FATF Ceases Monitoring Of The Bahamas

by Robin Pilgrim, LawAndTax-News.com, London

19 October 2005

It was announced at the weekend that the Bahamas has been removed from the Financial Action Task Force’s monitoring list of countries with weak anti-money laundering or terrorist financing laws.

Attorney General, Alfred Sears said that the process of complying with FATF demands had been lengthy and costly, but had led to mainly positive changes for the islands' financial industry.

Minister Sears said the years of working to remove the Bahamas from the FATF’s list has led to the build up of a remarkable level of expertise, and that the Bahamas' Director of Public Prosecutions has been recognized by the FATF as “a specialist”, assisting with the evaluation of other countries.

Speaking from New York City, Dr Gilbert NMO Morris, who has been a long-time commentator on the Bahamas' financial regulatory systems, suggested that there was nothing significant in the FATF’s decision to cease its monitoring of the Bahamas. He said: “I would have found it more interesting if The Bahamas - given its long history in this industry – had ceased its monitoring of the FATF”. He continued: “Let me say again: I have always rejected our financial services model. However, one does not change such things by external imposition; since the relative competitiveness and infrastructural advantages of one’s systems, informed by one’s internal history and experience cannot be preserved. Second, that a jurisdiction has flung itself at the feet of the FATF is no indication that the financial system is freed from the risks they purport, since the damage to the system – particularly from money laundering – emerges amongst G20 FATF members, who seem increasing exempt from the FATF’s initiatives. Third, there are constitutional considerations, which, it seems, so many persons are content to ignore.”

Dr. Morris said that comparatively, the smaller jurisdictions are overemphasized in the FATF’s approach, and that this indicates a relative lack of credibility. “If one consults the IMF’s 2005 review of Financial Services platforms, its statement on Switzerland in respect of information exchange says, ”Swiss law does not allow adequate cooperation with respect to the sharing of customer-related data with foreign regulators”. There is nothing disciplinary about that statement, which is actually quoted from an earlier FATF assessment. This is in contrast to its approach to smaller jurisdictions such as The Bahamas, where its language and approach is high-handed, and inappropriate when dealing with sovereign nations that are not members of its body.” It fails to note for instance, when calling for greater cooperation on information exchange from the Bahamas, that we are constitutionally barred from participating in open-ended information exchange. Article 23 (ii) (2) of the Bahamas Constitution imposes an expressed duty on the government of the Bahamas to protect third party interests – which can only be done judicially in my view – and empowers only the Supreme Court to disapply constitutionally guaranteed privacy. This is the law. One cannot, in these instances, say one wants to meet some selective nebulous called ’international standards’ on pain of ignoring one’s constitutional laws.”

“The danger for these jurisdictions is that they are apt to think that these capitulations – which are survival mechanisms - are actually strategies. They are not. In most cases, the financial services sectors in these countries are characterized by the presence of offshore arms of banks from FATF member countries, in which the FATF’s initiatives are only selectively applied. This means that the regulatory demands of the FATF actually results in the re-positioning of competitive advantages favourable to its members. Smaller jurisdictions attempting to be creative in their product offerings – even, perhaps especially when those products are similar to those offered onshore – find themselves being threatened with denouncement as money launderers. As such, the jurisdictions are caught in a vicious cycle: If they reject the FATF’s initiatives, they are vilified in the international press; the extent of the FATF’s “sanction powers”, if they comply, they lose competitive advantages which G-20 nations take for granted. Moreover, they must spend prohibitively to maintain the jobs their financial services sectors provide. In the case of the Bahamas for instance, nearly $40 million dollars was spent implementing the imposed agenda of the OECD/FATF. However, at its height, the Bahamas government earned only $20 million dollars a year from financial services. And given the goal-post moving strategy of the FATF, it means that jurisdiction such as the Bahamas will never have control on what they spend, since they have no control on what the next selective initiative will be or the justified reason for its proposition.”

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