The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must ensure it never again plays “catch up” after achieving perfect compliance with global anti-financial crime standards, a former attorney general is warning.

John Delaney, now head of the Delaney Partners law firm, told Tribune Business that meeting all 40 Financial Action Task Force (FATF) standards was a significant achievement but The Bahamas must continue to pay attention to how these continue to evolve and are applied.

Suggesting that the FATF “recommendations”, which have been adopted as the global standard for fighting money laundering and terrorism financing, have not always been applied fairly against The Bahamas in the past, he reiterated that this nation must always guard against “the prejudicial effects” of being branded non-compliant in any area.

Mr Delaney, agreeing that The Bahamas’ ‘40 out of 40’ rating was “good news” for the jurisdiction and its financial services industry, especially given the current scrutiny surrounding FTX’s implosion, nevertheless sounded what he described as a “note of caution” moving forward.

“Whenever one discusses this subject, one has to always keep in mind this is in certain respects this is an external rating which, from time to time, is seemingly ignored in ways we sometimes feel have been less than fair and even handed relative to other jurisdictions we are in material competition with,” he told this newspaper in a nod to suspicions that multiple blacklistings and other sanctions have been designed primarily to undermine The Bahamas’ competitiveness.

“In feeling good that we’ve been rated compliant with all 40 recommendations, one has to bear that in mind,” Mr Delaney added. “In many respects for us, we’ve not always received a fair standard in terms of its application. There’s not a lot we can do about that, but it’s important that we don’t have the see-sawing and ups and downs.

“We minimise that by acting in ways that are appropriate and responsive to the evolving requirements so that we don’t have the temporary prejudicial effect that happens where we are rated as non-compliant. We have to keep ahead of it so that we’re not having to catch up all the time.

“When we have to catch up, not only do we have to catch up with the issues identified as non-compliant but we also have to catch up in the marketplace with any impact to our reputation in the competitive sphere.” Mr Delaney, though, acknowledged that the perfect FATF compliance had been “a great Christmas present” given that it coincided with the global focus on The Bahamas due to FTX’s collapse.

“I think it is good by way of credibility,” he added. “When something that is sensationalist happens, and I’m not suggesting that FTX is merely sensationalist, but when that occurs it’s easy for folks on the outside looking at The Bahamas not to have a full perspective that The Bahamas has, for the past 22 years, been on the road of ensuring its anti-money laundering and counter terror financing regimes are world class. It’s an arduous journey that The Bahamas has undergone.”

The Caribbean Financial Action Task Force’s (CFATF) December 22, 2022, assessment confirmed that The Bahamas has been deemed ‘compliant’ with anti-financial crime regulation of both digital assets and non-profit groups.

“Overall, The Bahamas has made significant progress in addressing the technical compliance deficiencies identified..... and no deficiencies remain. The Bahamas has been re-rated compliant on recommendation eight and recommendation 15,” the CFATF said. “The Bahamas has 40 recommendations rated ‘compliant’ or ‘largely compliant’.”

The Bahamas was previously rated as ‘partially compliant’ on digital assets regulation because it lacked mechanisms and procedures to identify the financial crime risks presented by the sector, and there was no risk-based approach for assessing these factors. Guidelines to help digital asset services providers detect and report suspicious transactions were also lacking.

“There was a gap regarding originator information and beneficiary information on virtual asset transfers being available on request to appropriate authorities. Deficiencies regarding international co-operation were not demonstrated as addressed,” the CFATF report added.

Analysing The Bahamas’ progress to-date, the report added: “Section 41 of the DARE Act provides the provisions for co-operating and providing assistance to overseas regulatory authorities and, to-date, The Bahamas has provided assistance in regard to one of its registered digital assets services providers.” It is unclear if this was FTX, although that is highly likely.

The Bahamas was also found to have completed its risk assessment of the digital assets sector, which was published on May 25, 2022, with the digital assets industry now also covered by the Financial Transactions Reporting Act and Proceeds of Crime Act regimes. The industry was assigned “a low-risk rating”, which may raise eyebrows in FTX’s wake.

“The addition of the new section 39 (3) of the DARE Act places a responsibility on the Securities Commission to implement systems to identify persons not registered under..... the Act,” the CFATF report added. “As such, the Securities Commission has developed and implemented an internal policy framework for identifying persons carrying on, or attempting to carry on, activities under the DARE without the requisite registration...

The prohibition of natural or legal persons carrying out digital asset service provider activities without the requisite licence/registration is captured legislatively in various parts of the DARE Act. The amendment to the DARE Act... provides the proportionate and dissuasive sanctions to be applied – up to $100,000 for each contravention. There is also a general penalty provision under section 44 of the DARE Act of $500,000 or imprisonment of up to five years or both.”

The CFATF said it was also satisfied that the Securities Commission has “the authority to conduct inspections, compel production of information and impose a range of disciplinary and financial sanctions”. It added: “The Bahamas applies proportionate and dissuasive administrative and criminal sanctions for persons carrying on digital asset activities without the requisite licence.”