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Web Shop Legalisation ‘Fundamentally Flawed’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Grand Bahama Chamber of Commerce’s president yesterday slammed the web shop gaming legalisation process as “fundamentally flawed”, warning it could be “unwittingly” jeopardising the financial services industry.

Kevin Seymour told Tribune Business that “nowhere else in the world” were companies permitted to carry on engaging in unlawful activities prior to these becoming legalised, licensed and regulated.

Yet he argued that the Bahamas had permitted this to happen with the web shop gaming industry, when it would have been better to temporarily suspend its operations - and give the Government, via the Gaming Board - the necessary time to conduct proper due diligence on the applicants.

Disclosing that the Grand Bahama Chamber had been hoping the Christie administration would “really put the brakes on this” and take a different approach, Mr Seymour said recent comments by Obie Wilchcombe indicated web shop gaming legalisation would be a long and complex process.

The Minister, who has responsibility for gaming, last week told Tribune Business he would make an announcement on October 15 about which applicants had been successful in obtaining conditional gaming house operator licenses.

He added, thought, that there was “still more work to be done” once those licenses were issues, with the successful web shop operators having to meet numerous conditions before the regulatory process was complete.

Mr Seymour, though, immediately questioned what would happen to unsuccessful applicants - whether they would willingly cease operations and exit the industry, and if the Government had the political will to enforce the law and close them down.

And he described the issue of web shop operators’ multi-million dollar pre-legalisation profits as “the 800-pound gorilla in the room”, suggesting it was doubtful that these funds - obtained via then-illegal activities - could be retroactively legitimised.

Mr Seymour and the Grand Bahama Chamber of Commerce’s views are significant because they are the first private sector organisation to raise concerns about the web shop gaming legalisation process. Tribune Business has published their paper on the issue on Page 2B today.

“I’m a little concerned about the way this whole ‘regulating the web shops idea’ evolved,” Mr Seymour told Tribune Business. “It seems as if the Government was hell bent on making sure this happened.”

Following the Gaming Act 2014’s passage into law, web shop operators were allowed to continue operating for a so-called ‘transitional period’ while the Government conducted due diligence on their licence applications.

They were also required to pay ‘back taxes’ for certain periods, and meet other requirements imposed by the Government. Web shop operators who either do not apply for licences, or are unsuccessful, must cease operations once the transition process ends.

Mr Seymour said that upon reading the Act, it was clear that the transition rules had been “crafted in a way to give a bit of a green light to those operators for a period of time” that was determined by Mr Wilchcombe.

The Grand Bahama Chamber president, a former PricewaterhouseCoopers (PwC) Bahamas accountant and partner, added that the transitional process was supposed to end when Mr Wilchcombe issued the necessary licenses.

Yet he said there had been little disclosure about the Government’s due diligence findings, and why “it feels comfortable issuing” the conditional licenses when Mr Wilchcombe felt more work was required to complete the legalisation process.

“Why is it OK for us to proceed when there is more work to be done? What if something comes up? Do we then revoke the licence?” Mr Seymour asked.

“It really is an issue that is saddled with more questions than answers. I just wish to see the Government proceed with extreme caution. This whole process for due diligence and compliance is fundamentally flawed when you compare the way it is for other businesses seeking a licence to deal with the public.

“It almost seems farcical, and doesn’t seem real. Anywhere else in the world, you can’t undertake an activity prior to that being approved and made lawful. It doesn’t make sense. To me, the whole process seems to have been flawed.”

Mr Seymour suggested that instead of being allowed to keep operating and expanding, the web shop industry should have been temporarily “shut down” to enable the Gaming Board to assess the information provided by the houses themselves and others.

The Government is likely to have decided against this for fear it would result in the unemployment (for a short period) of several thousand Bahamians, and the potential economic disruption it might cause.

Yet Mr Seymour argued that such a temporary shut down would have put the Government “in position to make a better decision”.

He added: “We were hoping the Government would really hit the brakes on this, and take a different course of action, but based on what I read last week, it seems to be going full steam ahead.”

The Grand Bahama Chamber also questioned what would happen to unsuccessful license applicants. “Do you think those people are going to go silently into the night?” he asked Tribune Business.

“You are going to still have the same issues. Does the Government intend to do what it says it’s going to do in the legislation?

“If you are not selected, you can’t continue in business, and if you can’t continue in business you will find yourself on the wrong side of the law. Do you really intend to enforce the law? The public are really concerned about this.”

Mr Seymour also warned that the Bahamas “could be unwittingly placing our financial services sector in jeopardy”, via the rush to legalise web shops and the pressure being placed on the commercial banks to accept the sector’s profits.

Any errors, he warned, could attract the attention of the likes of the Financial Action Task Force (FATF) and the Organisation for Economic Co-Operation and Development (OECD).

Many observers have suggested that the Christie administration’s rush to legalise web shop gaming was effectively a ‘payback’ for operators’ support in the 2012 general election campaign.

Whatever the truth in that, there were sound practical reasons for moving to legalise, regulate and tax a sector that had exploded in size following the 2008-2009 recession - making it one of the few growth industries in the Bahamian economy.

For the web shops were becoming almost a ‘parallel banking system’, extending their own loans and investing in legitimate enterprises and economic sectors, after commercial banks refused to accept their deposits.

This, in turn, raised concerns that the Bahamas could be ‘blacklisted’ again over money laundering concerns, given the web shop gaming sector’s size and the fact it was outside the formal economy.

One of the ‘Holy Grails’ of legalising the web shop industry, and forcing it to employ statutory Know Your Customer (KYC) procedures, was to ensure the multi-million dollar sums it generates are accepted into the formal banking system.

Yet to-date, only Bank of the Bahamas has publicly said it would accept deposits from a legalised web shop industry. The Canadian-owned banks have said they are prevented by global policies from accepting gaming deposits, while both Commonwealth Bank and Fidelity Bank (Bahamas) have joined them in saying the risk associated with web shop monies is too high.

Mr Seymour said the Grand Bahama Chamber understood the commercial banking sector’s reticence, arguing that it was based on business decisions and risk/reward assessments, not anti-Bahamian discrimination as some have argued.

He added that the money laundering risk associated with web shop deposits exceeded the benefits from accepting them, especially in a global environment where banks were being subjected to massive fines for regulatory breaches.

And, in a Bahamian economy that was growing at less than 1 per cent annually, and where prices were rising faster than GDP, there were sound commercial reasons for rejecting web shop deposits.

Mr Seymour said such a massive influx of funds into the banking sector, with few qualified borrowers to extend credit to, would only further depress interest margins.

“It’s really a Pandora’s Box when you think about it,” he added of the relationship between the banks and the web shops.

“Subsequent to the global recession, cash is abundant, and the bank’s don’t know how to use it. They’re very selective in the types of risk they take on, and it’s a challenging situation with the amount of cash they have on hand.”

Mr Seymour said “the 800-pound gorilla in the room” was what would happen to the enormous profits earned by the web shop industry prior to legalisation, adding that anti-money laundering rules prevented them from being legitimised retroactively.

It was virtually impossible to separate these monies from those earned following the Gaming Act’s passage, and he added: “These are the reasons why the banks are challenged in taking these deposits.”

Comments

banker 4 years, 2 months ago

Nobody in government sees the cognitive dissonance in any of this. As a matter of fact, almost nobody sees any problem with this at all. This shows how much the Bahamian ethical compass is skewed and why no one in the international community respects us professionally in the financial services industry. We are children of a lesser god through and through, and we show it daily.

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dahasamo 4 years, 2 months ago

How is VAT assessed on an illegal operation? The new Gaming Act provides an exemption from VAT for webshops..

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MonkeeDoo 4 years, 2 months ago

There are great many Financial Services Jurisdictions eager to swallow up our disaffected clientelle. We have no hope now !

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MonkeeDoo 4 years, 2 months ago

There are great many Financial Services Jurisdictions eager to swallow up our disaffected clientelle. We have no hope now !

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MonkeeDoo 4 years, 2 months ago

There are great many Financial Services Jurisdictions eager to swallow up our disaffected clientelle. We have no hope now !

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banker 4 years, 2 months ago

Our financial services are a joke. Many of my clients are transferring their assets to the Cayman Islands. For one, they don't like their cell phone calls monitored.

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observer2 4 years, 2 months ago

Which international audit firm will sign off on the Bank of the Bahamas' financial statements if they are taking in funds from unlicensed web shops? The other paper reported a possible $300/$400m hole in their financial statements. If this rumor turns out to have any truth then a further injection of capital will be required.

The webshops will not increase taxes but they will become a growing burden on the public both socially and reputationally (unlicensed and possible money laundering).

Coupled with hurricane relief and corruption the deficit will soar well above 7 billion before end of year. Devaluation next.

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