By Linda Hutchinson-Jafar
PORT OF SPAIN, Trinidad, May 3 (Reuters) - The Caribbean has tried for years to shed its image as a refuge for tax dodgers and money launderers where travelers arriving with large amounts of cash were welcomed with open arms and even offered police escorts to their local bank.
But suspicions about the region's booming offshore banking and financial sector still run deep.
"If it was not for bank secrecy, the offshore havens in the Caribbean would be fishing communities again," said Charles Intriago, a former U.S. federal prosecutor and money laundering expert, who publishes a website for law enforcement officials about asset forfeiture.
"You've got to be a Houdini to get out from the clutches of the iron-clad secrecy that these offshore centers provide to their customer," he said. "It's an outrage that these facilities are allowed to exist."
Members of the Caribbean's financial and political elite bristle at suggestions that lax regulatory systems and tax avoidance schemes allow them to attract foreign capital that might otherwise be directed elsewhere.
But the global financial crisis, and a string of headline-grabbing fraud scandals like those involving disgraced Wall Street financier Bernard Madoff and Texas billionaire Allen Stanford, have focused new attention on offshore banking centers, such as the Bahamas and the Cayman Islands.
Spurred by public outrage over the scandals and big banking bonuses at a time of global economic meltdown, some governments are seeking to root out wealthy tax evaders.
With all but a few exceptions, Caribbean countries now face pressure and possible sanctions because they are included on a "gray list" of states failing to comply fully with standards on taxation and bank information disclosure established by the Organization for Economic Cooperation and Development.
The OECD list, endorsed by G20 leaders in early April, includes bank secrecy strongholds like Switzerland and Liechtenstein that have committed to cooperate on fighting cross-border tax evasion, but have not yet adopted transparency standards.
According to a recent World Bank report, the Caribbean derives 45 percent of its gross domestic product from services. Already hurting from a steep drop in tourism, the region can ill-afford any outside attempt to rein in its financial services industry.
LESS TOLERANCE
"It will affect the Bahamas negatively, but there is no justification for that," said Bahamas Prime Minister Hubert Ingraham, who spoke on the sidelines of last month's Summit of the Americas in Trinidad and Tobago.
"We think it is a misguided initiative as far as the Bahamas is concerned," he added. "We can't fathom why or how our name could be included on such a list "
Jeffrey Owens, director of the OECD's Center for Tax Policy and Administration, told an offshore banking conference in Miami last week that the organization hoped to create "a level playing field" where financial centers around the globe competed in the same regulatory environment, luring customers based on services they offered, not the level of secrecy.
"The tolerance level for non-compliance is substantially reduced," he told the conference, urging all financial centers to help lift the lid on tax avoidance.
Eduardo D'Angelo Silva, chairman of the Cayman Islands Financial Services Association, told the conference the OECD was playing a "shell game," however, in which offshore financial centers are accused of wrongdoing while some banks in industrialized nations get a free pass.
"There are some jurisdictions that are almost criminal in their neglect," he said.
"The greatest offenders are in the major financial centers of the U.S. and UK," he added, singling out the U.S. states of Nevada, Delaware and Wyoming as places where banks put a huge premium on secrecy.
LIMITS TO DIVERSIFICATION
At the Americas Summit, Belize Prime Minister Dean Barrow called for more understanding and greater perspective regarding the treatment of offshore jurisdictions in small developing countries.
"Ever since the onset of globalization, diversification has been a mantra in our sub-region. But there is limited scope for diversification, so it was not surprising that many of us seized on an area that made very good economic sense," he said.
"That is why the Caribbean has become the fourth largest banking sector in the world, led primarily by Bermuda, the Caymans, the Bahamas and British Virgin Islands," he said.
He added that he hoped effective measures against tax evasion could be put in place without creating "a pile-on effect in our small countries by destroying a critical component of the very services area into which we were encouraged to diversify." (Writing and additional reporting by Tom Brown in Miami; Editing by Pascal Fletcher, Leslie Gevirtz)