The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Inter-American Development Bank (IDB) yesterday urged the government to “prioritise” escaping the Financial Action Task Force’s (FATF) adverse listing before Europe revives its own initiative.

A policy brief produced by IDB officials, which was released yesterday, effectively warned that The Bahamas has limited time to ensure it does not appear on the European Union’s (EU) revised list of countries that pose a “high risk” of financial crime.

While the EU’s 28 national country members earlier this year gave The Bahamas “breathing space” by vetoing the original 23-strong list, drawn up by the European Commission and which included this nation, the IDB policy brief warned that there were “three main reasons” why its presence on any new listing will be “problematic” for The Bahamas.

Besides the potential for reputational damage, authors Allan Wright and Alicia Nicholls warned that financial transactions originating from The Bahamas would be subject to greater scrutiny and due diligence by EU financial institutions.

And, while “compliance conscious” clients may shy away from The Bahamas, the IDB policy paper warned that inclusion on any EU-approved “high risk” listing could also increase the difficulty Bahamian financial institutions have in retaining their correspondent banking relationships with foreign counterparts.

The loss of such relationships would undermine the international trade model upon which the Bahamian economy is built, with the policy paper warning that inclusion on an adverse EU listing would again result in this nation having to comply with rules and standards over which it has no influence in setting.

The IDB officials, though, argued that The Bahamas’ priority must be to escape the FATF monitoring list of countries deemed to have deficiencies in their anti-financial crime regimes because this nation’s inclusion on the rejected EU list - as well as UK and US advisories - all stemmed from the action taken by the FATF.

The key for The Bahamas, though, is whether it has sufficient time to secure its escape from the FATF listing before the EU devises its new version. Carl Bethel QC, the attorney general, told Tribune Business last week that The Bahamas’ “action plan” would be ready in September to go before the FATF’s October conference.

He added that the FATF, should it approve the plan, was hoping it would visit The Bahamas before 2019 year-end to determine that the measures were being implemented. However, such a timetable means that the earliest The Bahamas is likely to escape the FATF is February 2020, when the anti-financial crime standard-setter holds its next conference.

That is still some seven to eight months away, and it is unclear whether the EU will have its revised “high risk” listing - based heavily on the FATF list - ready to go before The Bahamas has a chance to be delisted by the latter.

“Given that the EU’s starting point for its list is a jurisdiction’s inclusion on the FATF List of high risk and other monitored jurisdictions, a major factor for The Bahamas’ inclusion on the EU list of February 2019 was its presence on the FATF list,” the IDB policy paper said.

“The priority for The Bahamas, therefore, should be on trying to achieve compliance with the FATF requirements, particularly the areas highlighted by CFATF (the FATF’s Caribbean affiliate) for further work, in order to be de-listed from the FATF list. This should reduce the likelihood that The Bahamas will be included on the revised EU Commission list.”

Making all the points Tribune Business has previously, the IDB policy paper added: “Being on any future adopted EU list of high-risk third jurisdictions would have several additional implications for The Bahamas.

“Firstly, EU obliged entities, such as financial institutions and certain professionals, will be required to conduct enhanced customer due diligence (ECDD) on transactions involving Bahamian clients and those involving Bahamian intermediaries

“Secondly, while no sanctions are involved, non-compliance for an international financial centre (IFC) like The Bahamas might entail reputational fallout at a time when Caribbean countries are already facing the loss of correspondent banking relationships (CBRs) due to the de-risking practices of large global banks, with the attendant implications for the ease of doing business, cross-border trade, and financial transaction flows which are the lifeblood of the Bahamian economy.

“Thirdly, The Bahamas will now be expected to comply with another set of rules defined by a body of which it is not a member and has little or no opportunity to influence the methodology by which it is being assessed.”

The IDB policy paper acknowledged that The Bahamas “is constantly obliged to allocate scarce resources to comply with ever-shifting goal posts on international standards and best practices” when it comes to anti-money laundering and counter terror financing.