Caribbean nations hit back over Paradise Papers leak

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Offshore tax centers in the Caribbean, better known as a tourist destination, have defended their reputations in the wake of the release of the so-called Paradise Papers.

The papers, which expose the secretive financial dealings of some of the world's rich and famous, have shone another uncomfortable light on these island nations which account for an outsize portion of the world's offshore business.

Of the 19 jurisdictions mentioned in the leaked documents published in major news outlets around the world, 11 are in the Caribbean: Antigua and Barbuda, Aruba, the Bahamas, Barbados, the Cayman Islands, Dominica, Grenada, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines, and Trinidad and Tobago – as well as Bermuda, which is often grouped with the region..

One of the truly big global players is the Cayman Islands, a British territory where the papers that reveal, for example, that millions of pounds from the private estate of Queen Elizabeth has been invested.

The Cayman Minister of Financial Services Tara Rivers insisted that the documents have not provided evidence of wrongdoing and rejected claims that the territory is a place to hide wealth.

Bermuda has attracted international events like the America's Cup sailing race but the international business sector remains a key industry for the British territory. /Reuters photo

She said, "Our jurisdiction offers the international business community a framework from which to conduct legitimate business."

The Cayman Islands have a population of about 60,000 and a domestic economy of less than three billion US dollars but have attracted foreign capital of over 4,100 billion dollars if banking assets, direct investment and portfolio investment are taken into account, according to a 2016 paper by Jan Fichtner of the University of Amsterdam.

Bermuda also reacted with dismay at the revelations. "We will be aggressive in defending our reputation as we have nothing to hide," said David Burt, the premier of the British territory.

"Bermuda is not a place to hide money; in fact you cannot hide money or avoid tax in Bermuda as tax authorities receive that information automatically. Bermuda is committed to transparency, cooperation and compliance. We will not tolerate any who fall below our globally leading standards."

The business minister of Barbados, Donville Inniss, defended his country's reputation, saying, "I don’t deny that there are jurisdictions that may facilitate tax evasion and some illicit activities, but Barbados, I must stress over and over again, is not that kind of domicile."

Offshore finance has been around in the region since at least the 1960s, but the sector started to take off in the 1980s and 90s as Caribbean nations sought to diversify their economies.

Now, its importance to some of them cannot be overstated. According to the International Monetary Fund, offshore financial services provide 51 percent of government revenues to the British Virgin Islands (2014 figure), 38 percent to Bermuda (2015) and 35 to the Cayman Islands (2015).

Singer Rihanna chats with Britain's Prince Harry on December 1, 2016 in her native Barbados. The Paradise Papers reportedly reveal that British celebrities have bought homes in Barbados that allow them to avoid paying local taxes when they sell their property. /Reuters photo

But as the IMF notes, total assets in the offshore sector have shrunk in recent years due in part to global efforts to strengthen tax transparency standards, as well as to changes in global risk appetite since the onset of the global financial crisis.

For example, The Bahamas which hosts the fourth largest offshore financial center worldwide after Hong Kong, Singapore, and the Cayman Islands, has seen assets of international banks alone, including banks with trust licenses, decline to about 175 billion US dollars in 2016 from a peak of close to 500 billion dollars in 2011.

These latest revelations are sure to put further international pressure on the so-called tax havens which attract business through low or zero tax rates.

Already, European Union finance ministers have called for a blacklist of non-cooperative financial centers to be drawn up for approval in December.

French Finance Minister Bruno Le Maire has even urged EU states to consider suspending funding for jurisdictions which it is claimed are drawing away tax revenues from member states.

But Reuters reports that the EU is divided on what steps to take.

Whatever happens, the stakes are high for offshore centers in the Caribbean, some of whose economies have still not fully recovered since the global financial crisis.