By NEIL HARTNELL
Tribune Business Editor
Bahamian financial institutions show “a lack of enthusiasm” in reporting clients’ questionable transactions to the authorities, a Caribbean regulatory body has warned.
The Caribbean Financial Action Task Force (CFATF), in its July 2017 assessment of this nation’s anti-money laundering (AML) and counter-terror financing regime, argued that the volume of suspicious transactions reports (STRs) made by Bahamian financial services providers was “low” when compared to the industry’s size and potential risk level.
It suggested that this “may in no small measure” be caused by the Financial Intelligence Unit’s (FIU) failure to report back to providers on the outcome of investigations into their filed STRs.
The FIU analyses STRs, and passes those requiring further investigation on to the Royal Bahamas Police Force (RBPF), but the CFATF report said there was “ineffective application” of such intelligence to uncover money laundering offences.
“The FIU indicated that the quality of the STRs is sometimes not satisfactory, and believes that some financial institutions can provide a better quality product,” the CFATF report found.
“This should be coupled with the fact that the majority of interviewed reporting entities indicated that there was nominal feedback from the FIU on STRs filed, save for an acknowledgment of receipt of the STRs.
“There is an apparent lack of enthusiasm by reporting entities to file STRs, as they are unaware of the outcome and therefore may question the utility of the exercise,” the report continued. “Giving feedback is essential to motivate the financial institutions to file better quality STRs, as well as enable financial institutions to better understand the relevance of the STRs they filed.
“This may in no small measure be contributing to the fluctuation in STRs received by the FIU during the period 2011-2014. It may also be contributing to the small number of STRs which are being filed in the Bahamas.”
Data contained in the CFATF report showed that the Bahamas’ FIU had received a total of 825 STRs over that four-year period, ranging from a low of 167 in 2012 to a peak of 270 the following year.
Of that 825, some 238 or 28.8 per cent had been sent on to the police for further investigation. More than half, some 56.4 per cent, had been closed, while the remaining 122 - 14.8 per cent - were ‘open’ and still being analysed by the FIU.
“There is some concern about the effectiveness of STR reporting by financial institutions and [non-bank financial institutions],” the CFATF report said.
“The overall number of STRs filed by financial institutions and non-bank financial institutions is low, given the substantial size of the financial sector in the Bahamas, as well as the substantial presence of higher risk activities such as private banking, trust, company service providers and real estate owned by foreigners.”
There were also discrepancies identified by the CFATF examiners between FIU data and STRs submitted by financial services and other providers.
“While statistics provided by the FIU indicated that no STRs were filed by licensees of the Gaming Board between 2013 and 2014, a casino reported filing an STR with the FIU and the Gaming Board in 2014,” the report revealed.
“The assessment team was advised that in the last year, the Central Bank had filed five STRs with the FIU as a result of on-site examinations of the suspicious reporting systems of licensees. Given the above-mentioned findings and context, the assessment team deems it necessary that more guidance should be provided to the financial institutions with regard to what could be potential suspicious transactions to report.”
Still, the CFATF report praised the FIU for “having made considerable strides as an organisation in building its capacity”. It added that it was “a well-structured and resourced unit”, with 23 staff members who included nine analysts; four IT officers; an attorney; and an accountant.
However, it slammed the way in which the Royal Bahamas Police Force appeared to be using the intelligence gathered by the FIU.
“Generally there seems to be an ineffective application of financial intelligence and other relevant information in the development of evidence with regards to money laundering offences, and other associated predicate offences and terrorism financing, by the [RBPF],” the CFATF report said.
“This may be symptomatic of an investigative deficiency, or a deficiency in the financial intelligence. During the period under review a total of 220 STRs were disseminated to the [RBPF]. Notwithstanding this, only a total of 45 production orders were applied for, and an even more negligible number of 15 search warrants.
“It is uncertain as to whether those investigative tools were used in relation to the investigations into money laundering and other associated predicated offences. As regards terrorism financing, the FIU indicated that there was no merit in STRs filed on terrorism financing and thus they were both closed,” the report continued.
It concluded: “Effectiveness is not being demonstrated with respect to the analysis and dissemination of financial intelligence. The intelligence is not being used by the RBPF to further investigations in money laundering.”
The CFATF argued that Bahamian police place too much emphasis on investigating drug trafficking offences, at the expense of money laundering and terror financing, and as a result financial intelligence gleaned by the FIU was going to waste.
The report noted that there was currently a “backlog” of STRs at the FIU awaiting analysis, with “double the amount” still being assessed compared to those disseminated. The police had noted that the information they received was sometimes “inaccurate”.
“There is sometimes a delay in the analysis of STRs due to the quality of STRs sent by some financial institutions,” the CFATF found.
“The FIU believes the quality can be improved and, in particular, the insurance and securities sectors can do better. According to the FIU, these financial institutions report the least number of STRs.”