FSA CEO: Pandora Papers refer to old cases, action already taken by Seychelles
Thesée said FSA cannot make any predictions for 2022 because we are waiting for the February 6 deadline. (Seychelles Nation)
(Seychelles News Agency) - Seychelles was added to the European Union's (EU) list of non-cooperative jurisdictions for tax purposes in February 2020 and was upgraded to the grey 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 complies with the EU's standards for the exchange of information on tax matters relating to financial products.
SNA spoke to the chief executive of the Financial Services Authority (FSA), Damien Thesée, about the effect of the new laws, the FSA's performance and plan for 2022, as well as challenges and criticism faced by the financial services industry.
SNA: Has Seychelles felt the changes made in the laws since May last year?
DT: Amendments to legislation were the first step to ensuring we meet international standards. The European Union sees itself as the jurisdiction that is leading in terms of good practices governing the tax principles.
To prevent or deter what we call harmful tax practices, they put in place guiding principles that should be followed by all countries. Since joining the Organisation for Economic Co-operation and Development (OECD) in 2016, Seychelles has given its commitment to undertake the necessary reforms required,
We have revised our laws and made amendments where needed such as the International Business Companies Act, the Foundations Act, Trust Act, Limited Partnerships Act, to make sure everything conforms to the OECD standards and we do not have a preferential tax regime.
In April 2020, Seychelles got a "partially compliant" rating following the OECD review. The country did not get a rating of "largely compliant on the exchange of tax information with other countries and that was why we were blacklisted.
We have followed OECD's instructions. Now we need to show the effectiveness. This means showing our ability to implement these legislations to ensure the industry is following the guidelines.
Thirdly, when we as regulators carry out the inspection and we see that some IBCs are not respecting the laws, we will take the necessary actions.
SNA: How much time has Seychelles been given to prove the laws' effectiveness?
DT: We have requested a supplementary review this year that will test the effectiveness of our laws. We do not know when this will take place but we know it will be sometime 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 lapses that the country previously had. In the past, when other jurisdictions requested this information, we could not provide them as we did not have the accounting information. That is why Seychelles was blacklisted because we could not exchange information for tax purposes.
By February 6, we have to establish where we are. The industry had advised us that they might not meet the deadline and requested an extension but we are not in a position to extend the deadline because this is a commitment we made to the EU.
There were various discussions in the past that delayed and prevented us from enacting these laws earlier. Maybe at the time the industry and the government were not in agreement and, therefore, not on the same page.
But the government has stressed that it was important for the sector to follow international norms as we do not want those 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 amend and enact those laws?
DT: It was not easy. We put a lot of effort into the sensitisation exercise. Seychelles was implementing a 1994 regime when the Seychelles International Business Authority was set up and the IBC Act was enacted. A lot of changes have happened globally since then.
It was normal to see some resistance as some people thought that any change would destroy the industry. We had to make them understand that this was not going to be the case. Seychelles must enact or amend the necessary laws due to international pressure.
Secondly, we had to build internal capacity within the Ministry of Finance, the Financial Services Authority and other such partners such as the Financial Investigation Unit and the Registrar General.
There was a lot of support and engagement from OECD before COVID-19. We travelled a lot to attend meetings and training in capacity building. We got a lot of support from the organisations that looked at our laws. The Ministry of Finance also consulted Ernest and Young, which guided us with certain amendments to the business tax. It was a long process.
But we do not have a choice as we must be in conformity with international standards. We must remove the reputational risks that come with the jurisdiction.
SNA: Seychelles has been removed from the EU blacklist but is still linked to the scandal related to the Pandora Papers, revealed by the International Consortium of Investigative Journalists (ICIJ) in 2021. How does this reflect on the country?
DT: It is unfortunate but the papers refer to past incidents and already actions have been taken against some of the companies mentioned in those papers. Maybe there are still articles that refer to politically exposed persons from abroad who have opened companies and they are using this information to raise the issue. But these are old cases.
Unfortunately, at the time of these incidents, we did not have the information needed because the companies had already closed and left and we could not exchange this information to the jurisdiction that was requesting it. We were in a tight spot.
There will always be future references to these previous cases, those old companies that are no longer registered here in Seychelles.
SNA: How do we change this perception that Seychelles as an offshore jurisdiction is linked to illegal activities?
DT: It is important that our licensees, for example, our international corporate service providers that engage with these IBCs, know who their clients are. Seychelles revised its Beneficial Ownership Act in 2020 to ensure it knows who the people behind these companies are. We did our due diligence and this is ongoing.
Following the amendments in our IBC Act, they now must leave the accounting information here so that we have this information whenever there is a request by another jurisdiction.
|FSA's five-year strategy 2020-2025 will focus on product development, research alternative products or new products that can enlarge its jurisdiction (Rassin Vannier, Seychelles News Agency) Photo License: CC-BY|
SNA: Is Seychelles a tax haven?
DT: You will always be seen as a tax haven when you are creating the IBC structure. IBC is like a brass plate when you look at it in its traditional form. You live in a country and do business overseas. That is why it is important to put all the licensing requirements in the other jurisdictions/countries.
It is a structure that allows you to set up a company quickly, like 24-hour incorporation. International jurisdictions want to ensure that these companies are paying taxes in their respective countries despite having their companies in another country.
SNA: How did FSA perform in 2021?
DT: In 2021, FSA paid SCR95 million ($7 million) in dividends to the government for three quarters. We are presently finalising our accounting for the final quarter to see how much we are going to pay in dividends. Our estimation for the whole year is SCR120 million ($9 million) as dividends.
FSA performed well despite a rise in the exchange rate which influenced the foreign exchange. It should be noted that even during lockdowns, offshore is the one sector which continues to produce and as of November 2021, we were at 167 million rupees ($12.5 million).
We had 54,764 IBCs at the end of November.
SNA: What is the outlook for 2022?
DT: Although it looks positive, we cannot make any prediction for 2022 because we are waiting for the February 6 deadline to see the full impact of the law revision. As outlined in our strategic plan, the general expectation is that some companies might close and the changes will lead to some losses.
We do not want to attract mass numbers with bad operators. We prefer to see only the good actors remain, those that conform to the laws.
SNA: What is FSA's biggest challenge?
DT: IBC products are reducing and we need to relook at the sector to ensure the longevity of the non-bank financial sector. Our five-year strategy 2020-2025 points out that we must focus on product development, research alternative products or new products that can enlarge our jurisdiction. That is why we created the Product Development Unit in August last year.
But research takes time and we must ensure that we remain relevant and diversify our portfolio. We do not know to what extent IBCs will decrease. For now, and 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 are holding discussions with the industry because what we propose must be products that generate interest and attract new entrants.
One sector which is generating more interest is the capital market, where securities dealers are offering alternative ways to raise capital. We also have virtual asset service providers (VASP), which include virtual assets such as cryptocurrency. We have some activities being done but it is not regulated so we need a risk assessment at the end of January, to see the risks that come with it and whether it is a viable activity. From there, we can put policies and legislation in place.
Other sectors include fintech or financial technology, insurance, supervisory technology, or suptech, which helps with decision making. We are also looking at captive insurance as a new product and compliance officer. What we are proposing is that all IBCs should have a compliance officer to ensure they are following the law. At present, there is a lack of human resources for this and we want businesses to offer this service.
We will also revise some laws such as insurance and gambling to attract more people to the sector.