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One Provider Stalls 20% Of Beneficial Owner Requests

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

More than 20 per cent of beneficial ownership requests were not met by The Bahamas after a now-liquidated financial provider denied regulators access to the information.

The details are contained in the latest “peer review” of this nation’s compliance with ownership and tax information exchange standards by the Organisation for Economic Co-Operation and Development’s Global Forum (OECD), which found that bearer shares were still being issued despite The Bahamas abolishing them in 2000.

Disclosing The Bahamas’ performance in the five-year period to 2017, the OECD report found that overseas regulators submitted 47 requests to this nation for information on the legal/beneficial ownership of specific corporate entities.

While most countries “were generally satisfied” with the information provided, the report added: “A number of exchange of information requests are still pending. In 11 of these requests, ownership information needs to be obtained from the same service provider, which is a Financial and Corporate Services Provider (FCSP) licensed by the Securities Commission.

“The information relates to several International Business Companies (IBCs), and has so far been unavailable. The FCSP indicated that its head office, located in another jurisdiction, removed the access rights to the (electronic) information which is kept by the head office.”

The OECD ‘peer review’ declared this to be unacceptable, arguing that global best practices dictate that such information be available to the ‘competent authority’ responsible for exchanging it - in this case, the Ministry of Finance. The Bahamian financial services provider was not identified.

“The Competent Authority should have powers to obtain the information,” the report said. “It seems likely that in this case the customers may have been introduced to the Bahamian FCSP by its foreign head office.”

Regardless, the OECD ‘peer review’ said the situation breached the Securities Commission’s requirement for all licensees to maintain necessary beneficial ownership information on all entities for which they act as the registered agent.

“Whether the customers were introduced by the foreign head office or not, it is clear that the Bahamian FCSP should have the ownership information on its customers in its possession or control,” the OECD report said. “In practice, this was not the case.

“The Bahamas’ authorities indicated that they have revoked the licence of the Bahamian FCSP in the second half of 2017, and are now in contact with the liquidator to try and obtain the information.

“Nevertheless, more than one year had passed since the potential unavailability of the information was discovered. In addition, there were other external factors (relevant information available in the public domain) that should have given rise to the supervisory authorities taking action at an earlier stage,” it continued.

“In such circumstances, it is recommended that the Bahamas enhances its monitoring and enforcement practice, and be more proactive in the case of external events affecting one or more Bahamian services providers.”

This episode likely provides further explanation for why the Government has moved to create a centralised Beneficial Ownership Registry through tabling the Register of Beneficial Ownership Bill 2018 in the House of Assembly.

The financial industry is resistant to moving forward with the legislation at this time, largely because it believes it has more pressing priorities as a result of the European Union’s (EU) ‘economic substance’ and elimination of ‘ring fencing’ demands, and the need to complete automatic tax information exchange implementation.

While many in the sector feel the Bahamas will have little choice but to move towards such a Beneficial Ownership Registry eventually, they also feel that global standards on the issue are still evolving and have yet to be determined.

The OECD ‘peer review’, meanwhile, revealed that one of the 11 beneficial ownership requests thwarted by the unidentified provider also involved the issuance of bearer shares - even though this device, once used to conceal the true ownership of corporate entities, was abolished by the 2000 legislation that secured removal from the Financial Action Task Force (FATF) ‘blacklist’.

“With respect to the peer review period, one [country] indicated that it had not received ownership information because the company had issued bearer shares,” the OECD report said.

“The Bahamas reported that in this case the IBC had issued bearer shares in violation of the law in 2005, but redeemed them in 2007. The partial information that was sent to the [other country] was not up-to-date (the request covered the years 2010 to 2013) and complete, but the Bahamas Competent Authority reported that the case is still open.”

The OECD report described it as “an isolated incident”.

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