International Financial Centres: Over-Regulation and the Rule of Law

Since 1998, some of the larger nations of the world (each a member of the Organization of Economic Corporation and Development (OECD) and driven by France, imposed a series of rules they called ‘international standards’, on smaller nations – mostly former colonies, which they did not apply to themselves. Since then they have imposed  further  demands – often conflicting – together with a host of ‘treaties’ and ‘agreements’, to which smaller nations could offer no derogation.

The point is simple: Either, the last 20 years of regulations imposed on small international finance centres (IFCs) had positive results and these micro-states are the most well-regulated jurisdictions in the world … or the OECD/larger nations are exceedingly poor at conceiving, designing and negotiating treaties and agreements, and all their regulatory fiats have been for naught; which makes doubtful the value of any further initiatives (which seem to emerge without end).

Pre-emptory Breaches

First, any rule or regulation – Tax information Exchange Agreements (their codicils), the EU Common Reporting Standard (its codicils), the Foreign Account Tax Compliant Act (its codicils) – are ostensibly  pre-emptive breaches of fundamental rights as they require an absolute, unidirectional derogation from constitutional fundamental rights protections in the requested state, at the demand of the requesting state. They are ‘pre-emptive’ because they are attached to no crime and no probable cause for any crime. They are equivalent to policemen arbitrarily searching every house on the street to which he is assigned, every day as a routine, just in case there may be some wrong doing.

Second, these purported regulatory initiatives are ostensibly pre-emptive because there is no accuser  and yet, the rights of the holder of information, his or her legal and professional privileges, his or her right to constitutional privacy (having nothing to do with secrecy) are arbitrarily impugned, for no legitimate reason that has the character of law. 

Third, these purported regulations are ostensibly pre-emptory – meaning they are equivalent to a strip-search every day, again, for no probable cause – and so are unconstitutional inherently, as they force a breach of constitutional law in one state to satisfy tax law in another state; by means of  imploring the government of the requested jurisdiction to substitute its oath, duty and powers to protect their citizens’ rights under their constitutions to a foreign power, without due process of law, without charge, without confrontation of witnesses against them and on no legal basis, save that the requesting nation is larger or more powerful or stands with or behind membership in an organisation or group that allows the requesting nation to leverage that power, forcing compliance with rules it does not accept for itself.

Regulatory Overkill

It seems that as small jurisdictions comply with one blacklist, yet another one emerges demanding compliance. In late 2017, the Caribbean Community (CARICOM) Secretariat felt compelled to react strongly to another list threatened at the usual intervals. Secretary-General of CARICOM, Irwin LaRocque, described the EU's blacklisting of some member states as "arbitrary and punitive":

“This decision by the EU has been based on new and unilaterally determined criteria that go beyond the generally accepted international tax transparency and accountability standards, which our countries have been diligently meeting over the past several years.”

These are not the more egregious examples of failed coordination, even as the risk in reputational damage to the listed countries is always severe.

For that, one must look into the jurisdictions themselves, where a palpable fear and trepidation has led to a kind of Stockholm syndrome, which has exhibited itself in the form of capitulation. In The Bahamas, draft legislation was ‘provided’ to the government, which returned home and opened parliament during the Christmas holiday to pass the laws under the duress from larger nations.

All the jurisdictions passed laws or adopted rules or signed Tax Information Exchange Agreements (TIEAs) that were/are inconsistent with the fundamental rights provisions in their constitutions. Where they adopted rules on ‘automatic’ and therefore administrative information exchange, they breached their own common law rules of inherent ‘due process’ and administrative law principles of audi alteram partum,  which means “let the other side be heard as well”.

The OECD, specifically, faces a dilemma on pain of legitimacy: Either it is an international organisation, making it subject to the Vienna Convention on Treaties (1965), which means its practices in imposing unilateral cross-border regulations against select small nations have fallen far short of the Vienna Convention – having secured those ‘agreements’ by coercion, and so again they are void as law by niceties of law.

Or, it is not an international organisation, which means it avoids governance by the Vienna Convention, but then it must follow by remedial logic that all its regulatory initiatives are invalid and have no effect in law and are nothing for which any sovereign state or constitutional democracy should have regard.

I would also note Article 26, as an anticipatory, inherent ground for legitimacy and invalidity under the Vienna Convention: “Every treaty in force is binding upon the parties to it and must be performed by them in good faith.”

Article 6 (3) of the OECD’s own Convention, drafted in 1960, reads as follows:

“No decision shall be binding on any Member until it has complied with the requirements of its own constitutional procedures. The other Members may agree that such a decision shall apply provisionally to them.” 

It is a callable proposition against good faith, to reserve for oneself precisely what one denies to others. There is no means by which, smaller jurisdictions could have endured these regulatory impositions in ‘good faith’, not at least in light of the facts.

Gilbert NMO Morris
Ambassador Professor Gilbert Morris is National Public Reader of The Bahamas, Ambassador-at-Large and Scholar-in-Residence at the Bahamas Foreign Service Institute (BFSI) at the Ministry of Foreign Affairs, Bahamas. He was Professor at George Mason University, where he taught in four faculties of the university. Morris is also one of the world’s leading thinkers on Financial Centres and gained global prominence as Advisor to Pierre Darier in his capacity as Chairman of the Swiss Private Bankers Association (SPBA). In 2003, Morris was contracted by CITIC/StarCapital to complete the largest ever study on “Multimodal Distributional Centres in the Caribbean Basin for the facilitation of China-Caribbean Trade” for Madam Wu, then the Vice Premier of China. Morris also served as Chairman of the Turks and Caicos National Investment Agency (then TC Invest, now INVEST TC). Morris also served as Senior Economic advisor to the Ministry of Finance of Turks and Caicos Islands (2006-2009), advising National Economist and PS of Finance, Delton Jones. In 2009, he was appointed Special Envoy from the Office of the Premier to the All Party Committee of the House of Lords, UK. Morris served for many years as a lecturer in Financial Services for STEP and the UK Law Society and was twice selected as Hamilton Distinguished Lecturer in Bermuda. Returning to the Private Sector in 2012-2019, Morris was selected as Chairman of the TCI Resorts Economic Council (TCREC), representing the 14 largest developers in TCI. Morris’ forth coming book (February 2023) is titled: “The Criminalisation of Financial Centres”.