By NEIL HARTNELL
Tribune Business Editor
A well-known QC yesterday revealed “suffocating” Know Your Customer (KYC) rules have blocked his five-year effort to add another lawyer to his firm’s bank account.
Fred Smith QC, the Callenders & Co attorney and partner, told Tribune Business that the KYC regulations - and the manner in which they are being enforced - are “stifling” Bahamian commerce and making this nation’s economy uncompetitive.
Describing the KYC as “the tail that wags the economic dog”, Mr Smith said the Bahamas was “shooting itself in the foot” as a result of the bureaucracy, delays and frustration it caused when trying to conduct commercial transactions.
He urged the Minnis administration to legislate “reasonable” KYC reforms that reined in “out-of-control” compliance officers, while still ensuring that the Bahamas can combat money laundering and terror financing.
“I’ve been fighting the major banks and everybody for so long, but I’ve reached a point of no return with a transaction,” Mr Smith told Tribune Business. “I have been trying to add a partner of the law firm as a signatory to our bank account for the past five years, and I have been completely frustrated by our bankers.
“KYC is suffocating the Bahamian economy. Banks that have my personal business, and those of my companies for decades, all of whom have known me for the last 40 years, are demanding all kinds of further intrusive information.”
Mr Smith said banks and other financial institutions were undertaking KYC review of clients every six-12 months, asking long-standing clients who they well know for confirmation of utility bills, declarations of trust and other documents which they already have on file.
“I have clients from abroad who have been trying to open a bank account for seven to eight months and are unable to do so,” he added, “even though their businesses have got approval from the Grand Bahama Port Authority and the Government to conduct business.
“God forbid if you try to add a new director on your company’s account, or change the signatory on the account or a company officer/director should die. You have to start all over again. It’s become impossible to do business in the Bahamas.”
Mr Smith’s comments are likely to strike a chord with many Bahamians and those in the private sector, many of whom can relate similar stories about difficulties experienced in opening bank accounts or obtaining key government documents due to the strict KYC regime and identification requirements.
The Bahamas’ KYC laws have frequently attracted criticism since they were upgraded in 2000 in a bid to escape the Financial Action Task Force’s (FATF) ‘blacklist’, many suggesting it is far easier to open a bank account in Miami or New York compared to Nassau because this nation’s reforms went too far.
Mr Smith acknowledged that a KYC regime was essential to the Bahamas fulfilling its international obligations, and its role in the global fight to combat money laundering, terrorism financing and organised crime.
“In concept it is good,” he told Tribune Business. “However, the Bahamas has taken it to unbelievable extremes to frustrate Bahamians and the economy in general.
“It is almost impossible for people to conduct business in the Bahamas given the current and new demands for KYC. Many of the banks and compliance agencies throughout the country have imposed even greater scrutiny in KYC, and are forgetting that it is not supposed to be the tail that wags the economic dog.
“Business in a capitalist, free enterprise society is supposed to be facilitative and without unnecessary restrictions. The Bahamas is shooting itself in the foot because its regulatory agencies and, in particular, the banks and compliance officers at many law firms and financial institutions have gone above and beyond the call of duty and requirements of the law. They have taken this to the extreme.”
Mr Smith said the resulting frustration often resulted in commercial transactions not being completed, and added that “the extent to which KYC is required at some law firms prevents the incorporation of companies intended to purchase land”.
Explaining that clients sometimes wished to purchase real estate using companies, Mr Smith said incorporation would be delayed until KYC was completed - even if the beneficial owner had been a client for many years.
He added that utility bills, police certificates and letters of reference would again be required even if “it’s the same person”, and said: “What’s happened is that compliance officers at law firms, regulatory agencies, banks and financial institutions have lost the plot.
“The plot is to have made reasonable and appropriate efforts to know the client and their sources of income, and once that is done you don’t have to reinvent the wheel. The client remains the same, whether in the guise of a company or personal capacity.”
Mr Smith added that further ‘red tape’ was caused by the need to complete KYC “many times over” when dealing with government agencies such as the National Economic Council (NEC), Investments Board and Bahamas Investment Authority (BIA).
“I urge the Government to take steps to legislate reasonable KYC requirements, so that the compliance officers aren’t going above and beyond the call of duty,” he told Tribune Business.