Globalization allows international business people to incorporate and employ companies anywhere they see fit. Local laws however may be in conflict with corporate communalities in other countries. Therefore, misconceptions and indignation is common in cross border financial transactions. Fortunately, not all such transactions contain an element of fraud and deceit. Yet, where investors are departed from their assets, they would like to probe the potential for recovery. When offshore financial centers are involved, loss recovery is not always easy. The Bahamas however have created one of the most progressive legal frameworks of the offshore industry to protect legitimate business professionals from the acts of fraudsters.
The Commonwealth of the Bahamas is considered one of the largest International Offshore Financial Centres. Over 25.000 International Business Companies and around 270 financial institutions such as banks and trust companies are incorporated in the jurisdiction. Its business friendly ecosystem attracts a variety of entrepreneurs and activities from all around the globe. Most of the locally incorporated business qualify as a non-resident entity and can therefore benefit from tailored and distinct advantages of the jurisdiction. The objective of most business professionals is to run a legitimate and profitable business. Sometimes though, unforeseen circumstances may result in operational challenges, or illicit actors abuse the system to defraud others. Even when the intentions of business people are clean, unpredictable events may occur.
In a global environment, a free market allows business professionals and individuals to choose service providers where they see best fit for purpose. The advantage of this internationalization is that businesses can work more efficiently by choosing the appropriate location for their activities, and the market decides on the pricing levels of international goods and services. Unfortunately, the downside of such a global marketplace is that there is no uniform playing-field and corresponding regulation. As a result, assumptions and misconceptions often lead to a mismatch in expectations.
Offshore financial centers maximize efficiency when it comes to administration and financial charges. To attract foreign investors and business people, several tax advantages may apply. As many other jurisdictions, the Bahamas also provides services in the offshore finance ecosystem. Alongside the traditional company formation services, the wealth management and offshore finance industry is substantial. Regrettably, business ventures do not always bring the desired results, and when things go seriously wrong, the Bahamas is often far away for non-resident victims.
Bank Failure and Investment Fraud
The sound financial industry in the Bahamas mainly serves foreign enterprises and wealthy individuals. Bank secrecy therefore remains an important part of local bank regulation. Although there is a wide range of local statutes to protect the integrity of the local financial system, bank failure and investment fraud still happens as it does in most jurisdictions.
Financial institutions are strictly regulated and must meet specific capital requirements to protect its creditors, depositors and other stakeholders. Failure of a bank can be the result of intentional conduct, by mismanagement, or external circumstances. Even though there is no indication that the Nassau based Lucayas Bank was involved in illicit behavior, the financial institution was placed under statutory administration in October 2021. This clearly shows that the regulator is on top of the proper functioning of its licensees, and can intervene where it is needed. Several outcomes are formulated for failing banks or those that are likely to fail. These include a sale of the bank and license to other market players, mandatory capital injections, or a forced winding up and dissolution of the organization.
Depositor and Investor Protection
Like most countries with a sophisticated financial system, the Bahamas also protects bank deposits of customers holding accounts with licensed bank and trust companies. The administration of the deposit insurance fund is held with the Deposit Insurance Corporation where its mandate is provided for in the Protection of Depositors Act of 1999. The location of the client, nor the activities of the account holder determine the applicability to the scheme. What is important to know though is that the fund exclusively covers deposits held in Bahamian dollar. Other currency is excluded from coverage. Accordingly, the foundation of the local company and banking law has strong incentives for asset protection and corporate resolution.
Access to the Legal System in the Bahamas
Similar to most other common law jurisdictions and offshore financial centers, contract parties can take their dispute for independent judgement to the civil court. Where parties feel criminally wronged, alleged victims can complain with the Business Crime Unit of the Bahamian Police who can refer the matter to the Attorney General for prosecution. The Criminal Procedure Code allows the court to return illegally obtained assets to their rightful civil owners. Yet, civil action is still mainstream and allows the alleged victim to control the procedures.
Creditors who lose, or fear losing their assets through a web of offshore companies often want to pursue legal ways to get their money returned. Bank failure and investment fraud that involve in one way or the other offshore jurisdictions, like the Bahamas, can choose from several remedies to seize and recover assets that were obtained by fraud. The pre-trial discovery phase that is granted by the court allows the parties to investigate matters and substantiate their case. Usual measures to obtain necessary information and ultimate recover assets in the Bahamas include injunctions, interim orders, preservation of property, Anton Pillar orders, and Norwich Pharmacal or Bankers Trust Pre-action discovery orders.
Any creditor may file their case in the Bahamian courts. Although the common law principle of the separation of the legal person from its controlling person is respected, the court is under circumstances willing to pierce the corporate veil and hold the responsible individuals accountable for the wrongs and debts of the company. Another pressure against the wrongdoer is to file for the winding up of the company. When needed, winding-up can even take place under seal to avoid that wrongdoers and fraudsters become aware of the proceedings.