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Bahamas ‘Above Average Risk’ over financial crime

By NEIL HARTNELL From Tribune242

THE Deputy Prime Minister yesterday hit out at “historical bias” against the Caribbean as it was revealed that the Bahamas presents an ‘above average’ risk for financial crime abuse.

K P Turnquest, addressing the ComplianceAid Caribbean Anti-Money Laundering Conference, said historical “negative perceptions” of the region were exacerbating the loss of correspondent banking relationships and posing a real threat “to our economic survival” in the Bahamas and elsewhere.

His comments came as a newly-released Inter-American Development Bank (IDB) report on the issue disclosed that the Bahamas’ perceived anti-money laundering/terror financing risk was slightly above the Caribbean regional average as measured by the Basel Institute on Governance’s Index.

This Index, which uses 14 indicators spread across five categories to assess a country’s vulnerability to money launderers and terror financiers, gave the Bahamas a rating of 6.25. A score of one represents a ‘low’ risk, and 10 ‘high risk;’, meaning the Bahamas was rated as posing “a moderated to slightly elevated level of money laundering/terrorism financing risk”. The regional average, according to the IDB paper, entitled ‘Correspondent Banking Relationship withdrawals: Understanding the Uneven Occurrence across the Caribbean’, was said to be 6.01. The Bahamas was thus ranked in the region’s ‘upper’ risk echelon, or the seventh most vulnerable country.

The Basel Index found Haiti to pose the greatest risk, with a score of 7.35, with Jamaica, Trinidad & Tobago, the Cayman Islands, Belize and Suriname also rated ‘riskier’ than the Bahamas. However, rival international financial centres (IFCs), Bermuda and the British Virgin Islands (BVI), fared better than this nation.

The IDB report, one of whose authors is Bahamas-based IDB economist, Allan Wright, warned that rankings such as the Basel Index were “likely to be a fixture” for many international financial institutions when it came to deciding whether to maintain correspondent relationships with the Bahamas.

It added that the status of the Bahamas and other Caribbean countries as IFCs could also “raise concerns about the legal and regulatory risk associated with doing business” with such nations, along with the cash-based nature of many societies in the region.

The IDB report, though, showed that the Bahamas has been much less affected by the withdrawal of correspondent banking relationships than the likes of Belize and Jamaica, which was confirmed by the Deputy Prime Minister when he said just 26 per cent of this nation’s institutions had lost such a link in the three years prior to 2016.

“Fortunately for the Bahamas, the withdrawal of correspondent banking relationships has not reached a critical level to threaten the overall stability of the banking sector,” Mr Turnquest said in Miami yesterday. “However, de-risking has gained traction with foreign banks across the region and, left unabated, threatens the very livelihoods of Caribbean people.”

Correspondent banking is critical to the very survival of the Bahamas’ economic model, as it enables local companies and residents to conduct commerce and settle transactions with clients and suppliers in overseas countries. Without such relationships with overseas institutions, the Bahamas’ ‘wheels of commerce’ would grind to a halt.

Correspondent relationships allow Bahamian financial institutions to use the physical and electronic infrastructure of foreign banks to conduct business in their countries, enabling transactions to clear and be settled on a timely basis, and foreign currency deposits to be taken.

Yet banks in major industrialised countries have frequently severed correspondent relationships in recent years, with the Caribbean region among most heavily impacted.

The move is being driven by the ‘risk/reward’ analysis, with developed country banks perceiving correspondent relationships with their Caribbean counterparts as too ‘high risk’ when compared to the financial rewards.

They are especially concerned that Caribbean banks are susceptible to financial abuses, such as money laundering and terror financing, which could lead to financial sanctions being imposed on themselves by home country regulators.

Mr Turnquest, though, argued that these views were driven by an “historical bias” against the Bahamas and other Caribbean nations, which were often reluctant to address this publicly.

“This view is so corrosive that some international banks are accused of ending correspondent banking relationships without evidence of wrongdoing on the part of the regional bank, and without giving clear reasons for their actions. This is an untenable situation given the threat posed by the de-risking trend to our economic survival,” the Deputy Prime Minister argued.

“The negative perception of the region exists despite the significant amount of investment – investment of time, effort and funds – made by regional governments to ensure we are compliant with international standards and best practices.

“We are committed to international compliance not just because it’s in our economic interest, but also because we share a common set of values with our bilateral and multilateral partners. We continue to do so every day, even as the tide of regulation shifts with the identification of new and emerging threats.”

Mr Turnquest argued that Caribbean countries were often “not treated as co-operative partners” by the international community, “as if our business models are inherently corrupt or harmful in some way”, citing the Bahamas’ recent ‘blacklisting’ by the European Union (EU) as merely the latest example.

“As a country, and as a Caribbean region, we have to reckon with a historical bias that is denying us treatment as sovereign equals with common goals,” he added, emphasising that the Bahamas is “not a ‘tax haven'”.

“There is scepticism about our financial practices and an intense focus on the Caribbean by authorities in advanced economies that is convenient because of our size and relative vulnerability,” Mr Turnquest said.

“But it is also rooted in a failure of the international community to let go of the past and to treat countries like the Bahamas as progressive, cooperative, sovereign partners who share the same goals. We must reckon with this historical bias, as it has the power to undermine our collective efforts. Simply put, it is time for advanced economies to take the mark off the back of the Caribbean.”

Mr Turnquest said one consequence of efforts to comply with international regulations was that it is easier to open a bank account in Miami, where it takes 15 minutes, as opposed to two hours in the Bahamas.

“The current KYC (Know Your Customer) regime makes the process for opening a Bahamian bank account unnecessarily complicated,” he added. “It is nearly impossible to open a domestic bank account without at least two forms of national identification (ID); one of which must be a Bahamian passport.

“It is easier for a Bahamian to fly to Miami and open a US bank account, which can be done in 15 minutes, as opposed to the two hours it takes back home for a domestic account.” As a result, Mr Turnquest said the Central Bank was developing streamlined customer due diligence procedures by moving towards a more risk-based approach.

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IMAGE: The Savvy Scot


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