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The government is looking for a "collaborative" approach to dealing with its pension problem, according to a Ministry of Finance official, who said that a committee that formed in May to tackle the $1.5 billion liability is expected to meet again "before the end of the year".
After announcing the formation of a committee to deal with the massive unfunded liability earlier this year, Minister of State for Finance Michael Halkitis said the committee members have met once and are due to reconvene over the next several months.
"We have had one meeting where we went through the report from KPMG, and we decided to set up sub-committees representing employers and employees."
"They have to study the report and come back with some recommendations, and so now what we have to do shortly is bring those two back together to look at their recommendations so we can advance the process," Halkitis told Guardian Business.
Several observers, including KPMG (Bahamas), which was hired to study the matter, have issued strongly-worded warnings about the government's unfunded pension liability, given its potential impact on the government's long-term fiscal sustainability. The liability does not show up on the government's balance sheet, given its use of cash-based accounting.
Halkitis said that the government is hoping to be "as collaborative as possible" in its approach to dealing with the pension liability.
"We don't want to impose anything on anyone. We want to come up with solutions that work," he said.
The level of activity described by Halkitis is unlikely to be reassuring to those such as Raymond Winder, managing partner at Deloitte and Touche (Bahamas), who
has raised red flags over the government's pension liability and the need to act sooner rather than later if the government is to avoid a massive drag on its fiscal position.
In a report released in June KPMG said "The current unchecked growth in defined benefit pension liabilities can be likened to the iceberg that sank the Titanic.
"Currently, government employees in the public service receive a defined benefit pension, which is paid out of recurrent expenditures when they retire - in other words, there is no pension fund supporting these payments."
KPMG said the public service pension liabilities are estimated at $1.5 billion and should increase to $2.5 billion by 2022 and $4.1 billion by 2032, if left unchecked.
"Annual payments out of recurrent expenditures amount to $60 million per annum, with staff gratuities totaling another $25 million.
"It is expected that these will increase to around $140 million by 2022 (less than 10 years away), as more and more current public service employees retire. Clearly, this is unsustainable."
Halkitis said: "The liability is huge, and it is projected to get even bigger as we move along unless we do something. This has been going on for years, but the sooner we can address it the better."
"The first thing is to make sure we have all of the stakeholders in studying the issues."
By NEIL HARTNELL
Tribune Business Editor
NO SINGLE foreign law is likely to impact the Bahamian financial services industry more than the US Foreign Account Tax Compliance Act (FATCA), a well-known accountant telling Tribune Business yesterday its effects would be "the same or greater" than previous international efforts.
Lawrence Lewis, a partner at Deloitte & Touche (Bahamas), said that while the likes of the US Qualified Intermediary (QI) initiative, and OECD/FATF efforts, had tended to focus on one particular aspect of the financial services industry, Washington's FATCA initiative would touch multiple areas simultaneously.
"In order of magnitude, I would say it is t ...
The Atlantis resort on Paradise Island is a symbol of economic prosperity, growth and wealth for The Bahamas. The luxury resort, which opened its doors in the early 1990s, came at a time when the country was struggling financially and needed a beacon of hope to guide it to economic stability.
When Sol Kerzner, hotel mogul and chairman of Kerzner International, opened the hotel in 1994, the country was in recession and experiencing a low point in its tourism performance. He was almost single-handedly responsible for the revitalization and expansion of the tourism sector.
The Bahamas owes a great debt of gratitude to Kerzner. However, current anxieties over the future of Atlantis are due to the fact that the nation had ignored the wisdom of its grandparents - don't put all your eggs in one basket.
Nearly two decades after Kerzner bought the Paradise Island property, and several expansions later, the future of the mega-resort is unclear. Kerzner recently defaulted on a $2.5 billion loan held by creditors overseas. The Atlantis resort, One&Only Ocean Club and Kerzner's Mexican holdings were collateral for the loan.
A group of senior lenders who are owed $112 million out of $2.5 billion went to court in Delaware and argued that minority lender Brookfield Asset Management was getting an unfair advantage, in regards to the debt-for-equity deal.
Brookfield pulled out of the deal just over a week ago after Judge Donald Parsons granted the lenders a temporary restraining order and questioned why the Toronto-based asset manager, as the most junior of the seven creditors, should be the only one to benefit from equity ownership of the "uniquely valuable" Paradise Island resorts.
The collapse of the Brookfield deal compounded fear and speculation of possible job losses and foreclosure at Atlantis.
However, at a recent press conference last Wednesday, Prime Minister Hubert Ingraham reminded reporters that when he came to office in 1992 Resorts International on Paradise Island was in bankruptcy.
"We did not panic in The Bahamas at that time. When Kerzner came in he bought it out of bankruptcy," he said.
Atlantis has five percent of The Bahamas labor force on its payroll.
It's a frightening number when you take into account that if it were not for the impending opening of the Baha Mar resort on Cable Beach, there would be no other entity, government or private, that could support these jobs.
This is a fact that never sat well with many people.
"First of all, I was always concerned about Atlantis being there and hiring up to 7,000 to 8,000 at one time in any country," said Leon Griffin, president of the Bahamas Taxi Cab Union.
One private employer holding the fate of all those employees in its hands is a recipe for disaster, Griffin said. "That is certainly dangerous what could happen or might happen. That has been my fear all the while [with] Atlantis and Baha Mar. I [have said] to government to be very cautious. I would prefer that kind of investment divided into four or five sections around The Bahamas.
"It's very scary because it's our leading destination - I'm hoping for the best," Griffin said.
He added that Atlantis accounts for at least one third of taxi drivers' business. "The airport is considered an important area, then Atlantis/Paradise Island, then downtown and Cable Beach. If they close down, we might as well forget it. I hope every Bahamian, even if he doesn't work in Atlantis, will pray that things go well," he said.
For each of the 8,000 direct jobs at Kerzner there are an additional 1.25 to 1.5 indirect jobs in the economy. This means 18,000 to 20,000 jobs or 15 percent of all jobs in our economy, are related directly to the operations of Kerzner International in The Bahamas.
In addition to the jobs it supports, Atlantis' additional contributions to the Bahamian economy from Kerzner's operations include:
Local purchases of goods and services - $190 million annually; Electricity consumption of the order of $47 million paid annually to BEC; Business license fees - nearly $27 million annually (inclusive of resort hotel license fees and licenses for joint venture time share and condominium operations); Room occupancy tax - $20 million annually.
As far as The Bahamas is concerned, Atlantis is too big to fail. Ingraham has said that at the moment there is no need for concern as a foreclosure would not be in the best interest of Kerzner or his creditors.
"The lenders themselves would like to collect their money back. In order for them to collect their money back, it is important for Kerzner's property on Paradise Island to be successful," he said.
It is hard to shake the feeling that some of this wound is self-inflicted.
Ingraham said he believes that responsibility for this current predicament rests with the former Christie administration.
Kerzner International now has a loan for $2.5 billion and the security for the loan is the properties on Paradise Island. Much of the loan was spent outside The Bahamas.
"It was inappropriate and wrong for the Government of The Bahamas (Christie administration) to agree for the properties on Paradise Island to be put up as a security for a loan where the proceeds of the loan were going to be spent outside The Bahamas. That was a big, big mistake," Ingraham said.
The whole situation also raises the question of whether The Bahamas has sufficient laws and regulations to protect itself against the failure of a major employer.
Raymond Winder, managing partner of Deloitte and Touche Bahamas, said that because of the lack of bankruptcy laws and regulations similar to the U.S., any creditor could put Kerzner into receivership.
"We don't have a situation that would allow an organization in financial distress to be able to ward off creditors and others who would seek to take advantage of the organization and allow it to go through a process of reorganization," he said.
However, Winder said he remains optimistic that a few months from now things will not be as dire as they are now.
"I don't anticipate that it's going to be protracted because clearly Kerzner in order to continue [to] meet its obligation and being able to present a positive face to the international community needs to have this resolved," he said.
While the future may, for the moment, be cloudy, there is still a bit of hope on the horizon.
Kerzner officials and the government have said bookings are getting better and Ingraham has said the government does not expect there to be job losses at the Paradise Island property.
"If they say bookings are strong and looking up, then you would know the odds of there being significant reduction of employees are slim in the short term," he said. "Obviously one can't speak of a year from now when one looks at Florida maybe granting full licenses to casinos. In the short and medium term Kerzner appears to have no reason to lay off staff.
"I also do not believe Atlantis has a considerable [number] of non-productive employees that any investor has to get rid of. In any business operation, clearly if there's a significant decline in revenue then a business will have to make an adjustment," Winder said.
However, President of the Bahamas Chamber of Commerce Winston Rolle said while Atlantis reports that bookings are up, Bahamians should be concerned about Atlantis' debt crisis.
"One of the things we also need to be mindful of, we talk about bookings but what are the rates? [We are] already subsidizing air travel to get people here, so are we booking rooms at reduced rates to get the numbers up? We have to look at booking quality not just quantity," Rolle said.
"The magnitude of Kerzner going into a recession impacts all of us, impacts all we do, the amount of government revenue through casino tax, NIB, import tax on goods they bring in, departure tax from tourists that affects government's revenue and if that goes down the government has to look at what social program to cut back on. It's very widespread."
Despite all of the assurances and prognostication, no one knows precisely what these seven lenders are going to agree to. At the moment, the property is still owned by Kerzner and no jobs have been lost.
It was indeed a 'family affair' in Marathon Bahamas this Sunday, as the two overall titles from the running of the fifth annual event were captured by the husband and wife team of Justin and Melissa Gillette.
The dynamic duo were just one of many families that completed in the 26.2-mile course, which took runners on a picturesque route on the northern tip of New Providence. Justin won the men's overall title in 2:36.57 and Melissa took the female title in 3:04.01.
"It felt good to win," said men's winner Justin Gillette. "It was definitely a shock to my system, to go from eight
degrees (weather), and here we were running in about 65 or 70. Everybody here on the island was just so excited. It didn't matter what country you were from, they were cheering real loud so it was pretty fun to be a part of this and to win. I've never been to The Bahamas before, so I just thought it was a unique idea. It is winter time back home so the idea of going to an island in the middle of winter is always appealing. We brought the whole family down, my kids, my wife and my in-laws. We just made a nice little vacation out of it. It is nice to have matching awards in the house, it makes the trip feel a whole lot better."
While Justin said the wind was a bit of a problem for him around mile 16 or 17, Melissa said the wind actually helped to cool her down. She also said seeing her husband out front, made her push even harder.
She said: "I think it was a little different experience for me. The beginning was rough for me. I had to get adjusted to the temperature. For me, the wind actually helped to cool me down so I ran about four seconds faster in the second half, than what I ran the first half. I got into a rhythm later on."
The top masters male division was won by Bahamian Keithrell Hanna and visitor Michelle Walker took the top masters female spot. Hanna's time was 2:49.25 and Walker finished in 3:41.26. Hanna was the first Bahamian to cross the finish line. The Freeport, Grand Bahama native said: "It feels great and I give God thanks for the victory. I have been running for 30-plus years, from I was a little child.
"This is the my third marathon. I am getting ready for the Boston Marathon, I was just preparing myself and using this for bigger events. In Freeport, I run 15-20 miles every Saturday and Sunday, running the sand and on the grass."
A number of groups and organizations also competed in the annual event. One group in particular, the Kids of Courage, an organization based in New York, had more than 50 participants. The race, for one of their members Merra Herman, was special in more ways than one. Herman said: "Kids of Courage is fairly new to me, but it has been amazing. I used to do a lot of things, like getting myself up and keeping myself up emotionally. Sometimes I used to sit in class and I couldn't move my legs because I couldn't feel them. I used to be in tremendous pain. I used to say I don't know how I was going to get up, but now, whenever that happens, all I do is think about my wonderful counsellors, the wonderful staff and friends at Kids of Courage. It is just amazing because I never had that before. It also brought me and my family closer. My brother, he pushed me pretty much the whole way, and I don't think many siblings would have done that."
The top relay team in the male division was Pharmachem Technologies which posted a time of 3:23.27 for the win. Following them in a time of 4:00.27 was Iberolam. Strombus was third in 4:03.48. The Hillview Pathfinders clocked 4:11.46 for fourth and Deloitte As One came in fifth in 4:16.58. The Smoking Hot Mamas was the top female relay team, stopping the clock at 3:56.59. The Long Island Gals came in second and the Desperate Housewives team finished third in times of 3:59.34 and 4:11.26 respectively.
Winning the men's half marathon was Jonathan Volpi, in 1:11.27, and Angela Cobb took the women's half marathon in 1:26.23.
The top player in the Financial Bowling League on Wednesday night was Phillip Davis of the Moonlight Strikers with a 217 high game and a 600 three-game set. Greg Taylor of Strike Force earned the men's runner-up player of the evening award with a 579 second high set, while a 213 second high game came from Stan Coleby of Forsythe Communications. The ladies were led by Xynea Johnson of the Fidelity Bulldogs. She toppled the pins for a 220 high game and a 574 three-game set. Johnson was followed by the runner-up player of the evening Monique Miller of Strike Force. Miller dropped the pins for a 559 three-game set. Miller also tied with Petrina Cartwright of Sunshine Insurance with a 203 second high game.
Rubis Oil Stars 3, Price Waterhouse Coopers 0
Fidelity Bulldogs 3, BTC Night Hawks 0
Moonlight Strikers 2, Forsythe Communications 1
Sunshine Insurance 2, Leno Corporate Services 1
Strike Force 2, Deloitte & Touche 1
The Bahamas' compliance under the Foreign Account Tax Compliance Act (FATCA) is "progressing," according to a stakeholder.
Lawrence Lewis, a partner at Deloitte & Touche who is leading his firm's work on FATCA, said that while the government is moving forward to implement the Model I Intergovernmental Agreement (IGA) and could be officially signing on in early 2014, the Bahamas still needs to introduce legislation that would protect financial institutions and clients under FATCA.
"There's going to be legislation that's attached to it because it will need to be something that will then give the financial institutions the right and the obligation to pass customer confidential information to our competent tax authority, then interact with the IRS so there will have to be legislation as to not expose financial institutions that will be going through that process," he told Guardian Business.
"I have not been privy to any legislation, but I do understand that certainly wheels have been turning in that regard.
"It's likely to happen not too late in the new year. Obviously, from an organizational standpoint, even though it has been announced the way that we're going, there is a certain level of comfort that comes with the certainty of actually having signed on and having the agreements in hand, and everybody being able to see it and what's required under it."
FATCA was signed into U.S. law in 2010 through Hiring Incentives to Restore Employment Act. It seeks to identify U.S. taxpayers with accounts at foreign financial institutions and attempts to enforce the reporting of those accounts.
The IRS released Notice 2013-43 pushed back the Foreign Financial Institution (FFI) Registration Portal opening and extended most of the FATCA deadlines established by the final regulations.
The Foreign Financial Institutions (FFI) Registration Portal opened on August 19, 2013, a little over a month later than previously planned.
At that time, FFIs got the chance to start setting up their profiles and adding entities without actually committing to signing or registering, until January 1, 2014.
The IRS also extended other compliance deadlines including withholding, onboarding and pre-existing account remediation by six months.
By NEIL HARTNELL
Tribune Business Editor
Enhanced reporting requirements could give the Bahamian financial services industry the opportunity "to go after US clients" once again, a leading accountant said yesterday, pointing out that marginal, per client compliance costs would be "substantially reduced" by upfront systems investment.
Lawrence Lewis, the Deloitte & Touche (Bahamas) partner, speaking to Tribune Business after addressing a Bahamas Financial Services Board (BFSB) seminar on the issue, said the US Foreign Account Tax Compliance Act (FATCA) provisions would create a regulatory 'level playing field' since all jurisdictions would be required to adhere to i ...
Downtown merchants yesterday expressed great concern over the implications of value added tax for the competitiveness of their products, as the Downtown Nassau Partnership revealed that a study has been commissioned to determine the potential impact of VAT on this sector which to a large extent relies on its "duty free" status for profitability.
Guardian Business understands some of the larger retailers may be proposing the creation of a "tourist zone" downtown that would not
be subject to VAT in the hope of avoiding the completiveness-reducing implications of VAT on the products they sell primarily to cruise ship visitors who have the choice of buying in other ports, or back at home.
While recognizing that it is not clear precisely how the sector will be treated under the forthcoming VAT regime, luxury and other duty free retailers downtown yesterday suggested dire consequences for downtown from the imposition of VAT, both on the cost of items sold, and costs to businesses, who will see VAT added to their already costly commercial leases in the downtown area.
At the Perfume Shop, Marsha, who declined to offer her surname, said that she sees the potential for VAT to "absolutely make us less competitive" in the eyes of visitors.
"It's just one more thing that they're going to put on our backs that will affect the downtown area again. If their intention is to destroy downtown this is a good way to go about it."
Noting that buyers are already extremely price conscious, Marsha said she anticipates the potential for VAT to wipe out any edge The Bahamas may have on items such as perfume.
"Right now there's a very small margin between US prices and our prices. They have their iphones in here all the time and if Macy's has something for $82 and I can only offer it for $79, they're not going to buy it to carry it around."
Meanwhile, another downtown merchant who declined to be named, said they also believe VAT would make their jewelry and watches unattractive to purchasers.
"First of all I have to say it's been very unclear what would happen, but if I were to assume 15 percent would be placed on top of prices we have now, I think we would become extremely uncompetitive.
"The reason we are so popular in terms of other cruise ports is that we can claim we are 'duty free', and have no tax like some of our neighbors. We know in Aruba where the tax is extremely low in terms of duty they do tremendously well.
"When you go up in terms of VAT and other taxes we see where it is a challenge, and I know for sure that we would have a challenge. It would adversely impact this business, to say the least."
Gevon Moss, Executive Administrator at the Downtown Nassau Partnership, told Guardian Business that a small group of downtown luxury retailers have come together to commission a study by Deloitte on the potential impact of VAT on their businesses.
"It's going to look at how we effectively work around VAT and 'duty free' and how it will all come together. It will address what has happened in other jurisdictions with duty free products when VAT was implemented," said Moss.
Yesterday one of the major downtown merchants, John Bull, declined to comment on VAT's potential to challenge the sector, as Inga Bowleg, the company's director of business development said not enough was known.
Another major downtown luxury retailer with whom Guardian Business spoke expressed a similar sentiment, adding: "The whole problem is no one knows anything, and businesses want to know."
He went on to note that besides the effect of VAT on competitiveness of luxury goods in the eyes of visitors, concern may also be warranted with respect to the impact of VAT on Bahamian's demand for these items, noting that around "fifty percent" of such retailers' market is Bahamian.
"After you go to your hairdresser in nine months and they tack 15 percent, and you go somewhere else and they tack on 15 percent, are you going to have a bit of change in your wallet to go and buy another pair of shoes? We depend on local customers too."
The upcoming Nassau Conference continues to undertake its primary mandate to provide ongoing professional development opportunities for current and future leaders of the financial services industry.
As a result of their participation in Nassau Conference 2012, the annual professional development conference presented by the Association of International Banks & Trust Companies in The Bahamas (AIBT), 11 College of The Bahamas (COB) students had the opportunity this past summer to gain invaluable experience by completing internships with nine leading banks and trust companies in The Bahamas.
By all accounts, the students had impactful experiences that will shape their future careers in the sector, conference organizers stated in a release issued yesterday.
Intern Serissa Edwards expressed that her time working in business development at Winterbotham Trust Company "was a good learning experience and good preparation for the work world".
Paula Hilaire, who interned in the Mutual Funds Department of Societe Generale, added "I am really grateful for the opportunity. It was a great learning experience."
Petra Armbrister spent her summer in the Administration department of St. James Bank & Trust Company and was grateful for the exposure the internship afforded her.
"It allowed me the opportunity to explore my career interests with mentoring from employees and gave me an opportunity to network with professionals in the industry," he said.
UBS intern Deshawn Rolle said the opportunity "helped me realize that I want to be in banking and I'm able to see the different routes I can take and where I ultimately want to be in life."
"Thank you again for this opportunity!" she said, adding: "Hopefully it isn't the last because many young minds can benefit from this program."
These and eight other interns spent the summer getting a first hand look at life as a financial services professional with the aforementioned companies as well as Credit Suisse AG, Pictet Bank & Trust, The Bank of Nova Scotia Trust Company, The Private Trust Corporation Limited and UBS (Bahamas) Ltd.
For the 8th Annual Nassau Conference, the plan is to expand the internship program to 20 students for summer 2014. The Ministry of Financial Services is the lead sponsor of the conference, scheduled for Wednesday, October 16, 2013 at the British Colonial Hilton under the theme "The Shift Has Occurred. How Are You Positioned?", and its commitment facilitates the attendance of the COB students.
Additionally, the corporate community continues to show its support for The Nassau Conference including ATC Trustees (Bahamas) Limited; the Bahamas Financial Services Board; BSI Overseas (Bahamas) Ltd.; BTC; the Central Bank of The Bahamas; Credit Suisse AG, Nassau Branch; Deloitte; Higgs & Johnson; Julius Baer Bank & Trust (Bahamas) Ltd.; KPMG; LennoxPaton; Pictet Bank & Trust Ltd.; The Private Trust Corporation Limited; Societe Generale Private Banking (Bahamas) Limited; Scotia Private Client Group; SYZ & Co. Bank & Trust Limited; Star General Insurance Agency Limited; Sungard; UBS (Bahamas) Ltd. and The Winterbotham Trust Company Ltd.
The Nassau Conference is a professional development event dedicated to preparing and enhancing Bahamian professionals for continued success in the industry.
A dynamic and relevant agenda drew more than 200 attendees in the last two years and underscores AIBT's ongoing commitment, as founding partner, to the continued development and growth of this vital sector and its professionals.
As a key event on the financial services calendar, The Nassau Conference features a diverse range of presentations and panel discussions with subject matter experts, and provides a unique opportunity for networking and the exchange of ideas.
The Tax Information Exchange Agreement (TIEA) between The Bahamas and Canada, which could result in greater foreign direct investment and employment opportunities, came into force Wednesday.
Canada's Department of Finance made the announcement yesterday, posting a notice on its website indicating that the agreement was signed. With the TIEA in effect, it means that Canadian corporations will be able to set up active business in The Bahamas and, once they meet the stringent qualifying standards and tests, take advantage of the special tax incentive.
According to Deloitte Bahamas managing partner, Raymond Winder, this TIEA creates a competitive advantage for the Bahamas compared to Barbados.
"The biggest thing about this is the fact that for years Barbados has had competitive advantage over The Bahamas because it had a tax treaty with Canada which allowed Canadian companies to be domiciled in Barbados and repatriate profits to Canada and pay a small corporate tax in Barbados," Winder said.
"The TIEA allows The Bahamas the same privileges that the Barbados tax treaty allows, the only difference is the Canadian subsidiary doesn't need to incur any tax at all in The Bahamas to get this treatment. So the TIEA actually puts The Bahamas and other countries that sign TIEAs [with Canada] at a competitive advantage as compared to the current tax treaty Canada has with Barbados."
Getting into some of the legal aspects of the agreement, Higgs & Johnson partner, Dr Earl Cash, honed in on Article 13 of the TIEA. That article spells out the terms of the agreement's entry into force. It indicates that activities that either government is seeking information about must relate to matters considered a criminal offense in its own jurisdiction.
Cash also pointed out that the agreement reaches back to cover a taxable period from January 1, 2004. He said this may have been done to not prejudice Canada's information exchange provisions with The Bahamas against those of the United States, which has tax information exchange provisions with going back to that time.
Initially singed-off since June 17th, Canadian legislators had to enact changes to its excise laws to bring the TIEA into force. "The Excise Act and Excise Tax Act" amendments received royal assent in Canada on June 26th, paving the way for the TIEA coming into force.
At the time, Canadian-based experts Guardian Business spoke to thought early fall was a likely timeframe for the agreement coming into effect.