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Bahamas shrugs off FTX for perfect ‘40 out of 40’

The Bahamas yesterday shrugged off FTX’s implosion through what the attorney general hailed as the “enormous accomplishment” of a perfect score in the fight against financial crime. 

Ryan Pinder KC told Tribune Business this nation had achieved a “rare” feat by becoming only the sixth nation ever to achieve full compliance with the Financial Action Task Force’s (FATF) 40 recommendations for combating money laundering and terrorism financing.

The Bahamas’ upgrading to “compliant” on the final two outstanding recommendations, which was confirmed yesterday by the FATF’s Caribbean affiliate, is especially timely given the negative publicity surrounding FTX’s collapse as one of the areas re-rated involves the regulation of digital assets.

Mr Pinder said the Caribbean Financial Action Task Force’s (CFATF) assessment had vindicated the strength of The Bahamas’ financial services regulatory regime, particularly when it came to digital assets and crypto currency, as well as backing the country’s repeated assertions that supervisory failings did not play a role in FTX’s collapse.

“This is an enormous accomplishment for the country,” the attorney general said, having targeted a perfect ‘40 out of 40’ compliance with the FATF’s standards earlier this year. To get there, Mr Pinder acknowledged that the effort had spanned several administrations, with the most recent push stemming from the findings presented five years ago in the CFATF’s last “mutual evaluation” of The Bahamas.

Those findings, based on an assessment that was carried out two years prior to that in 2015, identified multiple deficiencies and weaknesses in the country’s anti-financial crime regime. The results were severe enough to land The Bahamas on the “enhanced monitoring programme” of the parent FATF, but reforms enacted by the Minnis administration ultimately secured the country’s escape.

Mr Pinder and the Davis administration, picking up where their predecessors left off, pushed for full compliance with FATF standards upon being elected to office in September 2021. “The Bahamas is the second jurisdiction in the Caribbean region, and sixth in the FATF global network, to achieve the status of ‘40 for 40’ compliant and largely compliant ratings in the technical compliance with the FATF’s 40 recommendations,” the attorney general added.

“Achieving this rare rating demonstrates that we are a country that can lead in the satisfaction of international best practices while being innovative in our financial services industry. To be recognised as one of the very few in the world to accomplish ‘40 for 40’ for the FATF recommendations is laudable, and will be a platform that our financial services industry can stand on and demonstrate our excellence.

“It should provide a significant boost to the industry and the reputation of the jurisdiction. Clients worldwide can have confidence that we are a jurisdiction that is compliant at the highest levels.” The CFATF’s upgrades, which were discussed during the body’s late November-early December meeting, come as FTX’s embattled founder, Sam Bankman-Fried, was on Wednesday extradited to the US to face multiple financial crime charges, including fraud and money laundering.

The crypto currency exchange’s early November 2022 collapse, which may have resulted in losses of up to $8bn for clients and investors, shone an increasingly unfavourable spotlight on this jurisdiction’s regulatory structure and ability to supervise the digital assets industry.

The Bahamas was made a scapegoat for FTX’s failure, with John Ray, head of the 134 group entities in Chapter 11 bankruptcy protection, going to the extent of alleging collusion between the Government, Securities Commission, local joint provisional liquidators and Mr Bankman-Fried over the removal of assets from the crypto exchange.

Such accusations have been vehemently denied, and the Securities Commission subsequently disclosed the Supreme Court order authorising it to remove and secure some $300m in digital assets to protect them from being stolen via a hack. Mr Pinder yesterday argued that the upgrading of The Bahamas’ digital assets regime from ‘partially compliant’ to ‘compliant’ vindicates both its strength and representations that regulation played no part in FTX’s failure.

“Achieving a ‘compliant’ rating on recommendation 15, [which] addresses anti-money laundering protections for the virtual assets service providers, demonstrates what the country and the regulator (Securities Commission) have been saying all along in the digital asset space,” the attorney general told Tribune Business. 

“We believe in our regulation, and we as a jurisdiction are capable of keeping pace in regulation in an industry globally that evolves practically by the day. The Bahamas is one of the few, if not the only, country in the world to achieve a ‘compliant’ rating on this recommendation. 

“This achievement speaks to the Commission’s, as well as The Bahamas’ commitment, to maintaining the highest standards of international best practices as promoted by standard-setting bodies.” The Securities Commission was the first to react to FTX’s collapse, placing it in Supreme Court-supervised provisional liquidation using the authority granted by the Digital Assets and Registered Exchanges (DARE) Act prior to Chapter 11 bankruptcy protection in the US.

The CFATF’s December 22, 2022, assessment, released yesterday, confirmed that The Bahamas has been deemed ‘compliant’ with anti-financial crime regulation of both digital assets and non-profit groups. “Overall, The Bahamas has made significant progress in addressing the technical compliance deficiencies identified..... and no deficiencies remain. The Bahamas has been re-rated compliant on recommendation eight and recommendation 15,” the CFATF said.

“The Bahamas has 40 recommendations rated ‘compliant’ or ‘largely compliant’. While the CFATF move is positive for The Bahamas, particularly in its timing, there will be observers both in this nation and abroad who are likely to be sceptical at the digital assets upgrade and feel regulatory/supervisory failings failed to prevent FTX’s collapse.

For the report made clear the re-rating was based on “technical” compliance with the benchmarks set by the FATF, the global standard-setter in the fight against money laundering and counter-terror financing, rather than “effectiveness” of implementation.

The Bahamas was previously rated as ‘partially compliant’ on digital assets regulation because it lacked mechanisms and procedures to identify the financial crime risks presented by the sector, and there was no risk-based approach for assessing these factors. Guidelines to help digital asset services providers detect and report suspicious transactions were also lacking.

“There was a gap regarding originator information and beneficiary information on virtual asset transfers being available on request to appropriate authorities. Deficiencies regarding international co-operation were not demonstrated as addressed,” the CFATF report added.

Analysing The Bahamas’ progress to-date, the report added: “Section 41 of the DARE Act provides the provisions for co-operating and providing assistance to overseas regulatory authorities and, to-date, The Bahamas has provided assistance in regard to one of its registered digital assets services providers.” It is unclear if this was FTX, although that is highly likely.

The Bahamas was also found to have completed its risk assessment of the digital assets sector, which was published on May 25, 2022, with the digital assets industry now also covered by the Financial Transactions Reporting Act and Proceeds of Crime Act regimes. The industry was assigned “a low-risk rating”, which may raise eyebrows in FTX’s wake.

“The addition of the new section 39 (3) of the DARE Act places a responsibility on the Securities Commission to implement systems to identify persons not registered under..... the Act,” the CFATF report added. “As such, the Securities Commission has developed and implemented an internal policy framework for identifying persons carrying on, or attempting to carry on, activities under the DARE without the requisite registration...

The prohibition of natural or legal persons carrying out digital asset service provider activities without the requisite licence/registration is captured legislatively in various parts of the DARE Act. The amendment to the DARE Act... provides the proportionate and dissuasive sanctions to be applied – up to $100,000 for each contravention. There is also a general penalty provision under section 44 of the DARE Act of $500,000 or imprisonment of up to five years or both.”

The CFATF said it was also satisfied that the Securities Commission has “the authority to conduct inspections, compel production of information and impose a range of disciplinary and financial sanctions”. It added: “The Bahamas applies proportionate and dissuasive administrative and criminal sanctions for persons carrying on digital asset activities without the requisite licence.”

Comments

IslandWarrior 1 month ago

At what cost to Bahamians:

FATF 40 Recommendations Recommendation 1: Assessing risks and applying a risk-based approach * Hits: 39133 Recommendation 2: National cooperation and coordination Hits: 11777 Recommendation 3: Money laundering offence Hits: 19537 Recommendation 4: Confiscation and provisional measures Hits: 9280 Recommendation 5: Terrorist financing offence Hits: 12498 Recommendation 6: Targeted financial sanctions related to terrorism and terrorist financing Hits: 16762 Recommendation 7: Targeted financial sanctions related to proliferation Hits: 18375 Recommendation 8: Non-profit organisations Hits: 18420 Recommendation 9: Financial institution secrecy laws Hits: 8972 Recommendation 10: Customer due diligence Hits: 91208 Recommendation 11: Record-keeping Hits: 15775 Recommendation 12: Politically exposed persons Hits: 19934 Recommendation 13: Correspondent banking Hits: 21695 Recommendation 14: Money or value transfer services Hits: 11753 Recommendation 15: New technologies Hits: 17922 Recommendation 16: Wire transfers Hits: 77804 Recommendation 17: Reliance on third parties Hits: 24085 Recommendation 18: Internal controls and foreign branches and subsidiaries Hits: 16816 Recommendation 19: Higher-risk countries Hits: 18279 Recommendation 20: Reporting of suspicious transactions Hits: 24702 Recommendation 21: Tipping-off and confidentiality Hits: 13776 Recommendation 22: DNFBPs: customer due diligence Hits: 16826 Recommendation 23: DNFBPs: Other measures Hits: 10926 Recommendation 24: Transparency and beneficial ownership of legal persons Hits: 28369 Recommendation 25: Transparency and beneficial ownership of legal arrangements Hits: 15775 Recommendation 26: Regulation and supervision of financial institutions Hits: 14405 Recommendation 27: Powers of supervisors Hits: 7166 Recommendation 28: Regulation and supervision of DNFBPs Hits: 11874 Recommendation 29: Financial intelligence units Hits: 19701 Recommendation 30: Responsibilities of law enforcement and investigative authorities Hits: 11119 Recommendation 31: Powers of law enforcement and investigative authorities Hits: 8879 Recommendation 32: Cash couriers Hits: 13871 Recommendation 33: Statistics Hits: 9108 Recommendation 34: Guidance and feedback Hits: 7862 Recommendation 35: Sanctions Hits: 9906 Recommendation 36: International instruments Hits: 6620 Recommendation 37: Mutual legal assistance Hits: 8099 Recommendation 38: Mutual legal assistance: freezing and confiscation Hits: 7742 Recommendation 39: Extradition Hits: 7362 Recommendation 40: Other forms of international cooperation

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ColumbusPillow 1 month ago

Why did FTX choose the Bahamas as the perfect place to execute a gigantic swindle?????

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Maximilianotto 1 month ago

Because of „investor friendly“ government and several cronies dreaming of easy money - similar to Izmirlian’s list? 2023 will pop up nobody stopping the US prosecutors and SBF and partners will throw all Bahamian cronies under the bus in exchange for a good deal.

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