Prelude To A Paradigm Shift: A Sustainable Economic Model For Financial Services In The Caribbean

Part I: Lie Of The Land

It was 1999, and the forecast was as follows: “Klemens Von Metternich is one of three political heroes of mine from human history. He is the patron saint of diplomatic strategists, both for his hand in defeating Napoleon and the organisation of the magnificent Congress of Vienna in 1815, which saw a small nation command the respect of larger nations. Metternich said: “Large nations are always right, small nations can only keep from being wrong”. This is a cardinal principle of realpolitik, which we - small island states operating International Financial Centres (IFC) - face now from G20 nations, which is likely to disturb permanently everything we assumed erroneously about the nature of the international system or our places within it. In the near future, these force entreaties from the OECD and EU, masquerading as “international rules”, are more likely to force unthinking compliance, than reflection on who and what we are as states in the world and where we should like and/or have the capacity to go. If the “capitulation mode” ensues, it will offer no solace, but will instead induce a goalpost moving riot of ever new and invasive fiats, demanding our compliance, without legitimate authority or regard for our jurisculture, even as they flout the very rules they evangelise to and for us.”[i]

In the ensuing years, these remarks, tethered to their locales and places of presentation, were made again and again. The OECD, EU and G20 were largely indifferent, since they had the attention of IFCs in capitulation mode, with a variety of justifications – all under the miscalculation that IFC compliance was being sought – when in fact, the entire edifice of unidirectional, unrelenting, shifting “rules” were aimed at the elimination of International Financial Centres (IFCs); an ambition The Rt. Hon. Gordon Brown - British Prime Minister (2007-2010) and the President of France, Nicolas Sarkozy (2007-2012) made clear at the G20 London meeting in 2009, fresh from their near destruction of the global financial system in 2008.

Between 2012 and 2021, a forced acculturation emerged: a group calling themselves “journalists”, with the complicity of international newspapers from OECD member states, initiated a series of cyber crimes…hacking into law firms in IFCs, revealing the recognised names of their citizens holding accounts in IFC jurisdictions, the aim of which was to harden the notion that the mere holding of accounts in IFCs constituted not merely a crime, but was evidence of nefarious intent and every wickedness.  

This played across the world through the Panama Papers (2016), Bahamas Papers (2016), Paradise Papers (2017) and Pandora Papers (2021). Let’s gain some perspective: in the newspapers of G20 member states, along with stories condemning “Russian Cyber-hacking” of elections in the US, France, Canada and Britain, appeared self-congratulatory stories of ‘journalists’ hacking or leveraging the proceeds of hacked legal files and financial advisors across the IFC world, (excluding the G20), with private information configured in printed stories, dramatised to appear as news. I myself called on Matthew Valencia, then a fine journalist for The Economist, asking that he appeal to his editors to exercise journalistic integrity by withdrawing headline images and magazine covers displaying these criminally obtained, biased stories with images of islands and palm trees, with a fat Lord chomping cigars, whilst flashing US dollar hordes.

There is a dissonance between OECD, EU and the G20 asserts of legal virtue, whilst imposing on small island states, as financial crimes flourish in their jurisdictions, together with IFCs miscalculating an elimination strategy for a compliance one. A global OECD member state/G20 media, operating in moral schizophrenia: one story attacking IFCs in the narrative of the OECD; the next story revealing financial crimes at Deutsche Bank or HSBC without a word of reference to blacklisting. This extended to publishing companies rejecting manuscripts which demanded a return to the rule of law and the multilateral international system of rule-making. Instead, they framed those manuscripts as “biased” in favour of IFCs.

Part II: A Clearer Picture 

The resolve in IFC jurisdictions - to the extent there was resolve - was that the OECD was overbearing, the EU was belligerent and first the USA Patriot Act 2001 (Title III) then FATCA, all combined to limit IFC choices.

But this is a false narrative.

It is true that the OECD has no jurisdiction in international law to call on sovereign states. Neither does the G20, a non-entity in international law. The realpolitik - as expressed by Metternich above, however, demands that we face the reality. That reality is not what the OECD’s members desire or attempt beyond law to impose. Instead, IFCs must face their own failures at systematising their business models: the problem for small island IFCs is “jurisdictional renting”. That is, they are not financial centres by any degree. They are merely jurisdictions that offer prophylactic financial services, often disconnected from the developmental needs of the real economy. Alternatively, a financial centre is a trade zone, protected by constitutional and trade rules, best governed as a quasi-government entity with commercial management. Nearly all IFCs in the Caribbean region - sovereign and non-sovereign alike - rent their jurisdictions to professionals from OECD/G20 member states by proximate or accidental arrangements, with the results that their domestic populations suffer exposure to and consequences from OECD/EU/G20 impositions because of the systemic anaemia of ‘jurisdictional renting’ and the utter lack of strategic coordination amongst IFCs.

Look no further than the City of London. The British control that British financial services zone and they are themselves exempt from interference from Greater London or the Crown. Manhattan enjoys a less formal but similar role, dramatised in the 2008 financial and economic crisis, where despite obvious criminality, the banking leaders have survived and thrived (leveraging taxpayer’s money or so prospering off the very people they betrayed). A more instructive example is Singapore, which “punches above its weight” in the global financial system by means of its membership of the “FOREX quartet” (Frankfurt, London, New York, Singapore). But beyond that, Singapore does not rent its jurisdiction. It has formulated a strategy for its role in the global financial system and it executes that strategy as government policy.

There are no such organised financial centres in the Caribbean.

Cayman Islands - about whom I agree with my colleague economist Marla Dukharan - is the best managed economy in the Caribbean (I say the Americas). Cayman is the nearest approximation we have to a structural financial centre, with Bermuda following in Insurance. Cayman’s Singaporean apotheosis comes in the quality of its legal profession, its fund management, efficiency of regulation and the fact that in the last 10 years, it has managed to become - for a time - the world’s largest holder of short term US Treasury Bonds. Between Cayman, Bermuda, BVI and Turks and Caicos Islands, they are responsible for more than one million jobs in the UK, yet, none of them have fashioned a credible foreign policy or strategy to leverage these achievements. For a time, BVI had a more strategic and intimate relationship with China than the UK (cultivated by the great Robert Mathavious). Yet, BVI never took the next step to cultivate leverages for its protection, first amongst which would have been Mr. Obama’s concession to China at the G20 London meeting in 2009, to produce a White Paper on the Role of IFCs for the follow-up G20 meeting in Pittsburgh later that year. Bermuda has a stellar reputation (not for its routine capitulations to OECD/EU) but amongst IFCs globally and in its own right as the home of expertise in global reinsurance. Yet, Bermuda tends to see its reputation as a trophy rather than a strategic tool.

The Bahamas and Malta have stepped forward in Digital Assets, but again, their approaches aren’t  comprehensive or industry scale, nor are they such as to frame the global possibilities of the space - in both regulatory and commercial terms - to maximise innovation identified with itself. Panama stands on its own, uncertain of its leverages. Barbados was sensible in initiating a series of Double Taxation Agreements, rather than Tax Information impositions, which merely masquerade as agreements, yet Barbados of a sudden disappeared in the vortex of its own financial crisis. The Eastern Caribbean, Mauritius, Jersey and Guernsey are “are marking time” with no notable innovations. The UAE - like Cayman - has carved out a space for itself, and its model is a better approach than all those named above. Qatar has had the most instructive new model of any structural financial centre, but is hamstrung by its limited cultivation of strategic options.

Part III: A Mature Paradigm

Malcolm X said once: “If you wish to change a culture, first you must have an act of integrity”. The way forward is simple, though far too complex to explicate in a short article. Suffice to say the following:

1. IFCs must end all jurisdictional renting.
2. IFCs must designate FREE TRADE ZONES in their jurisdictions as their financial centres, structured as constitutional and trade nexus, particularly where they are already members of WTO. For Overseas Territories, Britain has gained no momentum after Brexit for reasons of failed strategic thinking. Therefore, as leveraging wealthy retirees is a US$50 trillion dollar forward option over 20-40 years, Britain has no other option but to coordinate with a group of Overseas Territories, with “world’s leading” (Insurance, Funds, Luxury Villa developments) in their names. As the scale and term of this opportunity is expansionary, strategising with Britain need not be adversarial.
3. IFCs must establish an ORGANISATION OF INTERNATIONAL FINANCIAL CENTRES (OIFC) (as I tried to do with the great late Eric Crutchely, then of Cayman National Bank in 2002), with a Secretary General, a research facility and a global media organ.
4. IFCs must rescind every “Agreement” obtained by force, where there is no mutual compliance by OECD members in accordance with the Vienna Convention on Treaties 1969.

The Opportunity

In North America, 100 million people will retire in the next 20 years. Globally, nearly 17 per cent of the populations of the G20 nations will retire in that time frame.

This means the Caribbean and its IFCs are best positioned for the largest economic expansion in our histories, to develop luxury retirement communities, supported by advanced health amenities, with bespoke tax-neutral financial services – all operating on enterprise technology platforms.

If imagined at scale and executed properly, this approach could initiate domestic sovereign funds, drive local construction and infrastructural development, whilst motivating a professional skills training imperative across the development space. A sovereign fund’s balance sheet could leverage financial services and ostensibly offer domestic investment instruments - debt and equity - of such a quality as to structure opportunities within our jurisdictions.       

This paradigm ends jurisdictional renting, establishes a sustainable economic model (not merely as retirement zones, but medical record data centres), defends that business model, diversifies the economies as a trade proposition, whilst opening IFCs to trading in financial services as essential nodes in the global financial system. 

Footnotes:

[i] ”The Future of Financial Services”, 17^th International Cambridge Symposium on Economic Crime, Jesus College Cambridge 1999, Gilbert Morris 

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”.