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Bahamas Will Simplify Onerous KYC Regulations

Tax-News.com, New York

13 December 2002


The Bahamian government is planning to extend the deadline for local financial institutions to apply KYC procedures to existing clients from the end of this year for twelve months. Minister of Financial Services and Investments, Allyson Maynard Ginson says that the requirements are too onerous in many cases and is planning amendments to the legislation to simplify them.

Introducing the amendment to the deadline this week, the Minister said that the the government has received extensive and unanimous representation from the industry to extend the deadline for the verification of existing customers from 31st December 2002 to 31st December 2003.

'There are a number of other amendments that the industry is seeking and which will in due course be brought forward,' said Ms Gibson. 'We expect to present a comprehensive schedule of amendments in this regard within the early part of the first quarter of next year.

'The amendment is urgent because section 6(6) provides that where a financial institution has not verified an existing customer by 1st December 2002, the account of that customer must be transferred to the Central Bank. Financial Institution is widely defined to include banks, trust companies, mutual fund administrators and operators, casinos, insurance companies, lawyers, real estate brokers, cooperatives, financial and corporate service providers, car dealers etc. Due to the onerous requirements to produce documentary evidence placed on clients of financial institutions, the compliance level for existing clients has been fairly low. Indeed, as at October 2002, only 229,001 accounts had been verified of 538,861. That is approximately 57.5% of all accounts that would have to be to the central bank. This does not include other unverified accounts of others defined as financial institutions under the Act.

'The PLP Government when it came to office in May 2nd 2002, undertook to review generally those aspects of the financial legislation compendium passed in December 2000, with the aim of clarifying, simplifying and rationalising those elements which made the conduct of legitimate business unnecessarily complex, repetitious and frustrating. By far the greatest single inhibitor of legitimate business activity, both domestic and international, has been the rigid, overly prescriptive requirements for KYC documentation under the Regulations made pursuant to the FTRA.

'The obligations under these regulations require financial institutions to obtain detailed documentation on their existing clients even though the money laundering risk of such accounts or facilities may be negligible. This has resulted in a significant expenditure of resources by financial institutions harassing long-standing well-known clients for pieces of evidence. This exercise has been applied to all facilities, even ones belonging to the young paperboy, grocery packing boy and pensioners. Clearly the opportunity for money laundering by these customers is virtually non-existent. Yet the same level of resources and efforts of exertion are applied to these groups as are applied to those higher-risk categories for money laundering.

'It is noteworthy that one of our international partners suggests that further time should be given to banks to allow further compliance with the provisions and that financial institutions should be encouraged to review their lists of outstanding accounts using a risk based approach in order not to devote excessive resources to small domestic accounts. Another partner suggests that the retrospective due diligence requirement should be reviewed with a threshold instituted for small accounts of pensioners who are well known to the bankers.

The Minister made it clear that the proposed amendments in no way weakened the Bahamas' commitment to effective regulation:

'Very clearly, no serious financial centre and certainly not The Bahamas, whose credentials are well established and whose vintage is almost 60 years, could be taken seriously if it did not do as we have done i.e. make clear its condemnation of money laundering, terrorist financing or any other use of its system of launder proceeds of nefarious trade. These illicit activities undermine the foundation of the country's financial system and the world's banking system.

We do not support drug trafficking.
We do not support money laundering.
We do not support terrorist financing.

'At the end of October, the IMF mission conducted a module II assessment of our financial services sector, with particular emphasis on our anti-money laundering and combating terrorist financing regime. Again this exercise which involved, like the CFATF mutual evaluation, private and public sector participation, also focussed heavily on areas for rationalising what has come to be regarded in some quarters as a cumbersome framework. This observation is especially true of the KYC requirements for verification of existing accounts.

Ms Gibson's speech to Parliament also highlighted the importance of the banking sector to the Bahamas:

'An analysis of our Central Bank statistics for the year 2000 there were then over 4,000 Bahamians working in the banking industry, averaging a salary of over $62,000 per year (this includes the salaries of expatriates working in The Bahamas). The wage levels of this group of Bahamians is nearly 4 times the GDP per capita and a quick analysis tells us that this leads directly to 11,000 jobs. Also, it affects another 14,000 dependents, using the national average for dependents. Therefore, nearly 30,000 persons are affected by this class of persons; who altogether constitute a significant portion of the Bahamian middle class. Over the last 5 years the banking sector produced $100,000,000 in government fees.'


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