The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank yesterday unveiled changes to its anti-money laundering guidelines to reflect its takeover of credit union regulation, with particular emphasis on politically exposed persons (PEPs).

The regulator said Bahamian credit unions are now required to adopt Financial Action Task Force (FATF) standards, already adopted by its bank and trust company licensees, when it comes to dealing with politicians and senior government officials - and those related to them.

In particular, credit unions now have to implement risk management systems to determine whether a customer or an account’s beneficial owner is a so-called PEP. They must also obtain senior management approval to establish or continue business relationships with PEPs, and “take reasonable measures” to determine the source of funds and wealth of such persons.

“Currently, there is no requirement in the Anti-Money Laundering and Anti-Terrorism Financing Handbook and Code of Practice for credit unions to put a risk management system in place to determine whether a customer or beneficial owner is a PEP,” the Central Bank said.

“Larger credit unions are required to have senior management approval to establish or continue a relationship where the PEP became high risk subsequent to establishing the business relationship. This measure does not capture ‘smaller’ credit unions. There are no provisions for credit unions to establish the source of wealth and the source of funds of PEPs.”

The emphasis on PEPs is likely to attract attention, given that the Central Bank recently mandated that troubled Bank of the Bahamas take action to collect on delinquent loans borrowed by PEPs.

Besides having to enact these reforms, which will be incorporated in the guidelines, the Central Bank is also requiring that credit unions not open accounts or conduct business with persons unable to comply with Know Your Customer (KYC) stipulations.

“The Codes only require credit unions to file suspicious transactions reports (STRs) when unable to comply with CDD measures,” the Central Bank added.

The regulator, in the proposed guideline amendments, acknowledged that credit unions were unlikely to be “the first choice for large-scale money launderers and terrorist financiers”.

It added, though, that the sector was still susceptible to cash transactions, especially ‘smurfing’ where a series of small payments are made into a single account in a bid to avoid attracting attention.

“Although credit Unions in the Bahamas are traditionally community-based organisations, which allow the credit unions to be more familiar with their members and the financial services they require, the risk that members may attempt to use their membership to commit money laundering and terrorist financing still exists,” the Central Bank said.

“Criminals may also seek to obtain membership in a credit union by providing a false identity or using a legitimate member to conduct risky third-party transactions.”

It added: “The typical credit union does not deliver sufficient functionality or flexibility to be the first choice for large-scale money launderers and terrorist financiers.

“For instance, there are laws governing a credit union’s lending activity and the type of loans which may be granted to a person. However, despite the close network of members, and other restrictions in place, credit unions are still susceptible to the risk of money laundering.

“The high levels of cash transactions going through credit unions may be one area, in particular, where there is a higher risk of money laundering or terrorist financing. An example of this is ‘smurfing’, where several small payments are made into an account where the amount of each deposit is unremarkable but the total credit is significant. Another method is the repayment of larger loans over short repayment periods, or in lump sum payments, where the source of funds is unclear.”