Stand up to larger countries, Morris urges
Bermuda has a right to speak up and protect its world-leading brand in the face of larger countries and organisations pressuring smaller jurisdictions to accept their compliance regulations.
Other offshore financial centres that are also regarded as world leaders in their respective fields have a similar right.
Gilbert Morris, one of the world's leading experts on financial centres, shared those views when he gave the keynote speech at the inaugural Bermuda Compliance Professionals Conference.
He said four of the UK's overseas territories, including Bermuda, Cayman Islands and the British Virgin Islands, can rightly claim the description “world leading”. In Bermuda's case it is the world's leading insurance and reinsurance centre, with a globally recognised reputation achieved through its own innovation and regulation standards.
Professor Morris, speaking at the Hamilton Princess, said that in his travels around the world he hears Bermuda referenced as a model jurisdiction with its “gold standard” of regulation from the Bermuda Monetary Authority.
Similarly, Cayman and BVI have financial structures that are considered “best of brand”.
However, offshore financial centres face allegations of facilitating tax evasion. Prof Morris said: “But when they describe it, they are really describing tax avoidance”.
He pointed out that every American with a 401K, businesses incorporating in states such a Delaware, Wyoming and Arizona, and cruise ships registering in Florida, are all forms of legitimate tax avoidance.
“But somehow the language of tax avoidance has become very cryptic,” he said. “The other falsehood is that we are secrecy jurisdictions. To be that you have to be a civil law jurisdiction. We are common law jurisdictions and constitutional democracies, drawn on the European Declaration — which calls for personal privacy. We have constitutional privacy, not secrecy.”
Prof Morris, who was a professor at George Mason University, chairman of the Turks and Caicos National Investment Agency, and is a legal scholar, economist and author, said constitutions are being breached to satisfy the large G20 countries “that are insisting on rules that they do not apply to themselves”.
This was highlighted when he spoke of research by Jason Sharman, a political scientist at Australia's Griffith University, who, with a budget of $10,000, sought to find out where and how he could open secret bank accounts and form anonymous shell companies. He was unable to do so in Bermuda, Cayman or BVI, but was successful five times in the US, and was able to form a company in the UK over the phone and using a fake name, according to Prof Morris.
Describing the benefits of small jurisdictions, Prof Morris said: “A small country that is well managed has particular advantages over larger countries. It's smaller, so you can meet regulators with greater frequency, you can get things done much more quickly. The relative costs involved are much lower.
“The fact that our taxes can not be direct is partly the result of history; because we are islands, we import everything, so we began with customs duty as the normal way for taxation along with all the fees and licences — that was the tax model.
“And because we are small, if we can outpace our need for direct taxation by generating larger fees, then it is an offset that gives us a strategic advantage in terms of our costs. We have taken advantage of that, but we have not been very good at explaining that to the world.”
He said that since 1998 the small financial centres have “swallowed” 37 different regulatory initiatives from the G20, only to still find themselves being portrayed as poorly regulated.
Prof Morris said he was not advocating a relaxation of standards to mirror the larger countries, but that “the law is on our side, we are constitutional democracies. No large nation should insist that we do what is inconsistent with our constitution. That is the baseline.”
While agreeing to engage, where needed, in reforms to regulate better and with sounder sound financial management, Prof Morris said: “What we have cultivated since 1998; we've gone on this other road which is the interests of the G20 countries. Most of what we are doing seems to be out of fear or in the hope of avoiding the anger and outrage of the G20 countries for whatever reason, and therefore we are compliant in those things.
“Here we are, a constitutional democracy, where the fundamental rights of our constitution are founded in the European Declaration — and constantly we are asked to do things that are inconsistent with our constitutions.
“This is where our intelligence and our ability to make analysis and make the case for these issues becomes relevant.”
He said that when smaller jurisdictions simply follow instructions from powerful countries, it means their regulations are not entrepreneurial. “We are not thinking about them, analysing them and coming up with new strategies and technologies.”
Instead, Bermuda should have a strategy. Prof Morris said: “You have experts here who know how to regulate, you don't have to wait for the next initiative from the OECD or G20.
“Bermuda can say that we have a regulatory brand, we are entrepreneurial about that brand, and present that to the world by ranking countries as to whether or not they meet that criteria.
“It is time for Bermuda to lead, to exercise its brand as a tool rather than trophy, and it is time for Bermuda's voice to be heard.”
He said that Bermuda, having built a well-regulated and respected jurisdiction, had a right to speak. He said leading financial magazine The Economist had said jurisdictions like Bermuda are necessary for the functioning of the global economy.
Prof Morris added: “If that is the case, then make the case. You get to keep the country and lifestyle that you can negotiate to keep.”