Let’s get it straight about why firms left Bermuda

It might be time for me to take up yoga. I tried it once, many years ago, and at the time I thought that maybe I wasn’t cut out for an exercise that included concentration. But now anything that will take my mind off the misleading musings of a fellow columnist as to why international business has left Bermuda would be a good thing. 

International business, contrary to the assertions of my fellow columnist Christopher Famous, did not leave Bermuda over the US Foreign Account Tax Compliance Act (FATCA), which will go into effect in 2014. 

Senior executives in the reinsurance industry were not fleeing the IRS bogeyman to Switzerland for example, where a bi-lateral agreement had long been in discussion. 

In February of this year, the US and Switzerland inked a deal so I’m afraid that would blow his theory right out of our turquoise waters. That’s right, Switzerland.  

As noted in his column, the act was signed in 2010 by President Obama but my colleague  failed to mention that to date, as many as 50 countries have agreed to FATCA or one of its models. Whether or not you think the US is unfairly flexing its muscle by seemingly jamming FATCA down every country’s throat, the fact is, there aren’t too many jurisdictions that won’t cave under the pressure from Big Daddy USA and sign.  If the ACE boys ever move to China, a country which is unlikely to ever sign the agreement, then I will humbly eat my hat. 

 I am thrilled by the way, that Bermuda has a Tax Information Exchange Agreement (TIEA) with the People’s Republic of China. How’s that working people? Any requests yet?

If I were to apply my colleague’s logic, wouldn’t it make sense for the hedge fund guy or financial institutions guy with US clients to sit right back in their American Lazy-Boy chair in Bermuda and take their sweet time before contemplating a move to chillier climates if they were worried about FATCA? If the previous government hadn’t raised the payroll tax, hadn’t maintained the ridiculous term limits policy, wouldn’t most executives have been inclined to stay, knowing that other jurisdictions had either signed or were about to sign FATCA?

TIEA’s are generally considered the Crystal Light of tax treaty agreements, as information on US citizens must be requested by the Treasury Department and there must be well-founded suspicions. With FATCA, the onus is on the financial institution to provide the information and not wait for it to be requested by the Treasury Department. Big difference.

I’m sorry that someone missed the numerous local and international press articles or information sessions that have been held in Bermuda regarding FATCA.  KPMG Bermuda certainly hosted a session. At some point in the near future, this government will no doubt feel the pressure to sign FATCA and as a result local financial institutions will have the enormous administrative costs of complying with FATCA regulations. It won’t be any fun and in Bermuda like elsewhere in the world, compliance will be a massive headache to say the least. It will be expensive, too.  

But to suggest that Bermuda has lost jobs in the international sector because of FATCA is out of line. To suggest that a new government would somehow be hiding the existence of FATCA and its potential impact on any financial institution in Bermuda is just plain silly. There’s been a steady stream of Bermuda daylight on FATCA for some time.  

International business left because conducting business in Bermuda was becoming increasingly difficult. The increase in payroll tax along with term limits — no matter how difficult it is for some people to acknowledge — pushed many executives to change course and leave Bermuda. Bad policies impact business and that, I’m afraid, is a fact.