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Bahamas opens doors to new markets
WELCOME BAHAMAS - NASSAU, CABLE BEACH & PARADISE ISLAND - 2005
Bahamas opens doors to new markets
New foundations structure is the first of its kind
In an effort to expand the financial services sector and attract a wider range of investors, The Bahamas introduced the Foundations Act in early 2004.
Targeted at high-net worth individuals from Europe and South America, the new law offers a familiar fund management option customized for The Bahamas' clients.
Described by the Minister of Financial Services and Investments, Allyson Maynard Gibson, as "probably the most important bill the house will pass this year," the Foundations Act gives clients a whole new way to grow their investments.
Long a popular investment tool in civil law jurisdictions, foundations offer investors more control over their money than trusts, their common law equivalent.
"A foundation enables you, to a large extent, to get the best of both worlds," says Sean McWeeney, one of The Bahamas? leading trust attorneys. "You have a structure which reserves anonymity and at the same time gives you a larger measure of control than you have under a conventional trust."
Constituted for a single purpose by one or more donations, a foundation operates as an independent estate, legally separated from creditors.
The Bahamas is the first common law jurisdiction to make provisions for foundations. As a result, the country has a unique ability to cater to North and South American clients.
When drafting the new law, The Bahamas looked to Liechtenstein, the industry leader. With foundation laws since 1926, Liechtenstein popularized their use as a wealth management tool. Legislators also studied Panama's approach. Panama began offering foundations in 1995.
Not content to copy other models, The Bahamas added a few twists of its own. "The whole idea was to take the best features of their laws and remedy the perceived weaknesses," says McWeeney. The result is that clients familiar with foundations will find all the features they are used to, as well as a few new options.
For example, foundations in Panama cannot be used to conduct a business for profit, while a Bahamian foundation is free to engage in profit making.
As a civil law jurisdiction, legal proceedings in Panama are based on legal codes and written documents, unlike the common law approach, which is based on common sense and leaves more open to interpretation.
A long history of laws relating to trusts should make the addition of foundations a simple transition. Courts should accept arguments used to settle trust disputes when facing similar issues connected to foundations.
The new law also gives The Bahamas an edge on regional competitors such as Bermuda and the Cayman Islands, which have no provisions for the establishment of foundations.
Trusts take a new turn
Another highly anticipated addition to the Bahamian market is the Purpose Trusts Act, which opens new opportunities in one of the country's major sectors.
Before the Act came into effect, a private trust could be created only for specific, charitable purposes such as poverty reduction, education or religious advancement. The new law makes it possible to establish a trust for a variety of commercial applications.
Purpose trusts provide more protection to investors by placing legal obligations on the trust rather than the trustee.
With more than 270 trust companies operating in The Bahamas, this was welcome news.
Segregated Accounts
Also known as a protective cell company, a segregated accounts company (SAC) includes several independently operated accounts. The assets and liabilities of these accounts are legally separate from each other and from the company's general account. This means the assets from one of the companies cannot be applied to the liabilities of another.
The changes mean more services for several market segments including fund management, derivative structures, special purpose vehicles and trust structures.
For example, mutual funds generally involve a portfolio of different kinds of securities with different risks. An investor might want to buy into the real estate component of a fund but might not want to extend their investment to other, riskier, portions of the fund. With a segregated accounts company they can do that without worrying that assets from their investments will be used to pay off the debts of the others.
Another benefit to the trust sector is an extension of the Perpetuities Act, which has increased the maximum period of perpetuity. The extension allows planning for as many as five generations.
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