Pirates Of The Caribbean - Expropriation In Antigua.

The expropriation and nationalisation of the Half Moon Bay Resort and other interests of American, Canadian and British nationals by the Government of Antigua and Barbuda has been the subject of numerous articles and debates.

A Privy Council decision handed down on 5 June 2007 sanctioned this exercise of eminent domain, provided the Government paid fair and adequate compensation to the owners for their property purchased in a private transaction, developed and held for over thirty five years.

This now poses problems for the Government of Antigua & Barbuda, since it had never offered to buy the U.S. $60 million property, nor pay compensation.

To date, despite the Privy Council ruling, the Government has made no initiatives to enter into proper arrangements with the owners to buy the property or provide compensation. However, it has announced that it intends to sell the property to a buyer, who will be named at the end of October 2007.

While frustrating the ability of the owners to re-develop their property, the Government of Antigua & Barbuda has repeatedly stated its preference for investors like R. Allen Stanford, Saul Kerzner and Peter De Savary to assume ownership and re-develop the exceptional property.

Three separate attempts were made by the Lester Bird administration to expropriate the property at Half Moon Bay. These had been stopped by legal action and the promise of the Baldwin Spencer Government to abandon the acquisition. Nevertheless, the distance from promise to execution was not a straight line, conditions were set by the new Cabinet which were unacceptable and the matter was returned to the Courts for resolution.

It should be noted that among the Cabinet conditions ratified by Parliament for the abandonment of the forced acquisition of Half Moon Bay was a proposal by the Minister of Justice and Attorney General, Justin Simon QC, that the owners provide a full blanket indemnity for all past and present Government officials.

In addition to this rather unusual requirement, he set out a time-table for each step of the redevelopment process, giving the Government the right to "take back" title to the property, should the owners fail to make any of these deadlines.

Realising that such conditional title to the property would likely preclude legitimate lenders from refinancing its development, the Attorney General then suggested that this condition be satisfied by a side-letter, which would not be shown to any lender. Agreeing to commit lending fraud as a condition of the Government of Antigua & Barbuda abandoning the forced acquisition of their property was not an option for its owners; but the ease with which this solution was recommended must stand as a warning for would-be investors and lenders.

It should be remembered that the post of Attorney General is a Crown appointment on the recommendation of the Cabinet of Antigua and Barbuda.

With the Privy Council decision in place, the Government of Antigua & Barbuda has imposed itself as a joint venture partner with real equity holdings in the development it is now marketing. Moreover, if and when it enters into negotiations for compensation, it has also put itself in the position of interested party by holding title to the property it has expropriated and is trying to sell.

Unfortunately, conflict of interest is not considered hazardous for Antiguan ministers, an example of which are the "substantial investment finders' fees," by which Ministers are entitled to fuse personal enterprise with official government business and legitimise any such conflict.

Forthcoming changes to Antigua's legal and tax systems will create further disincentives for foreign direct investment. According to the Attorney General, these changes will be far-reaching. These include requirements as part of any investment proposal to present "acceptable" business and marketing plans together with a formal obligation to train local applicants to assume top administrative and executive positions in the development as part of any investment proposal. Such investment interference exposes potential investors to political nepotism and financial seepage.

In his July 2007 speech at the Sir Archibald Nedd Memorial Lecture in Grenada, Justin Simon encouraged other Caribbean nations to follow his model and also to disallow purchase and ownership of property except by nationals.

Antigua already has a land-holding licence system for foreigners, which requires investors to obtain State approval; the new policy will now force all foreign shareholders of companies owning land to obtain individual land-holding licences as well.

Should shares be sold or transferred to third parties in the new dispensation, further land-holding licences and approvals of new shareholders will be required. The sale or transfer of shares will also attract taxation, although the rate has not been established at this stage.

The new Government of Antigua & Barbuda has also established the Antigua and Barbuda Investment Authority to approve projects and their developers.

This new entity has also been given the discretion to dispense waivers and concessions to encourage certain developers and their investments. Given the country's history and reputation for corruption and mal-governance, this body now presents a further financial and political barrier to legitimate investment, transparency and any likelihood of the promised level playing field.

Having expropriated the private property of foreign investors without payment of fair and prompt compensation, the Government of Antigua & Barbuda has also effectively made it impossible for development and aid agencies and other investment bodies, such as MIGA, OPIC and World Bank, to provide future support.

Indeed, international financial and economic rating agencies, such as Fitch, Standard & Poors and Moodys and investment insurance bodies, such as International Association of Insurance Supervisors will now have to downgrade Antigua and Barbuda's rankings.

The Security Information Service for Businesses Overseas (SISBO), the new British Government Agency will be notifying potential investors of the added risks in the region.

In its Doing Business 2007 report the World Bank has already lowered Antigua's ranking by 25% from 33 to 41. Finance Minister Errol Cort said he was not discouraged because the report did not take into account Antigua's new investment initiatives. He failed to mention that the expropriation of private property without offering to buy or paying fair and prompt compensation was one of the new initiatives.

The investment section of the Government of Antigua and Barbuda website is misleading; whilst acknowledging that the Cabinet has the power to expropriate foreign investors' property, specifically states that it has not done so.

Further questions of transparency arise as Prospectuses recently issued by the Government of Antigua and Barbuda to attract local and foreign investors did not declare expropriation or the case before Privy Council. This is a matter of concern to the local regulator, the Eastern Caribbean Securities Regulatory Commission.

Expropriation and less-than full disclosure when added to redevelopment costs, official "finders" fees, requirements for a joint venture with the Government and the new restrictions imposed on Foreign Direct Investment, create an especially challenging environment.

Antigua and Barbuda would like to believe that its stated aim of attracting preferred developers can be accomplished but the current climate that it has created is contrary to the expectations of legitimate investment, making it a target for differently motivated sources.

Meanwhile, Antigua & Barbuda now threatens to disenfranchise genuine authors, inventors and investors in its trade dispute with America at the World Trade Organisation.

Observers must ask whether the promotion of piracy and intellectual property theft are consistent with prudential government. To its credit to date, the British Government has resisted adding Antigua to its "white" list of approved jurisdictions for e-gaming activities.

Moreover, in its July 2007 report, the International Monetary Fund encouraged Antigua to take steps to improve its regulation of investment products.

The new investment environment and the long-standing dominance of the banking sector by the Stanford Financial Group could require regulators to determine if Antigua is now a fit and proper jurisdiction for financial products and fiscal transactions.

The hopes for a new prudential "Government in the Sunshine" have been dashed and the links with the practices of the Bird regimes have never been severed.

Antigua has unquestionably hoisted the Jolly Roger!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Ian Moncrief-Scott

Information Management Solutions

17 Howe Road

Onchan

IM3 2BB

ISLE OF MAN 

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