The Government has detailed a 17-step ‘action plan’ to strengthen the Bahamas’ anti-money laundering regime, with a top regulator describing this nation as “on probation” over increasing weaknesses.

The Bahamas’ National Risk Assessment (NRA) of its money laundering and terrorism financing defences, released yesterday, reveals that sectors such as web shop gaming, pawnbrokers, dealers in metals and precious stones, and payday lenders face a ‘high’ risk of being abused by criminals.

The NRA rated the “overall vulnerability” of designated non-financial businesses and professions (DNFBPs), which include those four sectors, as 0.75 out of 1 - meaning they are “exposed to a high level” of money laundering and terrorism financing risks.

The Assessment’s release, which was approved by the Minnis Cabinet on December 5, comes after the Central Bank’s inspector of banks and trust companies described the Bahamas as being “on probation” following the latest Caribbean Financial Action Task Force (CFATF) that was published in July 2017.

Charles Littrell, in a little-noticed presentation to the Nassau Conference, revealed that the strength of the Bahamas’ anti-money laundering and counter-terror financing defences had actually deteriorated over the decade to 2017.

He disclosed that the Bahamas was in 2007 deemed ‘compliant’ with 12 of the 40 anti-money laundering recommendations set out by the CFATF’s parent, and ‘largely compliant’ with a further six. Yet in 2017 this nation was rated as ‘compliant’ on only eight out of the 40, and ‘largely compliant’ with 10 - a reversal of its ratings in the top two categories 10 years’ earlier. The Bahamas’ scores in the ‘partially compliant’ and ‘non-compliant’ categories remained broadly the same.

While the Bahamas’ performance was ahead of Jamaica’s, it stood behind the likes of the US, Canada and Singapore. Mr Littrell, in a slide entitled ‘Why no FATF progress’, suggested the Bahamas’ assessment ratings had either declined or stood still because of shifting global standards and its own inaction.

He added that the result was that “the Bahamas is in essence on probation” when it comes to its anti-money laundering and counter-terror financing regime, with another CFATF evaluation set for next year.

And the deficiencies in the Bahamas’ CFATF report have already attracted international attention, with Transparency International’s official blog carrying a posting headlined: ‘It’s official: The Bahamas has a serious money laundering problem’.

The posting highlighted the weaknesses identified in the CFATF report, such as the filing of few suspicious transactions reports (STRs) compared to the Bahamian financial services industry’s size; the weak and limited enforcement capacity of government agencies; ineffective sanctions; and virtually no money laundering-related convictions. 

Lemarque Campbell, chair of Citizens for a Better Bahamas, the local Transparency International contact, told Tribune Business in a recent interview that the CTATF findings exposed “a long-standing issue” relating to this nation’s ability to effectively enforce the laws already on the statute book.

“This has been a long-standing issue over many administrations,” he said. “This [the CFATF report] shows us there’s been a lack of enforcement of actual laws, and there’s been limited capacity to ensure we’re not perceived as a jurisdiction facilitating money laundering.

“What we take from this is the Government not only needs to be committed to enforcement but increasing the capacity. When we look at local enforcement capacity, this is something that has to be taken into consideration.”

Mr Campbell said Transparency International’s blog posting highlighted how the world would pick up on the Bahamas’ deficiencies, and he warned: “We are going to get scrutinised on this unless there is some action by the Government.

“It’s one thing to do the legislation and enact various laws to mitigate the deficiencies, but we can’t really say anything has been done until we see some action, some enforcement of this legislation and capacity in the law enforcement agencies.

“Until we see some enforcement of the anti-corruption laws....... we will continue to have this perception of facilitating illegal financial transactions. We can have all the laws in place, but if we are not enforcing them we’re going to continue to have the international pressure.”

Mr Campbell expressed concern that the Bahamas would adopt the same approach to addressing its anti-money laundering and counter terror financing deficiencies as it had to complying with the OECD’s Common Reporting Standard (CRS) for automatic tax information exchange.

The Bahamas had been branded the ‘hold out’ and ‘last tax haven standing’ by the international media, after it was virtually the last jurisdiction to switch from the bilateral to multilateral approach to CRS compliance.

The Minnis administration, though, has moved swiftly to address the CFATF’s findings by tabling new Financial Transactions Reporting and Proceeds of Crime legislation in the House of Assembly for their first reading.

Carl Bethel QC, the attorney general, told Tribune Business earlier this year that both Bills were key to addressing many of the anti-money laundering and counter-terror financing (AML/CFT) regime deficiencies identified by the CFATF as he blasted the former Christie administration for failing to tackle these weaknesses.

The NRA is intended to provide a ‘road map’ for enhancing the Bahamas’ defences, especially among the non-financial businesses that represent the greatest vulnerabilities.

The Assessment said that while legislative changes in 2014 had brought these entities within the Bahamas’ anti-money laundering regime, no supervisory regime had yet been implemented for them.

“Vulnerability in the DNFBPs also exists in the lack of supervision of dealers of precious metals and stones, payday lenders, check cashing services, pawnbrokers and non-profit organisations,” the NRA said. 

“Legislative provisions capturing these entities within the AML/CFT regimes were passed in 2014. The relevant agencies are currently devising and developing supervisory regimes for these DNFBPs.”

While non-profits and pawn brokers were relatively small segments, the NRA said: “The dealers of precious metals and stones play a rather significant role in tourism – the country’s primary economic pillar - as some five to six million tourists visit the Bahamas each year, with a fair portion taking advantage of the product offerings of these businesses.

“The NRA did not identify any cases of money laundering or terror financing within these sectors. However, these DNFBPs are significantly vulnerable to domestic money laundering risks and international money laundering/terror financing risks, but they are limited, in the case of pawn brokers, payday lenders, check cashing due to exchange control rules.”

As for web shops, the NRA said: “The domestic gambling house business was identified as having a high level of exposure to money laundering risk due to the potential of laundering funds from locals who are involved in drug, human and gun trafficking, and the need to fully risk assess the sector.”

The real estate sector, which the NRA said accounted for 4 per cent of Bahamian GDP, was also identified as a concern given that some developers with in-house financing were not caught within the Bahamas Real Estate Association’s (BREA) “regulatory net”.

“Further, at present commercial leasing and rentals are not captured in the Financial Transactions Reporting Act definition as financial transactions, and thereby pose some potential for money laundering risk,” the NRA said. “Trust or escrow accounts held by developers (domestic and foreign) can also pose some money laundering risk.”

One of the NRA’s ‘17 steps’ calls for a review of BREA’s regulatory provisions to “strengthen its enforcement powers regarding unauthorised real estate businesses and capture of land developers”.

Another proposed action is a “risk assessment” of web shops to determine the potential money laundering/terror financing risk posed by the sector, with industries such as auto dealers and construction also earmarked for such a review.

The NRA also calls for the “development of an appropriate regulatory framework for the supervision of the pawnbrokers, dealers in precious stones and metals sectors, non-profits”, and for the manpower and financial needs of all law enforcement agencies to be assessed.