The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Caribbean regulatory body has urged Bahamian banks to show "more dedication and urgency" in cleaning up 20,000 'unverified' accounts that collectively hold almost $184 million.

The Caribbean Financial Action Task Force (CFATF), in its July 2017 report on the Bahamas' anti-money laundering and counter-terror financing regime, urged the commercial banks and Central Bank of the Bahamas to give "priority" to updating the necessary beneficial owner due diligence documents.

It suggested that the issue had been allowed to drag on for too long, even though the number of unverified accounts in the Bahamian banking system had been slashed by 50 per cent compared to 2012 levels.

The CFATF report showed that the Bahamas had 40,279 'unverified' bank accounts, worth a collective $155.501 million, in 2012. However, by 2014 the number had been slashed to 21,777, although the total worth had increased to $183.982 million.

No explanation was provided for the increased value associated with these accounts, despite the dramatic reduction in their number, especially since the CFATF report itself conceded that the facilities involved were Bahamian dollar accounts worth less than $15,000. However, the rate of 'clean-up' appears to have slowed in recent years

John Rolle, the Central Bank's governor, confirmed that while 20,000 accounts still remain to be verified, they were all "low-risk" and required just "documentary clean-up".

He emphasised that there was "no evidence" any of these accounts, or their beneficial owners, presented a money laundering or terrorism financing risk, and suggested many simply required customer due diligence information to be updated because government-issued IDs had expired.

The CFATF report said: "There is a large number of unverified accounts in the domestic banking sector....A significant amount of these accounts are post-2000 accounts which have been verified, but for which customer due diligence documents need to be updated, such as Government-issued identification.

"The issue of authorisation of these facilities should be addressed with priority by the banks (and the responsible supervisor). The value of unverified facilities in 2014 totalled $183.9 million, which accounted for approximately 0.06 per cent of banking sector assets of $279.2 billion."

The CFATF report acknowledged that the number of unverified accounts in the banking system was decreasing, but said institutions had been unable to confirm the identity of all owners.

It added that the Central Bank had requested its licensees to list all unverified accounts from February 2004, and rate them according to the potential money laundering 'risk' they represented.

"According to the interviewed banks, the high-risk customers files tend to be updated, while the rest of the files are updated only when their non-current status is discovered," the CFATF report said. "There was not a strong dedication or sense of urgency to address this issue on the part of the involved banks."

Mr Rolle, in response to Tribune Business questions, agreed with the CFATF analysis that the solution largely required Bahamian commercial banks to update their documentation on beneficial owners of accounts.

"In many instances, an account was considered 'unverified' in our commercial banks if the due diligence documents on file, such as the passport or driver's license, were expired," he explained. "There is no evidence that any of these accounts are causing any actual money laundering or terror financing problems.

"Moreover, either initial customer due diligence would have been applied on the accounts when they were opened, or the relationships were long-standing and a high level of familiarity already existed with the clients. In the majority of these cases verification is therefore a synonym for updating of the customer files, which is still important for relationship maintenance."

Mr Rolle added that the Central Bank was already working on developing a more streamlined, risk-based approach for the Bahamian commercial banks to apply when conducting customer due diligence.

"A part of our intervention with the sector will be to develop simplified due diligence requirements that are less onerous for low-risk, transactional facilities," the Governor added.

"This work stream is already in progress. The risk-based approach will help commercial banks tailor their relationship management requirements and conserve on the amount of due diligence that has to be directed at certain low-risk customers."

Elsewhere, the CFATF report expressed a lack of confidence in Bahamian credit unions being sufficiently aware of the money laundering/terror financing risks that they face.

And it expressed similar concerns over the "limited understanding" shown by standalone Bahamas-based financial institutions of the potential dangers they were exposed to.

"The credit unions interviewed believed that due to the domestic focus of their activities, their ML/TF (money laundering/terror financing risks are negligible," the CFATF report.

" Risk assessments are typically not performed, and discussion of potential ML/TF risks was minimal, although reference was made on one occasion to customers that are self-employed as being considered higher risk."

While acknowledging that credit unions were largely domestic-focused on a particular membership base, the CFATF report expressed concern that this attitude potentially "underestimated" the dangers they face.

"The credit unions are of the view that their ML/TF risks are limited due to the nature of their business and the fact that the majority of their clients are salaried workers," the report added. "Further the ML/TF risks are not as significant as other financial sectors.

"These assumptions do not give the assessment team confidence that the credit unions are sufficiently aware and pay enough attention to their specific ML/TF-risks."

The CFATF report said Bahamian financial institutions that are part of larger international groups, accounting for 69 per cent of total bank assets, understood their ML/TF risks well.

This, though, did not translate to Bahamian and foreign-owned institutions that are standalone. The CFATF report added that the fact most institutions considered fraud "to not be of significant concern" contrasted with the Bahamas' own National Risk Assessment (NRA), which rated it as a key issue.

"Those that are not part of a large international group demonstrated limited understanding of their specific inherent ML/TF risks," the CFATF report said.

"When queried about their inherent ML/TF risks (operations, environment, products) by the assessment team, these institutions tended to focus on the risk assessments conducted to ascertain the ML/TF risks of individual customers (mainly done to divide customers into different categories such as 'high/low' risk) or discussed their AML/CFT controls instead.

"One Bahamian bank that focuses on the domestic market pointed out that the risks are with international customers. Another bank specifically mentioned the so-called web-shops as being a concern, although this bank did not conduct business with such shops any more."

In response, Mr Rolle said the Central Bank's new ML/TF strategy, set to be rolled-out before year-end, would address the 'limited awareness' displayed by standalone financial institutions.

"Our engagement with the industry will be more intensive," he promised. "A new penalty regime for AML/CFT deficiencies will feed into this, and more dedicated resources will focus on this work."

As for the credit unions, Mr Rolle said their supervisory regime was just starting to improve following the transition of oversight to the Central Bank.

He added: "On money laundering matters we have already had preliminary discussions with the sector on the approaches that they can take to have access to more resources for the compliance side of their operations.

"It should be noted that a National Task Force on ML/TF is in place, spearheaded by the Attorney General's Office. The taskforce is on the verge of releasing the National Risk Assessment Report that would contain the comprehensive strategy for strengthening the Bahamas' framework AML/CFT effectiveness.

"Our Central Bank efforts dovetail with the strategy responses in this report. They also advance region-wide interventions to suppress threats from loss of correspondent banking relationships."