The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government was yesterday urged to develop a “KYC Once Act” to cut through the banking industry red tape that has “left customers dangling in their business and personal lives”.

Fred Smith QC, the Callenders & Co attorney and partner, told Tribune Business that such a law would permit the issuance of a Know Your Customer (KYC) certificate confirming that the holder is a legitimate client and has passed all required due diligence checks.

Such a certificate would be accepted by all Bahamas-based financial institutions as validating the holder’s credentials, he added, thus eliminating the need to “reinvent the wheel” and undergo the same KYC scrutiny at every bank that a company or individual conducted business with.

Mr Smith argued that this would eliminate “a huge unnecessary expense” that has plagued dealings with the Bahamian banking industry for the past two decades, thereby lowering costs and resulting in a much-needed improvement in the ease of doing business.

He also urged that the threshold above which Bahamas-based banks apply anti-money laundering scrutiny to occasional transactions be increased to $50,000, and suggested that his proposal could make this nation a “Caribbean leader” when it came to the application of anti-financial crime rules.

Justifying his call for reform, Mr Smith said his previous warning against doing business in The Bahamas had resulted in “many, many people reaching out to me to express support for the challenges being faced by everybody in this nation.

“It seems to be getting worse,” he told Tribune Business. “Banks are scrutinising the most miniscule transactions for people they already know. There is absolutely no discerning objectivity being applied by the bank and KYC officers, and they are making everybody’s personal life - as well as their business life - very challenging.

“In addition, it’s impossible to get a clear answer as to what this hold-up may be in any given situation. The human being that interfaces with me at any banks says it’s the compliance officer, the KYC department, the people in Trinidad, the people in Canada....”

“People are left dangling in their personal and business lives. When people have to pay their electricity bills, lend money to each other or have money deposited to their account in the region of $5,000, $10,000, $25,000, it’s almost impossible,” Mr Smith blasted.

“Sometimes you have to go back and cut the cheque in half, have a witness to the transaction or have someone else go and cash it, all without explanation for people who have been doing business with the bank for decades.”

Tribune Business reported last month how several businesses, set up by legitimate persons who already own and manage companies, had to endure a six-month wait to open a Bahamian bank account for a new commercial venture.

This impeded their ability to start conducting business, and Mr Smith revealed he was a party to transactions “as low as $1,200” that were being held up in the commercial banking system.

“There does not appear to be any sensible, reasonable threshold” for applying KYC scrutiny to occasional transactions, he told this newspaper, echoing a frequent complaint of Bahamians every since the 2000 “blacklisting” laws were passed to enable The Bahamas to escape the Financial Action Task Force’s (FATF) list.

To remedy the problem, Mr Smith urged the Government to increase the threshold above which occasional transactions are scrutinised to $50,000. Sums below this level would be exempt from KYC due diligence unless financial institutions saw a pattern of transactions such that it aroused their anti-money laundering suspicions.

Pointing out that money laundering typically involved the movement of large sums of money in a bid to conceal its source, and “wash” it through the financial system so that it appeared legitimate and became clean, the QC added: “They shouldn’t scrutinise every single miniscule transaction.

“Everyone has been presumed guilty as opposed to having the benefit of the doubt. The presumption of innocence that underpins Western civilisation in common law jurisdictions no longer seems to exist, even for The Bahamas.”

Calling for the provisions of the Financial Transactions Reporting Act and Register of Beneficial Ownership Act to be eased, Mr Smith urged the Government to pass legislation that he branded as a “KYC Once Act”.

Besides specifying the due diligence requirements for individuals and different types of businesses, Mr Smith said this would allow private companies - licensed by the Central Bank or other regulators - to conduct client scrutiny on behalf of local financial institutions rather than the latter continuing to perform this task.

Those clients who passed would then receive a KYC certificate, attesting to their legitimacy, that would be valid at any Bahamas-based financial institution. Mr Smith argued this would eliminate “a huge unnecessary expense” and the need for individuals and companies to keep providing “the same information again and again and again around KYC”.

“That will position The Bahamas as a leader in the ease of doing business,” he told Tribune Business. “Once a KYC certificate is issued it will be accepted by any government agency and financial institution.

“Whether you are already doing business here, want to do business here or are an ordinary citizen that means your existence won’t be bedeviled by a mass of minutiae. It eases the bureaucratic and administrative burden for government regulators. Why do we have to keep reinventing the wheel?

“Doing business and living in The Bahamas could become so simple again. For a person with five, 10 and 15 companies in their organisation, having to produce all the documents to the bank every single year drives up the cost of doing business and the difficulty of doing business.”

Mr Smith added that his “KYC Once Act” proposal could also make The Bahamas “a leader in the financial world in the Caribbean”, and a regional “clearing house” when it came to due diligence matters.

“Maybe we can become a central KYC exchange for the rest of the Caribbean,” he mused, “a KYC clearing house. Maybe like the banks moved back offices to Trinidad this is an opportunity for The Bahamas to create jobs by becoming a KYC clearing house for the jurisdiction.”