Regulator warned 127 on financial crime compliance

• Nation’s $306m residential property sales in all-clear

• Bahamas ‘unlikely to be real estate laundering centre’

• But three law firms fined over risk assessment failure


Tribune Business Editor


Bahamian regulators issued warnings to 127 law and real estate firms over non-compliance with anti-financial crime mandates while giving this nation’s $306m-plus residential real estate sales a clean bill of health.

The Compliance Commission, which supervises non-financial services institutions over their compliance with anti-money laundering and counter terror financing laws, revealed in a recently-published report that it was forced to write to multiple companies in both industries for failing to supply a risk assessment and/or register with it.

Disclosing that three unnamed law firms were fined during 2019-2020 for failing to answer questions about the potential financial crime risks they and their clients pose, the Compliance Commission said it had “detected a significant change” where companies falling within its regulatory purview were recognising their legal obligations to register rather than doing so under the threat of “enforcement” measures being applied.

The revelations came in a Compliance Commission report that concluded The Bahamas was “unlikely” to be “a real estate-based money laundering centre” because there were sufficient checks and balances at multiple stages of the property purchasing process to properly identify clients and the source of funds used to finance their acquisitions.

The document, obtained by Tribune Business, drew on numerous sources including the Bahamas Real Estate Association (BREA), Central Bank, Immigration Department and Bahamas Investment Authority (BIA) in affirming that 2021 was likely the strongest year ever for real estate sales with more than $306m worth of residential properties said to have been sold.

Total Bahamian real estate sales for that year were later pegged at $500m, or half a billion dollars, by the report - a figure shown to be some $200m higher than the $300m worth of activity estimated in 2017. The total value of available real estate inventory, or stock, was put at more than $3bn.

The Compliance Commission, acknowledging that real estate purchases are known to be “attractive for potential misuse by money launderers and terrorist financiers” throughout the world, added: “Real estate is often chosen globally as a vehicle for criminals to launder ill-gotten gains because property offers a path to legitimacy and will appreciate over time. This allows criminals to enjoy their property and eventually the proceeds of sale.”

The Bahamas, with its private islands and high-end homes in gated communities and condominiums that remain attractive to foreign buyers, was potentially exposed to such abuse. “The large sums associated with this market, along with the enhanced lifestyle make Bahamian luxury property a potentially attractive option for laundering the proceeds of crime,” the Compliance Commission added.

“For this reason, the high-end real estate market continues to present a substantial potential money laundering/ terror financing/ proliferation risk to the economy.” The report defined “high-end” real estate as involving property worth $2m and upwards and lots worth $1m and more.

Drawing on data from BREA, individual realtors and the Bahamas Multiple Listing Service, the latter of which captures around 50 percent of property sales, the Compliance Commission report looked at data from 2015-2021. “In the luxury market, total residential sales were highest in 2021 ($215m), while total lot sales were highest in 2020 at $18.7m,” it said.

“One lot was sold for $12m in 2020, representing an anomaly compared to other years. Average residential total sales for this period were approximately $81m while average total lot sales were $8.3m. In the non-luxury market, total residential sales increased significantly from 2015 ($38.8m) to 2016 ($70.5m), with slight variances from 2016 through 2019. 2021, like the luxury market, saw a sharp increase in residential sales, as total sales were $91.2m.

“It should be noted that this increase can be attributed to the closing of transactions that were started in 2020. Total sales for lots increased marginally from 2015 through 2019, decreasing in 2020 and 2021. Average residential total sales for this period were approximately $65m while average total lot sales were $6.4m.”

However, based on estimates said to have been provided by Bahamian realtors, the Compliance Commission document report concluded that high-end sales “flowing through real estate brokers typically amount to a few hundred per year, much less than is the case in larger countries”. Luxury sales volumes, too, were relatively low.

“One private island was sold every year between 2017 and 2020. Four were sold in 2021. From 2017 to 2021, total private island sales were between $650,000 and $35,” it added. “While there were fewer luxury residential properties and lots sold yearly from 2015-2021 than non-luxury residential properties and lots, luxury market average total residential and lot sales is significant. Average total sales through brokers amounted to approximately $90m.”

Given the sums involved, previous research by the Central Bank showed that “deposits received from real estate brokers and agents, attorneys and legal firms, and land and real estate developers” posed the greatest potential anti-financial crime. Attorneys and law firms were shown to attract by far the greatest deposit inflows at around $2.5bn, with much of this destined for the financing of real estate deals.

However, the Compliance Commission concluded that the involvement of multiple professionals in real estate deals - attorneys, realtors, developers and bankers, plus numerous government agencies such as the BIA and Immigration Department - each doing their respective Know Your Customer (KYC) due diligence and other scrutinies represented sufficient safeguards against financial crime.

“Under the guidance and supervision of financial services regulators, strict controls have been imposed at all levels of the real estate transaction process,” the regulator said. “There has been no evidence for many years that foreign real estate purchases are a major money laundering conduit.

“There are extensive controls present throughout the real estate transaction process in The Bahamas..... Based on this study and other information to hand, the Compliance Commission is satisfied that, although luxury real estate requires constant monitoring as a potential money laundering risk, The Bahamas currently has satisfactory controls in place to mitigate money laundering and other financial crime risks flowing through luxury real estate, and particularly cross border real estate.”

Industries such as the legal profession and real estate come under The Bahamas’ anti-money laundering regime because they typically hold monies in escrow on behalf of clients. They have to comply with the KYC and record-keeping requirements of the Financial Transactions Reporting Act (FTRA) and Proceeds of Crime Act, and the Compliance Commission’s findings between 2018 and 2021 indicated there is room for improvement.

The report said there had been “a significant increase” in the number of real estate brokers and developers registered with the Compliance Commission, whose numbers had risen from just 11 in 2018 to 120 as at September 2021. “As for law firms, the number of registrants with the Compliance Commission increased from 88 in July 2018 to 167 as of September 2021,” it added, attributing the increase to enforcement and detection by the regulator.

Some 63 Bahamian law firms, and seven realtors, were issued “warning letters.... for failing to register despite providing services that required registration with the Compliance Commission. All firms that received warning letters are registered and compliant”.

Along with bringing these 70 into line, the report also revealed that another 84 law firms and 43 realtors were also contacted between 2018 and 2021 over their failure to provide a risk assessment to the Compliance Commission. “For the period 2018-2021, the Compliance Commission detected and sent letters to 84 law firms and 43 real estate brokers and land developers for failing to produce information,” it added.

Just three law firms failed to heed the warning. The Compliance Commission report said they were all fined at various dates between November 2019 and July 2020, although their identities were not revealed. The penalties, too, were little more than a ‘slap on the wrist’ with the maximum fine a mere $5,000.


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