The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A top banker yesterday warned the Bahamas risks being ‘blacklisted’ again by the G-20 nations due to the potential money laundering risk presented by the web shop gaming industry.

Ian Jennings, Commonwealth Bank’s president, told Tribune Business that the web shop “status quo” was untenable and left the Bahamas exposed to heightened regulatory scrutiny - and potential sanctions - by the world’s largest economies and their OECD-type forums.

“We’re obviously concerned. The Clearing Banks Association (CBA) is concerned,” Mr Jennings said, adding that the situation had been reflected in recent reports on the Bahamas by international bodies.

Explaining that the banking industry had concerns on “a multiplicity of fronts”, he told Tribune Business: “It’s the unregulated extension of credit and, probably of greater concern, is the movement of funds outside the banking system and the potential for money laundering.

“We got blacklisted before, and this has the potential to put us right back there if not controlled.”

Emphasising that the web shop gaming industry’s current position was untenable when viewed from the Bahamas’ best interests, Mr Jennings said: “The status quo is not helping anybody.

“That’s not to say either side [in the web shop legalisation debate] is right or wrong. But it’s an exposure for the country. I don’t think any one of us wants to go back to that [blacklisting].”

The Bahamas was ‘blacklisted’ in 2000 by the Financial Action Task Force (FATF), an organisation directed and controlled by the G-20/G7, for allegedly having weaknesses in its financial services regulatory regime that could facilitate money laundering.

The Bahamas escaped the so-called ‘blacklist’ within about a year, but only after it passed sweeping legislative reforms that forever changed the nature of its financial services sector - some changes being positive, others negative.

This nation has constantly been called upon to reform its financial regulatory system ever since, as the standard ‘goal posts’ are constantly moved, and Mr Jennings’ comments show how the web shop gaming industry’s unregulated status has the potential to drag the Bahamas back into a past it thought it left behind.

The Government, too, appears alive to the dangers posed by an unregulated web shop industry and the millions of dollars it is generating.

Prime Minister Perry Christie alluded to this on Wednesday after the Mid-Year Budget presentation, when he implied that web shop gaming was creating a huge parallel, or underground, economy that threatened to undermine legitimate businesses.

With commercial banks refusing to accept web shop deposits, due to the industry being illegal under Bahamian law, the sector is increasingly seeking returns for its earnings via other avenues.

Web shops, and their bosses, have been investing their profits into real estate developments and legitimate companies, as well as offering mortgages and other types of loans, in a bid to generate returns on their multi-million dollar cash piles.

Tribune Business knows of several businesses and real estate projects that have allegedly received funding from the web shop gaming industry, although it cannot name them for legal reasons.

This newspaper received reports this week, which could not be corroborated, that several commercial banks were refusing to grant mortgages to clients seeking to by units in a particular development over concerns that it was being financed by ‘numbers money’.

Tribune Business also understands that web shop gaming enterprises are also effectively ‘undercutting’ the formal banking system by offering loans to Bahamians at much cheaper interest rates.

With the banks having enhanced their lending criteria, and focusing more in dealing with their existing portfolios, some Bahamians have increasingly turned to the web shop sector as a source of credit.

This, though, creates further problems because it means that large sums are being lent without any regulation or supervision, exposing both lender and borrower, while undermining the commercial banking system.

The Prime Minister agreed on Wednesday that the ‘unregulated limbo’ the web shop gaming industry has been left in was undermining “the good order” of the Bahamian economy and legal system.

“We have to, as the Ministry of Finance and regulators, find the answer to monies that are in large amounts that are not in the bank, that are not being invested in Treasury Bills, that have not been allowed to be exported or open bank accounts abroad,” Mr Christie said of the web shop gaming industry.

“Therefore, that money is finding itself some purpose here in major developments. That is a major contradiction to the good order of our system, and one way or the other we have to do deal with.”

The Prime Minister, though, indicated the continuing reluctance of his government to deal with the situation, indicating that he will ask his soon-to-be-appointed Council of Economic Advisors to deal with the situation.