The Bahamas’ major investment product was yesterday singled out for allegedly undermining the fight against global tax evasion in a move one realtor branded “a damn disgrace”.

The Organisation for Economic Co-Operation and Development (OECD) caught the financial services industry and wider private sector off-guard by listing this nation’s economic permanent residency offering among 21 incentive regimes it says jeopardise “the integrity” of automatic tax information exchange.

The Ministry of Finance last night slammed as “false and misleading” descriptions of the OECD’s action as another “blacklisting”, saying officials who are currently in Paris had received assurances from the forum’s representatives that it was nothing of the kind.

It added that The Bahamas “is under no obligation to take any measures to change its investment schemes” as result of the listing, with the ministry’s release downplaying its potential impact and, at one point, copying almost word-for-word the language employed in the OECD’s own report.

However, the listing still threatens to negatively impact a wide cross-section of the Bahamian economy, and not just the hard-pressed financial services industry. Besides attracting high net worth clients and their assets to this nation, economic permanent residency drives lucrative business for real estate developers, realtors and attorneys, and produces spin-offs affecting virtually all industries.

While the OECD’s list, and accompanying report, did not mention the imposition of sanctions or penalties against The Bahamas and 20 other countries, it did call on financial institutions to apply greater scrutiny to persons benefiting from their investment-related residency and citizenship programmes when it came to determining their tax compliance.

The Ministry of Finance, too, conceded this point, adding: “The OECD report provides practical guidance to financial institutions to undertake enhanced due diligence on clients that are citizens or residents of countries with [investment citizenship or investment residency] programmes to prevent cases of [tax] avoidance and tax evasion.”

This enhanced due diligence, and likely extra costs and time involved, could deter wealthy investors and homeowners from applying for Bahamian permanent economic residence - thereby undermining a key component of the foreign direct investment (FDI) regime that has been in place for decades.

Some Bahamian financial services professionals forecast that it could potentially slash existing GDP growth projections in half, cutting them by between 1-1.5 percent. Realtors, meanwhile, suggested between 30-40 percent of this nation’s high-end, luxury real estate market could be affected by uncertainty surrounding the listing, and its impact on investor confidence.

The OECD, in unveiling its listing, said all the regimes - including The Bahamas’ economic permanent residency - “potentially pose a high-risk to the integrity of CRS”. That refers to the Common Reporting Standard (CRS), the OECD’s global reporting standard for automatic tax information exchange, which The Bahamas began implementing last month.

It added that all the investment-related residency/citizenship products identified “can be potentially misused” to enable individuals to “hide their assets offshore by escaping reporting” requirements under the CRS.

“Potentially high-risk CBI/RBI (citizenship by investment/residency by investment) schemes are those that give access to a low personal income tax rate on offshore financial assets, and do not require an individual to spend a significant amount of time in the location offering the scheme,” the OECD, which represents the world’s most powerful economies, added.

“Financial institutions are required to take the outcome of the OECD’s analysis of high-risk CBI/RBI schemes into account when performing their CRS due diligence obligations.”

The OECD said data obtained from the CRS’s automatic tax information exchange initiative had shown these regimes were open to “abuse”, describing those posing the greatest risk as levying less than a 10 percent income tax on beneficiaries. There was also no requirement for persons to remain in the jurisdiction offering the incentive regime for a minimum of 90 days per year.

Financial services and private sector executives were blindsided by the OECD’s action, reacting with a mixture of anger, resignation and bewilderment.

Mike Lightbourn, Coldwell Banker Lightbourn Realty’s president, told Tribune Business: “I think it’s a damn disgrace, these big countries just jumping on us. It’s disgusting. Why are they picking on us? It’s just bully tactics. I’m concerned, obviously. Very much so.”

George Damianos, president of Damianos Sotheby’s International Realty, said up to 30-40 percent of the high-end Bahamian real estate market could be impacted by the fall-out from the OECD listing and its impact on investor perceptions.

“I think it will have a great effect on the condo market and new projects coming out the ground,” he told this newspaper. “I think it will have a big impact if this is the case. It’s very concerning.

“This will definitely have an effect on our real estate market, especially in properties where people are able to apply for permanent residency and economic permanent residency. If they are here for that reason, they may go away and choose a different jurisdiction. It could impact between 30-40 percent of the market.”

Mr Damianos said Paradise Island and Cable Beach were among the locations that could feel the greatest impact from any adverse reaction to the OECD listing, although communities such as Lyford Cay would experience minimal effects.

The threshold to qualify for economic permanent residency was recently increased to $750,000 for a real estate purchase. Applicants who acquire a property worth $1.5m can seek accelerated consideration, and approval, of their application.

The Bahamas, since the International Persons Landholding Act (IPLA) was passed in 1993, has used economic permanent residency as a tool to help entice high net worth individuals to make a financial investment in this nation - primarily through property purchases.

This has stimulated the high-end real estate market and industries that rely on it, with the spin-off filtering into greater employment and spending that touches many sectors of the Bahamian economy.

However, the OECD’s move is especially ill-timed for The Bahamas’ present strategy, which is to attract the financial services industry’s high net worth clients to follow their assets to these shores and make this nation their primary residence or domicile.

Paul Moss, president of Dominion Management Services, told Tribune Business that clients may become wary of conducting business with The Bahamas as a result of the extra scrutiny generated by the OECD listing.

“If we’re on a blacklist that brings extra scrutiny to The Bahamas, and we could have clients from these jurisdictions opting not to do business with a country on a blacklist,” he warned.

“It is absolutely huge, this investment incentive, that has been going on now for about 25 years. This is something that was started in the Ingraham administration’s first term, and was to jump-start the economy. Foreign direct investment is something that really drives the economy of The Bahamas.”

Mr Moss said the US and other OECD members all employed similar incentives to The Bahamas’ economic permanent residency to attract investment, which raised questions as to why this nation and the other 20 were being singled out.

“Our economy is not growing, is stagnant, and to go into our tool box and take out any programmes that have helped us in the past would be foolish,” he added. “This is incredible. Let’s look at it this way, and go to the $1.5m property for accelerated permanent residency. Ten percent Stamp Duty would be an incredible amount to miss out on to cut into the Budget deficit.

Mr Moss said it was hard to quantify the OECD listing’s impact, but suggested it could Bahamian GDP growth by between 1-1.5 percent in a worse case scenario.

Tanya McCartney, the Bahamas Financial Services Board’s (BFSB) chief executive, yesterday told Tribune Business that the industry body was “collaborating” with the Government to clarify “the nature” of the OECD listing and what it means.

“All I can say is we are reviewing it in collaboration with the Government, which I know is in dialogue with the OECD on the matter, and we are waiting to have final clarity on the matter,” she said.

“At the moment the industry would like to get clarity on the nature of this listing and what the list means.” Ms McCartney said the BFSB also wanted to obtain clarity on the “criteria” used by the OECD to determine which countries and investment regimes were named.

“We were aware they were reviewing residency and citizenship programmes,” she added. “These things never come as a surprise because we know we’re constantly being reviewed.”

The Ministry of Finance, in its statement, said investment-related citizenship and residency programmes are offered by more than 100 countries for legitimate purposes.

“Individuals may be interested in a CBI or RBI programme for a number of legitimate reasons, including starting a new business in the jurisdiction, greater mobility thanks to visa-free travel, better education for children, safety and the right to live in a country with political stability,” the Ministry said, quoting the OECD report word-for-word on this section.

“In The Bahamas, economic permanent residency gives the individual the right to reside permanently in The Bahamas, and travel freely to and from The Bahamas, unless status is revoked.

“The programme does not confer citizenship or the right to be gainfully employed in The Bahamas. The programme also does not confer tax residency, and the individual must still comply with the tax laws of their country of origin.”