The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The deputy prime minister yesterday unveiled legal reforms designed to outlaw Ponzi schemes and other common financial frauds that have "plagued unsuspecting Bahamians for generations".

K Peter Turnquest, unveiling the Financial and Corporate Services Providers Bill 2020 in the House of Assembly, said the upgraded legislation makes The Bahamas "one of the leading jurisdictions to introduce legislation to expressly criminalise this type of activity".

Many Bahamians have lost significant sums of money, including a substantial portion of their life savings, to such schemes over the years, and the Bill specifically defines them as offences in a bid to deter and catch the perpetrators behind them.

"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," Mr Turnquest said. "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.”

Pyramid or Ponzi-type frauds typically promise or guarantee investors a high return, claiming they can turn a small investment into a much larger sum of money within a short period of time - but without saying how.

They use ‘new investor’ monies to meet the promised payments to investors who entered the scheme earlier, relying on attracting a high number of new participants on a daily basis to stay afloat. Eventually, when they are unable to attract enough money to meet the promised pay-outs, the scheme collapses.

Insolvency practitioners recently told Tribune Business that there was likely to be a marked increase in such schemes as criminals and fraudsters sought to exploit the economic devastation inflicted by the COVID-19 pandemic, with many Bahamians likely to be easy prey and vulnerable due to the loss of jobs and/or income.

Mr Turnquest, meanwhile, said the new Bill will “provide much needed legal clarity to the non-bank financial services falling under its remit, in the process creating new entrepreneurial opportunities". He added that it also has a “significantly greater focus on customer protection and safeguarding the public than the previous Act".

The Bill brings financial services businesses that conduct 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 under its regulatory remit.

Mr Turnquest said the Securities Commission had seen "increasing non-bank financial services activities, such as offering loans to the public; payday advance services; and retail businesses self-financing consumer goods. These all had implications for proper industry oversight to ensure that the consumers of these financial services were not abused, and had appropriate protections under the law.

"Related to this, the Commission also observed the continuing trend of scammers seeking to defraud Bahamians of their hard-earned money through unscrupulous financial schemes, with little legal recourse. These are some of the factors leading to the development of this legislation.”

Mr Turnquest added that there were 344 financial and corporate services licensees in The Bahamas as at September 30, 2020. As a result, he said the new Bill "directly impacts Bahamian entrepreneurs and operators perhaps more than any other financial services legislation".

He added: "Licensees will be required to take all reasonable steps to ensure that information it provides to clients are presented fairly and clearly. The regulations also require that licensees protect client personal data in keeping with the provision of the Data Protection (Privacy of Personal Information) Act.

"Further, the regulations will require licensees to ensure their data protection measures adequately address the collection and storage of personal data, prevent unauthorised access to personal data, and allow for the correction of erasure of inaccurate data.

“Licensees will also be required under the Bill to have adequate financial resources and be solvent, and to have adequate insurance coverage appropriate to their business operations." This, Mr Turnquest said, will also help protect investors.