Puerto Rico Establishes International Banking
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Puerto Rico has adopted legislation to promote international banking on the island, hoping to compete with banking centers in the Caribbean and the United States. Puerto Rico has adopted legislation to promote international banking on the island, hoping to compete with banking centers in the Caribbean and the United States. ”With all the turmoil in the Caribbean, especially Panama, we thought there was an opportunity to make Puerto Rico a center for international banking,” said Jeremiah Marsh, a partner in the Chicago office of the law firm of Hopkins, Sutter, Hamel & Park, which represents the Commonwealth. The new banking law, signed on Aug. 11 by the Governor of the Commonwealth, Rafael Hernandez Colon, would grant complete tax exemption to the new international banks and give them a broad range of powers in leasing, insurance and securities businesses, as well as traditional banking. The banks would be exempt from interest-rate regulation and reserve requirements set by the Federal Reserve Board and banking law, but could join the Federal Deposit Insurance Corporation if they qualify. To Reduce Taxes Large New York banks that open international banks in Puerto Rico may be able to reduce their New York State taxes. Currently, interest on loans made in the United States but recorded on the books of a foreign office, including those in the Cayman Islands or Nassau, the Bahamas, are taxed by the state. But because of Puerto Rico’s status, the state tax may not be applied, said Joaquin A. Marquez, a partner in the Washington office of Hopkins, Sutter. Eduardo Fernandez, an adviser to the Commissioner of Financial Institutions in Puerto Rico, said the Commonwealth does not aspire to become home to phantom ”brass plate” banks that exist only in lawyers’ offices as relay points for financial transactions. ”We are interested in the top notch of the market, the prestigious banking names who are active in world finance,” Mr. Fernandez said. To discourage undesirable business, the law requires banks to have at least six full-time employees in Puerto Rico. ”We will be looking very carefully at the applications which require information about shareholders,” Mr. Fernandez said. Mr. Marquez, a former director of the Puerto Rico Federal Affairs Administration, said the new law provides Puerto Rico with several advantages over other international banking centers. In the last few decades the number of international banks has rapidly grown to take advantage of tax breaks offered around the world. In Panama, more than 350 international banks operated at one time, but that number has fallen to less than 150 following the disruptions associated with Gen. Manuel Antonio Noriega’s regime last year. In Nassau, more than 500 international banks operate; in the Cayman Islands, more than 300. In the United States, international banking zones in several cities, including New York, Los Angeles, Miami and Chicago, are home to more 500 special international banks, more than 300 of which are American. Full Range of Services The Puerto Rican law might be preferred over Caribbean alternatives, Mr. Marquez said, because it allows a full range of financial services, not just banking. For example, an airline could organize an international bank to buy planes and lease them to a subsidiary, avoiding a tax that would have to be paid in other areas. Industrial companies might use the new law to organize banking companies to finance their exports and foreign businesses more cheaply. Eventually, Puerto Rican officials hope that expansion of the financial sector would help polish the island’s image and attract more industrial companies. Unlike banks in the American international banking zones, the international banks in Puerto Rico would be allowed to do business with customers in the United States. The Puerto Rican international banks would not not allowed to do business with people or businesses on the island, except for international financings. Source : query.nytimes.com |