Bahamas Court Decision Undermines Banking Privacy

by Mike Godfrey, Tax-News.com, New York

08 July 2002

In November 2001 the Bahamas' Supreme Court ruled on an application from Financial Clearing Corporation that the country’s Financial Intelligence Unit (FIU) was not entitled to issue freezing orders independently of the Court, and that parts of the FIU Act – one of the cornerstones of the revamped regulatory regime that was introduced in December 2000 – contradicted the Bahamian Constitution.

The Attorney General’s office appealed the Supreme Court ruling, and the Court of Appeal has now overturned the ruling, adding that the FIU may request the production of information from banks and trust companies without a court order. In attacking the Supreme Court’s decision, the Attorney General’s office argued successfully that the granting of powers of seizure to senior FIU officials did not give to unelected civil servants powers which only the judiciary should hold under the Constitution.

Financial Clearing Corporation did not contest the appeal by the Attorney General’s office.

Wendy C. Warren, CEO & Executive Director of the Bahamas Financial Services Board, welcomed the decision, but Dr Gilbert N M O Morris, who recently quit the Bahamas' Nassau institute to head the Landfall Centre, says that the Court of Appeal is misguided, arguing on pragmatic grounds that the FIU’s power may prove so uneven, as to destroy confidence in the banking sector. Dr Morris says that the Courts are a better route because the individual is informed, and has every opportunity to defend himself before the damage is done.

Dr Morris doesn't take the constitutionality route: he says that the judge who ruled against the FIU last year undermined the privacy of bank accounts by saying that they are not part of the 'inner sanctum' of a person, and therefore need the protection of banking privacy law. Thus the Court of Appeal was able to address only the narrower issue of whether administrative fiat extends to account closures. The more important issue, which was not tested in this case, is whether details of the ownership of an account (as distinct from the fact of its existence) can compulsorily be required by administrators, or whether the Court must be involved. Dr Morris says that there is plenty of law both in the Bahamas and elsewhere to insist on the Court's involvement in breaching privacy.

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