The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

More than one-quarter of all bank accounts held by Bahamas-domiciled international banks and trust companies were beneficially owned by “high risk” clients at year-end 2022, it has been revealed.

The Bahamas’ financial crime national risk assessment, just unveiled this month, also disclosed that more than one out of every ten account facilities belonged to so-called ‘politically exposed persons’ or PEPs who are customers involved in high-level government affairs and deemed particularly susceptible to involvement in bribery or corruption.

“Noteworthy is the statistic that high-risk customers accounted for approximately 25.4 percent of accounts and 11 percent of relationships in the international banking sector on December 31, 2022, with PEPs accounting for 11.6 percent and 3.7 percent, respectively, reflecting a slight increase in high-risk customers,” the report revealed.

“Additionally, the use of third parties/agents in the international arena presents some risks to this sector. Anti-money laundering surveys submitted annually since 2019 have reflected that there is some level of cash receipts in this sector which can present some level of money laundering risk.”

Despite these concerns, the Bahamas’ national financial crime risk assessment said the danger was mitigated by the robust anti-money laundering, Know Your Customer (KYC) and other due diligence defences implemented by an international bank and trust company sector that held a combined $121.6bn in assets on their balance sheets at year-end 2022.

“The quality of the anti-money laundering and counter terror financing controls in the international banking sector has been assessed as strong,” the report added. “The legislative framework is comprehensive, and monitoring of operations is ongoing via a risk-based anti money laundering supervisory framework which requires appropriate customer due diligence, mandatory ongoing training, effective compliance systems and suspicious transactions monitoring and reporting by financial institutions.”

Although the industry is exposed to what is deemed to be “medium to high” money laundering and other financial crime risks due to the nature of the business it undertakes, such as international transactions, cross-border transfer flows and non-resident customers, “where there may be financial opportunities for financial crime to launder proceeds of crimes – such as fraud or corruption”, the actual threat has been minimised.

“The Central Bank requires that international banks have robust first, second and third lines of defence, including experienced audit and compliance functions that review anti-money laundering processes within those supervised financial institutions,” The Bahamas’ national risk assessment added.

“Considering the mitigating supervisory risk-based programme, coupled with the governance and operational model, anti-money laundering controls and assurance studies conducted periodically, the sub-sector’s overall money laundering risk is assessed as medium.”

Breaking the dangers down by industry, the report said The Bahamas is not regarded as a major international hub for the trade in metals, jewellery and precious stones that is sometimes used by money launderers to conceal and ‘wash’ the proceeds of crime by investing so-called ‘dirty money’ in high-value luxury goods.

“The designated precious metals sector (DPMS) in The Bahamas consists of retail jewellery businesses. Low value jewellery is the dominant product in the retail market. There are fourteen (14) retailers registered with the Compliance Commission consisting of two pawn shops and 12 jewellery stores predominantly owned by Bahamians,” the Bahamas’ national risk assessment said. 

“Registration numbers in the sector have declined due to the negative impact of the COVID-19 pandemic on business activity. Retail stores in the downtown area of Nassau where the cruise port is located conduct a significant percentage of sales with tourists and domestic customers. During high tourist seasons, sales of jewellery increase due to the tax-free status of these items.

“Based on a survey by the Compliance Commission, five of the 12 jewellery store registrants conduct transactions at or above the threshold for customer due diligence of $15,000 and account for approximately 75 percent of the business in the sector .Three of the five are associated with chains that have locations across the Caribbean,” the report added.

“Further, more than 50 percent of transactions at or above the threshold are conducted with international clients. Transactions conducted over $15,000 represent approximately 10-15 percent on average of total revenues from jewellery sales.”

Also coming under scrutiny was the Global Blue VAT refund initiative that facilitates tax and duty-free shopping by tourists visiting The Bahamas. “The DPMS sector is assessed with an inherent money laundering risk of ‘medium to high’,” The Bahamas’ national risk assessment report added.

“The sector is characterised by a low level of cash transactions, high-value products that are attractive for money laundering and they are portable. However, it is noted that the major portion of sales are at the low-value end of the market. Note is made that the sector has a potential client base of nine million-plus individuals due to the significant numbers of tourists visiting The Bahamas yearly.

“However, considering the regulator’s risk-based supervisory programme, the Government’s Global Blue programme, which acts as a control for high value purchases, outreach to the sector, sector materiality and the verified usual tourist spend of $60-$100, the final money laundering risk is recorded as ‘medium’.”

As for Bahamian credit unions, they were assessed as carrying a ‘medium to low’ risk and vulnerability largely because they do not deal with PEPs or high-value clients as their customers. “As of December 31, 2022, the number of financial co-operative credit unions remained at eight, inclusive of The Bahamas Cooperative League,” the report added.

“Total credit union assets rose by $9.4m (2 percent) to $484m owing to the net growth in member loans, cash and statutory deposits since the pandemic. Similarly, membership base has increased by 5.1 percent to 49,658 persons.....

“The inherent risk for money laundering for the sector is assessed as ‘medium’. This is due to the cash intensive nature of this sector, tempered by the nature and risk profile of the client base, the low value, Bahamian dollar and limited transactional activity conducted and the size of the sector,” the Bahamas’ national risk assessment said.

“With a year-end balance of B$484m, the credit union sector accounted for 0.3 percent of the total balance sheet assets and 0.1 percent of balance sheet and fiduciary assets of all Central Bank supervised financial institutions on December 31, 2022.

“Considering the mitigating risk based supervisory programme, which focuses on the institutions’ anti-money laundering and Know Your Customer controls, corporate governance and credit risk management frameworks, coupled with the market focus and product offerings, the sector’s final money laundering risk rating is reduced to ‘medium-low’.”