Caribbean fears witchhunt in tax haven crackdown

The Caribbean has tried for years to shed its image as a refuge for tax dodgers and money launderers where travellers arriving with large amounts of cash were welcomed with open arms and even offered police escorts to their local bank.

But suspicions about the region's booming offshore banking and financial sector still run deep.

"If it was not for bank secrecy, the offshore havens in the Caribbean would be fishing communities again," said Charles Intriago, a former US federal prosecutor and money laundering expert, who publishes a website for law enforcement officials about asset forfeiture.

"You've got to be a Houdini to get out from the clutches of the iron-clad secrecy that these offshore centres provide to their customer," he said. "It's an outrage that these facilities are allowed to exist."

Members of the Caribbean's financial and political elite bristle at suggestions that lax regulatory systems and tax avoidance schemes allow them to attract foreign capital that might otherwise be directed elsewhere.

But the global financial crisis, and a string of headline-grabbing fraud scandals like those involving disgraced Wall Street financier Bernard Madoff and Texas billionaire Allen Stanford, have focused new attention on offshore banking centres, such as the Bahamas and the Cayman Islands.

Spurred by public outrage over the scandals and big banking bonuses at a time of global economic meltdown, some governments are seeking to root out wealthy tax evaders.

With all but a few exceptions, Caribbean countries now face pressure and possible sanctions because they are included on a "gray list" of states failing to comply fully with standards on taxation and bank information disclosure established by the Organisation for Economic Cooperation and Development.

The OECD list, endorsed by G20 leaders in early April, includes bank secrecy strongholds like Switzerland and Liechtenstein that have committed to cooperate on fighting cross-border tax evasion, but have not yet adopted transparency standards.

According to a recent World Bank report, the Caribbean derives 45 per cent of its gross domestic product from services. Already hurting from a steep drop in tourism, the region can ill-afford any outside attempt to rein in its financial services industry.

"It will affect the Bahamas negatively, but there is no justification for that," said Bahamas Prime Minister Hubert Ingraham, who spoke on the sidelines of last month's Summit of the Americas in Trinidad and Tobago.