Us ‘Jumping To Conclusions’ On Suspect Deals Reporting


James Smith


Tribune Business Editor


The US was yesterday accused by a former finance minister of “jumping to conclusions” over its assertion that too few suspicious transaction reports (STRs) are filed by Bahamian banks.

James Smith, also an ex-Central Bank governor, told Tribune Business that the “robustness of the system” - and the deterrent effect it had on money launderers, fraudsters and other financial criminals - was perhaps a more likely explanation for why the volume of STRs was allegedly “low”.

He was responding to the release of the US State Department’s annual International Narcotics Control Strategy Report (INCSR), which said the number of STRs filed by banks and other Bahamian financial institutions was relatively small compared to the sector’s overall size.

“Considering the size and character of the international financial sector, the number of filed STRs is low,” the US report said. “In 2018, the FIU (Financial Intelligence Unit) received only 332 STRs from both domestic and offshore entities, down from 446 in 2017.”

It also implied that the number of money laundering-related prosecutions and convictions in The Bahamas was also relatively low when measured against the financial services industry’s size, adding: “In 2018, 32 investigations resulted in 34 persons being charged with money laundering offenses. There were 13 convictions in the same period. In 2017, there was only one prosecution.”

Mr Smith, though, yesterday challenged “the scientific basis” upon which the US State Department drew its STR-related conclusions given that The Bahamas and its financial institutions were deemed compliant with global Know Your Customer (KYC) and due diligence standards.

“We are on the same level, with all the checks and balances and procedures we follow, as any other country - including the United States,” he told Tribune Business. “It doesn’t follow that they’re [STRs] low because of the sector’s size. They could be low because of the robustness of the system.

“They jump to conclusions. We’re doing everything; the same thing they’re doing in US banks. Some say we may be doing a little more because we’re smaller. They cannot go on the size of the system, as assets under administration in The Bahamas is not just cash balances but includes the likes of equities and real estate.

“I don’t think whatever analysis they’re using reflects the reality on the ground. It becomes very subjective. It could be instead that The Bahamas’ system is so robust that not many STRs are being filed, which is probably more the case.”

Mr Smith queried why, if The Bahamas was deemed to have such a problem with STR filings and KYC, its institutions were not losing more correspondent banking relationships - most of which are with US institutions.

US banks typically pay a great deal of attention to the risk presented by their Bahamian correspondents, drilling down extensively into their regulatory procedures, and sever relationships immediately if they get a sniff of any issue - something that has not happened to-date.

Still, the US State Department’s report called for an improvement in the FIU’s “product” so that it could better assist Bahamian and international law enforcement agencies with probes into money laundering and other financial crimes.

“The Bahamas needs to address recognised deficiencies in its AML/CFT (anti-money laundering/counter terror financing) regime by demonstrating risk-based supervision of non-bank financial institutions, and ensuring timely access to adequate beneficial ownership information,” the report said.

“Increasing the quality of the FIU’s products would better assist law enforcement to investigate and prosecute all types of money laundering, lead to successful forfeiture proceedings related to AML cases, and address gaps in terrorism and proliferation financing frameworks.”

The US State Department’s report will likely be seen in some quarters as an attempt to tell The Bahamas’ story without regard to all the facts, much like the recent US crime advisory. Much of its criticisms seem to be drawn from the concerns raised by the Financial Action Task Force (FATF) in its ongoing monitoring of The Bahamas.

Among the seven weaknesses identified by the FATF are “increasing the quality of the FIU’s products to assist law enforcement authorities in the pursuit of money laundering/terror financing investigations, including ‘complex’ cases”; “risk-based supervision of non-bank financial institutions”; “access to adequate, accurate and current basic and beneficial ownership information”; and asset confiscation.

All are cited in the US State Department’s report, but Mr Smith yesterday reiterated that the Bahamian dollar was highly unlikely to be used for money laundering or other illicit schemes because it is not a convertible currency.

“They’re doing quite a disservice to the jurisdiction,” he said. “It [the report] has implications for the financial services sector, which is important in terms of its contribution to GDP.”

However, the US State Department report - unlike in previous years - did give The Bahamas credit for making reforms such as the upgraded Proceeds of Crime Act and Financial Transactions Reporting Act.

“In 2018, the Bahamas took significant steps toward strengthening identified AML deficiencies,” it said, “notably by passing an enhanced Financial Transactions Reporting Act strengthening KYC rules, STR procedures, risk assessment obligations for financial institutions and designated non-bank financial providers, and customer due diligence regarding beneficial owners and PEPs (politically exposed persons.

“In addition, an enhanced Proceeds of Crime Act introduces unexplained wealth orders and non-conviction-based forfeiture, while a comprehensive Anti-Terrorism Act addresses terrorist financing and proliferation. In August 2018, financial regulators issued several guidance notes related to prevention of money laundering and proliferation financing, as well as financial crime risk management.

“Finally, the government passed a strengthened Travelers’ Currency Declaration Act. Additional legislation awaiting parliamentary approval includes a Beneficial Ownership Register Bill ( ow passed) that requires declaration of beneficial ownership information to a designated authority, and a Non-Profit Bill to regulate and supervise non-profits.”

The US, though, reserved its greatest displeasure for the Bahamian judicial system. “The greatest challenge to the host government in tackling the [drug] trafficking issue remains the weakness of the Bahamian criminal justice sector,” its report said.

“While the average time between initial arraignment and trial in 2017 was within 90 days for minor offenses, for more serious matters, such as those involving trafficking, smuggling, firearms, or gang violence, regular adjournments prolonged cases, in some instances for several years. Many accused choose to go to trial, confident the courts will take years to move their case through the system and the government will eventually drop the charges.”


Well_mudda_take_sic 2 years ago

James Smith, also an ex-Central Bank governor, told Tribune Business that the “robustness of the system” - and the deterrent effect it had on money launderers, fraudsters and other financial criminals - was perhaps a more likely explanation for why the volume of STRs was allegedly “low”.

Just who does he think he's kidding? This man is now borderline senile. Every major issue that financial regulators confront in the Bahamas and turn a blind eye to is known to intelligence agencies and senior financial regulators within the U.S. government.


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