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Bahamas In World Top Eight With 100% Kyc Compliance

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Bahamas is among just eight nations whose financial services providers achieved a 100 per cent Know Your Customer (KYC) compliance score in establishing ‘shell companies’, giving the jurisdiction’s regulatory and integrity reputation a major boost.

A study released today, Global Shell Games, by Michael Findley, Daniel Nielsen and Jason Sharman, professors at US and Australian universities, placed the Bahamas among the eight countries that scored best on its ‘Dodgy Shopping Count’ ranking.

This meant it was among the jurisdictions least likely to allow money launderers, terror financiers and the like to incorporate companies for nefarious purposes, with local financial services providers always demanding KYC information on beneficial owners, and doing the necessary due diligence as required by Bahamian and international law.

The study’s findings have seemingly delivered a blow to the mantra long promoted by the OECD/G-20 nations, namely that the Bahamas and other small international financial centres are ‘tax havens’ with low regulatory and compliance levels. Whether that view will be subject to reappraisal remains to be seen, but the ‘Global Shell Games’ paper suggests the OECD/G-20 need to look harder at what is happening in their own backyard.

“One of the biggest surprises of the project was the relative performance of rich, developed states compared with poorer, developing countries and tax havens,” the ‘Global Shell Games’ authors wrote.

“The overwhelming policy consensus, strongly articulated in G-20 communiques and by many non-governmental organisations, is that tax havens provide strict secrecy and lax regulations, especially when it comes to shell companies.

“This consensus is wrong. The ‘Dodgy Shopping Count’ for tax havens is 25.2, which is in fact much higher than the score for rich, developed countries at 7.8 - meaning it is more than three times’ harder to obtain an untraceable shell company in tax havens than in developed countries,” the authors added.

“Some of the top-ranked countries in the world are tax havens such as Jersey, the Cayman Islands and the Bahamas, while some developed countries like the UK, Australia, Canada and the US rank near the bottom of the list. It is easier to obtain an untraceable shell company from incorporation services (though not law firms) in the US than in any other country save Kenya.”

To obtain their findings, the ‘Global Shell Games’ authors sent out 7,466 e-mail solicitations to 3,773 different financial and corporate services providers in some 182 countries, seeking to establish ‘shell companies’. As a control, some e-mails were sent by persons purporting to come from so-called low-risk countries, such as Denmark and Austria, while others ‘came’ from higher risk jursidictions such as Pakistan and Tajikistan, hot-beds of corruption and terror financing.

The ‘Dodgy Shopping Count’ referred to how many providers in a particular country an individual would have to approach before obtaining a non-compliant ‘shell company’. The more providers that had to be approached, the higher a country’s ‘Dodgy Shopping Count’ ranking.

The ‘Global Shell Games’ report noted that at least 25 different approaches were made to Bahamas-based financial providers, but not once did any fail to meet local and international KYC/due diligence requirements.

“Firms in none of the top eight countries were ever found non-compliant,” the report added. “Because there is no natural upper bound on the Dodgy Shopping Count, we set it to 100 for these. But they should be interpreted as having a record without any non-compliance.” Joining the Bahamas in the select eight were the Cayman Islands, Israel, United Arab Emirates, Seychelles, Jordan, Jersey and Denmark.

The findings provide further evidence about how the 2000 reforms to the Bahamas’ financial services regime, such as the abolition of bearer shares, have placed this nation among the best-regulated jurisdictions in the world. They suggest the laws and regulations are working, and that a culture of enhanced KYC/due diligence and compliance has taken root.

Commenting on the ‘Global Shell Games’ findings, Ryan Pinder, minister of financial services, told Tribune Business: “It provides evidence and credibility to a jurisdiction like the Bahamas as an international financial centre. It goes to the credibility of the regulatory environment and our reputation as an international financial centre.”

While taking “exception” to the report describing the Bahamas as a ‘tax haven’, Mr Pinder recalled the 2000 overhaul of the regulatory regime and added: “The Bahamas was one of the first to step up to the plate and demonstrate a credible regulatory regime.

“We continue to do so on a consistent basis, and demonstrate that the Bahamas, as a sovereign country, is a place of source capital and an international place to do business.”

The Bahamas’ achievement was placed into context by the ‘Global Shell Companies’ report noting that 48 per cent of all replies to its e-mails did not seek adequate KYC documentation, while 22 per cent did not seek any beneficial owner information at all.

Explaining why these results were so concerning, the report’s authors said: “Shell companies that cannot be traced back to their real owners are one of the most common means for money laundering, giving and receiving bribes, busting sanctions, evading taxes and financing terrorism.”

Aliya Allen, the Bahamas Financial Services Board’s (BFSB) chief executive and executive director, added in a statement to Tribune Business: “The report corroborates what we’ve long known in the small IFC world: We outperform the G-20 in all aspects of international anti-money laundering and due diligence standards.

“It also shows that despite global efforts, it is incredibly difficult to achieve a level playing field when some of the biggest and most developed nations have been playing on a different pitch entirely. The Bahamas takes its reputation as a responsible and compliant member of the international community seriously. This report proves our commitment to the highest standards of compliance and transparency. This is good news for the Bahamas.”

The Bahamas’ achievement was placed into context by the ‘Global Shell Companies’ report noting that 48 per cent of all replies to its e-mails did not seek adequate KYC documentation, while 22 per cent did not seek any beneficial owner information at all.

Explaining why these results were so concerning, the report’s authors said: “Shell companies that cannot be traced back to their real owners are one of the most common means for money laundering, giving and receiving bribes, busting sanctions, evading taxes and financing terrorism.”

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