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‘Suffocating’ Kyc Causes Lawyer 5-Year Bank Wait

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

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.

Comments

Economist 2 years, 2 months ago

Why is it much easier to open a bank account in the United States than it is in The Bahamas? Why don't we copy and use the KYC that banks in the US require?

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OldFort2012 2 years, 2 months ago

We do. But the "numbers boys" cannot meet those requirements. Hence the gripe.

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JohnDoe 2 years, 2 months ago

I am sorry that is just an asinine comment. The FTRA & FTRR, the laws that govern our KYC/AML regime became law in 2000 way before there were any "numbers boys".

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OldFort2012 2 years, 2 months ago

So what? I have never had a problem with opening bank accounts. All done in 7 days: passport, utility, source of funds, etc. But then I don't have a murky past, don't run a porn website or profit from online or physical gambling and don't accept cash. Those are the guys that have problems. And they all want to bank here because they have been told to sod off by every other jurisdiction.

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DEDDIE 2 years, 2 months ago

The KYC rules are ridiculous. I tried to open a company account at FCIB and the process is maddening. They same to totally ignore the fact that a corporation is separate legal entity from its owners.

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TheMadHatter 2 years, 2 months ago

He is correct. If you have a savings account at a bank for like three years, and they go in to open a checking account - you get the feeling that you just arrived on the planet.

In the Bahamas KYC should be renamed to FYC because that is exactly how it operates.

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John 2 years, 2 months ago

When you suggest international regulations are putting undue pressure on the Bahamas they say you are anti/foreign. I say many things foreign are anti-Bahamian . And many who are included don't have the moral authority to be regulators

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BMW 2 years, 2 months ago

15 minutes of time ,a passport= account open at BOA.

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Porcupine 2 years, 2 months ago

We fail to see the connections between the crime, poverty rate, failing economy and the attitudes of our people. All things connected with doing business, or just paying a bill have stymied our ability to be competitive and prosperous. KYC is just one facet of this total failure. Yes, total failure of this country.

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Socrates 2 years, 2 months ago

the onerous rules imposed by the imperialists are nothing less than modern day colonialism and intended to economically cripple small, 3rd world countries so they remain 3rd world and dependant on 1st world handouts that come with strings attached. its utter BS and we can't do much, if anything, about it.

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banker 2 years, 2 months ago

Here is why we have those onerous KYC rules. Pre-2006 (can't remember the exact year) but the KYC/AML rules were explicit. Then they were revised. Instead of rules, there were guidelines to follow & the message from the authorities was "we don't care exactly how you enforce KYC/AML, but if you do something that contravenes the guidelines and gets you into trouble, your azz is in a sling. So it is up to you as to how you enforce it, but you better do your job!"

Back to The Bahamas. Dodgy Q. Customer approaches John Big Lawfirm & says "I want to create an IBC to do shiite with money". John Big Lawfirm sees the client as fresh meat to pay exorbitant legal fees. ($400+ an hour for filling out forms that can be done online). So the big lawyer gives the customer some paperwork & Dodgy goes to the bank. He wants an account for the IBC & a personal account so that he can siphon off funds from the IBC & use the money.

At the bank,is our bright-eyed boy Fresh-Face Bahamian Banker. He looks at the papers, & realises that they have a smell akin to the wrapping of last week's fish. He tells Dodgy Q. Customer that somethin een right. Customer excuses himself & calls John Big Lawfirm on his cell phone. 30 seconds later Aaron A. Arsewhole, QC is on the line with FF Banker & says "We have $30 million in accounts at your bank. If you doan open dem accounts, yer azz is grass!" & hangs up. FF Banker opens the accounts & he knows that he has sold his soul & is on the road to perdition.

Later Dodgy Q. Customer comes to the attention of the IRS & SEC. These boyz een playin'. They go to the bank head office in Toronto & say "Give us the records of Dodgy Q. Customer, and WTF are you doing givin' him accounts. If you wanna do business in the US then you will comply or else".

So the bank sends down the big boyz from Tronno & slaps down FF Banker & puts him in charge trying to sell sub-prime mortgages to unsuspecting Bahamians. In the meantime, they train up Jezabel Succubus, Chief Compliance Officer to examine every account application. They doan care if it takes 40 years to open an account. She has to sign in blood saying that if she fooks up, it is her responsibility & they will take it outta her hide.

The next time another dodgy or regular customer comes, the a smarter Freshier Faced Banker takes da paperwork and says "we working on it". AA Arsewhole, QC phones up & says why you een give my customer an account? FF Banker says "Call Jezabel, it's outta my hands".

So Arsewhole the Lawyer phones Jezabel and says "Do you know who I am?". Jezabel responds "I am so glad that you called. I need you to answer some questions about your role in the last IBC that you made. The SEC and IRS wanna know. And if I give 'em your name, well no more Hialeah Walmart trips fer you. Now what was it you were asking about?"

Aaron A. Arsewhole QC meekly says "Nuffin'" & hangs up.

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OldFort2012 2 years, 2 months ago

Spot on. It is the dodgy people that have trouble. As they should.

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Gotoutintime 2 years, 2 months ago

Banker I love the way you get to the point---Keep up the good work!

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gbgal 2 years, 2 months ago

Banker, congrats! I so enjoyed your short story above...please share the next installment. You got talent!

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sealice 2 years, 2 months ago

I think you would be a great candidate to fill Larry Smith's spot - honesty with dose of civilized humor....

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banker 2 years, 2 months ago

There is absolutely no way that I can fill Larry's spot. For starters, I have been corrupted. I am not a good enough person. It used to p*ss me off that Larry could see good in even the most wicked person alive. He would give you the benefit of the doubt until you've proven yourself not worthy of his attention. I am too judgmental. And there is another reason that I don't qualify -- I can't eat $50 worth of sushi in one sitting. :o)

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The_Oracle 2 years, 2 months ago

Funny as all Banker, Not to fill Larry's shoes but certainly pick up where he has left off, R.I.P. Larry. Micro management has killed this country, politically, (silent consent) functionally (civil service self preservation, conversion of authority to personal power) economically (sit on the pile of money, take no risk) Mental stagnation also has deep roots. Nothing will change, but everything will decay. Even the politicians who have "acquired wealth" via "public service" sit on the millions, following the practice well established. No imagination, over regulation. Pathetic and difficult to break.

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banker 2 years, 2 months ago

Maybe Marlon will be a ray of hope. I for the life of me can't understand the move, but hey -- if it works and if he works, maybe it is a portent for change.

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