The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Attorney General yesterday warned the Bahamas to "wake up and smell the roses" over the threat of financial sanctions unless it corrects regulatory weaknesses.

Carl Bethel QC told Tribune Business that this nation has until June to satisfy international regulators that it has properly addressed the supervisory deficiencies identified in last year's Caribbean Financial Action Task Force (CFATF) report.

Should the Bahamas fail to sufficiently address these woes, he warned that this nation could suffer the same fate as Trinidad & Tobago, where $7.50 was added to every incoming and outgoing financial transaction because it did not adequately address its deficiencies.

Emphasising that the Government was "intent on avoiding" Trinidad's fate, Mr Bethel said it had nevertheless agreed to amend the Financial Transactions Reporting Bill to address insurance industry concerns. He revealed that a last-minute change had been made to the Bill, which was debated in the House of Assembly on Wednesday, that removed property and casualty (general) insurance from the list of businesses defined as 'financial institutions'.

The Bahamas Insurance Association (BIA) had been pushing for such a change for several months, arguing that the Bahamas was exceeding international anti-money laundering and counter-terror financing standards by treating property and casualty insurance in this manner. It pointed out that the Financial Action Task Force (FATF), the global standard setter in this area, did not mandate general insurance's inclusion in the 'financial institution' list. The BIA also warned that if the Bahamas had proceeded, the enhanced Know Your Customer (KYC) and due diligence requirements would have added to the sector's costs and 'red tape' at exactly the same time the Government is seeking to improve the 'ease of doing business' and the affordability of insurance products.

The Government had offered the property and casualty sector a 'one-year' transition period to adjust to these demands, but Mr Bethel said that was now "out the window" as a result of acceding to the industry's call.

He added that the Government had compensated through changes to the Proceeds of Crime Bill, which now give the Minister power - following consultation with the committee overseeing that legislation - to immediately require an industry to implement risk-based KYC assessments once designated a 'financial institution' by the FATF.

"I instructed my draftsperson to nip this in the bud," Mr Bethel told Tribune Business of the change, while emphasising that the property and casualty industry's inclusion in the FATF's 'financial institution' list "is coming".

He said this was already acknowledged by the International Association of Insurance Supervisors (IAIS), something the BIA disputes, and added that the Bill changes would enable risk-based customer assessments to begin "the same day" the FATF moves.

"The year [transition] has gone out of the window," the Attorney General added. "We can't on the one hand make the concession this great and, when the recommendation comes down, say you need a year for it. That just cannot happen."

Emmanuel Komolafe, the BIA's chairman, yesterday welcomed the Attorney General's confirmation of the legislative change, but warned that a 'transition period' would be required regardless of whether one year is stipulated or not.

He explained that implementing risk-based KYC assessments was not as simple as "flipping a switch", as insurers would have to apply such processes to their existing client portfolios and adjust their systems accordingly.

"It's welcome news, and we're thankful the Government has taken that position to remove general insurance as there's no precedent for it from an international perspective," Mr Komolafe told Tribune Business. "I'm glad they took a look at it, reviewed it and decided to change it."

Mr Bethel, meanwhile, implied that by focusing on its concerns, the Bahamian insurance industry was missing the 'bigger picture' in the shape of the threat posed to the wider financial services industry and economy in the form of potential sanctions.

Arguing that it was only 'a matter of time' before property and casualty insurance was defined as a 'financial institution' by the FATF, the Attorney General told Tribune Business: "This process could well lead to financial consequences for the country, not one industry.

"Trinidad has had $7.50 added to every single financial transaction, in or out, on the basis of the enhanced review process. That is the kind of sanction we are intent on avoiding. It is bigger than any single undertaking in the country.

"This is about country now. I don't know when people are going to wake up and smell the roses that the world is serious about cutting off potential avenues for criminals and terrorists to launder their money."

Mr Bethel explained that the Government was pushing the Financial Transactions Reporting and Proceeds of Crime Bills rapidly through Parliament as the Bahamas has just four months to make the necessary upgrades to its financial services regulatory regime.

Past June, any improvements will not be recognised by the review team that comes to assess whether the Bahamas has dealt with the regulatory weaknesses identified in the CFATF report to the international community's satisfaction.

Tribune Business last year revealed that the Bahamas seemed to have regressed on its financial crime defences, with the CFATF's 2017 Mutual Evaluation Report (MER) findng this nation only 'partially compliant' on 21 - more than 50 per cent - of 40 'technical' standards.

While the Bahamas was deemed 'non-compliant' with just one standard, and found 'compliant' and 'largely compliant' on eight and 10, respectively, the CFATF report also rated this nation as in either 'moderate' or 'low' compliance with its 11 'effectiveness' ratings.

"We're operating on a very tight deadline," Mr Bethel told Tribune Business. "The time is limited for us to put in place a framework that will be sufficiently strong and aggressive to cause the negative [CFATF] evaluation to be re-rated."

He added that the "enhanced review process" the Bahamas is now subject to is being directed by the CFATF's Paris-based parent, the FATF, and the assessment team will not consider any improvements made after June to this nation's regulatory regime.

"Whatever framework we come with has to be one that can pass muster now," the Attorney General explained. "Our flexibility and ability to manoevere is limited by time.... The assessment of the improvements in our supervisory system is going to be based on what we have in place by June."

Mr Bethel said jurisdictions that failed to escape the 'enhanced review process' were being subjected to sanctions as a "self-defence mechanism" initiated by other countries, and placed on a so-called 'grey' list.

"That's where Trinidad is," he explained. "Having gotten to the point where they didn't implement a supervisory regime sufficient to satisfy the assessment, they were put on a 'grey' list.

"We're intent on avoiding that. We got left a bowl of porridge by the previous administration, and are doing this in good faith with all parties to advance a workable solution that enables the Bahamas to be compliant with all best international practices in all these areas."

Mr Bethel said some of the issues that caused trouble for the Bahamas in the latest CFATF rating were not necessarily within the FATF's mandate and '40 recommendations'. As an example, he said this nation was hit for "frontline" bank staff being unaware of the need to look out for "proliferators" of nuclear and mass destruction weapons.

He explained that this was what the Government had been seeking to do with property and casualty insurance, bringing them and other issues that may "arise in the future" under the risk-based KYC framework for non-financial institutions.

"You never know what tomorrow holds," the Attorney General added.