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Bahamas’ Case For Lesser Kyc Regime Still ‘Not Sufficient’

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Alfred Sears

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas cannot rely on the Central Bank’s “low risk” finding alone to persuade international regulators it should lower an onerous compliance burden, an ex-attorney general is arguing.

Alfred Sears QC, who held the post from 2002-2007, told Tribune Business that the regulator’s research showing that the domestic economy poses “negligible” financial crime risks confirmed that The Bahamas had “over-reacted” to every single global initiative to target it since 2000.

The former Caribbean Financial Action Task Force (CFATF) chairman, though, said that while the Central Bank’s study made a compelling case for the relaxation of Know Your Customer (KYC) and due diligence rules that have “impaired the competitiveness of The Bahamas” it was unlikely to be accepted as such by the bodies scrutinising this nation.

With the likes of the European Union (EU) and Organisation for Economic Co-Operation and Development (OECD) following a “protectionist” agenda designed to undermine the competitiveness of low-taxation states such as The Bahamas, Mr Sears reiterated his previous calls for all global anti-financial crime initiatives to be overseen by the United Nations (UN).

He argued that this was the only way for The Bahamas to be treated as an equal, and establish an even playing field for the application of anti-money laundering/counter terror financing standards, with the Central Bank’s study “not sufficient” by itself to produce a change in EU/OECD attitudes.

“I think what it does is that it establishes that The Bahamas has really over-reacted in each of the initiatives from 2000 to the present,” Mr Sears told this newspaper of the implications of the Central Bank’s findings.

“It has not really done a proper evaluation and review in terms of the comparative; doing a global comparison to ensure that as we fight money laundering - which we should - that its competitive position is not compromised by a fearful overreaction and approach that this issue is complex.

“There is, tied up with the global anti-money laundering campaign, protectionism for onshore centres,” he continued. “We have seen the double standards in applying the rules, certainly the case of bearer shares as the most obvious example, and the most egregious cases of money laundering from the evidence we have occurs in places such as New York, London and Paris.

“These are the onshore financial centres where the KYC and customer regime is less robust than it is in The Bahamas.”

The Central Bank’s findings that “there is little if any evidence” of large-scale money laundering in the domestic commercial banking industry, and that most Bahamian industries pose a “low risk” of facilitating financial crime, has reinforced many Bahamians’ suspicions that the current KYC regime is too onerous for the concerns it faces.

Bahamians and residents have complained since 2000 that it is now easier to open a bank account in Miami and New York than Nassau, with two businessmen privately telling Tribune Business in the past week that it has taken six months (and counting in one case) to establish such facilities to facilitate their new ventures.

The increased cost and “red tape” associated with customer due diligence has also undermined the “ease of doing business” and The Bahamas’ competitiveness as an international financial centre (IFC), but Mr Sears said a reduced, simpler KYC regime for Bahamians and the domestic economy will not be readily accepted by the likes of the OECD and EU.

“It should be if it were a rational process,” he told Tribune Business. “I suspect that in sharing the empirical data, the reduced risk, we will also have to demonstrate and challenge the existing global regime and call for a global forum to put this while regulation of the global financial system under an international convention.

“The thing is this: I believe that simply sharing the empirical data from the Central Bank is not sufficient. I think it’s convenient for the onshore financial centres to portray offshore, especially low-tax jurisdictions such as The Bahamas, as risky jurisdictions because it’s difficult to compete with low tax jurisdictions..

“This is where protectionism comes in and the unequal application of the standards and rules. We ought to have, as a sovereign nation, an equal opportunity with nations of the EU, OECD, Financial Action Task Force (FATF) and Financial Stability Board to sit and determine what those rules are,” Mr Sears continued.

“All of these ad-hoc bodies, which are really under the jurisdiction of the EU or OECD, of which The Bahamas is not a member, it’s difficult to distinguish them from the regulatory and protectionist agenda for onshore centres.

“I think The Bahamas has to appreciate there’s an element of real politik and, as a small country, through the mechanism of CARICOM, alliances with other IFCs and sympathetic countries such as Canada, we need to call for the kind of global structure based on the principal of universality and sovereign participation, and which is not limited to members of the EU and OECD.”

While acknowledging that proceeds of crime inevitably found their way into the domestic banking system, the Central Bank argued that this was largely confined to “Bahamian petty criminals self-laundering illicit proceeds from their crimes” and was too small to represent a major systemic risk or threat.

“The fact the Central Bank has confirmed there is a negligible risk in the domestic banking sector is evidence of the over-regulation in this jurisdiction,” Mr Sears said, “which has really impaired the competitiveness of The Bahamas even relative to the overseas territories, which have a certain measure of protection and advocacy by the UK.

“We somehow seem to have lost the sophistication that while we fight to maintain the integrity of the risk-based system of KYC and compliance we also have to appreciate this global competition for financial services.

“We can’t be naive in global competition and, especially being a small jurisdiction as Singapore has demonstrated, there has to be a greater degree of sophistication.”

The Central Bank last week concluded: “In the Bahamian domestic banking context, the major AML/CFT risks are likely to reside in real estate, gaming and money transmission, and the risks in the first two of these segments are shared between domestic and international clients. As regards money transmission, the Central Bank is taking steps to lift the intensity of its supervision in this industry.

“With the above exceptions, the Central Bank’s view is that domestic money laundering risks in the banking sector are quantitatively small, and in character (excepting small-ticket self-laundering) are qualitatively low risk.

“This leads to the conclusion that the Central Bank, in conjunction with other Bahamian authorities, should focus its AML/CFT efforts on the relatively few areas of the domestic banking system that may present material risk, while concentrating most of our efforts upon the much larger international financial sector.”

Comments

Well_mudda_take_sic 3 months, 2 weeks ago

As attorney and de facto business partner for one of the most corrupt numbers bosses, Sears is the last person who should be entitled to speak on this subject. The purported 'legalization' of the corrupt activities of the criminal enterprises operated by the racketeering numbers bosses has all but destroyed our banking industry which at one time was the thriving and envied second pillar of our economy. Global financial regulators are well aware of the grave risks posed by the numbers bosses to the banking system throughout the Caribbean as a result of the cross-border activities of these criminals.

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