By NEIL HARTNELL
Tribune Business Editor
The prime minister has been urged by a local financial provider to “take the offensive and regain control of our domestic economy” by clearly differentiating it from the international sector.
Julian Brown, Benchmark (Bahamas) president and chief executive, told Tribune Business that Dr Hubert Minnis has “the power to change the conversation” by showing international regulatory agencies that this nation in effect “operates twin financial services sectors”.
He argued that the domestic sector, operating solely in Bahamian dollars, was of little to no use to money launderers and other financial criminals - especially those engaged in cross-border schemes - because of the exchange control regime and the currency’s lack of convertibility.
Mr Brown, whose case is supported by a recent Central Bank analysis, said the Bahamian dollar economy “should be taken out of international regulatory discussions” as a result, allowing for a lighter-touch regulatory approach to be applied to this sector and the individuals/businesses operating in it.
However, foreign currency accounts, transactions and clients would still be subject to “the full extent” of Know Your Customer Rules (KYC) and other existing regulatory measures given that it was more vulnerable to exploitation by financial criminals - and therefore of more interest to international regulators.
The Benchmark chief told Tribune Business his proposal was motivated by the difficulties, and suffocating bureaucracy, he and his family encountered in opening bank accounts and changing signatories.
Describing this as “the straw that broke the camel’s back”, Mr Brown also proposed to the prime minister that The Bahamas create a Ministry of Compliance and Regulatory Management Authority to “demonstrate its commitment” to a properly regulated financial services industry.
While acknowledging that this may create an additional layer of cost and bureaucracy, he argued that the price would be worth it. And, to control the regulatory burden, Mr Brown suggested that the Ministry would be “90 percent technology driven” and have a workforce of just five persons.
He also called for Bahamas-based financial institutions to outsource their compliance functions to independent, specialist firms that would be overseen by the proposed ministry. This, Mr Brown said, would enable the industry to focus on acquiring and serving customers, and develop new products and services, rather than becoming bogged down in regulatory paperwork.
And he added that the Ministry’s creation, together with such outsourcing, would enable The Bahamas to develop uniform KYC standards, certify the compliance of each individual institution with these, and show the country’s commitment to meeting international best practices.
Outlining his proposals in a February 4, 2019, letter to the Prime Minister, Mr Brown suggested how Dr Minnis could deliver on his recent national address promise to make the opening of Bahamian bank accounts easier.
He said the Government ought to start by segmenting the domestic and international sectors of the Bahamian economy, and drive home this difference to international groups and agencies such as the European Union (EU) and Organisation for Economic Co-Operation and Development (OECD).
The Benchmark chief argued that the Bahamian dollar sector, with exchange control restrictions and lack of currency convertibility acting as barriers to large-scale money laundering, was of little to no interest to such bodies and should merit less intrusive regulation.
“There is no question that we operate two economies, and that they should be looked at from two perspectives,” Mr Brown told Dr Minnis. “Unfortunately, in the past we allowed ourselves to be convinced that our economy for financial services is one and that it needs to be managed as such.
“By taking the bait hook, line and sinker we have opened Pandora’s Box and are now forced to implement policies and procedures that are overly intrusive to the domestically operating economy.”
Urging the Prime Minister’s Office to take the lead, he argued that it “can change the conversation by explaining more convincingly The Bahamas’ position that, when analysing the economy, there are twin elements of our financial sector. One operates in Bahamian dollar and the other foreign currencies”.
Mr Brown said the Bahamian dollar economy, featuring just citizens, residents, tourists and local businesses, should be of little interest to global anti-financial crime standard-setters and overseers given the currency’s limited use for money laundering and similar offences.
Urging that it be “taken out of international regulatory discussions”, he argued that doing so would reduce the KYC compliance burden on ordinary Bahamians and the institutions that serve them as this would allow the country to develop laws and regulations more suited to the local environment.
Mr Brown said the difficulties encountered by many Bahamians in dealing with an onerous, prescriptive regulatory regime were driven home personally when dealing with the bank accounts for a company owned by his late father.
He had been added as an account signatory prior to his father’s passing, with the estate probated and court-approved trustees also added on the account. Mr Brown recalled, though, that problems occurred when he tried to add his sister as a signatory to the account.
“I had to do everything as if you’re opening up a whole new account,” he said. “We did that: No problem. The most ridiculous thing was that they asked us to sign a document that we were not politically involved. We all signed that form individually. Do you know the bank then asked us to sign the same form collectively as one?”
Mr Brown said his father’s company also owned “a large percentage of a public company”, and the bank asked them to provide a copy of the latter’s share register to confirm that no other shareholder owned more than a 10 percent - something that is not required by Bahamian law.
He added that his second bad experience occurred in trying to open a fixed deposit account for his father’s company at a new bank. “I filled out all the forms, and here is the part that got me amazed,” he told Tribune Business.
“The trustees were approved by the court to act, we provided them with documents showing the beneficial owners of the estate, and the bank asked me for a copy of my father’s will. Absolutely not. Give me the money back. That’s the straw that broke the camel’s back. Jesus, if that’s what they do to me what’s the poor man going through in this country. It has to stop.”
Hence the motivation for his argument that The Bahamas needs to split its domestic economy from the international, foreign currency sector and make sure the international community knows and understands this.
“We have to take control of our economy again,” Mr Brown told Tribune Business. “We are losing control of our domestic economy to the international agencies who aren’t interested in it. But they don’t understand how we operate or they don’t care.
“We’re not doing anything to bring light to the table, and we need to do so. It’s a serious matter. It can make or break this financial services side of our economy.”
Mr Brown said The Bahamas should deliver the message to high-tax, developed jurisdictions that it will “watch your people when they come, but leave our people alone. You’re not interested in our people, we’re not interested in your people, but when they come we’ll tell you everything we have.
“All I’m saying to the Prime Minister is he has the power to change the conversation, and don’t wait too long,” he added. “I think the Prime Minister has struck the right note, and if he listens to himself and he acts, changes these things and gets it right, he will get significant support across the country. This is a cancer; a cancer for the Bahamian dollar.”
As for segmenting financial services from its compliance functions, the Benchmark president said it would show The Bahamas was committed to international best practices in regulation. The proposed ministry, which would oversee compliance with laws and regulations, will be “10 percent human resources and 90 percent technology driven” and have a staff of five.
Run by a board of governors, Mr Brown suggested to the Prime Minister that it create “a standardised template” for KYC and all account opening in The Bahamas - both domestic and foreign.
Outsourcing compliance functions to an outside firm, he added, would remove “reputational and legal risk” from Bahamas-based financial services providers that has proven “a significant bottleneck to doing business”.
“For the past 15 years The Bahamas has only played defence in the global financial services sector... without material benefit,” Mr Brown wrote. “The external pressure has caused us to become punch drunk, with the incoming missiles causing us to consider shelter from the fire storm rather than fighting back.
“It is now time for us to become offensive with the global regulatory pressure..... If we become offensive, the opportunity to recapture the international market exists and we will be able to relaunch the sector.
“Bahamian dollar accounts don’t need an over-bearing regulatory framework, and no international regulatory agency is interested in what any Bahamian has in his Bahamian dollar bank account. This could be our first offensive move.”