'Sanctions threat' from web shop taxation hike


Tribune Business Editor


The prime minister has been warned by the Caribbean's former top financial regulator that The Bahamas faces the "considerable danger" of sanctions from the web shop gaming tax hikes.

Calvin Wilson, the immediate past executive director for the Caribbean Financial Action Task Force (CFATF), last night warned Dr Hubert Minnis that The Bahamas could face renewed anti-money laundering sanctions if the industry was driven "underground" by its new tax structure.

He indicated that the emergence of concerns over an expanded gaming "black market" were especially ill-timed given that The Bahamas is currently being reviewed by the CFATF's parent, the Paris-based Financial Action Task Force (FATF), to determine whether it has sufficiently addressed the regulatory weaknesses identified in its last evaluation.

That evaluation, conducted by a CFATF that Mr Wilson headed for 19 years, noted that The Bahamas' own Financial Intelligence Unit (FIU) had identified "illegal gambling" as one of the main offences relating to money laundering.

Acknowledging that web shops had been legalised, the CFATF report said implementation and effectiveness of their regulatory regime still had to be assessed. Mr Wilson, in his letter to the prime minister, warned that The Bahamas may have to address the "illegal gambling" issue within a matter of days as part of the FATF process - just as concerns over a tax-driven expansion of this problem were resurfacing.

Mr Wilson, a former banker, barrister and UK Crown prosecutor, called for an "immediate intervention" by the prime minister given the potential implications of the new web shop taxation regime for The Bahamas' standing in the fight against financial crime.

His June 10 letter, a copy of which has been seen by Tribune Business, warned: "A bitter legal action is threatened premised on discrimination, expropriation, breach of legitimate expectation, unreasonableness, unfairness, lack of empirical analysis and the absence of consultation with stakeholders.

"There is also some opinion that one of the unintended consequences of the Government's approach may be the expansion of the existing 'black market' gambling houses, which may expose the Bahamas to possible international sanctions.

"And it is on this point that there is considerable danger of a possible resumption of international sanctions. With the benefit of valuable information which was available to me whilst at the CFATF, and with the Bahamas' national interests uppermost in mind, I would like to urge your immediate intervention, honourable Prime Minister, for an expeditious resolution of this matter given events that may transpire at the FATF in a few days."

Alfred Sears QC, attorney for the Bahamas Gaming Operators Association, warned in a May 31, 2018, letter that the proposed Budget tax hikes on the web shop industry threatened to drive the "numbers" business underground where it would be harder to regulate - a development that would attract the attention of sanctioning international regulators.

The Association's own study, by 10-year gaming industry veteran and accountant, Gavin Hamilton, suggested that the increases, and their impact on the seven licensed web shop chains, would drive 30 per cent of the industry's existing customer base to an 'underground black market' which already accounts for 15 per cent of domestic gaming business.

Members of the former Christie administration have also warned that the Government's plans will take the sector back to where it was pre-legalisation in 2014, an outcome they say will be counterproductive to the intent behind that move.

Mr Wilson, meanwhile, said the revival of such concerns was poorly timed given that the Bahamas is in the midst of addressing the deficiencies in its anti-money laundering/counter terror financing regime identified in last year's CFATF.

While it was unclear whether the Bahamas had given such a report at the recent CFATF plenary, Mr Wilson said the country had also "met the criteria to be reviewed" by the FATF's International Cooperation Review Group (ICRG) - a process that was previously confirmed to Tribune Business by Carl Bethel QC, the attorney general.

This review is due to complete this month, and the ex-CFATF executive director said the process gives countries a year to rectify deficiencies or "face further and detailed scrutiny in the coming months" and be subjected to FATF public statements and inclusion on its IRCG Compliance Document.

Warning that this could bring "international reputational risks", Mr Wilson recalled how the Bahamas spent $35 million to escape its original 'blacklisting' in 2000, paying "a significant price" for doing so.

He added: "Given the current heated national debate on the proposed tax increase to be imposed on the gaming sector, apparently without objective expert analysis and stakeholder consultation, the potential flight of gaming operations to the 'black market' arena and the flagging of illegal gaming as one of the top predicate offences by the FIU, the Bahamas could be called upon to address this issue with its regional and international counterparts in a few days.

"Therefore, any significant change to the taxing architecture of domestic gaming should be supported by expert analysis and stakeholder consultation to ensure there will be no increase in existing 'black market' illegal gambling and other money laundering vulnerabilities in the Bahamas."

Web shop operators have warned that the reduction in locations and winnings payouts, as a result of the tax hike, will further push patrons into the arms of 'underground' gaming. They have argued that the Government is comparing "apples and oranges" by basing the sector's new tax structure on what exists in markets such as Florida and Macau, which they allege are not comparable to the Bahamian industry's structure.

Mr Wilson said that, in the circumstances, it was "in the Bahamas' best interests if the current impasse" between the Government and gaming industry was "settled as expeditiously as possible" via dialogue.

"If it is indeed correct that the Bahamas will seek to exit the FATF ICRG this month, then there must be no impediment or detracting information that could preclude the Bahamas from doing so," he wrote.

Warning that the Bahamas was at "a critical juncture", Mr Wilson added: "All national efforts must be directed to towards urgently moving past this impasse through creating the climate for dialogue so that an appropriate level of tax could be determined for the gaming sector and, importantly, removing any possibility of a return to black market illegal gambling operations given the potential negative implications for the Bahamas' international reputation at this very sensitive time."