The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The “lifeblood of the Bahamian economy” will be threatened if this nation is unable to avoid a revised European “high risk” list, the Inter-American Development Bank (IDB) has warned.

A policy brief produced by IDB officials warned that there will be “non-negligible implications for The Bahamas” if the 28-nation European Union (EU) still perceives it as non-compliant in the global fight against money laundering, terror financing and other financial crimes.

The European Commission is currently preparing a revised list of countries who pose a “high risk” of vulnerability to financial crime following the rejection earlier this year of its initial effort - which included The Bahamas - by the EU’s 28 member states.

Should The Bahamas be listed again, the IDB paper warned that this would place renewed pressure on the correspondent banking relationships Bahamian financial institutions have with their overseas counterparts. These ties, which are already under strain, are vital to the ability of Bahamian companies and individuals to conduct international commerce, underpinning the country’s economic model.

Warning that any new “high risk” listing would endanger The Bahamas’ correspondent relationships with EU countries, the IDB paper said: “Although the EU directives do not mandate any sanctions or restrictions on trade relations or aid to be applied, the reputational fallout may lead to increased scrutiny by financial institutions in Europe and other jurisdictions.

“This is of particular concern at a time when The Bahamas, like other jurisdictions in the Caribbean, is facing the threat of withdrawal or restriction of correspondent banking relations as a result of the de-risking practices by large global banks.

“This has implications for the ease of doing business, cross-border trade, and other financial transactions which are the lifeblood of the Bahamian economy.” While the Bahamian financial services industry has yet to suffer any major disruption from the loss of correspondent banking relationships, a Central Bank survey in 2017 found that 26 percent of respondents had suffered restrictions or terminations.

“If The Bahamas is again included on an EU anti-money laundering/counter terror financing list which is subsequently adopted, EU banks will be required to observe this list as well as the FATF (Financial Action Task Force) list,” the IDB paper warned.

“Although FATF advocates a risk-based approach, EU banks may find the risk of dealing with Bahamian banks too great to justify the provision of correspondent banking relationships and may withdraw or restrict the provision of correspondent banking relationships to Bahamas-based banks.”

John Rolle, the Central Bank’s governor, in a Wednesday address to an anti-money laundering conference said it “will require a year or two” to improve risk management in the money transmission sector. However, he suggested average transaction amounts were likely too small to present a material risk that the sector is vulnerable to exploitation by money launderers.

Drawing on cross-border payments by licensed money transmission services providers over the two-month period between October and December last year, the Central Bank said some $50m was moved via 172,000 transactions. While the largest transfer was $44,000, the average size was just $290, with the greatest volumes going to the US, Haiti and Jamaica.

“As these statistics demonstrate, the money transmission business transaction flow is dominated by payments averaging a few hundred dollars, with no payments over $50,000,” Mr Rolle said.

“As we have ramped up our anti-money laundering supervisory focus since January 2018, we have discovered a number of areas for necessary improvement in money transmission business risk management. This work is in progress, and we expect it will require a year or two to reach a fully satisfactory outcome.”

Mr Rolle said the Bahamian bank and trust company sector was clearing anti-money laundering deficiencies, which could result in regulatory action, “more or less as fast as we are identifying them”.

Yet he warned: “On the other hand, in the domestic sector, there is a disproportionate concentration of requirements among the non-bank sector, comprising credit unions and money transmission businesses.

“Over the past 18 months, the Central Bank has concentrated heavily on lifting the anti-money laundering performance of banks and trusts companies, which account for over 99 per cent of the relevant industry assets. From late 2019, we will deploy more supervisory attention on the smaller domestic licensees.”

But, sending an upbeat message, Mr Rolle told the conference: “Above all, as an industry and as a society, we are definitively out of the money-hiding business.

“Given that many jurisdictions cannot make this claim, the world’s dirty money managers are on notice that they should take their business elsewhere. From what we can see, which vision is not yet as perfect as we would like, the world’s dirty money managers are heeding this message.”