31 December 2012

Uphill Struggle for Caribbean Financial Services Sector

ST. JOHN'S, Antigua,(IPS) - In the 1980′s, Caribbean countries wanted to shore up their prospects of social and economic development in the coming decades, so they looked to the financial services sector to spur employment and development. They managed to develop a robust industry, particularly in the Bahamas and the Cayman Islands.

Today, however, the region has been struggling to keep up with evolving international regulations. These challenges come at a high cost, even as proponents of the regulations argue that they are critical in dealing with the global financial and economic crisis.

For at least two years, the international community has pressured the Caribbean, where several countries are well known as tax havens, to shut down its financial centres and implement a number of measures in order to qualify for bilateral aid. Since then, little has changed, delegates at the second meeting of the Caribbean Forum (CARIFORUM) Conference on the International Financial Services Sector in the Caribbean Region, held Oct. 30-31 in Antigua, learned.

Baldwin Spencer, the Antiguan prime minister, said the international community continues to issue “repeated demands that the region should be treated on a level playing field with financial centres in the industrialised economies using the principles of natural justice”.

He said that while the Caribbean has been committed to developing financial services in a “responsible manner and investing in their good supervision and regulation”, developed countries are the ones that have dropped the “regulatory ball”, to devastating effect on the rest of the world.

The Paris-based Organisation for Economic Cooperation and Development (OECD) has pushed for restricting, and in some cases, outlawing financial services in the Caribbean, threatening on occasions to blacklist countries that have failed to comply with some of its policies.

Regulations with a purpose

Those who support such regulations say that they are necessary given the current financial climate. The newly appointed head of the delegation of the European Union to Barbados and the Eastern Caribbean, Mikael Barfod, has defended the OECD position, insisting that it is aimed at tackling tax fraud and harmful tax practises.

“In today’s environment with the international financial crisis, the international taxation cooperation between governments and between tax administrations has gained in importance,” he said, noting that since 2009, there has been “major progress” in these areas.

He acknowledged that while Caribbean countries have made an effort to sign a “sufficient amount” of Tax Information Exchange Agreements in order to be fully accepted by the OECD, “there is more to be done in many states and the governance standards defined internationally by G20 and OECD are changing”.

Avinash Persaud, an international expert on the financial services sector and chairman of the London Business School, told IPS that the financial sector “is really quite significant” in Caribbean economies, accounting for as much as 50 percent of gross domestic product (GDP) for islands like Barbados and Antigua and Barbuda.

“They represent a major part of tax revenues. Over the past 10 years they have come under tremendous pressure by the larger economies” such as those of London, Zurich, and New York, which are under fiscal pressure themselves with little or no tax revenues and which now want to compete with Caribbean financial centres.

“They are trying to establish a set of global rules which they decide themselves and then impose on us,” said Persaud. “Then they judge whether we are fitting with those rules or not. Judge and jury. It is really ad hoc and it is really designed to close down the international financial centres coming from the Caribbean. It is certainly not a level playing field.”

New standards to follow

Ivan Ogando Lora, the director general of CARIFORUM, which is comprised of the 15-member Caribbean Community (CARICOM) bloc and the Dominican Republic, said recent recommendations by the Financial Action Task Force (FATF) regarding international standards for combating money laundering and financing of terrorism, will also now pose new problems for the region.

“Compliance to international standards now seems to be the order of the day and Caribbean jurisdictions have been making strides in this regard,” he said, noting however, despite the efforts, that Caribbean countries “continue to attract negative attention”.

CARICOM countries have already developed a final draft of a Financial Services Agreement that if approved by mid-2013 would create a single financial space with common legislation, regulations, administrative procedures and practices and will also provide for cross border supervision and harmonisation of standards.

The United States, which has complained in the past of its wealthy citizens using the Caribbean to escape paying taxes, has itself introduced a range of changes to its financial regulatory environment that regional stakeholders fear could also undermine the financial services sector within CARIFORUM.

The Foreign Account Tax Compliance Act (FATCA), for example, would require U.S. tax authorities to levy a 30 percent withholding tax on both foreign and non-financial foreign institutions where new reporting requirements have not been met.

The requirements would affect traditional financial institutions such as retail and commercial banks as well as investment banks, securities and brokerage firms, private banks and wealth management firms that do business in the United States. Any institution doing business with U.S. individuals and entities would have to immediately adopt procedures, processes and systems necessary for FATCA compliance.

Persaud said that this latest strategy underscores the struggle facing the Caribbean in recent years.

“They have essentially moved land and water to try and comply with the new rules and when they do so, the rules then change again and the costs are extremely burdensome. The cost for the Caribbean financial centre complying with international rules is ten times as the per cent of GDP as the cost of the larger rich countries complying with the rules they have set.

“The problem is we can’t abandon the sector because it is an important sector,” he said, urging the Caribbean “to fight a better fight”.

Justice Dept. and Puerto Rico Agree to Overhaul the Island’s Troubled Police Force

New York Times

Police officers detained student protesters
 at the University of Puerto Rico in San Juan in 2011

       photo by Ricardo Arduengo/Associated Press

WASHINGTON — The Justice Department’s Civil Rights Division and the government of Puerto Rico agreed Friday to sweeping changes to the commonwealth’s large and troubled Police Department intended to help overcome a history of discrimination, violence and corruption.

In a 102-page consent decree filed to settle a federal civil rights lawsuit, Justice Department officials and the departing governor of Puerto Rico, Luis G. Fortuño, agreed to far-reaching changes in the way the 17,000-member force recruits, trains, promotes and oversees its officers. This includes strict new policies on the use of force, police interactions with gay and transgender Puerto Ricans, the department’s approach to domestic violence and its handling of civilian complaints. The agreement also reins in the department’s special tactical units, which have drawn much criticism over the years.

Both sides agreed to delay putting the changes in place for several months to give the administration of the incoming governor, Alejandro García Padilla, an opportunity to review and adopt it — or propose changes. The subject is also subject to judicial approval.

“The successful implementation of the reforms contained in this agreement will help to reduce crime, ensure respect for the Constitution and restore public confidence” in the Puerto Rico Police Department, said Thomas E. Perez, the assistant attorney general for civil rights.

The agreement follows a 116-page report the Civil Rights Division issued last year accusing the Police Department of systematically “using force, including deadly force, when no force or lesser force was called for,” unnecessarily injuring hundreds of people and killing “numerous others.”

Critics of the Police Department have long complained that the force is largely corrupt, often inefficient and sometimes ruthless. This year, the American Civil Liberties Unionwrote its own report on the department, highlighting widespread abuses and violations of civil rights, especially against poor people, black Puerto Ricans and Dominican immigrants.

“These abuses do not represent isolated incidents or aberrant behavior by a few rogue officers,” the report stated. “Such police brutality is pervasive and systemic, island-wide and ongoing.”

At the same time, murder is rampant on the island. Residents largely blame the police for failing to stem the killings. In 2011, Puerto Rico broke its own record, with 1,135 homicides, a rate of 30 killings per 100,000 residents.

The Justice Department report last year portrayed a police department riddled with problems. Officers routinely conducted illegal searches and seizures without warrants, attacked nonviolent protesters and journalists and discriminated against Dominicans, gays and transgender people. The department also failed to adequately handle sex assault and domestic violence cases, including spousal abuse by fellow officers.

Governor Fortuño said Friday that nothing was more important than the safety and quality of life of Puerto Ricans. The agreement, he said, establishes a clear path toward strengthening the Police Department.

“There remains a lot of ground to cover, but we have initiated a broad reform of the police that has been necessary for decades,” said Mr. Fortuño, who lost his re-election bid in November.

The Justice Department’s Civil Rights Division, under Mr. Perez, has threatened lawsuits and pushed through a series of consent decrees to overhaul troubled police departments, including a broad one with the City of New Orleans this year. The Puerto Rico agreement appears to go further.

Among other things, Puerto Rico has agreed to expel officers from heavily armed “special tactical units” who have a pattern of misbehavior and to end the practice of using them to perform ordinary police work and routine patrols, a practice linked to complaints of police brutality.

The earlier report said the units frequently relied on “intimidation, fear and extreme use of force.”

One example it cited was the killing of Cáceres Cruz in August 2007 by a tactical unit officer. Mr. Cruz was directing traffic when three officers, driving by, thought he had insulted them. They told Mr. Cruz he was under arrest and wrestled him to the ground. An officer accidentally shot himself in the leg. He then repeatedly shot Mr. Cruz, who was lying on the ground, in the head and body before leaving the scene.

An internal investigation cleared the officers of misconduct. But after a video of the confrontation surfaced in the news media, one officer was convicted of murder. It emerged that seven complaints had been filed against him, but had been largely ignored.

The agreement also called for new controls on stops, searches, and arrests, including a requirement that the department record the reason for the stop and the subject’s ethnicity.

Because of a stream of complaints involving prisoner abuse, supervisors at precincts and stations will have to “visually inspect each detainee or arrestee for injury” and interview them about any complaints of pain. A specific policy will be instituted for how the police should interact with gay and transgender people.

And to avoid the clashes seen in recent years between demonstrators and the police, crowd control rules must be improved and closely followed.

The report also tackles the longstanding problem of domestic violence and sexual assault on the island. The police will have to conduct more thorough investigations of these crimes, set up a 24-hour hot line and track the disposition of sexual assault cases.

Charlie Savage reported from Washington, and Lizette Alvarez from Miami