FSA CEO: Pandora Papers refer to old cases, measures already taken by Seychelles
(Seychelles News Agency) – Seychelles was added to the European Union (EU) list of non-cooperative jurisdictions for tax purposes in February 2020 and was upgraded to the gray list last October.
Several pieces of legislation related to financial services and international business companies (IBCs) were amended in 2021 to ensure that the country meets EU standards for the exchange of information on tax matters relating to financial products.
SNA spoke with the Director General of the Financial Services Authority (FSA), Damien Thésée, on the effect of new laws, the FSA’s performance and plan for 2022, and the challenges and criticism facing the financial services industry.
SNA: Has Seychelles felt the changes in laws since May last year?
DT: The amendments to the legislation were the first step in ensuring that we meet international standards. The European Union sees itself as the leading jurisdiction in terms of best practice governing tax principles.
To prevent or discourage what we call harmful tax practices, they have put in place guiding principles that should be followed by all countries. Since joining the Organization for Economic Co-operation and Development (OECD) in 2016, Seychelles has been committed to undertaking the necessary reforms required,
We have reviewed our laws and made changes where necessary, such as International Business Companies Law, Foundations Law, Trusts Law, Limited Partnerships Law, to make sure everything is in line with the OECD standards and that we do not have a preferential tax regime.
In April 2020, Seychelles achieved a “partially compliant” rating following the OECD review. The country did not achieve a “largely compliant” rating on exchanging tax information with other countries and that is why we were blacklisted.
We followed the instructions of the OECD. Now we have to show the effectiveness. This means showing our ability to implement these legislations to ensure that the industry complies with the directives.
Third, when we as regulators do the inspection and we find that some IBCs are not complying with the laws, we will take the necessary action.
SNA: How long did Seychelles have to prove the effectiveness of the laws?
DT: We have asked for an additional review this year that will test the effectiveness of our laws. We don’t know when that will be, but we know it will be this year.
IBCs have been given the February 6 deadline to ensure that all their accounting information is in Seychelles. This was one of the shortcomings the country had before. In the past, when other jurisdictions requested this information, we could not provide it because we did not have the accounting information. This is why Seychelles was blacklisted because we could not exchange information for tax purposes.
By February 6, we need to establish where we are. Industry had informed us that they might not meet the deadline and requested an extension, but we are unable to extend the deadline as this is a commitment we have made to the EU.
Various discussions have taken place in the past that have delayed us and prevented us from enacting these laws sooner. Maybe at the time, industry and government didn’t agree and therefore weren’t on the same page.
But the government has stressed that it is important for the sector to meet international standards because we do not want these risks to be associated with us and thus lead to us being blacklisted and losing correspondent banking relationships, which in turn affects other sectors.
SNA: Was it easy to change and enact these laws?
DT: It was not easy. We put a lot of effort into the awareness exercise. Seychelles was implementing a scheme from 1994 when the Seychelles International Trade Authority was established and the IBC Act was enacted. Many changes have taken place in the world since then.
It was normal to see some resistance as some people believed that any change would destroy the industry. They had to be made to understand that was not going to be the case. Seychelles needs to enact or change the necessary laws due to international pressure.
Second, we had to build internal capacity within the Ministry of Finance, Financial Services Authority and other partners such as the Financial Investigation Unit and the Registrar General.
There was a lot of support and engagement from the OECD before COVID-19. We traveled extensively to attend capacity building meetings and trainings. We have received a lot of support from organizations that have reviewed our laws. The Department of Finance also consulted with Ernest and Young, who guided us through some business tax changes. It was a long process.
But we have no choice because we have to comply with international standards. We need to eliminate the reputational risks that come with jurisdiction.
SNA: Seychelles has been removed from the blacklist but is still linked to the Pandora Papers scandal. How does this affect the country?
DT: It’s unfortunate but the articles refer to past incidents and already action has been taken against some of the companies mentioned in these articles. Perhaps there are still articles that refer to politically exposed persons from abroad who have opened businesses and who use this information to raise the issue. But these are old cases.
Unfortunately, at the time of these incidents, we did not have the necessary information because the businesses had already closed and left and we could not exchange this information with the jurisdiction requesting it. We were in a difficult situation.
There will always be future references to these earlier cases, these old companies that are no longer registered here in Seychelles.
SNA: How to change this perception that Seychelles, as an offshore jurisdiction, is linked to illegal activities?
DT: It’s important that our licensees, for example, our international business service providers who engage with these IBCs, know who their customers are. The Seychelles have revised their Beneficial ownership law in 2020 to make sure he knows who the people behind these companies are. We have done our due diligence and it is continuing.
As a result of changes to our IBC law, they must now leave accounting information here so that we have this information whenever there is a request by another jurisdiction.
|The FSA’s 2020-2025 five-year strategy will focus on product development, finding alternative products or new products that can expand its jurisdiction (Rassin Vannier, Seychelles News Agency) Photo License: CC-BY|
SNA: Are the Seychelles a tax haven?
DT: You will still be considered a tax haven when you create the IBC structure. The IBC is like a brass plate when viewed in its traditional form. You live in one country and do business abroad. This is why it is important to put all licensing requirements in other jurisdictions/countries.
It’s a structure that allows you to start a business quickly, like 24-hour incorporation. International jurisdictions want to ensure that these companies pay taxes in their respective countries even if they have their businesses in another country.
SNA: How did the FSA perform in 2021?
DT: In 2021, FSA paid SCR 95 million ($7 million) in dividends to the government for three quarters. We are currently finalizing our accounts for the last quarter to see how much we will pay in dividends. Our estimate for the full year is SCR 120 million ($9 million) in the form of dividends.
FSA performed well despite a rise in the exchange rate which influenced the exchange rate. It should be noted that even during the shutdowns, offshore is the only sector that continues to produce and in November 2021 we were at 167 million rupees ($12.5 million).
We had 54,764 IBCs at the end of November.
SNA: What are the prospects for 2022?
DT: While this sounds positive, we cannot make any predictions for 2022 as we are awaiting the February 6 deadline to see the full impact of the law review. As outlined in our strategic plan, it is generally expected that some businesses will close and changes will lead to losses.
We don’t want to attract mass numbers with bad operators. We prefer to see only the good actors, those who comply with the law.
SNA: What is FSA’s biggest challenge?
DT: IBC products are shrinking and the sector needs to be rethought to ensure the sustainability of the non-banking financial sector. Our 2020-2025 five-year strategy reminds us that we must focus on product development, the search for alternative products or new products that can expand our territory. That’s why we established the product development unit in August last year.
But research takes time and we need to ensure we stay relevant and diversify our portfolio. We don’t know how much IBCs will decline. For now, and in the medium term, we will have a sustainable IBC product, but we must also prepare for the future and give other products a chance.
Naturally, we discuss with the industry because what we offer must be products that generate interest and attract new entrants.
One area that is gaining more interest is the capital market, where stockbrokers are offering other ways to raise capital. We also have Virtual Asset Service Providers (VASPs), which include virtual assets such as cryptocurrency. Some activities are going on, but they are not regulated. So we need a risk assessment at the end of January, to see the risks involved and if it is a viable business. From there, we can put policies and laws in place.
Other sectors include fintech or financial technology, insurance, supervision technology or suptech, which helps in decision-making. We are also considering captive insurance as a new product and compliance lead. What we are proposing is that all IBCs have a compliance officer to make sure they follow the law. Currently, there is a lack of human resources for this and we want companies to offer this service.
We will also revise certain laws such as insurance and gambling to bring more people into the industry.