International financial centres are once again coming under pressure from the US Senate Committee on Homeland Security and Governmental Affairs, which has lately accused ‘offshore tax havens’ of being engaged in “economic warfare against the US”. The recommendations of the Committee, which has been investigating tax haven banks and US tax compliance, include a requirement on domestic and foreign institutions to file a statutory report whenever it obtains information that a foreign account is beneficially owned by a US taxpayer. The Committee also calls for penalties for tax haven banks that impede tax enforcement, including giving the US Treasury power to bar those banks from doing business with US financial institutions. As much of the offshore finance industry is located in the Caribbean, the Committee’s recommendations are a cause for great concern for small jurisdictions like Belize, particularly the Damoclean threat of severing the ‘correspondent bank’ relationship.
The offshore finance jurisdictions have responded by further tightening their regulatory systems so as not to give the US revenue authorities an excuse to impose sanctions. Realising that discretion is the better part of valour, Belize has recently adopted certain new measures to further strengthen its regulatory framework, as well as to place new products on the market.
Protected Cell Companies (Registration) Regulations 2008
These Regulations, which came into force on 13 June 2008, prescribe the forms and the fees for the incorporation of Protected Cell Companies (PCCs) and supplement the provisions of the Protected Cell Companies Act. In Belize, PCCs can only be formed for international insurance business or for mutual funds.
The salient features of these Regulations are:
- A PCC can only be formed with the consent of the Minister responsible for international financial services.
- An application to the Registrar for the incorporation of a PCC should be accompanied by the Minister’s Consent, and copies of the Memorandum and Articles of Association.
- There should be a five-year business plan.
- There should be details of the cell accounts to be administered (if known).
- There should be a statement that the company will not issue any bearer shares.
- The prescribed fees should be paid.
- The fee for Minister’s Consent is US$200.
- The fee for incorporation of a PCC or for conversion of an existing company into a PCC is US$500 if the share capital does not exceed US$50,000 and US$750 if the share capital exceeds US$50,000.
- Fees for other services, as set out in the Sixth Schedule, range from US$50 to US$350.
A copy of these Regulations is available online at www.ifsc.gov.bz .
International Money Lending Regulations 2008
These Regulations, which came into force on 21 July 2008, were issued by the International Financial Services Commission of Belize (IFSC) to regulate the business of international money lending by Belizean entities. The objectives of these Regulations are three-fold:
- To promote borrower understanding of the terms of credit transactions and to foster competitiveness among suppliers of credit so that borrowers may obtain credit at a reasonable cost.
- To regulate lenders in a manner that will prohibit unfair practices.
- To avoid conflict of laws and provide clarity in the interpretation and enforcement of loan agreements.
The key features of these Regulations are:
- The Regulations govern offshore lending only, i.e. lending to non-residents. No loans can be given under these Regulations to any residents of Belize.
- They deal with small loans of US$5,000 or less.
- The loans will be given for household and personal purposes only and not for business activities.
- The loans are designed as a short-term cash flow solution and not for long- term financial needs.
- There is an initial repayment period of less than one year but the loan can be refinanced.
- The loans shall be unsecured and shall not be secured by title to real property or by any other type of collateral.
- The licensee must maintain a physical presence in Belize and must ensure that at least 70 per cent of all duties and activities relating to the performance of the lender’s business are performed by Belizean residents.
- Lenders must make a prominent written disclosure of the terms and conditions of the loan on their Internet site or in other ways.
- Loan agreements must provide for the exclusive application of Belize law to all aspects of the transactions.
- There is a specific prohibition against loans to minors, i.e. persons under 18 years of age.
- Annual percentage rate (APR) is pegged at 48 per cent but the lender may impose other charges with the prior approval of the IFSC.
- All disputes must be settled by arbitration in Belize under the Arbitration Act of Belize. · Lenders are prohibited from employing undesirable collection practices.
- Credit counselling services are available on request for borrowers experiencing financial difficulties.
These Regulations are available online at www.ifsc.gov.bz .
Standard Conditions for a Securities Trading Licence
In August 2008, the IFSC issued standard conditions for a licence for “trading in financial and commodity-based derivative instruments and other securities”. These conditions, which are in addition to the capital requirements, fees and other conditions set out in the IFSC (Licensing) Regulations, provide, among other things, that the licensee:
- shall not transact any securities trading with residents of Belize except licensed banks and financial institutions, the Government of Belize or a public statutory body wholly owned by the Government of Belize;
- shall conduct its business in foreign currency only;
- must provide all of its customers with monthly statements showing the amount due to the customer and that the funds are available on demand;
- must hold in cash or qualified authorised securities customer credit items in excess of customer debt items;
- shall not encourage excessive trading in a customer’s account for the purpose of increasing its own commission;
- must disclose to customers the charges for services performed by registered firms in connection with securities transactions;
- must limit its foreign exchange trading to over-the-counter markets and organised exchanges only;
- shall file with the IFSC a monthly statement showing its paid-up and unimpaired capital, compliance with capital requirements and the number, volume and value of all trades executed during the previous month;
- must cease all securities trading in the event of insolvency;
- is prohibited from conducting any banking business;
- shall not establish a branch, subsidiary or representative office without the prior approval of the IFSC;
- shall submit to the IFSC as soon as possible a manual of operating procedures, including money laundering prevention controls;
- must ensure that its services are consistent with the products offered by licensed brokers for trading in financial and commodity-based derivatives.
A copy of these conditions is available online at www.ifsc.gov.bz .
Revised International Banking Bill 2008
International (or offshore) banks are often accused of serving as conduits for money laundering and financing of terrorism. Belize has adopted a highly conservative policy in regard to the licensing of offshore banks. Since 1996 when the Offshore Banking Act was first enacted, the Central Bank of Belize (which is the regulatory body for all banks, both domestic and international) has licensed only ten international banks.
In a further effort to enhance prudential standards in compliance with the recently revised international standards and best practices set by the Basel Committee on Banking Regulation and Supervisory Practices, the International Banking Act is being thoroughly revised and a new bill is due to be presented to Parliament as soon as practicable. The new bill:
- enlarges the responsibility of the Central Bank by assigning it a more prominent role in the administration of offshore banks;
- establishes best practices for transactions with related parties to minimise insider dealings;
- strengthens corporate governance requirements for the board of directors and the management;
- establishes limits in respect of a bank’s powers in equity holding as it relates to the size of individual investments and the total investment portfolio;
- establishes administrative penalties to serve as a deterrent for non-compliance with the Act and the Regulations.
To give the investors a choice of the vehicle for asset management, Belize has prepared a Foundations bill, which is designed to meet the demands of civil law countries as well as of common law jurisdictions. The bill is currently undergoing the consultative process and is expected to be introduced into Parliament shortly.
Belize – A Stable Investment Environment
During the last 18 years of its history, Belize’s international financial services industry has made rapid strides and has placed the country firmly on the offshore map. Since achieving independence in 1981, Belize has consistently enjoyed a stable democratic government and a safe investment climate. The successive governments in Belize have lent their full support to the development of the offshore services sector with a view to diversifying its hitherto agriculture-based economy. Belize has never been blacklisted by the Financial Action Task Force on money laundering or by any other international agency. Belize is a well-regulated yet user-friendly jurisdiction, which offers attractive incentives to investors consistent with the maintenance of internationally accepted prudential standards. The new Government in Belize, which took office in February 2008, has declared its commitment to the sustained development and enhancement of the international financial services industry, thereby ensuring a safe and stable investment environment.