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Bermuda - Economy (Notes)

ECONOMY Bermuda has enjoyed steady economic prosperity since the end of World War II, although the island experienced a mild recession in 2001-02, paralleling the recession in the U.S. Bermuda enjoys one of the highest per capita incomes in the world. Its economy is based primarily upon international business and tourism. In 2004, international business and tourism accounted for 74% of the total balance of payments current account receipts of foreign exchange. However, the role of international business in the economy is expanding, whereas that of tourism is generally contracting. Bermuda is an offshore financial center with a robust financial regulatory system. The government cooperates with the United States and the international community to prevent money laundering and terrorist financing and continues to update its legislation and procedures in conformance with international standards. Bermuda first enacted specific money laundering legislation in 1997, passing the Proceeds of Crime Act (PCA) to apply money laundering controls to financial institutions such as banks, deposit companies, trust companies, and investment businesses, including broker-dealers and investment managers. Insurance companies are covered to the extent that they are judged susceptible to the risk of money laundering abuse. Amendments in 2000, effective June 1, 2001, expanded the scope of the legislation to cover the proceeds of all indictable offenses, including tax evasion, corruption, fraud, counterfeiting, theft, and forgery. The Bermuda Monetary Authority Amendment (No. 3) Act 2004 clarified the authority of the BMA to respond to requests from overseas regulators for information about clients. In December 2002, Parliament passed the Bermuda Monetary Authority Amendment Act 2002, expanding the list of BMA objectives to include action to combat financial crime. It underpins the BMA?s existing role in checking systems and controls in financial institutions and paves the way for the BMA to expand its role in administering UN sanctions and other measures on a delegated basis. In order to implement provisions of relevant UN Security Council antiterrorism resolutions, the act--among other provisions--prescribes the manner by which the finance minister may delegate to the BMA the power to block accounts. Bermuda enacted the Investment Business Act (IBA) in 1998 to regulate the island's financial services industry. In response to international directives, the government passed the Investment Business Act 2003 to further refine its terms. The act creates a balance between government regulation on the one hand and the competitive needs of Bermuda's most important industry--international business--on the other hand. By updating its regulatory framework, Bermuda has enhanced its reputation globally as an international standard-bearer. In return, international businesses registered in Bermuda are recognized as having met or surpassed the most stringent international criteria. In 2006, Bermuda considered additional legislation to further enhance its compliance with international financial standards. The Collective Investment Scheme Act, a plan to institute a formal licensing regime for investment schemes, was passed by parliament at the end of 2006 under the name of the Investment Funds Act 2006. The act was implemented in early March of 2007. In March 2005, 13,729 international companies were registered in Bermuda, many U.S.-owned. They are an important source of foreign exchange for the island, and spent an estimated $1.762 billion in Bermuda in 2004. The growing importance of international business is reflected in its increased share of GDP, up from 12.6% in 1996 to 21% in 2004 at $926.5 million. Additionally, it is now the island?s largest employer, with 4,213 jobs in 2005. Historically important for employment and tax revenue, Bermuda?s tourism industry had been experiencing difficulties for many years, but showed a slight improvement in 2006. In 1996, Bermuda welcomed 571,700 visitors to the island. By 2004, that figure had dropped to 477,757 but increased to 516,846 in 2005. Occupancy rates for 2004 averaged 62.4%, and were higher in the smaller hotels than at larger properties. Visitors contributed an estimated $475 million to the economy in 1996, but that figure declined to $392.3 million in 2005. Visitor spendingincreased in recent years to $392.3 million in 2005. Bermuda has little in the way of exports or manufacturing; almost all manufactured goods and foodstuffs must be imported. The value of imports rose from $551 million in 1994 to $964 million in 2005. The U.S. is Bermuda's primary trading partner, with $718 million in U.S. imports in 2005. The U.K., Canada, and the Caribbean countries (mainly the Netherlands Antilles) also are important trading partners. Exports from Bermuda, including imports into the small free port that are subsequently re-exported, decreased from $35 million in 1993 to $31 million in 2004. Duty on imports is a major source of revenue for the Government of Bermuda. In 2004-05, the government obtained $196.9 million, or 26.7%, of its revenue base from imports. Heavy importation duties are reflected in retail prices. Even though import duties are high, wages have kept up for the most part with the cost of living, and poverty--by U.S. standards--appears to be practically nonexistent. Although Bermuda imposes no income, sales, or profit taxes, it does levy a real estate tax. Bermuda is home to immigrants from other countries. According to the 2000 census, 79% of the population is Bermuda-born and 21% is foreign-born. U.K. immigrants comprise 28% of the immigrant population; U.S., 20% (although the U.S. Consulate estimates that the figure is closer to 40%); Canada, 15%; Caribbean, 12%; and Portugal/Azores, 10%. In February 1970, Bermuda converted from its former currency, the pound, to a decimal currency of dollars pegged to the U.S. dollar.