Bahamas Suspends Two Offshore Banks Following US Senate Report On Correspondent Banking

Mike Godfrey, Tax-news.com, Washington

20 February 2001

The Central Bank of the Bahamas has reportedly suspended the licences of two offshore banks registered in the jurisdiction, just one week after a US Senate investigation severely criticised them for accepting hefty amounts of money from less than savoury sources.

Central Bank Governor Julian Francis has slapped suspension orders on British Bank of Latin America Ltd (BBLA) and the Federal Bank Ltd, both located in Nassau, for a period of 90 days, during which the banks must not operate. The order said: 'The suspension order results from the inability of the banks to formally fulfill certain prudential requirements and satisfy the Central Bank of the Bahamas as to its affairs.'

The US report accused American banks of deep and routine involvement in money laundering through the business they do using the correspondent banking system, which allows banks with no physical presence in the US to open accounts for clients at US banks. Based on the report's conclusions, Senate investigators recommended that US banks should be barred from opening correspondent accounts with shell banks registered in the Bahamas and elsewhere.

The report said of BBLA: 'BBLA operated as an affiliate of Lloyd's TSB Bank of London and a related bank in Colombia, providing US dollar accounts to Colombian nationals and corporations. Neither BBLA nor its US correspondent bank took any steps to detect money laundering by Colombian money brokers exchanging Colombian pesos for US dollars obtained from illegal drug trafficking.'

Local newspaper the Bahama Journal said this week that the Bahamian financial services industry disagrees with the US Senate report, saying it is not the practice of correspondent banking that is to blame for money laundering but the weak controls that US banks have in place. Attorney John Delaney, a member of the Bahamas Financial Services Board, was quoted as saying: 'It is not the correspondent banking system at all. This system is a very necessary part of international banking system and you don't blame the system you blame faults in the system.' He continued: 'The new regulatory environment in the Bahamas is likely to seriously militate against the kind of shell banks being allowed to be misused in the manner described.'

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