By NEIL HARTNELL
Tribune Business Editor
The US government has accused "certain" Bahamian regulators of failing to accept the financial crime risks posed by online gaming and money transmission businesses.
The Trump administration, in its just-released International Narcotics Control Strategy Report (INCSR), did not name the regulators it was referring to but signalled dissatisfaction with the number of money laundering prosecutions and convictions that occurred in this nation during 2019.
Noting that these had "dropped by at least 67 percent" despite the Financial Action Task Force's (FATF) demand for improvements in this area before it will remove The Bahamas from its surveillance list, the US report - which is submitted to Congress annually - also signalled that the number of suspicious transactions reports (STRs) filed is too low for a financial sector with $400bn in client assets.
And it also zeroed in on what it described as "global money laundering challenges" posed by The Bahamas' casino and "online gaming" sectors. Including web shops in the latter definition, the INCSR report said Central Bank statistics showed the casino and "online gaming" sectors generated $1.3bn and $3.2bn in gross gaming revenues for the first eight and nine months of 2019, respectively.
Such figures have never been divulged before, and it is unclear whether they are correct or have been inflated because the Central Bank is not the primarily gaming regulator. However, the report said 93 percent of all "online gaming" transactions in 2018 involved cash, while just 10 percent of all STRs came from the two gaming sectors despite their combined top line being equivalent to 27 percent of Bahamian GDP.
"Although The Bahamas has taken significant steps toward strengthening its anti-money laundering regime, potential vulnerabilities in the online gaming and money transfer business sectors are further exacerbated by certain regulators' reluctance to acknowledge them," the US INCSR report blasted.
"The Bahamas faces global money laundering challenges related to casino gambling and the online gaming sector, including 'web shops', which are restricted to citizens and residents of The Bahamas. As reported by the Central Bank, The Bahamas generated $1.3bn in casino gaming gross revenues (January to August 2019) and $3.2bn in online gaming sector sales (January to September 2019) in a country with an overall GDP of $12 billion.
"In 2018, cash transactions in the online gaming sector accounted for 93 percent of all transactions. Of the STRs filed in 2019, only 10 percent originated from casinos and none originated from the online gaming industry, whose total sales in circulation amounted to a figure equivalent to 27 percent of GDP."
The timing of the US government's report, and assertions, could not be worse for The Bahamas with the Government, financial services regulators and the wider industry all gearing up for an FATF "site visit" to this nation before mid-May 2020 that is crucial to determining whether the country comes off its monitoring list of states with deficiencies in their anti-financial crime defences.
The FATF is the global standard setter in the fight against anti-money laundering and terror financing, and has worked with The Bahamas on an "action plan" to address its weaknesses - a number of which have been flagged up again by the US report.
The INCSR document recognised the legislative reforms that The Bahamas has implemented in response to the FATF concerns, especially the Attorney General's Office's new electronic case management system and improved analytical tools for processing STRs.
"This has allowed the international co-operation unit of the Attorney General's Office to collate statistics more efficiently and respond more effectively to international partners," it acknowledged.
Yet, pointing to areas of concern also identified by the FATF, the US government report said: "International experts have stated The Bahamas should continue to work on demonstrating that authorities are investigating and prosecuting all types of money laundering, including cases involving virtual currencies, stand-alone money laundering, and cases involving proceeds of foreign offenses such as tax crimes.
"In 2019, the number of money laundering prosecutions and convictions dropped by at least 67 percent despite significant legal and regulatory progress to-date. Political will to pass legislation related to strengthening the anti-money laundering and counter terror financing regime is strong, and The Bahamas has implemented a strategic action plan to correct noted deficiencies.
"However, effective implementation may pose challenges. The number of filed STRs continues to be low when compared to the size and scope of the financial sector. As of October 30, 2019, the FIU received 454 STRs for a sector encompassing $400bn in assets, up from 332 in 2018 and slightly higher than 446 in 2017," the report continued.
"The Bahamas earns approximately 20 percent of GDP through financial services. The international bank and trust sector, the largest segment of the industry, has close to $400bn in assets under administration. International and domestic banks and trust companies face high exposure to money laundering risks as they conduct a high volume of transactions, handle significant wealth, utilise wire transfers, and provide banking services through channels that vary in anonymity and complexity."
Real estate was identified as an area of money laundering "vulnerability", along with gaming and financial services.