INTERVENTION IN THE HONOURABLE HOUSE OF ASSEMBLY BY
HONOURABLE ALLYSON MAYNARD GIBSON
MINISTER OF FINANCIAL SERVICES AND INVESTMENT
Mr. Speaker,
I had the privilege of tabling the Foundations Bill at
one of our recent meetings. I also had the pleasure, under your patronage,
Mr. Speaker of participating in a workshop for Parliamentarians with private
sector experts who were able to brief members of Parliament, this honourable
House and the Senate, on the importance of this legislation to The Bahamas.
I want to thank you Mr. Speaker and your staff for graciously facilitating
as usual, this effort.
Mr. Speaker,
This bill is the result of the hard work and dedication
on the part of the Financial Services Consultative Forum, the BFSB, the
AIBT and their many members who freely donated of their time to assist
with drafting the legislation and then subjecting the same to an exhaustive
review. I will not name them, but I do wish to take this opportunity
to thank them for their efforts.
As was pointed out during the seminar, Mr. Speaker, the
tabling of the foundations legislation marks a milestone for the financial
services sector in The Bahamas and is vital to the continued growth of
the financial services sector. It is a milestone because The Bahamas
will be the first common law jurisdiction with legal provision for foundations.
The Foundations legislation will not by itself solve all of the problems
facing the financial services sector (the slow growth of the international
economy, the increased competition, etc) but it will become an important
component of the overall strategy in the development of the sector in The
Bahamas. For once, The Bahamas will be in the forefront of the sector
rather than having to play catch up. This new legislation will enable
The Bahamas to attract new business to The Bahamas from Europe and South
and Central America and will result in increased growth in the sector.
Growth in the financial services sector will have important
and positive results for the entire Bahamas. It is important for
this honourable house to recall that the Financial Services sector generates
more that $15.5 million annually in government revenue and accounts for
more than 15% of the gross domestic product. The various financial
institutions in The Bahamas have combined balance sheet assets of $300
million and over $ 1 trillion in assets under administration. Of
particular importance to most Bahamians, however are the more than 5,000
jobs created directly by the financial services sector, and I stress very
well paying jobs! The annual payroll of the sector is approximately
$203 million. This figure does not take into account the spin off
effects of this employment on the Bahamian economy as a whole. How
many businesses are supported or maintained as a result of the employment
generated by the financial services sector? (Supermarkets and other retailers,
Schools) How many charitable organizations in The Bahamas are able
to carry on their good work as a result of contributions made by the financial
services sector. Consider, Mr. Speaker, I am advised that recently
one of our insurance companies, working with The Bahamas cancer society
and weight watchers organized a fundraising walk which drew approximately
15,000 Bahamians participants.
Private Foundations are viewed as the civil law equivalent of the common law concepts of a trust or a company limited by guarantee and registered as a charity. The Bahamas would be the first common law jurisdiction creating foundations in this way.
The enactment of a foundations bill will compliment this jurisdictions existing legislation dealing with trusts and like our Trustee Act which has a the reputation worldwide as being many settlors primary choice this new bill will similarly be a founders first choice for a foundation. We expect that together having the most progressive trusts laws and soon foundations law The Bahamas will seal its reputation as the first choice for clients seeking International Estate and Inheritance planning solutions
Foundations represent an expansion of our capability to service a new client base and our commitment to remain relevant to new and potential clients domiciled in civil law countries. Product features and advantages include the benefits of greater (i) simplicity for clients and reduced cost to clients vis-à-vis the trust and (ii) avoidance of issues related to sham trusts and perpetuity issues.
With the introduction of foundations, The Bahamas will reinforce its position as a high-end legal jurisdiction – attracting quality clients who are comforted by our strong KYC regime. For the High Net Worth person, setting up a foundation can provide unique opportunities both for tax mitigation and for dynastic control. The growing number of articles and conferences dedicated to the topic reflects this growing market. Charities have a place in the offshore similar to that of investment funds and other products– offshore provides greater flexibility in a tax neutral environment.
In essence a legal entity is being created to manage funds
on behalf of others, The business of foundations will largely be "financial
management" of funds belonging to others. The possibility exists for these
entities to become quite large, sophisticated and will we anticipate have
a significant effect in bringing bankable assets to The Bahamas for investment
management by Bahamian based institutions.
While the popularity of modern Foundations developed
in civil law jurisdictions in the early part of the twentieth century as
a result of the civil and political upheaval then underway in Europe, I
am advised that some form of foundations existed in Roman times when they
were created to enable the wealthy (such as officers of the Roman Army
going off to battle) to leave their assets in the hands of administrators
for the benefit of their families (the beneficiaries).
Today, Foundations may be created as Private Foundations or as Public Foundations. The majority of us are familiar with Foundations created for a charitable purpose. In such instances, the endowment of the Foundation can only be used for the furtherance of that purpose. Foundations of this nature are common in the United States of America, as well as in Europe – wherein an endowment is established to ensure that a particular charitable cause is guaranteed financial support and proper management of the funds in question.
Private Foundations, whether these are for a family or
for a group of people, took on a new form in 1926, when the Principality
of Liechtenstein adopted the Law of Persons & Companies and specifically
created the Family Foundation and the Mixed Foundation. Foundations have
also been used in Switzerland, Austria and Luxembourg for many years.
In 1995, the Panamanian Legislature enacted legislation
introducing the Private Interest Foundation as a legal entity. Panama designed
the Foundation based on the other models, with intentions of creating a
more modern, flexible and affordable estate planning vehicle. It
proved to be an excellent medium for preservation of assets, with sufficient
flexibility to enable it to be used for family, religious, public or charitable
purposes and to administer, invest or preserve assets for a prescribed
class of beneficiaries. In 1998 the Netherlands Antilles also adopted
amending legislation which allowed for the creation of private foundations.
Foundations have been used for public or private purposes
including:
(a) charitable and philanthropic purposes;
(b) International Estate and Inheritance planning solutions
for people from around the globe;
(c) tax planning including mitigation of estate and gift
taxes;
(d) creditor protection;
(e) Holding direct investments including stocks and shares
, bonds and holding bank accounts;
(f) to hold interests in companies, and including controlling
interests
I am advised that the most popular purpose for which foundations will be established in The Bahamas will be the holding and management of assets.
As members are aware, the object of the Bill is to provide the legislative basis for the establishment of foundations as vehicles for the holding of private assets endowed on the foundation for the benefit of identified persons or classes of persons. The Bill sets out the characteristics of a foundation, the method of setting up and registering it, the qualifications and duties of the officers and of any supervisory individuals for which the founder makes provision in the documents establishing the foundation, for the general conduct of a foundation and for the liquidation and winding up of a foundation. The Bill establishes the registration arrangements, makes provision for fees payable for administrative services and determines penalties for non-compliance with the statutory requirements.
While the Attorney General in his remarks will speak in detail on the legal aspects of the legislation, I think it would be useful for me to briefly remark on some of the more outstanding aspects of the Foundation Bill.
First of all, while there are certain similarities between
Private Interest Foundations and Trusts, a Foundation is not a trust nor
is it a company.
A trust is a legal act by means of which a person called
the Settlor transfers assets to a person called the trustee, who will manage
or dispose of them in favour of a beneficiary, who can be the same Settlor.
The trustee is normally a firm or company engaged professionally and customarily
in the business in managing properties, investing liquid assets and transferring
assets which are legally under the ownership of said trustee, but subject
to the provisions of the trust instrument. On the contrary, the registration
of the foundation charter grants independent legal personality to the Foundation
and, as a consequence, the foundation can purchase and hold assets of any
kind and can enter into any agreements.
The foundation, different from the trust, is the owner
of its own assets which are managed by the foundation council, which has
the function to fulfill the objectives and purposes of the foundation.
The use of the foundation as a structure or vehicle for the ownership of any movable or immovable assets is not applicable to trusts due to the fact that trusts per se do not form a legal entity different from the trustee. In order to transfer the authority of the Settlor over the trustee and over the assets managed by the trustee, it is required to execute other formal documentation with the same requirements to that by means of which the Settlor transferred the assets to the trustee.
The control and administration of the assets given in trust is the power of the trustee. In the Private Interest Foundation, this power of control and administration is in the hands of the foundation council.
A foundation must have initial assets of a value of not less than $10,000.00, whereas there is no such minimum prescribed for trusts or companies, although, in practice, all three entities would probably have assets well in excess of $10,000.00, if not initially, then most likely when activated.
A foundation would normally have a foundation council, some of whose duties would be similar to those of a trustee or the directors of a company. Instead of a council, a foundation may have some other governing body or supervisory person, such as a protector. Also, a foundation must have a secretary and may also have other officers, which a company too would normally have.
Whilst a company must have articles of association, a foundation is not required to have articles, although it may do so. In the absence of articles all provisions concerning the conduct and operation of a foundation would normally be included in its charter or, where appropriate, a foundation would simply rely upon the provisions contained in the Act.
The trust law does not contain provisions for asset protection against future claims from creditors. The Private Interest Foundation legislation has very clear provisions limiting legal claims against the founder.
The trust is used mainly to substitute wills and to execute commercial transactions such as purchases of real estate, opening an administration of bank accounts, investment in stock markets and mutual funds, and the entering into international agreements. On the contrary, the Private Interest Foundation is a discreet vehicle to open an operate bank accounts and are created principally for testamentary protection, to manage and administer the distribution of moneys and families properties, to act as philanthropic or ecclesiastic institutions, and to become holding entity that operate as owner of corporations.
The main features of a foundation under the Act are as
follows:
· A foundation will be a legal entity in its own
right.
· The foundation will be established by a foundation
charter and registered in the public register. The foundation charter
sets out the objects of the foundation. There are limits on these
objects in the Act, such as not to do business with a resident of The Bahamas
or to be in trade. However, a private foundation may do acts, such
as buying and selling assets, ancillary or incidental to those objects.
According to the charter, the foundation must hold at least B$10,000 or
US$10,000 worth of assets.
· A founder or founders will donate initial assets
to the private foundation. He or she may be a beneficiary of the
private foundation. However, if the founder or his or her relatives
are beneficiaries, he or she may not be an officer and he or she and relatives
may not form a majority of the foundation council.
· The governing bodies will comprise the officers
(including a secretary), the members of a foundation council (if any) and
other supervisory person or persons (if any). If there is a foundation
council it may direct the officers in order to ensure compliance with the
foundation charter. There must also be an auditor appointed.
· A foundation charter may specify beneficiaries
or identify a body to specify beneficiaries. Alternatively the foundation
may be for the benefit of the public at large. However, the
foundation is not allowed to carry on an activity which is illegal or prohibited
in The Bahamas and provision is made for the foundation to be liquidated
if it acts in contravention of the restrictions.
· There are obligations of confidentiality imposed
upon officials dealing with foundations under this Act.
· The foundation must be resident and domiciled
in The Bahamas
· Is able to sue and be sued in its own name.
· A foundation has a tax-free status.
The foundation can be established either by the will of a deceased person or by a document signed by the founder, in either case referred to as the foundation charter. The Act clearly spells out the matters to be covered by the foundation charter and its form and makes provision for the adoption of a model charter contained in the Schedule to the Act.
Every foundation established under this Act is required to have a registered office in The Bahamas, and is also required to notify to the Registrar of the address of the office and of any change in the address.
When this government first began to look at the issue of foundation legislation of primary concern to us, in addition to the positive impact it could have on the sector, was how would such legislation accord with the international commitments we have made to ensure proper and adequate regulation of the financial services sector. Like a trust or a company, a foundation is subject to the provisions of the Financial Transactions Reporting Act, so it will be important for firms to conduct careful KYC due diligence to ensure only desirable clients use foundations for satisfactory purposes.
Any foundation established under this Bill has an obligation to keep accounts and the form of those accounts is stipulated in the legislation. While the Bill provides for the confidentiality of this and any other information related to the Foundation, it also provides for such information on the foundation to be provided when lawfully required or permitted by any court of competent jurisdiction within The Bahamas or under any provisions of any law of The Bahamas.
Of key importance to my Ministry are those clauses dealing with the registration of Foundations. If the Foundation Act is to bring the rewards anticipated by the private sector, the efficiency and effectiveness of the Registrar General’s office will be of key concern. This is the department that will have responsibility for registering foundations and providing them with the identifying number and the certificate of registration.
I have from time to time briefed this House on the efforts underway in my Ministry to improve the efficiency of the Registrar General. While I am aware that much still remains to be done, I am pleased by the progress to date and from the comments made at a recent roundtable organized by the BFSB, it would appear that the public is beginning to notice our efforts.
Over the next few months, with the assistance of the staff of the Registrar General’s Department and, where possible other government departments, we intend to establish swat teams to move from division to division to assist with clearing up the backlog of documents to be found in almost every section of the Registry. My Ministry will also redouble its efforts with the Ministry of Works to ensure that work begins as soon as possible on the City Market building so that the Registrar General’s Department can have a permanent home.
Mr. Speaker,
If I may give a summary of my presentation:
Foundations have for a long time been available in several
civil law jurisdictions, starting in Liechtenstein in the late 1930s, later
in other European countries and more recently in Panama and the Netherlands
Antilles.
They were originally created for the purpose of providing protection for assets as well as confidentiality as the Second World War was about to break out. The combination of Liechtenstein foundations and Swiss banking secrecy was a great combination at that time.
Foundations have since become well known and very acceptable
in many civil law jurisdictions, especially those in Europe and Latin America,
where trusts are less well known, frequently misunderstood and not always
acceptable, mainly because trusts often involve the complete surrender
to the trustee of legal ownership and control of the settlor’s assets,
which need not happen in the case of foundations.
Attraction as first common law jurisdiction….
Also, a foundation, like a company, is a distinct legal entity, which a trust is not, resulting in foundations and companies enjoying limited liability, but trustees being exposed to possible personal liability, certainly more so than a foundation’s council or officers or a company’s directors or officers.
A foundation does in fact constitute a hybrid between a trust and a company, having several aspects in common with one or the other, such as:-
1. Like a company but unlike a trust, a foundation may enjoy unlimited duration.
2. Like a trust but unlike a company, a foundation has beneficiaries and can also have a protector.
3. Like a company but unlike a trust, a foundation must be registered and have a registered office.
4. Like a trust but unlike a company, a foundation can be established by will.
5. A foundation must have initial assets of a value of not less than $10,000.00, whereas there is no such minimum prescribed for trusts or companies, although, in practice, all three entities would probably have assets well in excess of $10,000.00, if not initially, then most likely when activated.
6. A foundation would normally have a foundation ouncil,
some of whose duties would be similar to those of a trustee or the directors
of a company. Instead of a council, a foundation may have some other
governing body or supervisory person, such as a protector. Also, a foundation
must have a secretary and may also
have other officers, which a company too would normally
have.
7. Whilst a company must have articles of association,
a foundation is not required to have articles, although it may do so.
In the absence of articles all provisions concerning the conduct and operation
of a foundation would normally be included in its charter or, where appropriate,
a foundation would simply rely upon the provisions contained in the Act.
8. Like a trust or an IBC, a foundation may redomicile in another jurisdiction and a foundation established in another jurisdiction may redomicile in The Bahamas. The statutory provisions are similar to those for an IBC.
9. Like a trust, which may include in terrorem provisions in its trust instrument, a foundation may include such provisions in its charter.
10. Like a trust, a foundation may include a restriction against alienation in any instrument of disposition to a beneficiary.
11. Like a trust, a foundation may be used to avoid forced heirship in other jurisdictions.
12. Like a trust, a foundation may be used for asset protection purposes, being able to qualify in the same way as a trust under the Fraudulent Dispositions Act.
13. The reservation of extensive powers by the founder of a foundation would be less likely than the reservation of extensive powers by the settlor of a trust to result in same being considered by a court to be a sham.
14. Like a trust or a company, a foundation would be subject
to the provisions of the Financial Transactions Reporting Act, so it will
be important to conduct careful KYC due diligence to ensure only desirable
clients use foundations for satisfactory purposes.
I would anticipate that the most popular purpose for which foundations will be established in the Bahamas will be the holding and management of assets. In fact, such purpose must be included in its main purposes or objects and be so specified in its charter.
Charitable Foundations…not automatic tax write offs…must set up with tax advisors in the tax jurisdictions…
Mr. Speaker,
Purpose of Financial Services …for Bahamians…Jobs, Division
of Financial Services…Same exchange as for expats…for Bahamians….
Mr. Speaker,
This Bill, being landmark legislation, is perhaps the most important Bill this House will pass this year. With the enactment of the Foundations legislation, we are laying the groundwork for the continued growth and development of the financial services sector. The Bahamas will have a new and innovative product to offer which will complement the products currently offered by the sector and will result in the significant growth and development of the sector thus resulting in the growth and development of the Bahamian economy.
Thanks etc. to team that participated…..