Barclays’ offshore banking license set to be withdrawn: Part Two

I don’t often do this, but I only want to “free my mind” before I run amok on the streets of Accra. Please allow me to “free my mind” on the perceived idea , “hear-say” or rumour that the Bank of Ghana intends to withdraw the only offshore Banking License in Ghana.

What is Offshore Banking?

An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction that provides financial and legal advantages. These advantages typically include:

· greater privacy (bank secrecy, a principle born with the 1934 Swiss Banking Act)

· low or no taxation

· easy access to deposits (at least in terms of regulation)

· protection against local political or financial instability

In the 21st century, regulation of offshore banking is allegedly increasing, although critics maintain it remains largely insufficient. The quality of the regulation is monitored by supra-national bodies such as the International Monetary Fund (IMF). Banks are generally required to maintain capital adequacy in accordance with international standards. They must report at least quarterly to the regulator on the current state of the business.

Reasons?

I heard they had reasons for this. Are they reasons or excuses?

One: the country, Ghana was not ready for offshore banking

Two: the country could be a haven for money launderers

Three: they are not keen on the advantages of the service

I will tackle the first two reasons concerning the risk of money launderers infiltrating the offshore business in Ghana. I believe the advantages of the offshore business have been stated in the first part of this article, and I leave readers to judge if we should be keen on it or not. Do we need international investments in our country especially as we required more funds to finance our oil sector?. How much credit can our financial institutions grant to finance oil businesses? Is the Bank of Ghana keen to have local Banks meeting the funding requirements of the oil businesses or we want foreign banks to finance and enjoy the returns? I’m just thinking aloud!

At It’s establishment

At the inauguration of the first and only International Financial Services Centre in West Africa, Ms Catherine Addo ( Head Offshore Banking of Barclays Bank) said although offshore banking could be a potential avenue for money laundering, Barclays Bank had put in place a rigorous system and procedures to ensure that such monies did not find their way into the system.

The Bank, she said, was drawing on the expertise of its staff in London and Mauritius (weher such services are being operated) to ensure the smooth take-off of the operations. Mr Dela Selormey, Head of Banking Supervision of Bank of Ghana, said the Bank had in place a sound regulatory environment to ensure a smooth take-off.

Prior to the issuance of the license to Barclays, the Bank of Ghana amended the Banking Act to create a regulatory cover over the IFSC (offshore banking operations). With a regulatory cover in place, an Anti-Money Laundering Act, 2008 (Act 749) was enacted to prevent and fight anti-money laundering.

Thus, currently, Ghana has a Financial Intelligence Centre which was set-up under the new Anti-Money Laundering Act, 2008 (Act 749), to help prevent abuse of Ghana's financial system by money launderers, in order to preserve the country's strong reputation in the wake of concerns raised by the Organisation of Economic Cooperation and Development (OECD) when the offshore banking service was established in the country.

After putting in place al these laws and structures to make it work, why would the BoG decided to terminate such services? Is it an issue that our laws and institutions are not working, hence we want to curb offshore banking? or We don’t understand the business model?

Barclays’ offshore banking license set to be withdrawn: Part One

FINANCIAL SERVICES CENTRE AND OFFSHORE BANKING IN GHANA: BARCLAYS BANK GHANA LIMITED EXPERIENCE

The main benefit of Offshore Banking is its attraction for foreign deposits in foreign currencies. Barclays intends to attract large volumes of deposits, which will form the basis of developing more lending solutions to Ghana’s private sector, and will help generate employment and create wealth.

Other benefits that could be derived from an offshore financial service centre are Aircraft Financing and Leasing, Ship Registration, Trust Incorporations, Assets Management, Insurance, Pension Funds, Consultancy Services etc, are all activities that can be conducted in an IFSC.

Looking at the operations of international financial services across the world, we see a very positive impact on the banking environment and the economy in general.

In Mauritius for example, the number of people employed in the Offshore sector is over 1500. Output per employee is assessed as higher than in other sectors. This indicates high productivity and efficiency. It has contributed to the development of knowledge and skills and helped Mauritius to integrate with the world economy. Indirect benefits did include a significant rise in the business of accountants, lawyers, chartered secretaries among others.

Total Offshore Banking Units (OBUs) deposits rose from USD 390 million in 1994 to USD 606 million in 1996 and loans and advances from USD 140 million to USD 159 million. OBUs registered an increase in profits in 1995 of around 57%, and 44% in 1996 to reach USD10 million. Total assets increased by 28% to USD 859 million.

The tourism sector also benefited from international visitors. Other contributions of the sector to GDP is reflected in rental of office space, telecommunication charges and other local expenditures including rent for housing and payment for services e.g. drivers etc

As at now, there are 28,991 offshore companies registered in Mauritius. Annual fees generated by these companies are around USD 15 million. This does not include those generated by Management Companies through services they offer, all of which are remunerated in foreign currency. The direct benefits of an offshore centre are in foreign currency.

Gross revenues for 1997 from the offshore sector amounted to USD 77 million. The value-added generated by three operators was estimated at USD 30 million, representing direct contribution of 0.85 % of GDP or 7.7% of financial services sector GDP. However, the various direct and indirect benefits of the offshore sector were calculated to be 2.5% of GDP, representing 22% of the financial services sector GDP.

A centre like Bermuda, with a population of under 70,000 people, has about 28% of the world’s captive insurance market with 1,491 insurance companies having assets worth over $290 billion. Its banks hold assets worth over $22 billion. Financial services represent 26% of GDP. Cayman Islands houses 312 banks with assets of over $1trillion. Financial services represent 30% of the Islands GDP.

Banks in the British Virgin Island hold assets worth over $2.4 billion. Fees from registration and licensing of offshore companies account for over 50% of total government revenue.

The banking facility provided here today will support the enormous financial activity that is expected with the creation of Ghana’s IFSC.

The IFSC is good news not only for banks but for all other non-bank financial institutions, for example the tax authorities, the Registrar of Companies, the Insurance Board, the Securities Exchange Commission, etc. The legal structures that are set up will attract a lot of offshore companies to do business in this jurisdiction.

What makes a good financial services centre are factors such as good regulatory systems; a good international reputation; a good banking system; a stable political environment; and finally, a strategic geographic position – all of which Ghana also have.