By NEIL HARTNELL
Tribune Business Editor
The Bahamas needs to “take the tough policy decisions” necessary to improve its ‘high risk’ rating for money laundering and “secure the future”, a former BFSB chairman argued yesterday.
Michael Paton, attorney and partner at the Lennox Paton law firm, told Tribune Business that the Bahamas needed to analyse the “costs and benefits” associated with improving perceptions of this nation’s money laundering ‘risk’.
Warning that maintaining “the status quo” would see the Bahamas continue to receive similar ratings to those contained in the Caribbean Financial Action Task Force’s (CFATF) July 2017 report, Mr Paton argued that this nation’s interests lay in being rated ‘low risk’ for money laundering, terrorism financing and other financial crimes.
“The Bahamas is moving into a much more regulated environment,” he told this newspaper. “We’ve agreed to the automatic exchange of tax information, and been rated partially or largely compliant in many areas by the CFATF.
“The question is: Are we prepared to put in everything we need to get us changed to as fully compliant as possible and, if so, work out what the cost of doing that will be, what the benefits of doing that will be, and will it influence perceptions of the Bahamas? What will be the international perception if we go from ‘high risk’ of money laundering to ‘medium risk’, then ‘low risk’?”
The CFATF’s July 2017 Mutual Evaluation Report (MER) rated the Bahamas as having ‘low’ effectiveness in six out of 11 categories when it came to its anti-money laundering/CFT defences.
This nation was ranked as having ‘moderate’ effectiveness in the other five, but was only rated ‘non-compliant’ on one out of 40 ‘technical compliance’ benchmarks.
That relates to the CFATF’s assessment that the Bahamas has yet to fully implement UN Security Council resolutions on terrorism financing, and especially its ability to freeze assets belonging to suspect individuals and entities “without delay”.
Mr Paton told Tribune Business yesterday that the Bahamas needed to adopt a “new business model”, and address the deficiencies identified in the CFATF report, to safeguard the financial services industry’s future.
The sector has traditionally been the economy’s ‘second pillar’, underwriting the development of the Bahamian middle class by providing lucrative, high-paying jobs. “The long-term future of the Bahamas hangs on what do we have to do to secure the future,” Mr Paton said.
“That begs the question of what we have to do to get from ‘high risk’ to ‘medium risk’, and then to a ‘low risk’ rating. There are some tough policy decisions that will have to be made, and then we will have to implement. We will have to make a decision, and a decisive decision, to move going forward.”
He added: “Personally, I think we have to move to a new model; the old one is no longer working. We are operating in a transparent, regulated world, and we have to engage and put in place what we need to do to move the rating.
“It could be a challenging few years ahead of us, but that’s what we’ve got to do to secure the future by securing the rating.”
Mr Paton’s position mirrors that of John Rolle, the Central Bank’s governor, who told Tribune Business on Monday that the Bahamas needed to improve from the ‘high risk’ category for money laundering and terrorist financing to at least ‘medium risk’.
“We know that at least some of the perceptions about this jurisdiction can be attributed to being situated within the grouping of Caribbean territories. But there are other contributing factors, some of which are within the immediate reach of the Central Bank. That’s where we intend to have the most impact in our strategic initiatives,” Mr Rolle said.
Mr Paton, meanwhile, said one issue the Bahamas will likely have to address is the CFATF’s call for it to implement measures to “identify and pursue the proceeds of foreign tax evasion”.
This is especially difficult for the Bahamas given that it has no income tax, or form of taxation that is likely compatible with what is being evaded by international clients in other jurisdictions.
“With regard to tax crimes, the Bahamas has not specifically, by way of nomenclature, identified foreign direct tax evasion as a predicate offence for money laundering,” the CFATF report said.
“This was attributed to the country not having any direct tax regime. This raises the question as to how the Bahamas deals with foreign tax evasion. However, the authorities concluded that such offences were considered as fraud, and thus were covered under the country’s legislative framework as set out in the Proceeds of Crime Act, the Penal Code and the Criminal Justice (International Cooperation) Act.”
The CFATF, though, was not satisfied. “While the legislative framework is technically compliant, there has been no instance of money laundering investigations, prosecutions or convictions involving the predicate offence of foreign tax evasion,” it said.
“In the context of the high risk of foreign tax evasion for the Bahamas, as identified in the draft National Risk Assessment, this indicates a lack of effective implementation. It is recommended that the Bahamas put in place measures commensurate with the risk to identify and pursue the proceeds of foreign tax evasion.”
Mr Paton said the Government needed to be aware of the complexities raised by this issue, while questioning whether it would remain “a priority” for the CFATF given the global move to automatic exchange of tax information.
“That certainly is going to have to be something the Government is going to have to consider,” Mr Paton said, “if it sees a necessity to comply with that standard. The question is to what degree do we comply with that standard, and where are we in the continuum of fully compliant, partially compliant.
“The Government is going to have to take a look at that [foreign tax evasion] and take a policy decision on where we want to be. The difficulty with that standard is how you implement it domestically. The FATF is not giving any language or advice on that, and it’s up to each jurisdiction.
“How do you actually craft Bahamian legislation to meet that standard? Some thought needs to be given to that. It’s a lot more difficult in the details than it appears at first sight. It’s not a tax here; do we need to recognise it in the Bahamas? If we want to craft something that meets the standard, we have to be right on point. There would have to be some very clear guidance.”
Mr Paton suggested there also might need to be “a change in approach” to address the CFATF’s concerns that the Bahamas is not actively prosecuting money laundering, instead focusing on underlying or ‘predicate’ offences.
“We have to be seen to be focusing on that more intensely,” he said, suggesting that prosecutors needed to bring money laundering as one of several charges against offenders.