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The Bahamas is one of the main offshore financial centers in size, infrastructure, and attractiveness. The well-established jurisdiction takes foreign direct investment to another level. It hosts thousands of International Business Companies and a few hundred bank and trust companies, licensed by the Central Bank of the Bahamas and the Securities Commission. Licensed bank and trust companies and legal persons with registered approval by the Financial and Corporate Service Providers Act can set up Bahamian companies for non-resident professionals. The result is that international business activities are executed via Bahamian International Business Companies (IBC) and local financial institutions welcome a widespread international clientele.

Globalization allows business people to choose for flexibility and efficiency. Most jurisdictions allow international business professionals to use the local corporate infrastructure, laws and facilities included, as they see fit. When location is unrestricted, business owners seek the best jurisdiction for incorporation. This best jurisdiction may be justified by geography, administrative fairness, and other corporate flexibility. This global approach towards entrepreneurship allows businesses to separate all their corporate needs and seek appropriate worldwide solutions. As such, many International Business Companies maintain relationships with institutions in distinct financial centers.

A New Era of Financial Globalization

The growth and importance of international finance is a result of globalization. These days, more and more supply chains include foreign business units and local businesses outsource activities to freelance workers from low income countries. Advanced entrepreneurs relocate themselves or seek establishment in business friendly countries. This furthered the market for easy to operate and flexible International Business Companies. Following these developments, stand-alone sectors like finance and technology merge and create new opportunities to contribute to an advanced society. The Bahamas takes a prominent role in this new ecosystem where it provides efficient company structures and licensing for novel bank and trust companies.

International Bank Regulation and strong company laws make the Bahamas into one of the most advanced locations for legitimate business activities. It distinguishes between the local community and non-resident corporate ownership. Its fiscal levels are competitive whilst several commonalities to safeguard investor interests are the exclusive domain of the civil legal system. For example, out of the 270 registered bank and trust companies that are licensed and registered on the islands, only a hand full are members of the Deposit Insurance Corporation of the Bahamas that protects bank deposits up to 50.000 Bahama dollars. It is therewith assumed that international and non-resident investors who do not contribute directly to the local economy should be able to protect themselves against contract party risk in its broadest sense. The Central Bank of the Bahamas closely monitors the capital position and conduct of supervised financial institutions, while the legal system in the Bahamas provides non-resident creditors with sufficient resources for recovery.

Deposit Protection in an International Setting

Most countries in the developed world implemented a depositor protection scheme to maintain stability of the financial system to absorb shocks in times of financial turmoil. These local deposit guarantee schemes secure a maximum amount per account holder and apply to all failing financial institutions. Countries draft their own regulation and in the Bahamas this resulted in some limitations. The most crucial characteristic of the Bahamian Deposit Protection Fund is that it purely and solely covers deposits in Bahamian dollar held with licensed and supervised financial institutions who are a member of the DIC. Yet, to avoid excessive losses for bank customers and creditors holding foreign currency accounts, the legal system provides the regulator with far-reaching powers over its licensees. Early intervention by the appointment of a statutory administrator is one of these powers mandated to the Central Bank of the Bahamas.

Bahamas Non-Resident Bank Liquidation

Bank resolution and liquidation procedures for supervised financial institutions in the Bahamas is discussed in the Banks and Trust Companies Regulation Bill of 2020. The Bill describes the mandate and authority of the Central Bank of the Bahamas to resolve financial institutions in distress and refers to the resolution framework for fairness. A detailed explanation of the bank resolution procedures for licensed and supervised financial institutions in the Bahamas is provided in this article on the Nassau based Lucayas Bank that got into disarray at the end of 2021. The bank is currently placed under statutory administration pending resolution and further action. Until further notice, bank accounts remain blocked and creditors are unable to withdraw funds from their respective accounts.