By NEIL HARTNELL
Tribune Business Editor
The Central Bank’s departing chief enforcer says it is “essential” that The Bahamas continue to beat anti-financial crime regulatory standards but do so without imposing “procedural overkill” on low-risk clients.
Charles Littrell, the outgoing banks and trust companies inspector, in a June 27, 2022, letter that detailed the “progress” made during his five-year term, said the financial services industry had successfully caught up on “identified shortcomings” in its anti-money laundering and financial crime defences.
“We have yet to become fully satisfied with our supervisory strategy for anti-money laundering and financial crime suppression. Our efforts in recent years have led to literally hundreds of improvements, but the fact that we found so many areas requiring improvement suggests that we and industry have more work to accomplish here,” he asserted.
“In any event, the Central Bank’s anti-money laundering supervision has been recognised by leading external parties, including the FATF (Financial Action Task Force) and the IMF (International Monetary Fund), as meeting the relevant international standards.
“The Central Bank considers it essential that we not only meet but we demonstrably exceed these standards, but on a basis of sensible risk management. We have communicated repeatedly with industry that documentary and procedural overkill on low risk clients is a waste of time and money that would be better directed to larger and higher risk clients.”
Calls for such a risk-based approach will be welcomed by Bahamian businesses and consumers who have frequently found themselves ensnared in red tape when it comes procedures such as opening a bank account. Mr Littrell, meanwhile, said the costs associated with the worldwide approach to fighting money laundering may exceed any benefits that are gained.
“It is now clear that in economic terms, the global anti-money laundering effort is not effective to demonstrably reduce predicate crime, or recover an appreciable share of dirty money and assets,” he said. “It is also clear that the costs of the international anti-money laundering effort are massive, and may well exceed the current benefits.
“The untested assumption in the international anti-money laundering debate has been that most of the world’s anti-money laundering problems lie in small, less affluent countries. In fact, the vast majority of the world’s dirty money, and the institutions servicing this dirty money, are associated with larger wealthy countries.”
Mr Littrell said an annual anti-financial crime conference, which the Central Bank’s sponsors, had created “impetus to re-think” this approach. “The Central Bank from 2018 identified a particular problem in the international anti-money laundering community: Too many influential opinions were based upon unfounded and often wrong analysis, and too little upon empirical or fact-based analysis,” he added.
“The Central Bank has also striven to become known for robust but simple approaches to bank regulation. Among other things, and after a long Dorian and COVID-based deferral, we intend to roll out the world’s simplest fully Basel III compliant bank capital regime.
“In 2021, the Central Bank and the Bank for International Settlements (BIS), which hosts the Basel Committee, co-produced an international conference on engagement between small states and the world’s rule-making bodies. We hope to continue as a prominent and positive representative of the interests of small states in international forums.”
Looking ahead, Mr Littrell added: “It is important to remember, particularly for domestic institutions, that at some point we will face a catastrophic hurricane impacting directly upon New Providence. We have yet to demonstrate operational and financial resilience in the face of that challenge. More work lies in front of us.
“I also note for domestic institutions that the sooner the Sand Dollar digital currency is widely adopted, the sooner The Bahamas will be better insulated from catastrophes including hurricanes and pandemics.... The industry’s ability to absorb the shocks associated with Hurricane Dorian and a historic challenge in COVID demonstrates that Bahamian banks and associated institutions are generally in sound shape to face any reasonably foreseeable challenge.
“It is worth noting that the Government’s fiscal response to both the above shocks materially eased the potential for short-term losses. We urge the industry not to rely upon any assumption that public spending will always be available to make up for catastrophe and economic losses.”