Keeping International Business focussed

Lynette Eastmond speaking at ICAB Conference

The ICAB Financial Services Conference held on August 27, 2010 raised a number of issues which have to do with where Barbados wishes to position itself in the international market. There is no doubt that in reviewing the structure that Barbados created that it had no intention of being dependent on secrecy in its dealings with potential clients. For its Financial Services Barbados insists on a strong reglatory framework.

 Barbados was also clear that it wanted to engage in more than financial services and this is can be seen from the International Business Companies Act. There has been an emphasis on engaging in businesses of substance as a means of creating employment opportunities for a wide cross section of Barbadians. Barbados is an active participant in double taxation treaty negotiations and trade agreements. Far from delinking itself from the rest of the world as a haven Barbados has continued to open itself up to the world, insisting on following the international standards in its financial services sector. The audit structure in Barbados is critical to this. Barbados has represented on its shores all of the major accounting firms as well as a number of smaller, high quality firms.

The Institute of Chartered Accountants of Barbados is strong and has set standards for continuing education for its members. Barbados’ threshold for an audit has been set at $500, 000 since the 1980s. Everyone agrees that the threshhold must be increased. Ms. Eastmond in this regard urges caution. The focus should not be on trying to capture clients that the key determining factor in choosing Barbados is whether or not they must have an audit. There must be some rational based on the purpose of having an audit for certain enterprises. A principled result would not see business leaving Barbados, it would continue to preserve the regulatory integrity of Barbados.

How Whiter Shade of Pale ended up in Court

“We skipped the light fandango
turned cartwheels ‘cross the floor
I was feeling kinda seasick
but the crowd called out for more
The room was humming harder
as the ceiling flew away
When we called out for another drink
the waiter brought a tray”

This song is considered one of the all time greatest hits and has now made history by being the first pop song to be considered by the House of Lords in the UK (Fisher v. Brooker and Others (2009 UK HL 41). It is a Procol Harum song that was recorded back in 1967. This song had been exploited over the years on the basis that Gary Brooker wrote the music and that the publising and record company to which he sold the rights, and its successors possessed and controlled the copyright.   

By an Order of the High Court Blackburne J. made a declaration to the effect that (1) Matthew Fisher is the co-author of the music as recorded by Procol Harum; (2) he is a joint owner of the musical copyright in the work, assessed at 40%; (3) the licence of the defendants to exploit the work was revoked on May 31, 2005 when Matthew Fisher started his case against Gary Brooker and Onward Music Limited.

So Matthew Fisher wins - the other side appeals

Permission to appeal was granted on the basis of (1) the unusual length of time that had elapsed in making the claim (2) the insistence of the defeated defendants of the widespread and dire effect that the decision would have on the way that the music industry operated in the past.

In 1967 Gary Brooker composed the music of “A Whiter Shade of Pale” around lyrics written by Keith Reid. The dispute is about the authorship of the arrangement of the song. In the course of rehearsals improvised changes were made to the song: the words were shortened from 4 verses to 2 and the instrumental sections were all played by Matthew Fisher on the Hammond Organ. The single issued on May 12th 1967 was a recording of a performance by the band. In August 1969 Matthew Fisher left Procol Harum. The band’s partnership was dissolved with the understanding that Fisher would not be liable for the band’s debts of $60, 000. He signed a release but not with respect to a share of copyright or publishing royalties for his compositions.

Blackburn J. found in the High Court that “Mr. Fisher’s instrumental introduction (i.e. the organ solo as heard in the first eight bars of the Work and as repeated) is sufficiently different from what Mr. Brooker composed on the piano to qualify in law, and by a wide margin, as an original contribution to the Work”.

Michael Fisher wins – kinda

On appeal it was found that the judge was entitled to find that Matthew Fisher made a creative contribution to the Work and he was right to grant a declaration as to co-authorship. This decision therefore stood. He however dismissed the appeal on the joint ownership of the musical copyright and the finding that the implied licence to exploint the work had been revoked when Matthew Fisher filed his action. Lord Justice Mummery found that Matthew Fisher was guilty of “excessive and inexcusable delay” and that his acquiesence made it “unconscionable and inequitable” for him to seek to control commercial exploitation of the work after 38 years. No damages were awarded and no right to exploit the work in the future was granted.

What Michael Fisher got

So it is not clear from the case exactly what Michael Fisher got. Michael Fisher did not seek to claim royalties retrospectively. Having determined that Michael Fisher was the co-author but not joint owner of the musical copyright, it seems that he will not get royalties from the original recording in the future but he will get from covers and live performances. And the Court supported the intellectual property rights of authors:

“There is no concept in our law that is more absolute than a right of property.  Where it exists, it is for the owner to exercise it as he pleases.  He does not need the permission of the court, nor is it subject to the exercise of the court’s discretion.  The benefits that flow from intellectual property are the product of this concept.  They provide an incentive to innovation and creativity.  A person who has a good idea … is entitled to protect the advantage that he has gained from this and to earn his reward.  These are rights which the court must respect and which it will enforce if it is asked to do so.” 

Composers, musicians, song-writers and singers are never quite sure when they will get a hit. While paper work might be the last thing on the mind of a creator when involved in the creative process it is best to try get it right up front.

Have a listen to Whiter Shade of Pale:

http://www.youtube.com/watch?v=Mb3iPP-tHdA

Points to ponder under the Financial Services Commission Bill

Bridgetown Barbados

Commission Good Move

Barbados is currently considering for passage into law the Financial Services Commission Bill. This Bill  seeks to establish a Commission to oversee all financial services with the exception of Banking. This consolidation of regulation makes sense for Barbados since it will allow for the greater sharing of resources as well as a seamless approach to regulation of financial institutions and products.

Are all these entities really financial institutions?

Entities engaged in financial services are identified by reference to pieces of legislation and this is perhaps where some difficulties might arise. Eleven pieces of legislation are captured (1) Barbados Foreign Sales Corporation Act (2) Cooperative Societies Act (3) Exempt Insurance Act (4) Friendly Societies Act (5) Insurance Act (6) International Business Companies Act (7) International Trusts Act (8) Occupational Pensions Benefits Act (9)Societies With Restricted Liability Act (10) Securities Act (11) Mutual Funds Act.

It is quite easy to argue that for each entity guidelines would be established to suit the industry and the products.  There should therefore be no fear that a taxi cooperative would be regulated in the same manner as an insurance company. Even so one could not imagine that drafters would be comfortable with some of the businesses that will be called financial institutions. This concern will arise primarily with the Cooperatives Act, the Barbados Foreign Sales Corporation Act, the International Business Companies Act, the Societies With Restricted Liability Act and the International Trusts Act.  Some of the businesses that will be referred to as financial institutions are farmers’ cooperatives, call centres, manufacturers of contact lenses, manufacturers of sports wear, architects, film makers and entertainers. When Barbados is called upon to discuss the supervision and regulation of all of its financial institutions will it then argue that these are not really financial institutions? This seems a bit messy. The policy should be more clearly reflected in the legislation.

Distinguishing the pig farmer’s coop

Financial Institutions would be rquired to provide quarterly reports. Usually this type of reporting is required becasue of the risk associated with the business.  Should the rationale for this rigorous reporting be based on the piece of legislation under which these entities were initially licensed or registered? A person carrying on the same type of business, but not licensed, would not have this regulatory burden. This seems counter-intuitive and counter-productive. It should be noted however that at Clause 4 of the Bill there is provision for financial institutions to be exempted from certain provisions at the discretion of the Commission.  One would imagine that this could be used by entities like the taxi cooperative but the question must be raised as to whether it weakens the legislation. Would any one reviewing the legislation consider this a far too broad opt out clause?

It would probably be best to define financial institution including giving the Commission a broad power to determine such. There should be a formal process for the Commission to make such dterminations if any entity is in doubt. Those that are financial institutions would fall to be regulated and those that are not would fall outside the scope of the Commission.

It would seem too that the pieces of legislation that were not drafted with the objective of  regulating financial institutions would require considerable amendment or specific guidelines under the new Act. It is true that there are some entities that might wish to carry on a financial services business under legislation not now traditionally used for this purpose.

Local authorities to share information

One of the positive steps that has been taken in this piece of legislation at Clause 37 is the power to share information with other regulatory authorities. Barbados has been in situations where certain regulators were through international agreements duty bound to share information with foreign counterparts but could only do so informally at the domestic level. Efforts were made to address this through a Memorandum of Understanding. The Commission must also ensure that those regulatry authorities named such as the Commissioner of Inland Revenue, other regulators (the Central Bank) and the Financial Intelligence Unit will share their information with it.

What the Commission is mandated to do

At Clause 8 four of the key functions which the Commission has (1) to supervise and regulate the operations of financial institutions (2) to establish standards for institutional strengthening, for the control and management of risk in the financial services sector and for the protection of customers of financial institutions as well as creditors and the public (3) to promote stability, public awareness and public confidence in the operation of financial institutions and (4) to increase the competitiveness of the financial services sector.

The functions can be considerd typical for a Commission of this nature. The final function is however interesting. It recognises expressly the balance that has to be struck by the regulator in ensuring that regulation must be adequate while at the same time faciliate the business purpose for which the financial institutions were established in the first place. Barbados must of course never believe that the financial services industry is outside of its grasp as a competitive sector along with agriculture, tourism and manufacturing.

How Bad Governance Keeps the Majority Poor

Michael Moore Former Prime Minister New Zealand

As we struggle with issues of governance in Barbados it was very timely that the The Parliamentarian published by the Commonwealth Parliamentary Association should focus on this topic. The Rt. Hon Mike Moore former Prime Minister of New Zealand was able to give a practical perspective on this issue in addressing the Public Accounts Committee Programme run by La Trobe, the CPA and the World Bank Institute.

First Mr. Moore highlighted the economist’s perspective and the hazards to democarcy when countries maintain opaque , inefficient, costly bureaucratic rules within their political system. He pointed out the fact that in an absence of a desire to minimise that risk and lower the costs bad things happen. In Barbados even though we have talked about public sector reform, efforts in this area are at best spotty. In many ley institutions taxpayers are becoming frustrated with long delays and are beginning to ask about who they have to “pay”. Corruption is slowly creeping into our culture.

Mr. Moore said what we know already, that policies that allow politicians to reward their friends always open the door to corruption at worst and inefficiencies at best. Competition drives out inefficiencies in a transparent system. The lack of transparency and the lack of competition increase risk. Governments have learnt and in Barbados we know, but choose to turn a blind eye, that the more there is central control that is unaccountable and not scrutinised the more difficult it is for businesses and citizens to navigate their way through. If businesses need a politician, a friend in the cabinet room, then as he puts it, we are going to have some trouble. The case that he is making is against privilege and for an open society.

The former Director General of the World Trade Organisation noted that if at every step there is a bureaucrat who wants a handout, or there is some politician who wants a share, that all adds to the cost. In some countries it costs a year in production simply to apply for a licence. He noted that this is why in most developing countries80 percent of the economy is undeground. Barbados is already considered to be an expensive jurisdiction, corruption costs might just price the country out of the market completely.

Mr. Moore called for an independent merit-based public service and noted that while this was generally the case in New Zealand in recent times there was a blurring between political appointees and public servants. This is exactly what Barbados is starting to experience as well. Chief Executive Officers are not meant to be political appointees. They are meant to be individuals that are awarded contracts based on merit.

As a politician himself Mr. Moore noted that it is diffcult for an MP when the people they know, their supporters call them up and ask them for a favour. Unless the rules are firm there will be problems. Mr. Moore expressed the strong view that MPs should be able to tell their supporters that  the decision is made by an independent authority, not by them. Politicians need these clear rules to protect them otherwise the pressures on them will be immense.

Finally Mr. Moore urged the use of new governnace tools. He noted that today we can get around lengthy procedures and bribes to officials through e-governance. This is where Barbados should be heading as well. It is all well within the  grasp of the people if they could summon the courage to insist on the reforms that the politicians seem adamant not to legislate.

Public Accounts Committee doomed to failure?

Clyde Mascoll

The Public Accounts Committee Bill was passed into law in 2003. The intention was to reform the procedure by which Members of Parliament could oversee the activities of taxpayer funded institutions. Clyde Mascoll as the the then Leader of the Opposition was the first convenor of the Committee and the Committee’s first challenge was to set its own rules for the carrying out of its functions.

One of the problems with the Public Acoounts Committee was that it never met with enough frequency to deal with these matters of Governance in a systematic fashion. We reviewed the Public Accounts Committee Act when it was passed (see post under Governance). It was meant to be the forum through which the issues raised by the Auditor General could be advanced.

After all this time it would seem that the difficulty with the legislation is that its operation will be driven by politicians. This means that those individuals can not help but consider the political implications of convening the Committee. Often there are many other political options that could be used. For the politician the optimum use of power is not accountability to the taxpayers but rather, the certain demise of a political opponent. Even though the Public Accounts Committee can meet in a public setting it still might not have the optimum optics for the politician.

The Committee is made up of members from the Government, Opposition and Independent Senators. None of these members seems to feel any obligation or might one say the right to call for the convening of the Committee. It would seem then as a governance tool the Public Accounts Committee might not be the best means to deal with matters of transparency and accountability. However there are those that might argue that it is still too soon to tell. Nevertheless Barbados must be cognisant of its own political environment and be practical about what will work and what will be doomed to failure in seeking to address governance issues within the society.

New Legislation for Financial Services

Adriel Brathwaite Attorney-General

The Attorney-General of Barbados, the Honourable Adriel Brathwaite in making opening remarks to the Institute of Chartered Accountants of Barbados gave those present some insight into proposed improvements to the legislative framework for international business and financial services. He was speaking at ICAB’s Financial Services workshop on August 27, 2010. These changes would include new legislation with respect to trusts and securities.

One of the matters that was also of significance to the accounting profession was the proposal to increase the threshhold for an audit which now stands at BDS$1 million. There seems to be consensus that the threshhold should be increaed, however the question really is to what level should it be increased?

The strong lobby for the threshold to be raised comes from some members of the international business community who believe that the low audit threshhold drives away business. On the other hand there are those who are seeking a moderation in approach since it was felt that the regulatory framework for the sector, including the audit requirement has caused Barbados to stave off attacks from entities such as the Organisation for Economic Cooperation and Development and the Finacial Action Task Force.

The present threshhold has been in place since the 1980s. The Institue of Chartered Accountants has indicated that it will be entering into discussions with stakeholders. This would help to inform their recommendation to Government.

Public Accounts Committee Act, 2003

This piece of legislation came into effect on July 14, 2003 and creates by legislation the Public Accounts Committee.

Objects and Reasons
The objects and reasons as set out in the Act are as follows:

a. The Establishment of a Joint Committee of Public Accounts consisting of members of the Government and the Opposition who must be from both Houses;
b. The number of members is 13;
c. Its duties are to extend to the examination of the audited financial statements of all statutory corporations as well as entities owned or controlled by the Crown.

The Committee
The 13 member Committee is made up of 6 members of the Senate appointed from that House and 7 must be from the House of Assembly likewise appointed by that House.

The Chairman of the Committee must be the Leader of the Opposition. The Deputy Chairman must be appointed by the Committee and holds office at the pleasure of the Committee. In the absence of the Chairman and the Deputy Chairman the Committee may appoint a member that does not support the Government. The Committee must meet at least once within every six months and may also meet at such other times as decided by resolution by the Committee. Five members of the Committee constitute a Quorum. Decisions are made by a majority of members. The Committee may meet even when Parliament is parogued.

The Duties of the Committee

• The Duty to Examine Reports
The duties of the Committee are to examine the audited financial statements of government authorities and intergovernmental bodies. It should be noted that in this sense an intergovernmental body means a body that is established by the provisions of an agreement between the Barbados Government and the government of another country. This also applies to a body established between Barbados and an international organisation.

The Committee has a duty to examine the audited financial statements of all statutory corporations. It may also examine entities in which the Crown owns not less than 50% of the share capital or controls at least 50% of the voting rights in the entity. The Committee also has the power to examine all reports of the Auditor-General, including the results of performance audits that are tabled in each House of Parliament.

The Committee has a duty to consider the reports of an independent auditor on the operations of the office of the Auditor General on any other Government Authority to which the Act applies.

• The Duty to Report to the Houses of Parliament
The Committee can report to the Houses of Parliament on any items or matters in the reports that come before it. It can also report on any circumstances connected with them that it thinks should be drawn to the attention of Parliament.

The Committee also has a duty to report to both Houses of Parliament any alteration that the Committee thinks is desirable with respect to:

1. the form of public accounts
2. the method of keeping public accounts
3. the mode of receipt, control, issue or payment of public moneys

In the case where the either of the Houses of Parliament asks for a matter to be enquired into then the Committee has a duty to report to the House on that question.

When considering the Office of the Auditor-General as discussed below or any other matter relating to the Auditor-General the Committee may draw any matter to the attention of Parliamen. The Committee may also report to Parliament on the performance of the office of the Auditor-General at any time.

Finally the Committee has a duty to report on the performance of its duties in respect of each financial year and lay the report in the House of Parliament.

• Duty to Consider the Operations of the Office of the Auditor General
The Committee can consider the operations of the office of the Auditor-General. This includes the resources at the disposal of the Office of the Auditor General, including matters such as funding and its retrieval and reporting capabilities.

• Other Duties
There is then also a general provision which requires the Committee to carry out all duties given to the Committee under the Act by any other law or by joint Standing Orders approved by both Houses of Parliament.

• Activities of the Auditor General and Independent Auditor
It is stated expressly that nothing in the section should be interpreted as authorising the committee to direct the activities of the Auditor-General or the Independent Auditor.

Public Sittings
Generally speaking all evidence must be taken in public. The exception is where in the opinion of the Committee the matter is a secret or confidential one and the witness requests that the evidence should be given in private. In such circumstances the evidence can not be disclosed or published.

Offences and Penalties
The fine for giving false evidence is $25, 000 or imprisonment for a term of two years or both. A similar penalty applies to persons who contravene the following provisions:

1. Failing to obey a summons
2. Preventing a witness from giving evidence
3. Refusal to be sworn in as a witness
4. Causing any violence, damage, loss or disadvantage to a person giving evidence