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23 July 2009
The update "Application of Evidence (Proceedings in Other Jurisdictions) Act 2000" addressed how the Bahamian courts initially chose to apply the various decisions of the UK courts post-implementation of the act in 2000. This update addresses how Bahamian public policy and recent developments, both domestic and international, have subsequently affected the courts' various determinations in this regard.
Where the courts are reluctant to satisfy a request, they can rely on public policy grounds and have often been found to use a narrower interpretation of the act in order to prevent foreign courts from delving into the private affairs of individuals and companies (specifically their bank accounts), unless there is a strong argument otherwise.
An example of the Bahamian government utilizing public policy grounds to resist such broad definition is in relation to fiscal matters. Fiscal (ie, tax) matters are considered civil proceedings under Bahamian common law, but are not be classified as civil in the majority of civil law jurisdictions (eg, Switzerland, where they are normally considered as public law). Such a definition has led the government to state that, as a matter of policy, the attorney general will not process requests that are exclusively civil fiscal matters. Such an indication would suggest that it may be worth challenging the court's jurisdiction to grant such an order under the proper proceeding on every application. Disclosure to aid criminal investigations provides the main exceptions for confidentiality. It is here that the Bahamian courts have been increasingly inclined to tilt the balance of convenience between that of confidentiality and international comity toward the latter.
The UK cases that set the initial parameters concerning the interpretation of phrases such as 'civil proceedings' and 'evidence at trial', among others, did not need to take into consideration the public policy agendas of the offshore sectors towards financial confidentiality in preserving their jurisdictional advantage in attracting potential investment. Such considerations add a further, necessary stipulation for the Bahamian courts to consider. Chief Justice George stated in 1985:
"The policy of preserving bank secrecy in the Commonwealth as enshrined in its laws must scrupulously be observed. Of equal importance is the need to ensure that it does not become a screen for facilitating fraud."(1)
Although this view was taken more than 20 years ago, it is still arguably the predominant view of the courts today. The act was passed in order to ensure that the requesting courts had the ability to make such unilateral requests, but this is subject to the jurisdiction of the Bahamian courts: courts which have a requirement to uphold public policy where it is possible within the confines of the laws enacted by their own legislature (ie, to conduct a 'balancing act'). The court's stance since the implementation of this act is in accordance with the wording of Lord Kerr in Re State of Norway(1) where he stated:
"The court must carry out a balancing exercise. In the scales on the one side must be placed the desirable policy of assisting a foreign court, in this case supported by both the parties before it. On the other side there is the opposing principle that the court will give great weight to the desirability of upholding the duty of confidence in relationships, which, as here, it is clearly entitled to recognition and respect. Which way the balance then tilts depends upon the weight which is properly given to all the other circumstances of the case."(2)
In the Bahamian courts this issue was addressed with great conviction by Chief Justice Gonsalves-Sabola in 1993 when he stated:
"Speaking with expertise accumulated over a 27-year career in the financial sphere and a familiarity with the banking and financial industry was to the following effect… To engender investments in the offshore financial sector and remain competitive, the confidentiality of financial transactions must be preserved. Confidentiality is a factor of major importance to clients."
Thus the Bahamian courts, when exercising their discretion in the employment of such a balancing exercise, are seemingly tilted in favour of bank secrecy unless there are sufficient overriding circumstances.
After the implementation of the act, the Bahamian courts, in most instances, have adopted the spirit of comity and cooperation in providing assistance to foreign courts, where such assistance can possibly be given, by way of providing oral or documentary evidence in aid of proceedings as encapsulated by the act. Examples of this are the Supreme Court rulings in Attorney General v Capital Management(3) and Attorney General v Raul Juan Moneta(4), and the Court of Appeal ruling in Bethel v Attorney General of the Bahamas.(5) Although all these cases favoured international comity, none of the requests touched upon either civil tax matters or banking secrecy.
On March 15 2002, William C Allen wrote to the secretary general of the Organization for Economic Cooperation and Development (OECD) in reference to those commitments that the Bahamas would continue to upkeep those initiatives it had implemented in 2000.(6) These commitments cover two broad areas as set out in the schedule annexed thereto. The first of these commitments is to "establish a process for an effective exchange of information", and the second was a commitment simply to "transparency". Although this letter and annex set out a number of further agreements that the Bahamas is prepared to make with the OECD, it also states that the "detailed implementation of any commitments not already provided for under Bahamian law is subject to the approval of the Parliament of the Bahamas", as well as further stating that the Bahamas will commit only on a "level playing field" with all other OECD members and non-OECD member jurisdictions which are principal competitors in the provision of cross-border financial services.
Those further commitments on a level playing field that the Bahamas was prepared to make included the following:
"in a case involving information required for the investigation and prosecution of criminal tax matters, information shall be provided without the requirement that the conduct being investigated must constitute a crime in The Bahamas; and in the case of information requested in the context of a civil tax matter, the absence of a Bahamian tax interest in the case of obtaining the information shall not be a bar to the provision of information."
These commitments represent a clear shift in public policy and may have a considerable effect on the effect of the act should they be formally implemented. That having been said, they are passive until any such time as further enactment or legislation is considered to bring them into effect. At present, the courts can still interpret narrowly the existing act in order to maintain that element of bank confidentiality that is consistent with existing public policy.
Following the global recession and the recent US presidential election, there has been increasing pressure on sovereign nations such as the Bahamas (incorrectly labelled 'tax havens') for greater transparency and information exchange standards. On March 25 2009, in response to such pressure and immediately prior to the G20 summit in London, Bahamian Prime Minister and Minister of Finance Hubert A Ingraham issued a communiqué on "The Expansion of the Network for International Cooperation" in Parliament, in which he stated:
"we have engaged in wide consultation with members of The Bahamas Financial Services Board (BFSB), the Association of International Banks and Trusts (AIBT) and the financial services industry generally. Following those discussions, we have today published a statement in the following terms:
The Commonwealth of The Bahamas notes significant recent progress towards the adoption of standards set by the Organization of Economic Cooperation and Development. The Bahamas reaffirms its commitment recorded in a March 2002 agreement between the Bahamas and the OECD. The Bahamas recognizes significant advances in commitments to the broader application of OECD standards of transparency. The Bahamas is ready to negotiate and conclude appropriate arrangements to accommodate these OECD standards."
Although this statement does not bring one much closer to understanding what movements the government will now make and how these shall affect public policy and legislation, or the way in which the courts will respond to subsequent requests from foreign jurisdictions for evidence regarding proceedings in those jurisdictions, review of the rest of the communiqué underlines the insistence of the government on clarity and unequivocal language with respect to a level playing field.
The Bahamian courts have almost always sought to uphold the law in respect of bank confidentiality and the right to privacy for legitimate individuals and corporations alike. This public policy is further enshrined in Section 19 of the Banks and Trust Companies Regulation Act, the Data Protection (Privacy of Personal Information Act) 2003 and the commitment of the Bahamas government to United Nations Charter Article 17, which provides for the right of every person to be protected against arbitrary or unlawful interference in the privacy of their affairs.
Without sacrificing the principles of banking confidentiality required of the banks and professional persons in the Bahamas, the legislation implemented in 2000 attempted to provide, by regulation and legislation, for instances in which some transparency may be permitted to comply with the international comity of nations. In the Bahamas the rule of law has always been fundamental to the underlying success and overall strength of its financial services industry. At the same time, in the application and upholding of the same, both legislature and the courts must also take into account its overall competitiveness as an offshore financial services jurisdiction. The courts, when interpreting the statute and the intention of the legislature at the time of adoption, must consider the public policy implications of their decisions.
At present, under the guidance of the act, the Bahamas will limit the exchange of information to specific requests that meet the pre-defined criteria as set out above. The act will continue to preserve client confidentiality by denying those requests where insufficient evidence is provided to support the request for information (ie, so-called 'fishing expeditions'), and any requests which blatantly offend public policy in this jurisdiction. Any request is a unilateral request which is subject to the jurisdiction of the courts. While the courts have undoubtedly adopted the spirit of comity in such requests, this is subject to such requests falling within the closely defined parameters of the act.
Although the legislature is committed to the transparency and exchange of information standards as set out in the March 15 2002 letter and subsequently reinstated in the communiqué as expressed by the prime minister on March 25 2009, this was and continues to be conditional upon and subject to there being a level playing field. This has yet to be achieved. Until such time as the OECD can negotiate and conclude agreed standards on transparency and effective exchange of information through defined and agreed protocols – thereby creating a 'level playing field' – it is likely that the courts, in interpreting the nature of the act and intention of the legislature at that time, will be reluctant to rule in such a way as to have the undesirable effect of opening the floodgates to requests from foreign jurisdictions that would in any way undermine the public policy of bank confidentiality in the Bahamas.
For further information on this topic please contact Matthew Paton at Lennox Paton by telephone (44 20 7743 6490), fax (44 20 7743 6491) or email (email@example.com).
(1) Royal Bank of Canada v Apollo Developments Ltd (1985) LRC(Comm) 66.
(2) Supra pp 46 of 62. In refusing to allow the duty of confidentiality of the proposed deponents to be breached and thus refusing outright the request for assistance on this basis, Kerr's judgment was the dissenting judgment on this aspect, but his statement of the nature and need for a balancing exercise was not contrary to the judgments of the majority of the court on this issue.
(3) CLE/Gen No 28 of 2001.
(4) CLE/Gen No 854 of 2001.
(5)  BHS J 87
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CR Matthew Paton