DOMINICA: SLOW START-UP FOR NEW OFFSHORE SERVICES

C O N F I D E N T I A L BRIDGETOWN 000517

SIPDIS

SIPDIS

SOUTHCOM ALSO FOR POLAD
DEPT FOR WHA/CAR

E.O. 12958: DECL: 04/24/2017
TAGS: PGOV PREL PINR EFIN EINV CPAS IR RS KS SZ
TW, UK, DO, XL
SUBJECT: DOMINICA: SLOW START-UP FOR NEW OFFSHORE SERVICES

REF: A. 06 BRIDGETOWN 1934

B. 04 BRIDGETOWN 1637

Classified By: DCM Mary Ellen T. Gilroy for reasons 1.4(b) and (d).


1. (C) Summary: Although the government of Dominica has
announced plans to resuscitate its economic citizenship
program and offshore financial services sector, it has yet to
develop the necessary policy framework and institutions to do
so. The existing Financial Services Unit, envisioned as the
regulatory body over the citizenship program and offshore
sector, is only a shell as it awaits legislation establishing
its mandate. Furthermore, another possible weak link in the
institutional chain is Minister for Economic Development and
Planning Julius Timothy, the man hired to manage the
citizenship program and offshore sector, but who also has
been a target of corruption allegations. Given these
obstacles, it is unlikely that the government of Dominica
will soon achieve its goal of reviving its economic
citizenship program and offshore financial services sector.
End Summary.

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BACKGROUND
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2. (U) In his 2006 budget address, Prime Minister Roosevelt
Skerrit announced that reviewing and revitalizing the
offshore financial services sector and the economic
citizenship program would play an important role in
Dominica's economic recovery. The economic citizenship
program has operated continuously since the height of its
popularity in the 1990s, albeit with significantly reduced
activity in recent years. The offshore financial services
sector, which also peaked in the 1990s, lacked crucial
regulation, bred corruption and money laundering, and was
finally blacklisted in 2000 by the Financial Action Task
Force, created by the G7. (Note: Dominica was de-listed in
November 2002. End Note.) In September 2006, PM Skerrit
appointed Julius Timothy, co-founder of the opposition United
Workers' Party (UWP) and Minister of Finance under the
previous UWP government, to resurrect these programs.
Timothy crossed the aisle (ref A) to serve as Minister of
Economic Development and Planning, a junior ministerial
position in the Ministry of Finance and Planning.

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CREATING A REGULATOR
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3. (U) As a first step in the restructuring process, the
Dominica parliament must pass legislation empowering the
Financial Services Unit (FSU),a division of the Ministry of
Finance and Planning. Without a clear mandate, the FSU has
been unable to perform its supervisory and regulatory
functions, even though it was established in 2004. In
addition to regulating the economic citizenship program and
the offshore financial services sector, the FSU would also
regulate various domestic financial services, such as credit
unions, building societies (a form of mortgage unions),and
insurance companies. Legislation establishing the FSU's
mandate is pending in the parliament and will be debated
following the spring recess.

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CURRENT STATE OF ECONOMIC CITIZENSHIP
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4. (SBU) Although Dominica's economic citizenship program was
a financial success from its inception in 1991 until 2001,
interest in the program dwindled after Dominica increased
both its price of citizenship and due diligence in reviewing
the prospective candidates' backgrounds. Interest dropped
even further when Canada began requiring Dominican citizens
to travel with a visa because its government doubted the
integrity of the program (ref B). The current price of
Dominica's economic citizenship is USD 75,000 for an
individual or USD 100,000 for a family of four. In recent
years, Dominica's economic citizenship program has been all
but dormant, having issued only 20 passports in 2006, 7 in
2005, and 13 in 2004. Dominica approved no economic
citizenships in the first quarter of 2007. These numbers
contrast sharply with those of the 1990s when Dominica sold
over 1,000 passports (ref B).


5. (SBU) Since his appointment as Minister of Economic
Development and Planning in September 2006, Julius Timothy
further tightened Dominica's regulations by barring a number
of countries or regions from participating in the program:
Afghanistan, Chechnya, Iraq, North Korea, Pakistan, Saudi
Arabia, Somalia, Sudan, and Yemen. The countries of origin
of successful economic citizenship applicants for the last
few years are as follows:

Country 2006 2005 2004
-------------- -------------- -------------- --------------
USA 3 1 1
Iran 4 - 4
Russia 7 - 4

S. Korea - - 1
Switzerland - - 3
Taiwan - 6 -
UK 6 - -


6. (U) Currently the Ministry of Finance and Planning runs
background checks on all applicants before issuing passports.
The Ministry has contracted with two U.S. firms to perform
this vetting: Bishops Investigative Service Worldwide in
Boca Raton, Florida, and Kroll, Inc., in Miami, Florida.


7. (SBU) To revive the citizenship program, Dominica has
recently requested proposals from businesses interested in
reviewing and consulting on the program. Although several
proposals have been put forth, Dominica has yet to choose a
company. The FSU is also developing strategies to combine
economic citizenship with "resident tourism," which would
allow those making a substantial investment in Dominica to
obtain permanent resident status. This resident status could
be converted to citizenship after three years.

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OFFSHORE SERVICES ON BACK BURNER
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8. (C) Although Prime Minister Roosevelt Skerrit hired
Timothy with grand promises that offshore financial services
would be the future of Dominica's economy, there has been no
movement towards reviving this sector during Timothy's seven
months in office. Timothy stated that the creation of the
offshore financial services sector is "on hold right now" and
that there is no official timeline because of other projects
on which the Ministry of Finance is focusing. Eleanor
Astaphan, manager of the FSU told PolOff that, once the FSU
gains its official mandate, it will first have to revamp the
domestic insurance system before it can focus on offshore
services. As with the economic citizenship program, Timothy
and the FSU are planning to contract with private consulting
firms to review the legislation creating the sector and to
handle due diligence once the sector is up and running.
Dominica has already begun discussions with a few businesses
interested in this role.

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THE GOOD AND THE QUESTIONABLE
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9. (C) In many respects, it appears that Dominica is moving
carefully in reviving its economic citizenship program and
offshore financial sector. Many government officials have
emphasized their determination to avoid returning to the days
of being blacklisted (ref A). One of Dominica's greatest
assets for developing these offshore economic programs is
Astaphan. She seems to be sincere, professional, and to have
Dominica's best interest in mind. However, to date she has
not been given the tools and resources to do her job.


10. (C) It is disturbing that PM Skerrit hired Timothy, the
man who served as Finance Minister during Dominica's offshore
financial services fiasco in the 1990s, to revitalize the
sector along with the economic citizenship program (ref A).
In private conversations, various contacts claimed that
Timothy has a corrupt political past. According to one
regional political analyst, PM Skerrit was willing to ignore
the corruption allegations in order to gain control over
Timothy's Roseau North parliamentary constituency. The
analyst also speculated that by appointing Timothy a junior
minister in one of the ministries he oversees, the Prime
Minister would be able to supervise him closely.

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COMMENT
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11. (C) As he seeks to redevelop Dominica's offshore sector
and economic citizenship program, PM Skerrit will have to
balance a number of competing interests. PM Skerrit
recognizes that the offshore business could breathe some life
into Dominica's foundering economy. However, Dominica, one
of the poorest countries in the region, is not in a position
to compete with well-established offshore financial centers,
such as those in the Cayman Islands or the Bahamas. To
attract more offshore business, Dominica might be forced to
cut corners in its regulatory framework and enforcement and
thus risk repeating some of its errors of the 1990s. How PM
Skerrit will balance these interests will probably remain
unclear for some time as his government pursues other
priorities. However, hiring Timothy to run the offshore
sector and economic citizenship program does not appear to be
a step in the right direction.
OURISMAN