Bermuda and Bahamas

IN FORMER days when European countries and their industries and financial institutions provided the economic pulse of the civilized world, there was a consequent demand for one or two sanctuaries for private capital outside the direct control, and even influence, of the leading competing powers. These sanctuaries, in addition to giving relief from governmental pressures and investigations, offered the additional inducement of low, if not negligible, taxation on the investments or deposits entrusted to their safekeeping. Such a gap used to be traditionally filled by Switzerland and one or two other of the smaller states and principalities of Europe.

It was to be expected that as the fulcrum of economic and political power in the Western world shifted across the Atlantic, similar secure private havens for overtaxed, government-harried persons and businesses would offer themselves in the New World.

The need is being met by Bermuda and Bahamas, sometimes in consequence caustically referred to as the only pluto-democracies within the British Commonwealth. To many this specialized capitalist role may come as something of a surprise. For to most people these islands are climatic rather than financial retreats, romantic honeymoon spots rather than investment hideaways.

Haven for tourists

Every year at least 95,000 tourists visit Bermuda. Apart from a weekly steamer service to and from New York, providing in a two-day run all the pleasures of a short holiday cruise, there are yearround daily air services on a number of lines from New England and Canada. The air journey takes less than three hours from Boston or New York. Hence it is quite feasible to escape from modern civilization for a short weekend of relaxation on a coral island and still be back at the office on Monday morning.

Unhappily, Bermuda is not far enough south to be able to claim truly warm, sunny weather all the year round; indeed, in the winter months temperatures frequently fall as low as fifty degrees, with cloudy skies and gusty winds. Yet for the greater part of the year — the best season is spring — Bermuda comes as reliably near to offering the joys of an “island in the sun” as can reasonably be expected so short a distance from snow and ice and driving sleet.

On the island there are many pleasures to tempt the tourist, apart from earning a sun tan. Enterprising clubs and hotels now provide firstclass golfing, deep-sea and inshore fishing trips, sailing and water skiing. Despite all these entertainments, there is a welcome determination on the part of the islanders not to lose the traditional charm of their way of life, best summarized as a refusal to be hurried or worried. Since the last war, the motorcar has taken the place of the horse and gig, which until then, except for bicycles, was the only lawful conveyance. But there are still restrictions in that each island family, however well off or numerous, can have only one motorcar per household. There is a rigidly enforced limitation on the size of cars, a very low speed limit on the roads, and indefinite suspension of the driver’s license in the case of repeated violations of the speed limit.

Seven hundred miles farther south, welcoming another 143,000 holiday visitors annually, lie the Bahamas — Nassau and the outlying dependencies — almost perpetually basking under sunny skies. The greater distances and, therefore, expense involved tend to put these islands out of reach for weekenders except, of course, for those living a half hour away by air, in Florida.

Nassau’s greater distance from most of the larger North American centers of population means that those who do come are a more sophisticated clientele, including wealthy Europeans as well as North Americans. The dimensions of your motorcar and the number you can own in the Bahamas depend on the size of your pocketbook, and at night a stream of these large cars drive up to a gambling casino, a temptation unknown in Bermuda.

Many thousands of American servicemen and veterans and their wives and families remember their stay at one or another of the U.S. Air Force or Navy bases in Bahamas and Bermuda as among the more pleasant of their overseas experiences.

Sanctuary for private capital

The dollars and pounds that flow in, both directly and indirectly, as the result of the annual tourist traffic and of the base occupations are very welcome. But both dependencies know only too well that the longterm prosperity of these islands must ultimately depend also on their reputation as a sanctuary for private capital. More and more people and companies, not only in North America but also in overtaxed Britain and elsewhere in Europe, regard Bermuda and Bahamas as refuges in which to keep financial nest eggs. What requirements make the islands attractive to investors?

First and foremost direct taxation has to be substantially lower than in neighboring larger countries whose prosperity depends on a wide range of industrial, commercial, or agricultural enterprise. Miniature states such as Bermuda and Bahamas, with necessarily small populations and few natural resources, can never hope to emulate large industrialized countries in any significant degree. At the moment both Bermuda and Bahamas have virtually no direct taxation. There is no income tax. super tax, corporate tax on firms (called “exempt" in Bermuda, “nonresident" in Bahamas) that do not trade locally for profit, capital gains tax, gifts tax, or estate duty except for a trifling percentage under certain limited conditions in the Bahamas.

Because both these island states are proceeding along the same lines of economic development, there is keen rivalry in the provision of baits for overseas customers. Bermuda recently passed a statute guaranteeing “exempt” companies freedom from corporate taxation for thirty years from the date of its enactment. Another rather technical, legal difference, advantageous to Bermuda, at least until the Bahamians catch up, is that a company can redeem its own shares, thus making possible the establishment of open-end investment trusts, which have to pay any particular withdrawal tax only to the country in which the funds themselves are actually invested.

Grand Bahama’s free port

Bahamians, for their part, have countered with a potentially highly attractive proposal — they have granted by irrevocable charter to an American business combination a free port in one of the outlying large islands of the archipelago nearest to the coast of Florida, Grand Bahama. Within this port and a surrounding demarcated area of considerable size, incoming goods and raw materials destined for re-export after processing in local industries to be established within this free port area will pay no local import customs duties or other levies at all.

Nassau, the Bahamian capital on the isle of New Providence, opens its doors freely to the local registration and establishment of foreign banks and other financial institutions. In this way Bahamians feel they will, in the long run, attract a wider range of interests and consequent benefits than exclusiveness can provide. Although not yet direct competitors in the field of banking, famous U.S. financial interests are actively represented through participation in several of the international trust companies operating in Nassau.

The customer’s interests first

As history has shown on more than one occasion, low taxation in itself is not enough, either as bait to the individual immigrant from countries where the fiscal burden is much higher or to ensure the establishment of overseas business interests. Two other considerations must be met. The first of these is the will and the capacity to put the customer’s interests above all else in relations with other countries. Switzerland has always, to its great benefit. strictly observed this precept, as was evidenced at the end of the last war, when despite its open dislike of Nazis and Fascists and all that they stood for, it obstinately refused to bow to Allied pressure and give details of the private monetary holdings of war criminals in Switzerland.

Fortunately Bermuda and Bahamas have never yet had to be put to so stringent a test as this; but even at the height of the war, when Britain was trying to get hold of every dollar it could lay hands on to sustain the war effort, the declaration of private dollar holdings was never enforced in the islands, as it was elsewhere in the Commonwealth.

Political stability

Last but not least, there is the question of present and future political stability. In the past, many luckless people have gone to live or have invested their savings in lands of sunshine and low taxes, only to find themselves stranded and ruined in later life owing to the appearance of racial discord, Communist revolution, or nationalist xenophobia. Political stability is of vital importance to would-be residents or investors.

Insofar as anything can be secure in so uncertain a world, both Bermuda and Bahamas deserve high marks in this respect. Both enjoy an uninterrupted history of Parliamentary democracy and obedience to the rule of law based on their parent British models. Bermuda, which celebrates its three hundred and fiftieth anniversary this year, has the second oldest legislature in the Commonwealth. As perhaps is inevitable in a mixed interracial society, black and white, sources of friction do exist and show themselves from time to time. Yet in Bermuda especially race relations are generally happy.

For one thing, although the resident Europeans are outnumbered by the colored population, descendants of the slaves, the comparative figures are only 26,000 to 16,000. For another, owing partly to the general level of prosperity and partly to the inevitable local repercussions of an American high-wave economy in its huge Naval and Air Force base there, an overall standard of living has been attained for both colored and white which is unmatched in most other parts of the world.

Finally, there is no legal sanction for segregation. The state-run schools are open to all, although the vast majority of European boys and girls do in fact go to private schools. Socially the races undoubtedly still lead largely separate lives, but Bermuda pursues the doctrine that real tension is created only when alleged racial inferiority is asserted through legal restrictions based on race or color alone.

Unfortunately, in the Bahamas race relations have not recently been quite so satisfactory. This was highlighted in January, 1958, when a strike that began as a petty dispute between taxi drivers and hotel managers spread rapidly. The real cause of the trouble was the feeling of a substantial section of the colored people that they were being precluded by white domination from a fair say in the conduct of their homeland’s affairs. Measures are now being taken to remove certain quite indefensible plural voting privileges, limited in practice, although not in theory, to the wealthier Europeans.

Given the three requirements of low taxation, trustworthy institutions which guard the privacy of their clients’ affairs, and security against sudden political upheaval, what other practical inducements have these islands to offer to enterprising businesses and businessmen?

For U.S. firms with overseas activities earning substantial profits, particularly in underdeveloped countries where taxes are kept low to attract foreign capital, very advantageous arrangements can be made. If the subsidiary companies performing the contracts are owned by a parent company registered in the Bahamas, and not by the principal U.S. associate, individual profits accumulated in Nassau are not subject to local tax and form a valuable reserve for new undertakings outside the United States.

Private companies can store pension funds for their executives, at least while they are working outside the United States. Along with these and other specialized services are wellestablished opportunities for trusts, family settlements, and the like.

Allegiance to the free world

Communism is virtually nonexistent in these islands, and there are no signs of the national phobias prevalent elsewhere in Central and South America. Allegiance, to the British crown is fundamental. Widespread local dismay was expressed when the British, for economy reasons, recently withdrew Naval and military garrisons that had been in Bermuda since the eighteenth century.

Great respect and liking for the United States and the American people exist throughout the islands, extending not only to visiting tourists, which might be attributed to good business sense, but also to the large numbers of base service personnel whose duties and responsibilities make a substantial and not always convenient popular impact, in view of the small size of the territories in which they are stationed. One continuing grudge does, however, exist in Bermuda, which Washington should put right without delay. During the war the U.S. government undertook formally to build a road bridge to replace another public way lost when incorporated within the military base area. On one pretext or another work on the project has been postponed for more than fifteen years.

In general, however, there is no doubt that whatever mistakes may have been made by the United States in its relations elsewhere in this part of the world, Bermuda and Bahamas are shining examples of the results of an effective goodneighbor policy.