#TurksandCaicos, April 4, 2022 – The question all concerned citizens should be asking our government is, are they willing to work feverishly to push through anti-fronting legislation as hard as they did to push through the Beach and Coastal Vending Ordinance?
This article in part, is a reverberation of a previous one I wrote, addressing this said issue. To my knowledge, as of this date, nothing has been done to tighten the loopholes.
Whilst I’m not totally against the Beach and Coastal Vending Ordinance and its entirety, there are a few line items in the bill that needs to be repealed and amended.
The expediency in which the bill was passed without proper consultation from the general public and relevant stakeholders, it appeared to be for the appeasement of a select few.
Similarly, “fronting” is not in the best interest of our people, which prompted me to bring to light the issue again.
Currently, in TCI fronting is technically not a crime, but in some cases it is certainly a corrupt practice. Over the years, I have discovered that the easiest way for foreign investors to open a business of any kind, is by “fronting”.
For those who are not familiar with the use of this word, fronting usually refers to a term used to describe the practice of interposing a third party in a transaction or a misrepresentation of facts so as to circumvent the illusory of compliance with the laws of a country.
It’s usually a twofold benefit, it gives the locals an opportunity to become a business partner without having to come up with any sizable out of pocket funds or minimal amounts at best, depending on the scale of the business.
On the other hand, it enables the foreign investors to acquire lucrative business opportunities without having to go through the normal red tape, and eventually making it easier for them to acquire legal immigration status in the long term.
In addition, a foreign partnership company would be in a better position to expand rapidly due to greater access to capital, which could put them at an advantage because of the accessibility to unmatched resources they may have.
At the end of the day, it only superficially benefits historically disadvantaged individuals.
Fronting practices are an all-too-common occurrence in TCI, and usually rely on the misrepresentation of facts regarding the extent of a company’s compliance with its economic empowerment obligations.
In some cases, the local is only involved with the Holding company, but has nothing to do with the day to day operational or financial side of the business. This allows a shady investor to manipulate the books to their advantage.
Fronting can take many forms. For example:
- A company may appoint a local to a prestigious position but prevent them from participating in the management or core activities of the company.
- In some cases, they are paid considerably less than their counterparts.
- They may also sign up as fictitious shareholders in essentially Expats owned and managed companies.
Such practices create the impression that the company has complied with the government’s obligations, but in essence it’s not.
This also allows the company to take advantage of incentives such as tax breaks or other fringe benefits that come along with being compliant.
We welcome foreign investors’ partnerships, however, if the business practices do not result in real transformation of the company or the flow of benefits to the locals, the appearance of compliance is illusory.
Fronting therefore undermines the purpose of the investment opportunity policies and prevents benefits from reaching those locals it is meant to reach.
It also perpetuates the systemic exclusion of local owned businesses from economic empowerment.
Imperfect though it may be, it would be beneficial for the FSC to draft legislation to introduce a comprehensive definition of “fronting” into our laws. In addition, they should create a new oversight body to investigate allegations of unscrupulous business deals.
The reality is, we know due to the privacy laws and the fear of reprisals, it’s a slippery slope when it comes to the public’s right to know about what is perceived to be shady deals and our duty to report it.
Nevertheless, if it was required by the FSC for these foreign companies with local joint venture partnerships to divulge financial records showing the bank transactions of the 51/49 split or who have the controlling shares, it would be a game changer.
As a people, we must also be brave enough to speak up when we see corruption or things that undermine
the basic principles of our core values.
Until legislation is enacted to address the social and economic imbalances in this country, this sort of shady practices will continue to prevail, leaving underrepresented local business partners with the short end of the stick.
Ed Forbes,
Concerned citizen of Grand Turk