Financial regulators are warning banks about the risk that “politically exposed persons [PEP] inclusive of heads of state, government ministers, influential public officials, judges and military commanders could expose them to.
“Licensees should assess the potential risk inherent in each new client relationship prior to establishing a business relationship,” the report indicated.
The caution came in a detailed comprehensive set of guidelines for local financial institutions that the Central Bank of The Bahamas released recently to guard against money laundering and terrorist financing.
The report noted specifically that relationships with individuals holding important public positions could expose financial institutions to significant legal risks and jeopardize their reputations when these persons abuse their power either for their own personal gain or the benefit of others.
“Licensees are encouraged to be vigilant in relation to PEP’s from all jurisdictions in particular high risk countries who are seeking to establish business relationships,” it noted.
Over the last few years, there have been a few reports of former heads of state and other powerful foreigners hiding their ill-gotten gains in Bahamian bank accounts.
But under a renewed resolve that The Bahamas has to cooperate with outside investigators, the investigative process has been sharpened.
Regulators have released a slew of recommendations of how to avoid such situations including implementing the appropriate risk management systems, developing clear internal guidelines, taking reasonable measures to establish the source of wealth and completing proactive monitoring of the accounts.
Regular reports to the Financial Intelligence Unit [FIU] are also required.
Additionally, officials have suggested that financial organizations take a further step and assess the country risks where they have financial relationships.
The Guidelines for Licensees on the Prevention of Money Laundering and Countering the Financing of Terrorism are also being used as a guideline to determine if the institutions are meeting their prudential obligations in order to maintain their licenses.
The measure is a critical one as this offshore financial center seeks to remain off the radar of international anti-money laundering watchdogs like the Financial Action Task Force which had blacklisted it in 2000.
The rules incorporate the mandatory minimum requirements of the Financial Transactions Reporting Act and reflect the highest standards in the industry. They came into effect for local institutions on October 19th.
The guidelines further enshrine the Know Your Customer [KYC] rules in dealing with clients as a pivotal factor. It was also a key element of the litany of legislation that was passed five years ago and preceded this country’s de-listing by the FATF.
Under the guidelines the local financial institutions are being made to adopt a risk based approach to customer due diligence as was suggested by the FATF. They are given the discretion to determine the appropriate level of information and documentation required to verify customer identity based on the nature and degree of risk inherent in the customer relationship.
“Licensees should assess the potential risk inherent in each new client relationship prior to establishing a business relationship,” the report indicated. “This assessment should take account of whether and to what extent a customer may expose the licensee to risk and of the product or facility to be used by the customer.”
As for clients who were already in existence, banks are required to review them to ensure that the KYC rules are being applied and the provisions of the Financial Transactions Reporting Act.
The guidelines go into great detail about confirming the identity of customers, monitoring transactions and reporting suspicious activity.
Regulators have conceded that in recent years there has been a growing recognition that it is essential to the fight against crime that criminals be prevented whenever possible, from legitimizing the proceeds of their criminal activities by converting their funds from “dirty” to “clean” or laundering them.
The ability to launder the proceeds of criminal activity through the financial system is vital to the success of criminal operations, the Central Bank acknowledged.
Just recently, Attorney General Alfred Sears announced that after five years the FATF had dropped The Bahamas from the list of countries it would continue to monitor, something for which officials had been aggressively agitating.
But he said The Bahamas must strengthen the regime it has in place for regulation of its vital financial services sector and not become complacent.
“The Government of The Bahamas will maintain the vigilant position that we have and will not relax in any respect the pace of regulatory cooperation,” Minister Sears assured.
In June of 2000, the FATF listed The Bahamas among 14 other offshore financial centres which it identified as Non-Cooperative Countries and Territories.
By: Tameka Lundy, The Bahama Journal
