Shakespeare wrote both comedies and tragedies; but he is best known for his tragedies. In these stories a series of unhappy events evoke feelings of increasing pity and terror. However, the events are triggered by the "defects" of the leading character and they end in a dramatic disaster. That's the tragedy of Shakespeare. Similarly, the blacklisting crisis is a real-life tragedy for the Bahamas.

The drama.

Let's look at the defect and the unfolding events:

· Although the Bahamian legal system is based on English common law and there is an ample supply of homegrown legal talent, "the law" in practice is not applied impartially. Up until now…in the sequence of crime and punishment, punishment in so many areas has been reluctantly pursued…if at all. This reluctance is so pervasive that it appears deeply cultural in origin. It's "the Bahamian way."

· Consistent with this, the Attorneys General of the Bahamas were unable and/or unwilling to process actions initiated by the United States under its 1992 Mutual Legal Assistance Treaty with the Bahamas. Allegedly there were as many as 300 requests related to drug trafficking and money laundering and apparently none elicited a meaningful positive response. The U. S. Government was fighting its "War on Drugs" beyond its borders and it became profoundly irritated over the failure of the Bahamas to live up to its treaty obligations.

· In this disagreement the U.S. held the high cards. In a pinch it could directly affect financial and tourist flows…the lifeblood of the Bahamian economy. In this situation the Bahamas was defenseless. It lacked the only viable cards available to a small country, a proven integrity in a wider community of nations and the ability to marshal their support.

· Then came the "perfect storm". In the skies over the Bahamas this disagreement met the Organization for Economic Cooperation and Development's "War on Harmful Tax Havens" and a supportive U. S. Secretary of Treasury. The result was the dramatic disaster…the Blacklisting.

The disaster.

The threat levied against the Bahamas was the blockage of financial transfers between the Bahamas and the major countries of the OECD by July 2001. The relief offered was the adoption of comprehensive legislation to control all Bahamian financial intermediaries. In addition, the Bahamian Government had to prove itself by implementing the legislation within that time period. Compliance no longer meant just saying you were going to do something.

The period was so short that the Government simply copied the existing legislation of an unspecified foreign country, a country whose economy may or may not have been similar to the Bahamas. The 11 separate bills are draconian in scope and detail; and the Government is operating on the presumption that they must be implemented at all costs in order to get off the list.

Then and only then can the Government propose amending legislation to iron out the gross errors contained in it. Hopefully the "best and the brightest" in the Bahamas will have the "right stuff" to obtain the suggestions of its financial intermediaries and to propose amending legislation. Or…devise another strategy to extricate the country from this situation.

Another reality.

A reality that has troubled all Governments in the world for decades is that international financial capital flows are huge, fluid and resist unreasonable controls. Examples range all the way from the Bank of England trying to defend an unrealistic exchange rate to the Government of Indonesia trying to stop the capital outflows of its citizens when the banking system collapsed. Governments cannot set market parameters that are unrealistic or confiscatory in nature. If a country does not have the "right" parameters, capital goes elsewhere quickly…it creates "fiscal" refugees trying to preserve and protect their wealth.

In this regard the Bahamas has had ample direct experience.

· In the 1970s its captive insurance companies went permanently to Bermuda, a more hospitable country.
· In the 1980s the Immovable Property Act ended foreign investment in Bahamian real estate.
· In the 1990s Prime Minister Hubert Ingraham boldly and wisely offered the right inducements to get Sol Kerzner to make the largest single foreign investment ever. This was the critical factor in the country's recent prosperity. The long-term benefits are obvious to anyone who is objective.


The nightmare.

In the case of the Blacklisting the weight of both the past and the present is pressing down on the PM and the country like a nightmare.

The weight seems heaviest on the smaller financial intermediary that includes lawyers, accountants, independent financial advisers, fund managers and realtors. To presume…as some have…that they are less ethical than the major banks is patently false. Right now these laws cannot be implemented in a timely manner. Under the very best of circumstances new business is not written; workloads have skyrocketed; departing workers are not replaced; and investments and new hiring are on hold. There is gridlock.

It is clearly evident that this crisis has already adversely affected business and jobs. The problem is determining what the situation will be after "the dust settles."

· What will be the business lost by the "producing" private sector?
· What are the critical factors causing that loss?
· What will be the added cost of "non-productive" regulation?
· How much regulation is essential and will it be cost effective?

Right now no one knows for sure.

The silver lining.

In the meantime the Government is rightfully publicizing its crack down on "the bad apples" and extolling the virtues of government regulation. It also has -

1. Finally unleashed the Police to crack down on the drug trade and
2. Caused the A/G's Office to make the first conviction of a prominent Bahamian for a major white-collar crime in the banking industry.

Two Commissions of Inquiry failed to produce such results. This is progress. But…will this progress last beyond the immediate crisis? Will it produce a new day?

It will take wise political leadership and a new way of thinking about government and law and order. A fundamental improvement in government efficiency and the rule of law in the long run can turn today's nightmare into tomorrow's good morning. That is our fondest hope.