The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas was yesterday branded "a punching bag" after its financial services industry was dealt a fresh blow by global anti-money laundering overseers.

KP Turnquest, the Deputy Prime Minister, told Tribune Business that "institutional strengthening" will be a key element in the Government's response to the Financial Action Task Force's (FATF) inclusion of this nation among 11 countries with "structural deficiencies" in their anti-money laundering/counter terror financing (AML/CFT) regimes.

The Paris-based body, which effectively started the Bahamian financial services industry's near-20 year decline when it "blacklisted" this nation in 2000, ranked it alongside war-torn countries such as Syria and Yemen as "jurisdictions that pose a risk to the international financial system".

It identified seven areas where The Bahamas needs to improve under an "action plan" agreed with the Government, and placed strong emphasis on the need for this nation to implement and enforce the anti-financial crime laws on the statute book.

In particular, the FATF indicated it wants to see more money laundering/terror financing investigations and prosecutions, and an increase in suspicious transactions reports (STRs) filed with the Financial Intelligence Unit (FIU). Its regional affiliate, the Caribbean Financial Action Task Force (CFATF), last year found that the level of such enforcement activity was insufficient for a nation with such a large financial services sector.

The FATF, in a statement following its October 19 plenary, said The Bahamas had "made a high-level political commitment" to work with itself and the CFATF "to strengthen the effectiveness of its anti-money laundering/counter terrorism financing regime and address any related technical deficiencies".

It then listed the seven weaknesses that The Bahamas must address. They are:

• Developing and implementing a comprehensive electronic case management system for international cooperation.

• Demonstrating risk-based supervision of non-bank financial institutions.

• Ensuring the timely access to adequate, accurate and current basic and beneficial ownership information.

• Increasing the quality of the FIU's products to assist [law enforcement authorities in the pursuit of money laundering/terror financing investigations, including "complex" cases.

• Demonstrating that authorities are investigating and prosecuting all types of money laundering, including "complex" money laundering cases; stand-alone money laundering; and cases involving proceeds of foreign offences.

• Demonstrating that confiscation proceedings are initiated and concluded for all types of money laundering cases.

• Addressing gaps in the terrorism financing and proliferation financing frameworks, and demonstrating implementation.

Several financial services executives, speaking on condition of anonymity, yesterday told Tribune Business that the FATF's actions represented "a shot across our bows" - and a warning that more severe consequences may follow, such as "blacklisting" - if The Bahamas does not move swiftly to address its concerns.

"They want more STRs, more investigations, more prosecutions," one said. "It's basically a shot across our bows that we'd better deal with this or else something more substantial will come down."

There is no suggestion that the FATF's latest move represents a renewed "blacklisting" of The Bahamas, and there was no mention of the imposition - or threat to impose - financial sanctions and penalties against the listed nations.

Yet, in typical "wink-wink, nudge-nudge" language, it seemingly encouraged its members - who are the world's largest and most powerful economies - to apply extra scrutiny to The Bahamas and the 10 other countries.

In the same breath as promising to work with them, the FATF said it "encourages its members to consider the information presented" on those listed. It added: "The FATF calls on these jurisdictions to complete the implementation of action plans expeditiously and within the proposed timeframes."

Despite the absence of "blacklisting", The Bahamas' inclusion on the FATF list represents another reputational risk for the country and its financial services industry that could deter current and potential clients/investors from doing business with it.

For The Bahamas is the only international financial centre (IFC), and financial centre of any kind, to be included - thus putting it an immediate competitive disadvantage when compared to all other IFCs and onshore centres.

The other 10 countries are hardly countries whose company The Bahamas should want to keep, especially in the context of fighting financial crime. Apart from the war-ravaged Middle East states of Syria and Yemen, the others named by the FATF are Botswana, Ghana, Ethiopia, Pakistan, Serbia, Sri Lanka, Trinidad & Tobago and Tunisia.

Mr Turnquest yesterday expressed confidence that The Bahamas would address the weaknesses identified by the FATF within the agreed timeframe, although he declined to specify the latter.

Acknowledging that the "validity" of the Paris-based body's concerns might be questioned by some, the Deputy Prime Minister said its demands mean The Bahamas has "no option" but to create a beneficial ownership registry and pass legislation to comply with the OECD's Base Erosion and Profit Shifting (BEPS) initiative.

Mr Turnquest, who recently urged the International Monetary Fund (IMF) to play a greater role in developing "objective" standards for assessing the Caribbean's efforts to combat financial crime and tax evasion, also called for a body such as the United Nations (UN) to take over the work being done by the FATF and Organisation for Economic Co-Operation and Development (OECD).

He expressed frustration that The Bahamas was "chasing so many balls" as a result of separate initiatives launched simultaneously by the FATF, OECD and European Union (EU), which was making it more difficult for the country to respond appropriately.

"We are obviously responding to it," Mr Turnquest told Tribune Business of the FATF's action. "We have been working on this matter, and are going to be doing some institutional strengthening which will become evident in short order."

Asked about the FATF's concerns relating to the FIU, and the ability of the Royal Bahamas Police Force (RBPF) to prosecute money laundering investigations, Mr Turnquest replied: "When I speak to institutional strengthening, that's what I'm talking about."

The Paris-based body's focus on access to beneficial ownership information on all Bahamas-domiciled entities shows where pressure for the Register of Beneficial Ownership Bill stems from.

Many in the Bahamian financial services industry have urged the Government to hold-off on this legislation until OECD and EU concerns are addressed, but Mr Turnquest said: "That whole suite of legislation around beneficial ownership and BEPS has to go forward. There's just no option for us at this point.

"We recognise they [the FATF] have concerns. You can question whether they are valid or not, but we're going to address those concerns."

Calling for a body, such as the UN, to supervise global anti-money laundering efforts in an equitable way, Mr Turnquest added: "We need to come with a more co-ordinated body that oversees all of this stuff.

"We've been chasing the OECD and EU and, on the other side, have got the FATF doing their thing, so we're chasing so many balls."

Mr Turnquest referred Tribune Business to Carl Bethel QC, the Attorney General, for further details on the Government's planned FATF response as the latter's ministry has primary responsibility for the effort. Mr Bethel, though, could not be contacted for comment and did not reply to voice and text messages left for him.

Some Bahamian financial services executives, though, called for this nation to develop a "counter punch" to the FATF by forming alliances with other IFCs for a collective response to such initiatives.

Paul Moss, president of Dominion Management Services, told Tribune Business that The Bahamas was being singled out because it was perceived as "a soft touch" with a history of "capitulating" to the demands of the FATF and other "alphabet" bodies whose actions were not supported by international law.

Describing the FATF as "relentless", he added of The Bahamas' latest listing: "I think it's an assault upon the sovereignty of the country. It say it that high because when you look at the other countries listed they are, for the most part, not financial centres.

"They have us there because they see us as a weak touch, as our leaders are focused on domestic politics, trying to pacify the local population as opposed to dealing with the subject matter.

"We have to stand up, fight and build alliances with other countries. It's unfortunate we do not have this kind of vision to go out there and lead it. There's nothing wrong with us having this conversation. At least we can respond as a block, as opposed to one-off replies."

Mr Moss, who heads one of the few Bahamian-owned entities in the international financial services sector, argued that the creation of a beneficial ownership registry, holding details of who owned every corporate vehicle domiciled in this country, would violate the constitution.

"We know this industry [financial services] is really struggling," he told Tribune Business. "It's taken body blows, it's taken head shots, and no one is defending it. It's like a punching bag. There's no counter punch, and we need a counter punch.

"Part of the counter punch has to be heading a group of countries that are fed up taking these assessments from alphabet organisations. We have to do it that way. Our way is not working.

"The Bahamas has gone over and above what's required of it to the detriment of the sector. They [the FATF and affiliates] won't stop until we come out of this industry, and that's what I fear the Government may do," Mr Moss continued.

"They can't seem to keep pace. We lack real intelligence in the world to know what is coming out there and fend it off."