Is It Really Better in The Bahamas?

Today's comment is by Bob Bauman, Legal Counsel and Senior Writer for The Sovereign Society.

Dear A-Letter Reader,

A few years ago, The Bahamas ran an international tourism campaign, using the suggestive slogan: "It's Better in The Bahamas."

The clever marketers never said what "it" was. That was left to the eye (and imagination) of the beholder. Although, the accompanying photos showed white sandy beaches adorned with beautiful young ladies in skimpy swimsuits.

As far as tourism, The Bahamas is indeed a wonderful, friendly place to relax and vacation. I've been there many times, including six days last week at The Sovereign Society's Offshore Advantage Academy on Paradise Island.

I always enjoy my stay and the people I meet. And The Bahamas is only minutes from the U.S. mainland by air, and only hours by boat - perhaps too close for comfort, as I explain below.

Back in a Simpler Time - Pre 2000

Once upon a time, The Bahamas was known as one of the primary offshore tax havens. The Bahamas boasted strict financial and banking secrecy. It still imposes little or no taxes on foreign investors and bank account holders - but other things have changed.

Four years ago next month, I got a reaction in the Bahamian news media with an article in this space entitled: "The Bahamas: 51st State?"

We were flattered that the Bahamians active in the offshore financial community cared enough about The Sovereign Society's opinion to take note of that particular A-Letter.

What caused a stir was my opinion about The Bahamas parliament approval of a Tax Information Exchange Agreement (TIEA) with the United States in December, 2003. This was the very treaty that The Bahamas had resisted for many decades.

The TIEA allows the exchange of tax information about Americans with Bahamian accounts. Plus, it applies to all criminal and civil tax matters. I went on to say that the TIEA was another nail in the coffin for The Bahamas lasting as an offshore financial center for Americans.

During the 20th century, these islands off the southeast coast of America blossomed into a major tax and asset protection haven. It was especially useful for citizens of the nearby United States. This island nation offered foreigners tax exemption. The Bahamas also had a series of well-crafted laws allowing international business corporations (IBCs), trusts, offshore banks and insurance - all wrapped in maximum financial privacy, strictly protected by law.

Then in December 2000, the Free National Movement (FNM) government, (currently back in power since May 2007 elections), passed what some locals called the "11 bills of Christmas." In just one month, they managed to seriously weaken offshore financial and banking laws - especially in all aspects of privacy.

The government wrote many of these laws with the advice of U.S. government "advisors" from the U.S. Treasury and the IRS who were all sent to pressure the Nassau government.

Irreparable Economic Damage

These new bills caused severe economic damage for this island nation. For example, in 2000 about 5,000 workers of the 120,000-strong Bahamian workforce earned their living in offshore banking. This accounted for an estimated 20% of The Bahamas' GDP.

Largely due to increased offshore financial activity, the economy grew by 40% from US$3.2 billion in 1992 to US$4.5 billion in 2000. (In 2006, the GDP was estimated to be US$6.159 billion with slow annual growth of only 4%.)

In 2007, financial services constitute only the second-most important sector of the Bahamian economy. It only accounts for about 15% of GDP. That's a drop of 25% in income and jobs in that sector.

Since December 2000, when the government enacted new regulations on the financial sector, many international businesses have left The Bahamas. Since 2000, 200 of 223 private banks in The Bahamas have closed. And 30,000 international business companies have been stricken from the official register. Local news media and the official CIA website attribute these departures to stricter money-laundering laws and weakened banking and financial secrecy.

So why did they suddenly abandon decades of pro-offshore financial laws? They said it was because the Organization for Economic and Community Development (OECD) blacklisted The Bahamas for allegedly being lax on money laundering and for not taxing foreign investors ("unfair tax competition" the OECD spuriously calls low taxes).

In May 2002, the Progressive Liberal Party (PLP) opposition won control of parliament. A new Prime Minister, Perry Christie, also took office. The PLP charged the 2000 anti-offshore laws had damaged the offshore financial community. Although they promised to review and revise many of these laws, they failed to make any changes at all. Indeed, the PLP went ahead with the U.S. tax treaty (TIEA) initiated by the defeated Ingraham FNM government. Ironically, in the May 2007 election campaign, the winning FNM opposition attacked the PLP government for not having repealed or softened the laws the FNM had adopted. (Don't expect them to make any changes either).

The bottom line: Bahamian politicians of both parties seem to be terrified of the U.S. government. Many in the islands think the local politicians have sold out the offshore financial sector.

Our obligation is to our Sovereign Society members and our readers. In years past, we recommended The Bahamas as a leading tax and asset protection haven when financial privacy was ironclad.

For foreigners, the taxes are still zero. In theory, there is still protection there, but financial privacy is dead. And yes, it offers all sorts of legal entities good for asset protection and investing, and it has commendable anti-money laundering laws relatively well enforced.

All offshore financial centers across the world have been under tremendous pressure from high tax welfare states including the U.S. - to end low tax competition and kill financial privacy. Some nations, such as Panama, Monaco, Andorra, Singapore and Hong Kong have refused to be bullied.

The Bahamas, perhaps much too close to the U.S. geographically and now in other ways as well, rolled over.

But it is a great place to visit. You should see my tan!
BOB BAUMAN, Legal Counsel

P.S. I'm told we recorded every single speaker in The Bahamas last week, so you can literally download and listen your own Offshore Advantage Academy event whenever you wish. By ordering now, you receive both the audio series from the conference (either on CD or via an MP3 file) along with the PowerPoint presentations the speakers used during the conference - so you can follow along each presentation at home. Click here to order now!

Is E*Trade in Trouble?

For many years, I've been recommending E*Trade to my investors and members as a good brokerage firm for your investment or trading account. This discount brokerage firm revolutionized the way investors can trade stocks at discount prices in the late 1990s.

But this discount firm has virtually destroyed a brand name by venturing into reckless subprime mortgages. E*Trade's board should immediately ditch their current management, which had no business going into mortgages in the first place.

On Monday, a Citigroup analyst gave a bearish forecast when claimed there was a 15% chance that E*Trade might go bankrupt. Panic hit new highs among E*Trade clients. The stock subsequently tanked 59% but recovered 41% yesterday after a BMO (Bank of Montreal) analyst said bankruptcy was "unlikely."

Although I've also recommended other brokers since 1992, this is first time that any of my recommended brokers have traded at "junk bond" status or possibly might be headed for bankruptcy.

If you have an account at E*Trade, don't panic. Cash balances are protected by FDIC deposit protection insurance up to US$100,000 combined with Securities Investor Protection or SIPC. Marketable securities at E*Trade, like all brokerages, are "off-balance sheet" items. That means creditors can't seize these securities. So your stocks, bonds, mutual funds and other marketable securities are safe.

But still, I decided to bailout on Tuesday. I'm going to miss E*Trade because it has a great trading platform, low fees and a terrific host of products. But I don't trust management. In my eyes, housing values will also continue to decline into 2008. That will put more pressure on its distressed loans and damaged balance sheet. It's time to switch brokers.

My choice is TD Ameritrade (www.tdameritrade.com). This big brokerage, owned by Canada's Toronto-Dominion Bank, claims it has no subprime mortgage-backed exposure. Make the call now and switch from E*Trade to TD Ameritrade.

E*Trade deserves to lose clients. Management made reckless decisions.

ERIC ROSEMAN, Investment Director

Privacy & Rights

Antigua: Confiscating Foreign Property
is the New Official Policy

It's now official. The government of Antigua and Barbuda has what it considers "official" permission to confiscate a US$60 million resort.

The Half Moon Bay Resort sits on one of the most beautiful beaches in the Caribbean. It's justifiably famous for its pink sand. A consortium of U.S., Canadian and British investors owns, or used to own, this resort.

Over the past 35 years, their company, H.M.B. Holdings Ltd., invested millions of dollars in the resort. However, the Antiguan government has long coveted the property. And in 2005, the Attorney General secretly transferred title from H.M.B. Holdings to the government.

The Attorney General called this action "expropriation," not "confiscation." However, owners of expropriated property receive some form of compensation. But the Antiguan government offered no compensation to H.M.B. Holdings.

H.M.B. Holdings unsuccessfully contested the seizure in the local courts. Eventually, the company lodged an appeal before the Privy Council in London, Antigua's highest court. In June 2007, the Privy Council declared the expropriation legal, but only if the government paid fair and adequate compensation.

The Antiguan government now claims that this decision provides judicial sanction for its actions. Yet, it has never offered to purchase the property. Nor has it offered H.M.B. Holdings a single dollar in compensation.

Confiscating the resort is only one initiative to discourage foreign ownership of real property in Antigua. Foreign investors in Antiguan real estate must obtain government permission - a license - to purchase it. Foreign shareholders of companies owning land there must obtain individual land-holding licenses.

Investors foolish enough to develop property must also obtain approval from the newly established Antigua and Barbuda Investment Authority. This agency is empowered to dispense waivers and concessions to encourage politically favored developers.

The Half Moon Bay Resort debacle is only the latest chapter in Antigua's sordid treatment of foreign investors. In 2001, the government tried to seize US$76 million in assets recovered from the liquidation of Eurofed Bank, Ltd. This was despite the fact that the vast majority of these assets belonged to legitimate depositors.

At the time, one Eurofed depositor asked, "What sort of message does this send out to foreigners who are doing business or contemplating doing business with Antigua's offshore sector?"

The message is quite clear. The Antiguan government, and its representatives, are the new Pirates of the Caribbean. Invest or do business there at your peril.

MARK NESTMANN, Privacy Expert
& President of The Nestmann Group
www.nestmann.com

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