The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor last night effectively urged the Government to get a move on in addressing the “vulnerability” caused by unregulated web shop gaming, warning it threatened to undermine plans for a Bahamian Credit Bureau.

Wendy Craigg, in e-mailed responses to Tribune Business’s questions, said that while the existence of illegal web shop gaming, in and of itself, would not lead to this nation being ‘blacklisted’ again for money laundering weaknesses, failure to enforce existing laws might.

Bodies such as the Financial Action Task Force (FATF) and its Caribbean equivalent, she said, would take account of the fact that the Lotteries and Gaming Act gave the Bahamas legal authority, and a regulatory framework, to prevent illegal gaming.

“Other measures, such as the refusal of commercial banks to accept what they have reasonable grounds to believe are proceeds of illegal gaming, would also be taken into account by the assessors from anti-money laundering/counter terrorism financing standard-setting agencies,” Mrs Craigg told Tribune Business.

“However, assessors would also look at measures taken by law enforcement to address offences against the Lotteries and Gaming Act.”

This refers to the seeming inability to-date, of both the Government and law enforcement agencies, to take action and shut down the web shop gaming sector, which has proliferated throughout New Providence and much of the Bahamas.

And, based on Mrs Craigg’s remarks, it is the Bahamas’ failure to enforce the laws on its books already - rather than web shop gaming itself - which could attract the attention of the G-20 nations and its ‘blacklisting’ agencies.

“To say that the Bahamas is in danger of being ‘blacklisted’ on the issue of web shop gaming, alone, does not take account of measures which the jurisdiction has in place to mitigate the potential money laundering risk posed by web shop activities,” the Central Bank governor reiterated.

“However, it remains for the policymakers to address this outstanding issue in a manner that reduces the jurisdiction’s vulnerability to the continuance of unregulated economic activities in the jurisdiction.”

That is effectively a call for the Government to move swiftly to deal with web shop gaming, either through legalisation, regulation and taxation, or shutting it down via law enforcement.

Ian Jennings, Commonwealth Bank’s president, last week told Tribune Business that 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.

“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,” he added.

“We got blacklisted before, and this has the potential to put us right back there if not controlled. It’s an exposure for the country. I don’t think any one of us wants to go back to that [blacklisting]’.”

Another top banking executive echoed these fears yesterday, warning that the Bahamas being ‘blacklisted’ again was “a real possibility”.

“The Prime Minister needs to do something,” he added. “They seem very cavalier about this.”

Still, Mrs Craigg, said external agencies reviewing the Bahamas would focus on measures taken to safeguard the financial system against money laundering and terrorism financing.

“With regard to gaming, the Bahamas has in place a legal framework in the form of the Lotteries and Gaming Act, which prohibits illegal gaming activities,” she added.

“Specifically, the 2006 mutual evaluation report of the Caribbean Financial Action Task Force recognised that the Bahamas has a legal framework in place to mitigate the risk of money being laundered through the gaming industry.

“Other measures, such as the refusal of commercial banks to accept what they have reasonable grounds to believe are proceeds of illegal gaming, would also be taken into account by the assessors from standard setting agencies.”

Mrs Craigg, though, acknowledged that the Central Bank had increasing concerns about the web shop gaming industry’s seeming evolution into a parallel, unregulated banking system offering mortgages and pay day loans.

She added that anecdotal evidence showed lending activities by web shops appeared to be “significant”, and was something that threatened to destabilise both the formal, legal banking sector and wider Bahamian economy.

And the Governor told Tribune Business that such practices threatened to undermine efforts by the Central Bank, and banking industry, to get a better grip on the creditworthiness of Bahamian borrowers via the planned Credit Bureau.

But Mrs Craigg said: “To the extent that the web shops are providing credit, it is highly probable that mortgages, from a domestic perspective, did not decline.

“Also, from a system perspective this frustrates the ability of a regulated entity to have an accurate overview of a person’s credit position, as someone borrowing from a web shop operator is unlikely to declare that loan when seeking additional financing from the formal market.

“This would represent yet another unknown in a credit market at a time when we are seeking to have a better handle on the exposures of borrowers. While the Credit Bureau will help to achieve this objective, the extent to which lending is taking place outside of the regulated sector will hamper our efforts in this regard.”

Mrs Craigg added, that, as a regulator, “the extent to which such activity is taking place outside of the regulatory net is cause for concern.

“Besides creating an uneven playing field, vis-a-vis regulated activity, it distorts the amount of credit activity actually taking place in the domestic market and the country’s economic data.

“The Central Bank’s regulation of credit activities is important from the standpoint of ensuring compliance with prudential lending norms and standards, and monitoring the potential demand on external reserves from these activities, given the positive relationship between credit and imports.”