tax Justice Network (TJN) who describe the Bahamas as a major wrecking-ball threatening global efforts to clamp down on cross-border financial secrecy, elaborating further that the Bahamas decision not to sign up to the multi-national convention makes it the dirty-money centre of choice. Indeed, historical links to Meyer Lansky (Al Capones accountant) who invested significantly in the Bahamas and the fact that the archipelago does not recognise tax evasion as a predicate offence for money laundering, makes the Bahamas reputation a vulnerable target.

However, it is too simplistic to suggest that multilateral convention and the CRS should be implemented come what may. Genuine concerns regarding privacy and data protection leaks are entirely legitimate in a situation where hundreds of nations will be sharing significant amounts of personal data multilaterally. There are undoubtedly going to be problems with so much information being shared in one go and all states (including those rich nations of the OECD) would do well to ensure that they are not at the wrong end of a massive data protection breach.

Finally, the elephant in the room: The OECD continues to put pressure on a number of offshore and developing nations to ensure compliance with the CRS. However its richest member, the USA, has not signed up to the CRS at all. The argument - because they have already implemented the Foreign Account Tax Compliance Act (FACTA) which requires financial firms around the world to report accounts held by US citizens to the Internal Revenue Service - it is not necessary. But what about disclosure of information held by financial institutions based in the US? US officials have an answer to that too - individual agreements to disclose information with other jurisdictions will be signed on a bilateral basis I am sure that idea has been suggested somewhere before.

Original post:

Bahamas succumbs to OECD pressure to implement the Common Reporting Standards - Lexology (registration)