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‘Not Out Of Woods’ On Financial Crime Rating

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Emmanuel Komolafe

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas cannot afford to “prematurely celebrate” its upgraded compliance with global anti-financial crime standards when it remains on two “watch lists” and under “enhanced” scrutiny.

Emmanuel Komolafe, pictured, a compliance and risk management specialist, told Tribune Business that while The Bahamas’ re-evaluation by the Caribbean Financial Action Task Force (CFATF) was “undoubtedly positive news” this nation is “not out of the proverbial woods” just yet.

For while the CFATF upgraded The Bahamas’ compliance with almost one-third of global anti-money laundering and counter terror financing standards (AML/CFT), it has still kept this nation in “enhanced follow-up” because it has a “low to moderate” score when it comes to effective implementation of these benchmarks.

And, in turn, the CFATF’s Paris-based parent, the Financial Action Task Force (FATF), still has The Bahamas on its 11-strong list of nations with “strategic deficiencies” in their anti-financial crime regimes, along with the likes of war-torn Syria and Yemen.

Mr Komolafe argued that The Bahamas’ should be given credit by the FATF for the positive re-evaluation by its Caribbean affiliate when it assesses this nation’s progress in addressing such “structural deficiencies” in February and June next year, respectively, ahead of the September 2019 deadline for full implementation of its “action plan”.

This was especially since the FATF’s listing of The Bahamas appeared to be based on some of the same legal and technical issues upgraded by the CFATF.

“Many in the financial services industry have long held the view that The Bahamas has always been a well-regulated jurisdiction with a robust legislative and regulatory framework for AML/CFT,” Mr Komolafe said.

“However, the recently issued Follow-up Report (FUR) by the CFATF, which constitutes an acknowledgment of our commitment to compliance with international standards and the significant amount of work undertaken to-date, is a welcome development.”

Yet he cautioned: “While our progress in addressing identified deficiencies ought to be noted, there remains much work to be done. It would be premature to celebrate as we are not out of the proverbial woods as long as The Bahamas remains on the FATF’s list of jurisdictions with strategic deficiencies.

“The general sentiment of financial services participants in The Bahamas is that our inclusion on the list was unfair in the first place when one considers how much has been done nationally to maintain our position as a compliant international financial centre.

“We’re still on the enhanced CFATF monitoring list, so have to temper the celebrations so to speak, and are still on this listing of the FATF in addressing structural deficiencies.”

Despite the re-evalution, which upgraded The Bahamas’ compliance with 13 of the FATF’s 40 anti-money laundering/counter terror financing standards, The Bahamas remains in the CFATF’s “enhanced follow-up” programme.

“Enhanced follow-up is based on the CFATF’s policy that deals with members with significant deficiencies (for technical compliance and/or effectiveness) in their AML/CFT systems, and involves a more intensive process of follow-up,” the CFATF explained.

“The Bahamas will remain in enhanced follow-up on the basis that it had a low or moderate level of effectiveness for seven or more of the 11 effectiveness [implementation] outcomes [for these standards].”

Mr Komolafe, assessing the FATF’s “Action Plan” demands on The Bahamas, said that while this also focused on implementation “some weight was also placed on the addressing of identified technical deficiencies which the CFATF report shows that we have done to a large extent”.

“Hopefully, this will factor into the FATF’s assessment of The Bahamas and result in our removal from the adverse listing,” he told Tribune Business. “The FATF mentioned technical deficiencies as well. If the CFATF follow-up report looked at technical aspects of compliance, that should factor into that list and the FATF’s decision to remove The Bahamas.”

Carl Bethel QC, the Attorney General, on Tuesday expressed hope that the CFATF report would result in the US Treasury and its UK equivalent both withdrawing or modifying advisories warning their financial institutions to apply greater scrutiny to transactions and clients connected to The Bahamas.

While also hopeful this will happen, Mr Komolafe said these advisories were issued in response to The Bahamas’ inclusion on the FATF’s list - not that of the CFATF.

“This is why we ought to keep our eyes on the overarching objective of ensuring that The Bahamas is removed from this list. The reality is that countries and their regulatory agencies place more reliance on the FATF’s pronouncements and issued lists,” he told Tribune Business.

“The FATF standards have evolved over the years, and will continue to evolve. This evolution has contributed to the narrative that the goal posts will continue to move, resulting in ongoing modifications to our legislative and regulatory regime. There is genuine concern that this will further impact the cost of compliance and the ease of doing business in The Bahamas.”

The Bahamas’ efforts to meet anti-financial crime standards, and secure its removal from the FATF and other lists, were also backed yesterday by Standard & Poor’s (S&P), the international credit rating agency.

Suggesting that its progress will help strengthen correspondent banking ties, and prevent their further loss, S&P said: “We believe decisive measures to address international scrutiny of offshore banking in The Bahamas should help stop further contraction in the financial services sector and also lessen pressure on correspondent banking relationships....

“Loss of correspondent banking relationships remains a risk for The Bahamas, as it does for many of the Caribbean sovereigns we rate. While we do not believe that this trend will threaten the banking sector’s ability to roll over its debt, we do think that it could further stress the financial system.

“We believe this highlights the importance of the Central Bank’s new AML/CFT supervision regime, which should strengthen compliance and assist in the maintenance of the system’s correspondent banks.”

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