Keynote Speaker: The Hon. E. T. Richards, JP, MP, Deputy Premier and Minister of Finance, Government of Bermuda
Date: 13 November 2014
Venue: The Adam Room at Lloyd’s of London, Lime Street, London, EC3M 7HA
Time: Reception: 7.00pm; Dinner: 7.45pm; Carriages: 11.00pm
Chair: Robert S. Childs, Chairman of The Bermuda Society and Chairman of Hiscox
Good evening ladies and gentlemen. It is a pleasure and a privilege to have the opportunity to share with you some thoughts about Bermuda this evening.
Since the general election of 2012, my colleagues and I in the new government have been diligently working away at economic recovery while trying to improve public safety and social justice – no easy task. One of our projects is to dismantle multiple layers of protectionistic red tape. The truth is, in the age of the Internet, protectionism is not only a waste of effort, it has “protected” us from inward investment, “protected” us from an inflow of productive talent and “protected” us from recovery. Our best protection from the challenges of the outside world is to be more competitive.
Despite the multiple layers of regulatory protection, Bermuda’s economy is about as open an economy as you can imagine because, as an island with no natural resources, every penny every Bermudian has or earns comes from the same place:- outside Bermuda. This means that engaging with the outside world is as vital as the heart is to the body. Much of that responsibility falls to the Minister of Finance who is responsible for the economy.
After spending some time trying to ascertain which way was up, we called it “looking under the hood,” – which translated into British English would be “looking under the bonnet” – we discovered a number of things were not as they appeared or had deteriorated markedly from what they had been previously. Now there were many such things and I won’t bore you with them all, but one stands out in my mind, and that is how we are viewed by the wider world. And since every penny every Bermudian has comes from outside Bermuda, the world perception of our island could be either a glorious opportunity or a dangerous risk.
30 years ago because of its strategic location, Bermuda was an indispensable partner of the West in the Cold War – the stand-off against the Soviet Union. We were the centre of NATO anti-submarine surveillance in the North Atlantic. Consequently in those days Bermuda’s Premier had Prime Ministers Thatcher and Major, and US Presidents Carter, Reagan and Bush on speed dial, almost literally. This contributed to the universal belief among Bermudians that Bermuda was indeed very special.
But with the Cold War’s end that incredible access to the inner sanctums of superpowers waned, and as a new government, we found that, instead of enjoying that special status to which we had become accustomed, we had become just another dot on the map.
Instead of being welcomed as a strategic partner, we were being blamed for the new ills of the world:- economic stagnation, other countries’ gaping budget deficits, aiding and abetting international criminals and terrorists, even starvation in Africa. This was evidenced at last year’s pre-G8 conference on Tax Transparency and Trade at Lancaster House.
What a shock that was! As we are indeed not in the business of parking and hiding tax evaders’ money from legitimate authorities.
Ladies and gentlemen, I cannot speak on behalf of other dots on the map, but I am here to declare to you tonight that Bermuda is still indeed very special. While we are no longer an indispensable player in global geopolitics, today Bermuda fulfills an indispensable role in the global economy by protecting people and business against catastrophic events. The protection from such risks frees up investment in productive enterprises around the world and thereby fosters global economic growth.
The US rating agency Standard & Poors regularly analyses Bermuda and they say Bermuda boasts 16 of the top 40 reinsurance companies in the world; 2 in the top10.
By contrast Europe has 11 of the top 40; and USA 6 of the top 40. In terms of our share in Global Reinsurance Premiums:
Bermuda is the single most important Property/Cat market with 37% of such risk being placed with Bermuda.
In Europe, Bermuda recently paid out some large claims: Windstorm Xynthia –
Bermuda’s share was 37% or $1.25bn; Air France Southern Atlantic disaster –
$222mn; Costa Concordia $800mn; The Buncefield oil platform fire $600mn.
In the US:
You may remember hurricanes Andrew, Katrina, Wilma and Rita and, more recently, super-storm Sandy that ravaged the US east and gulf coasts. Bermuda reinsurers paid out $billions in claims for these disasters. I’m sure you also remember the disaster at the Word Trade Center on 9/11, 2001:- perversely that tragedy was a defining moment for Bermuda’s reinsurance industry. The claims for that catastrophe were staggering and many onshore insurers were teetering on failure. The Bermuda companies paid their multiple $billion in claims on time. It was then the world knew Bermuda reinsurers were not some sort of tax gimmick, they were the real deal, they had met the sternest test. So, why do we have this business? Is this all about low taxes as some would have you believe? Well if it is, all the other dots on the map would have a reinsurance industry like ours. But they don’t.
And while low taxes initially brought international companies to Bermuda, the island’s international business sector has long since evolved past that. Bill Gates once said that the most important assets of his company, Microsoft, walked in and out of the office every day.
So too with Bermuda: – the secret to Bermuda’s success lies with the intellectual capital that resides in our island, running those 21 or so companies that provide financial services to global customers; in the (re) insurance field. This intellectual capital has been attracted and unleashed by the synergy of three elements:
• the Government,
• the regulator, the BMA , and
• the private sector, working together.
Perhaps this is where the notion of the Bermuda triangle originated. In fact, Bermuda’s contribution to the global economy more than merely protects against risks that inhibit global economic growth. Bermuda’s economic model actually creates and supports jobs, not just in Bermuda but in our onshore trading partners. Noted economist Charles Ludolph, former senior economist in the US Commerce Department, conducts economic studies on the impact of Bermuda’s international business sector on onshore economies. In terms of employment, he estimates Bermuda based enterprises support in excess of 350,000 jobs in the US and upward of 100,000 jobs here in the UK. All over the world, business people and investors are continually searching for that compelling value proposition to invest in. I think you can now agree that Bermuda’s international business sector provides a compelling value proposition to the world economy.
And it is a value proposition that is worth nurturing and defending in a sometimes hostile environment.
One of those times is right now. The great recession has put great stress on many institutions which have heretofore carried the aura of functionality, but now the cracks have been laid bare for all to see. One such institution is the international structure of bilateral tax agreements. This system evolved after WWII, among OECD countries.
The problem is anaemic growth – post the recession – has resulted in major revenue shortfalls for G7 governments. Dots on the map are easy political scapegoats, and we have indeed been scapegoated.
To exacerbate the problem, the system of bilateral tax agreements never anticipated the information age. It was built to handle the taxation of trade in physical products. The age of the Internet has changed all that and the system can’t cope.
It is not a tax system that Bermuda had a hand in creating. It’s the OECD’s system. As an island that imports virtually everything our tax system (and we do have taxes) was built on taxing imports – a system that dates back over 100 years. Customs duties still form a major component of our tax revenues as well as payroll taxes and a myriad of different fees. So the notion that Bermuda has geared its tax system to attract offshore business is false.
But if you listen to some commentators you would think that not charging corporate income tax is down right immoral. Bermuda government revenues total about 16% of GDP. By comparison US federal tax revenues total 19% of their GDP – same ball park.
To be sure, as a government, we believe in the virtue of minimal taxes. As far as I know, higher tax rates have never resulted in greater economic growth. But ours is not to judge other countries how they conduct their own fiscal affairs, just as it unseemly for countries to cast aspersions on Bermuda’s because we don’t have corporate income tax. We do not differentiate between international companies domiciled in Bermuda and local companies, so called ring fencing certain companies for tax purposes. All companies are treated the same insofar as our taxes are concerned.
Another issue is the degree to which we cooperate and share information with other countries. It is important to note that Bermuda has never been a jurisdiction with bank secrecy laws, despite what you might read in the media. Nothing could be further from the truth. We do, however, respect the privacy accorded to people according to British Common Law.
We have gone out of our way to cooperate with other countries’ tax authorities when it comes to sharing information on their taxpayers doing business in Bermuda. We have had a tax information exchange agreement with the US since 1986. We were one of the early adopters of FATCA. If you include the Multilateral Tax Convention of Tax Matters, which we signed last year, Bermuda has over 70 tax information exchange agreements (TIEAs) with other countries. And when we are asked for information by one of our TIEA partners we are prepared to use the courts to enforce the request. In the past year I have taken three recalcitrant entities to court for dragging their feet on TIEA requests and have won all three times. So we take our obligations seriously in this regard. One thing is certain if you are a tax evader, a terrorist financier or a fraudster, don’t use Bermuda. We don’t want your business and you are not protected on our shores.
Last year the UK government led an initiative at the G7 meeting to encourage countries to establish central registers of beneficial owners of companies in their countries and make those registers public through a website. This was supposed to help make corporate ownership more transparent and assist law enforcement establishments track down international criminals.
This initiative was beyond the standard established by FATF, Financial Action Task Force, the global standard setter on transparency matters. None of the other G7 countries have stated their intentions to adopt this standard, yet the UK says it is proceeding with this project itself, and they are pressuring OT’s to adopt this public register.
There are a few important points to be made here. Please remember I do not speak for OT’s – only for Bermuda. While we fully support the UK’s desire to uphold global standards of tax and transparency, the only jurisdiction that I know which actually presently has such a register is Bermuda. There have been legal requirements, under the Exchange Control Act and the Companies Act, to provide information on the beneficial ownership of companies registered in Bermuda since the 1940’s. We also have an active automatic system to keep the register up to date as ownership changes over time. It is a central register i.e. not held by corporate service providers but by a government entity, in our case the BMA. Information kept at corporate service providers is subject to obfuscation by CSP’s who in most cases are law firms. We share the information we have with international law enforcement when they are investigating specific cases. We do not share this information with Tom, Dick or Harry of the public.
As far as I can tell, the quality of the data the UK will collect, if or when the register is constructed, will not be as detailed or complete as ours. However, because we are a dot on the map, we are being pressured to deploy a mousetrap that will be inferior to the one we already have, by someone who doesn’t have it himself. This is the problem with being a dot.
Insofar as transparency is concerned, we share information with international tax authorities through our TIEA network and we share beneficial ownership information with international law enforcement. Yet for some this is not enough. One wonders will whatever we do ever be enough? Perhaps that is the lot of being a dot.
One thing is clear, if we agree to a public register while our competitors around the world do not, we will put ourselves at a distinct competitive disadvantage, a situation that would severely damage our economy, an economy that is struggling to emerge from five consecutive years of economic contraction.
Our position is that when the great English-speaking western nations – the UK, the US and Canada – adopt public beneficial ownership registers, we will follow suit. It seems only fair that the big countries should lead by example, instead of pushing the dots out front, ahead of the pack.
I have been forthright in my conversation with you this evening because I am in the company of friends – friends of Bermuda. Bermuda is living in a hostile international environment and we need your help in telling the real Bermuda story. There is so much disinformation out there in the popular media. Help us tell the real Bermuda story and you will help Bermuda.
I would like to thank the Bermuda Society for providing me the opportunity to speak to you this evening about some of the perspectives, opportunities and challenges facing today’s Bermuda.
The Hon. E. T. Richards, JP, MP
Deputy Premier and Minister of Finance, Government of Bermuda
13 November 2014