Gibraltar Global Securities might be a small firm, but it’s imminent closure could have big implications for the country’s second economic pillar.
In an announcement on Sunday, the Nassau-based securities company said it would voluntarily close its doors after a disciplinary ruling in Canada caused irreparable damage to its reputation.
Warren Davis, the founder of Gibraltar, said he paid the $300,000 fine to the British Columbia Securities Commission (BCSC). Back in November, the Canadian regulator found Gibraltar guilty of trading and advising in securities in Canada without a license.
All 15 Bahamian employees at the company have now been laid off. Davis estimated that Gibraltar contributed around $1.5 million to the economy each year through employment, rent, bills, charitable work and National Insurance Board (NIB) payments.
“In this business, reputation is everything and when it has been damaged, even unjustly, the impact is a measurable, quantifiable fall-off in business,” Davis said in a statement.
The closure seemingly brings to an end a financial services saga stretching several years.
In January 2011, the Securities Commission of The Bahamas (SCB) carried out a raid of Gibraltar’s offices in Sandyport without notice or cooperation. SCB discovered a number of accounts that were offshore corporations and beneficial owners with residency in British Columbia.
The SCB later gave this list to the Canadian regulator.
According to documents submitted as evidence at the ruling, officials at BCSC and SCB were in correspondence as early as March 2009. During one correspondence in particular, Paul Bansal, the senior investor at BCSC, was given the opportunity to amend and edit a draft of the charges brought against Gibraltar.
Executives at Gibraltar have denied any wrongdoing and claimed SCB was “coached” and took part in a “fishing expedition” against one of its own. The firm further claimed that it had an account at a registered firm in Vancouver, and through this relationship, believed it was within the letter of the law.
Meanwhile, the SCB has insisted that BCSC conducted its own investigation into Gibraltar’s activities within its jurisdiction and sought the commission’s assistance by requesting certain information, which the commission provided.
“The accusation that we were coached, nothing could be further from the truth,” the SCB said in a statement. “We in fact acted according to our legal obligation where we find the result to be valid. We considered the request to be valid and we responded accordingly.”
For his part, Davis believes he “stood up” for Bahamian law and client confidentiality. At one point, Gibraltar had more than 1,200 clients.
In yesterday’s statement, the Nassau firm said that it’s part of a bigger picture whereby other countries seek to “pierce the armor” of the private and confidential world of stocks, bonds and treasuries. He urged the government to conduct an internal investigation into the matter. According to sources familiar with the matter, Gibraltar is still considering legal action against the SCB.
Innocent or not, Gibraltar’s story could foreshadow a greater trend for firms within international financial services centers.
James Smith, a former state minister of finance, has called legal action against Gibraltar “the tip of the iceberg”.
Smith believes the investigations are partly the result of the Internal Revenue Agency’s Offshore Voluntary Disclosure deal, which expired on August 31, 2011, offering possible amnesty to those who come forward. Tax sharing agreements between The Bahamas and a growing list of countries have also contributed to the investigations, he added.
“I think what is happening now is a number of Americans took advantage of the amnesty the IRS put out, for those who declared they held accounts offshore and provided information. This is the tip of the iceberg of offshore centers being named as recipients of tax-related issues. I think there will be a lot more down the line,” according to Smith.
In his statement, Davis noted that the Cayman Islands and other jurisdictions have been able to diversify their products and find the balance between offshore investments and regulatory requirements.
“We will continue to lose our competitive advantage and once people of wealth go elsewhere for one set of serves, they are likely to conduct other business in other jurisdictions as well,” Davis said.
The CEO said he is closing Gibraltar with a “clear conscience”.
By Jeffrey Todd
Guardian Business Editor
