The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank plans to create a new sanctions regime for anti-money laundering deficiencies, as it bids to move the Bahamas from a 'high risk' to "at least medium risk" jurisdiction.

John Rolle, the regulator's governor, responding to the Caribbean Financial Action Task Force's (CFATF) newly-released assessment of this nation's regulatory regime, said the findings showed the Bahamas "needs to lift the intensity and quality" of anti-money laundering/counter terrorism financing (CFT) supervision.

He told Tribune Business, in response to this newspaper's questions, that the Central Bank planned to unveil a new anti-money laundering/CFT strategy before 2017 year-end, and create "a dedicated unit" to oversee this particular regulatory issue.

Mr Rolle was commenting after the CFATF's July 2017 Mutual Evaluation Report (MER) rated the Bahamas as having 'low' effectiveness in six out of 11 categories when it came to its anti-money laundering/CFT defences.

This nation was ranked as having 'moderate' effectiveness in the other five, but was only rated 'non-compliant' on one out of 40 'technical compliance' benchmarks.

That relates to the CFATF's assessment that the Bahamas has yet to fully implement UN Security Council resolutions on terrorism financing, and especially its ability to freeze assets belonging to suspect individuals and entities "without delay".

Mr Rolle said that while the Bahamas did not accept every criticism in the report, and still questioned whether there was "a level playing field" over how such assessments were conducted, it acknowledged the need for improvement.

He described the CFATF report as "a road map" and "blueprint" for how the Bahamas can further strengthen its anti-money laundering (AML) and counter terrorism financing (CFT) regimes, and pledged that the Central Bank would immediately begin work to address identified deficiencies.

"Our takeaway is that among other things, the Bahamas needs to lift the intensity and quality of AML/CTF supervision for banks and trust companies," the Governor told Tribune Business.

"We are therefore intensifying our Bank Supervision Department work programme in this area, and will announce a new AML/CTF supervision strategy before year end."

He added: "The new AML/CTF supervision approach of the Bank Supervision Department is a key initiative for the Central Bank. We are establishing a dedicated unit for AML/CTF oversight.

"It will provide the focus for closer engagement with the industry outside of the on-site examinations we currently do..... A near-term deliverable will be the introduction of a penalty regime for AML deficiencies, which we are formulating in coordination with the Securities Commission."

The adequacy of the Bahamas' AML sanctions regime was questioned by the CFATF report, which found that financial penalties were "hardly ever considered and imposed" on Bahamian financial services providers despite the regulators finding breaches during on-site inspections.

"Although breaches are detected by the financial supervisors, during the on-site it became clear to the assessment team that sanctions are hardly ever considered and imposed by the financial supervisors," the CFATF report said.

"In some cases, the reason for not imposing sanctions was not apparent. For example, a sanitised report of an inspection was provided to the assessment team in which the Central Bank in September 2014 gave a financial institution, for the third time, an extension of a deadline for resolving serious breaches of the legislative AML/CTF requirements, dating back to 2006.

"On five different occasions, a financial institution did not report suspicious transactions. These transactions were later reported by the Central Bank further to an on-site inspection. The Central Bank indicated that in all these cases they did not consider sanctioning," the CFATF report continued.

"The sanctions that were imposed by the financial supervisors over the last few years were not dissuasive, as the total amount of $5,200 was imposed by the Securities Commission for two money laundering breaches.

"The assessment team is of the view that imposing sanctions does not seem to be a part of the culture and practical tool-kit of the financial supervisors. Hence, the deterrence of applied sanctions is not achieved. The assessment team is not convinced that effective, proportionate and dissuasive sanctions are applied in practice by the Bahamian financial supervisors."

The CFATF report said the regulatory response to AML regime violations by Bahamian financial services providers was "characterised by a 'one size fits all' approach irrespective of the severity of the identified breach".

This, it added, typically involved giving financial institutions a report and timetable to remedy these infractions, sometimes repeating this action multiple times, "without any further consequences" for failing to meet the original directive..

While the Central Bank had intervened with one licensee in 2014-2015 to impose "a freeze on new business", which was partially related to money laundering concerns, the CFATF report added: "Administrative penalties and other non-criminal sanctions are rarely used.

"Over the last five years, the Central Bank did not impose any civil or administrative sanction for non-compliance with the AML/CTF legislation and guidelines. It is noted that the possibilities for the Central Bank to take administrative actions are sometimes limited, as well as that the maximum penalty in some cases does not exceed $2,000, which at first sight can hardly be considered a dissuasive penalty in the banking and trust sector."

The CFATF report noted that legal and regulatory changes, given effect in September 2016, now allowed the Central Bank to levy administrative penalties for breaches of the Banks and Trust Companies Regulation Act and associated regulations.

However, it was also critical of the other financial services regulators. "The Insurance Commission of the Bahamas (ICB) did not impose any AML/CTF sanction on its licensees, nor referred any AML/CTF issue to the law enforcement agencies," the CFATF said.

"During the on-site, the ICB indicated that over the last year their focus was not on sanctioning, and that they aim to change that for the coming years..... The Compliance Commission reported that numerous registrants have been issued notices of breaches and have received remedial action plans. However, no information was provided regarding the number of breaches identified, remedial actions mandated or sanctions applied.

"Neither was information regarding beaches and sanctions provided by the Inspector, in the case of financial and corporate services providers. The Gaming Board reported that, while there had been sanctions and fines for violations in the past, no sanctions have been applied in the past four years on account of strict adherence to relevant laws and regulations on the part of licensees."

Tackling the legitimate deficiencies identified by the CFATF is vital to preserving the reputation and stability of the Bahamian financial services industry, the so-called 'second pillar' of the economy and the sector that has played a critical role in developing a middle class through the high-paying jobs it provides.

The Bahamas has already endured one bad AML experience through the 2000 'blacklisting', which forced a profound change that this nation and its financial industry are - many observers would argue - still coming to terms with.

That 'blacklisting' was imposed by the Financial Action Task Force (FATF), for which the CFATF is the Caribbean regional affiliate. The contents of the latter's report could be used by its Paris-based parent to further pressure the Bahamas, especially over automatic tax information exchange.

Mr Rolle told Tribune Business that some concerns were based on perception, particularly given the Bahamas' position as an International Financial Centre (IFC) and its location in the Caribbean.

"From the Central Bank's perspective, we need to work to shift the Bahamas from the assessed 'high risk' category for money laundering and terrorist financing to at least 'medium risk'," he said.

"We know that at least some of the perceptions about this jurisdiction can be attributed to being situated within the grouping of Caribbean territories. But there are other contributing factors, some of which are within the immediate reach of the Central Bank. That's where we intend to have the most impact in our strategic initiatives."

The Governor added: "While the Bahamas does not agree with every single point raised in the MER [CFATF report], and while we still question whether there is a level playing field around how these assessments are done, we acknowledge that there are areas for improvement.

"This report is a blueprint for improvement. Our goal is to achieve and document improvements in the legal framework, supervisory practices and industry engagement standards over the coming months. Those plans will be shared with the industry, and they will have input on some important aspects of how this progress is best achieved."

Mr Rolle explained that the Caribbean overall was rated "high risk" when it came to money laundering and terrorism financing, and the strength of regulatory regimes to combat this.

He added that Caribbean central banks and supervisors were collaborating in an effort to change these perceptions, which he described as a continuation of recent efforts to combat correspondent banking 'de-risking'.