The external threats banging at our gates
Bermuda has never before, in our entire history, faced such a combination of external threats to our economy, standard of living and ability to govern ourselves than we face today. And the irony is that Bermudians appear to be only marginally aware of the threat, instead focusing on old or domestic concerns such as municipalities, income inequality and immigration.
If Monsieur Pierre Moscovici and his European Union staff have their way, municipalities will become irrelevant because most of the office buildings in Hamilton will be vacant, incomes in Bermuda will become more unequal, with widespread poverty and unemployment, and there will be a further mass exodus of people from our island.
In my former role as Minister of Finance, I had the “pleasure” of dealing with Mr Moscovici twice. On the first occasion, as Minister of Finance of France, Mr Moscovici ignored the prescribed procedure and directly blacklisted Bermuda. By the grace of God and the French insurance sector that placed reinsurance in Bermuda, we were removed from that blacklist five months later.
After the next French election, he was replaced, but he later resurfaced in Brussels as EU Commissioner for Economic and Financial Affairs, Taxation and Customs. Having met with him and his staff, it was clear they had the firm conviction that there was no legitimate role for “dots on the map” such as Bermuda in the global economy. Put another way, any financial service provided by the likes of Bermuda must, by definition, be illegitimate.
This viewpoint is widely held across the EU bureaucracy. The EU Economic Substance requirements are the latest and most challenging attempt by the EU to literally put the offshore world out of business.
Today we have learnt that Bermuda has indeed been blacklisted by the EU. Blacklisting by the EU is not merely a problem for companies that do not have staff here. The heart of our international business sector is large, public insurance and reinsurance companies having their shares traded on the New York Stock Exchange.
These companies are global, doing a considerable proportion of their business in Europe; otherwise, we wouldn’t have gone through all that effort and expense acquiring Solvency II equivalence, which is a European standard. Their European business could evaporate or be severely impaired.
Moreover, there is no way an NYSE-listed company could tolerate being headquartered in a blacklisted jurisdiction for any length of time. They would be forced to make a change. Whatever that change might be, it is bound to be disastrous for Bermuda.
We do not yet know what kind of teeth this blacklisting ultimately will have. By way of reference, the French blacklist imposed a 75 per cent withholding tax on all payments from France to Bermuda. Those were pretty big teeth.
Our presence on this list at this time primarily represents reputational damage. A clean reputation is worth more than gold and years of burnishing it can be destroyed by moments such as this. There could be contracts in the private sector that depend on us not being on such a list. In such cases, those companies could suffer financial damage. Also, the EU could at some time in the future decide to give more bite to their list.
I would not jump to early conclusions pertaining to the narrative that Bermuda was blacklisted because our government was “playing games”. Knowing the attitude of the officials in Brussels relative to Bermuda, this may be an excuse for doing something they were determined to do anyway.
I note that Britain unsuccessfully appeared to try to intercede on our behalf. Hard experience in finance has taught me that we cannot, and must not, rely on the British to represent our interests in Europe. They are not reliable in this regard. This is the same British Government that we are defying regarding public beneficial ownership registers and boycotting their Foreign Affairs Committee hearing. In any case, Brexit has dramatically reduced their influence in Europe.
Let me be unmistakably clear: there is absolutely no fairness or equity in this process. It was contrived from the start. One only has to look at the economic activities in Luxembourg and Malta, two EU member states, to see that there are rules for those in the “club” and those on the outside. Some outside jurisdictions are too big to tackle, such as the United States — particularly in Delaware and Nevada. So, they bully the small ones, like us. Experience should also teach us that the only thing that does not change is that the goalposts keep shifting.
Meanwhile, the EU has exploited the rivalry between individual offshore centres — the old divide-and-rule tactic — and it has worked once again.
I know we Bermudians like to think that we are a cut above all other offshore financial centres. I was personally a fierce proponent of that viewpoint, both at home and abroad. But I have had a “road to Damascus” moment on this issue because, try as we might to differentiate ourselves, to adversaries such as Mr Moscovici and his EU staff, all the dots are the same — illegitimate! We must therefore work with other offshore financial centres if we are going to survive this existential onslaught.
The other component of the external threat comes from Her Majesty’s Government and the British Parliament. Since the last election, I have stoutly supported our government’s stance against Britain on public beneficial ownership registers. I still do. Britain must respect the Bermuda Constitution, a constitution that they themselves signed several decades ago.
As Minister of Finance, I obtained the legal opinion from the most respected QC in Britain on such matters, and it is clear that what the British Parliament wants to do breaches our constitution. We cannot let that happen.
The British Foreign Affairs Committee is a child of that Parliament. I have appeared before it once in the past myself. The recommendation of that committee to give British citizens automatic voting rights in Bermuda is a non-starter. It also breaches our constitution. I wrote a very strongly worded submission to that committee before its recommendations were published.
That the Government of Bermuda did not make a submission, or a personal appearance, represents a missed opportunity of very significant proportions. The only person that the committee heard from was George Fergusson, the former Bermuda governor. Is that who we want representing our island on important matters such as this? Really?
I firmly believe that Bermuda leaders must be willing to “speak truth to power”, vigorously and fearlessly. Like it or not, opinion-makers such as foreign politicians and the overseas media in important foreign centres of power are critical to the future of our people, their livelihoods and quality of life. Bermudians should remember that foreign capital and its local spending put food on our tables.
Bermuda has been singled out for blacklisting. No other British Overseas Territory or Crown Dependency has suffered this sanction. The Government of Bermuda, its people and the business community must ask the question, “Why?” I am informed that we made concessions to the EU that other Overseas Territories did not, yet we were blacklisted, not them. It is not likely a mere timing problem, ie, that we got our legislation done too late. This alone is not enough for us to be blacklisted, and all others not.
Bermuda hosts “permit companies” of very large high-tech companies that enable huge tax shelters. They are the prime targets of the EU, yet we have done nothing to remove them. In that context, it is not surprising that we have been targeted. A review of all factors that may have contributed to this bad outcome must be performed.
I don’t have the solution to this problem, but I do know that we need a co-ordinated effort combining the resources of the Government, the regulator and the private sector. Each side has resources the other lacks. This was the secret sauce that achieved what was thought to be impossible; ie, the acquisition of EU Solvency II equivalence.
We have to stand together and muster these resources again; and do it now because, even if we are removed from this list in two months’ time, this is not over.
I was at a meeting abroad recently, and a colleague of mine from one of the Channel Islands said he thought they had “dodged this bullet”. I said to him: “This is no bullet, mate, it’s a heat-seeking missile. You may dodge it once or twice, but it’s going to keep coming back to blow you up.”
This is the challenge, Bermuda, and we need to take it very seriously.
• Bob Richards was the Minister of Finance and Deputy Premier between December 2012 and July 2017
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