Anger Over Taxes 'Puts Bermuda At Risk'

3/20/2009 11:17:00 AM BDA SUN
Anger over taxes 'puts BDA at risk'
Job cuts overseas put pressure on politicians to act against offshore centres, says U.K. finance expert
Public and political anger towards offshore centres like Bermuda is reaching fever pitch in Britain and the U.S.

That is the opinion of Michael Foot, a British banking expert who arrived on the island yesterday to carry out a high-level financial review. Mr. Foot - who is conducting the first such inspection of Britain's overseas territories in a decade - said the U.K. particularly could pose a major threat to the way Bermuda does business. Mounting job losses in Britain, combined with a general election 15 months away, could add up to a perfect storm that causes politicians to try to close down Bermuda's tax advantages.

In recent months leaders in Europe have joined President Obama in promising to shut down so-called tax havens. Most experts here have tended to agree that Bermuda is relatively safe because it has a reputation as being transparent and cooperative.

However, Mr. Foot said: "You probably don't get the sense of it here in Bermuda, but the political atmosphere is very, very sore in these bigger countries... I have no doubt the people in the street are very, very angry. You can understand why they are angry. For every 500,000 jobs that go in America - and I think 130,000 went in Britain this month - that atmosphere gets more febrile. And that increases the pressure on politicians. And politicians may be pressed to make decisions that on broader reflection turn out to be horribly wrong."

He continued: "At least in the U.S. there is a brand new government, which is likely to have a whole set of different priorities. But in the U.K. we are 15 months or so away from an election, which the opinion polls suggest is going to be pretty close, so politicians are under pressure to act." He said some decisions made in the pressured environment of the Great Depression were catastrophic for the world economy and took decades to reverse.

Now Chairman of the U.K. office of Promontory Financial Group, Mr. Foot held several top posts during a 29-year career with the Bank of England. He also worked for several years in the Bahamas. He said: "I have a lot of sympathy with smaller jurisdictions. Their arguments are often not well heard. It can be frustrating."

He said offshore centres like Bermuda offer huge benefits to bigger countries and to individuals in those countries. Bermuda's success rests more on the talented experts who live here than on tax advantages, he said. While there is a legitimate need to target tax abuse in countries like Switzerland, the danger for Bermuda is that it will get "put in the same box" despite having its house in order.

U.K. Chancellor Alaistair Darling announced the financial review of nine of its overseas territories that have "significant financial centres." Mr. Foot is being asked to look at a wide range of issues, including international transparency and the ability of jurisdictions to manage financial crises. He will be meeting with Minister of Finance Paula Cox, heads of banks and insurance companies and officials from the Bermuda Monetary Association.

Who would be liable for losses?

Mr. Darling ordered the review following the financial crisis that hit Iceland banks - the fallout from which cost British investors millions of dollars in Guernsey and the Isle of Man. The U.K. may be liable to repay such losses in its overseas territories. One of Mr. Foot's main objectives is to establish who would be liable if Bermuda savings were to suffer a major crash. "What would that mean for U.K. Inc.?" he said. "Who would pay? It is 10 years since a review like this was carried out. That's a heck of a long time. Sometimes it's helpful to have someone independent coming in and looking with fresh eyes." Mr. Foot's remit does not include any question of Bermuda's autonomy of Government, nor with Bermuda's tax treaties.