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Home Features Offshore banking and the Belize quagmire

Offshore banking and the Belize quagmire

Over the past two decades Belize has plunged head on into the abyss of so-called offshore banking. Since the early 1990’s the community of offshore banks in the nation of Belize has proliferated. How these shadowy entities have directly benefitted Belize and the quality of life of the average citizen, is anybody’s guess.

The offshore banks frenzy was authorized by the Banks and Financial Institutions Act of 1995, the introduction of the Offshore Banking Act, 1996 and the Money Laundering Act of 1996. By law these offshore entities cannot serve customers who are citizens of Belize or legal residents. However, there are many loopholes and serious weaknesses in the ability of oversight and enforcements. For example, an individual living in Belize can easily establish a bank account in a foreign country under a fictitious or associate name, and in return use the service of an offshore bank in Belize to essentially evade paying taxes. Indeed, it is widely believed that major drug cartels and their subordinates are able to do just that and avoid detection. Others open a wide range of so called legitimate business fronts in multiple jurisdictions, making it extremely difficult, if not impossible, to detect.

The Belize legislation of 1995 defines offshore banking as “receiving, borrowing or taking up foreign money exclusively from non-residents at interest or otherwise on current account, saving account, term deposit, etc.” Almost anybody with the capital backing can apply for a so called “A” class-unrestricted or a “B” class-restricted offshore banking license in Belize. It was reported that the annual license fee as recently as 2005 was a mere US$ 20,000 and US$ 15,000 for “A” and “B” class offshore application licenses in Belize.

These offshore entities are by nature designed for people who want to avoid paying taxes in their respective countries, and, as mentioned earlier, a magnet for illicit and drug money laundering. Some countries, large and small, like the Cayman Islands, Panama, Switzerland, and the United Kingdom, have been the forerunners in this lucrative business. Indeed a BBC report on March 4, 2013 stated that offshore banking is predominantly located in territories that were former colonies of Britain, and that most of the capital is then redirected via various shadowy entities back to London. The report concluded that the Swiss are no longer the main destination for money laundering and tax evaders.

In the case of Belize these offshore entities are supposedly regulated by the Central Bank and the accounts maintained by these banks are not subjected to any local taxes or exchange control restrictions. Funds are transferred into and out of Belize in foreign currencies with no conversion to Belize dollars whatsoever. In the same way that the wholesale selling of Belizean passports and unprecedented huge tracts of arable land has made a few lawyer/politicians extremely wealthy, so has offshore banking. For example, this business has been a bonanza for a well known former Belizean Attorney General who is associated with a Provident Bank and Trust that was established in 1998, and had claimed to be the largest offshore entity with reported assets in 2001 of over US$ 100 million, and controlled 80% of all international banking business in the nation of Belize.

Meanwhile the credibility of the Belize Central Bank as an oversight agency of regulation came into serious question in the midst of the Michael Ashcroft unbridled takeovers of the so-called Belize Bank, Belize Telecommunications, Ltd. and other vital areas of the local economy.

On July 13, 2005, the London Times published two leaked Foreign Office documents. The first, written in 1997 by the British High Commissioner in Belize, Gordon Barker, cautioned against the appointment of Ashcroft to the chair of the Caribbean trade advisory group. This was followed by a 1994 report by a British Foreign Office adviser calling for tighter regulation of financial services in Belize, and noting with some alarm that “low standards of regulation and supervision” were attracting “those seeking to conceal proceeds of drug trafficking and other serious crime.”

The catastrophic meltdown of the US banking sector that began in 2007, fuelled by the sub-prime loan “mortgage scam,” was attributed to deregulation started under the Reagan administration and inadequate oversight by the Finance and Banking Committee.

For Belize, the challenges are insurmountable, given the crippling effect of local party politics and a robust culture of cronyism. Indeed, despite the dangers of deforestation and constant calls and outcry from the local communities for government to put a stop to the illegal extraction of rosewood, the practice persists unabated. Mexico, Belize’s immediate neighbor to the north, has been waging a bloody war with its growing and ruthless drug cartels and, by all estimates, is not winning that fight. On the other hand, a blood-soaked and aggressive regime in Guatemala claims the entire country of Belize. Our external debt is projected to be some six billion, and we continue to essentially kick the can further down the road. Whether Belize can truly make the type of fundamental shift that is required is to be questioned.

But according to a Belizean economist, Bill Lindo, on the KREM Sunday Review recently, anybody or persons who wish to change this course will be crushed. This does not paint an optimistic future for the nation state of Belize.

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