The Tribune

By LEANDRA ROLLE

Tribune Staff Reporter

lrolle@tribunemedia.net 

THE Minnis administration passed legislation in the House of Assembly yesterday that seeks to criminalise Ponzi schemes that have over the years defrauded Bahamians of hard-earned money.

Finance Minister Peter Turnquest said the decision to make pyramid, Ponzi and advance-fee schemes illegal came because these ploys have plagued unsuspecting Bahamians for generations.

He said these schemes are fundamentally detrimental to investors and the public.

As a result, the proposed law will not only criminalise hosting such schemes, but makes it a criminal offence to promote or market them, empowering the Securities Commission of The Bahamas to dissolve them where warranted.

He made the remarks during debate on the Digital Assets and Registered Exchange (DARE) Bill 2020 and the Financial and Corporate Service Providers (FCSP) Bill 2020. The bills brought to Parliament were debated as a compendium in the House of Assembly yesterday and now move on to the Senate for debate and passage.

The latter of the two bills, according to Mr Turnquest, will not only attract Bahamians engaged in corporate services activity, but it also captures many of the non-bank financial services activities in which Bahamian entrepreneurs are involved.

These activities include money lending, debt collection, financial leasing and payday and cash advance services, the minister said.

The FCSP Bill will repeal and replace the Financial and Corporate Service Providers Act, 2000.

The East Grand Bahama MP said: “The bill defines for the first time certain criminal financial schemes, making the Bahamas one of the leading jurisdictions to introduce legislation to expressly criminalise this type of activity.

“These may take the form of pyramid schemes, Ponzi schemes and advance-fee schemes, among others, and many of them have plagued unsuspecting Bahamians for generations. Further, these schemes are fundamentally detrimental to investors and the public.

“The bill criminalises the promotion or marketing of these financial schemes and empowers the Commission to dissolve them where circumstances so warrant. It also empowers the Commission to investigate and enforce against persons engaged in financial schemes.”

One of the deficiencies of the legislation being repealed is its insufficiency in defining financial services.

“This resulted in the Commission in the past having to be creative in its efforts to provide adequate supervision under the 2000 Act,” he said. “In fact, the Commission relied on a policy decision to adopt the World Trade Organisation’s definition of non-bank financial services and public notices publishing its policy, in order to provide some much-needed clarity to the industry. All this changes with the Financial and Corporate Services Bill, 2020. The bill defines both corporate services and financial services.”

He continued: “The bill takes an activity specific approach to financial services and clearly defines both corporate services and financial services, for which licensing pursuant to the bill are required.

“These financial services will each have a specific framework developed through the promulgation of rules tailored to the risk and other needs they represent.

“The specific financial services it incorporates are: money lending, money broking, payday and cash advances, credit extension, bill paying services, debt collection, financial leasing, financial and advisory or consultancy services, financial intermediation services, trading in commodities and other financial instruments, custody of digital assets and wallet services providers.

“I note the last two, custody of digital assets and wallet service providers, dovetail with the Digital Assets and Registered Exchanges Bill, 2020. The DARE Bill establishes the legal framework for a new industry, and the Financial and Corporate Service Providers Act 2020 has expressly defined and captured these related services. They represent specific opportunities for entrepreneurial Bahamian fintech firms to enjoy the credibility of being licensed and functioning under a comprehensive regulatory regime and participate in the fintech industry that is being forged with the DARE Bill.”

Back in September, the Securities Commission reissued warnings against falling victim to Ponzi and pyramid schemes which promise large payouts after a person pays a sum of money under the guise of an investment plan.

The Commission said it was made aware there is an increasing presence on social media and other internet sites of advertisements or invitations to members of the general public to join purported financial programmes in which an individual pays a certain sum of money to join, then in turn must solicit and encourage other individuals to join in order to receive a large cash pay-out.

The schemes, originated in the US, have made their way to the Bahamas, where people are particularly vulnerable due to the financial downturn caused by the COVID-19 pandemic.

Pyramid schemes are scams where promoters claim they can turn a small investment into large profits within a short period of time. In reality, participants make money solely by recruiting new participants into the programme. The scheme gathers momentum until it crashes. Fraudsters behind these schemes typically go to great lengths to make their programmes appear to be legitimate multi-level marketing (MLM) schemes, but the schemes eventually fall apart when it becomes impossible to recruit new participants.

A Ponzi scheme is similar to a pyramid scheme, the primary difference being that a Ponzi scheme involves the scam’s operators persuading other persons to invest sums of money, purportedly involving an investment vehicle of some kind, in return for a greater sum of money or payout. The scheme’s operators normally claim that there is little to no risk to the initial sum invested. However, there is no investment, no investment vehicle and no investment product.