BFSB Newsletter ~ Part 1

The Prime Minister further reported that institutions visited in Europe were very receptive and appreciative of the seriousness with which The Bahamas has responded to concerns. He noted that "..they were satisfied they were dealing with a credible government which was not itself involved in any untoward activity and which itself was seeking to assure that its rules and practices in the financial sector come into compliance with the new evolving world order".

The Government of The Bahamas has asked the International Monetary Fund (IMF) to conduct an assessment of its financial services sector, and plans to make the results of the review public. The IMF has confirmed its agreement, with the evaluation to be conducted early in 2001.

In an earlier release on planned assessments of various jurisdictions, the IMF reported that the process will be flexible, depending on the financial services provided, and on the nature of the risks and vulnerabilities.

Focussing on banking, insurance and securities "to help identify vulnerabilities in the financial system", the assessments will be cooperative. That is, the IMF will ensure that The Bahamas has ownership of the process, and part of its strategy will include a self-assessment.

According to the Prime Minister, any recommendations made by the IMF as a result of its assessment will be adopted, for further enhancement of the sector, so as to "remove any question of the adequacy of its regulation and supervision". IMF Directors have expressed concern over the "lists" published by various international groups, expressing the view that these were not based upon well-developed criteria, nor did they take into account all the relevant facts. Some IMF Directors have noted, further, that only limited evidence is available thus far on the direct risks posed by offshore financial vehicles for the global financial system. With specific regard to the FATF's anti-money laundering campaign, IMF Directors have called for increased cooperation with the OECD affiliate to help prepare reports on whether nations meet international standards.

A new Evidence (Proceedings in Other Jurisdictions) Act 2000 was passed by the Bahamas Parliament in August. Additionally, an amendment to the Money Laundering (Proceeds) of Crime) Act strengthens the requirement for the reporting by financial institutions, and others, of suspicious transactions, such to include the necessary reporting of unusual transactions.

Other legislation slated for review/amendment include:

• The Bank and Trust Companies Regulations Act
• The Banks Act
• The Central Bank Act
• The International Business Companies Act
• The Mutual Legal Assistance Act
• The Trustee Act

The Government has announced, further, that in order "to provide for comprehensive regulation and supervision of the delivery of financial services by individuals and institutions doing business in or from The Bahamas" consideration will be given to the enactment of new legislation such as:

International legal counsel accompanied the Prime Minister and his delegation on the recent European trip, to highlight the efforts by The Bahamas to be removed from the adverse listings of the financial services sector by Committees of the industrialised countries. Meetings included discussions with Donald Johnston, Secretary-General of the OECD at their Paris Headquarters. Other OECD officials participating included Jeffrey Owens, Head of the Fiscal Affairs Division and Francis Horner, Head of the Tax Competition Unit in the Fiscal Affairs Division.

The Prime Minister has maintained that it is in the interest of The Bahamas to avoid the imposition of coordinated defensive measures planned by OECD countries against so-called "non-cooperative" financial centres. He expressed satisfaction with the OECD meetings. The group sought to have the OECD clearly define action required by The Bahamas to ensure its exclusion from the list to be released by the Organisation in June 2001. The Prime Minister emphasised the interest of The Bahamas to accept the same international standards required to be observed by all OECD countries and other cooperating financial services jurisdictions.

During the meetings, the OECD noted the significant steps taken by The Bahamas toward complying further with international best practices, particularly in the area of legislative amendments foreshadowed in Parliament, and proffered the view that The Bahamas appeared to be near a position where it would satisfy the criteria for not being considered a "harmful" tax jurisdiction.

Notwithstanding the positive discussions, the Prime Minister took the opportunity to state clearly the position of The Bahamas with respect to the process:

The Financial Action Task Force on Money Laundering (FATF) met in Madrid on 4-6 October to discuss its strategy for further expanding the worldwide anti-money laundering network. The Bahamas was included in a list of seven countries commended by the Financial Action Task Force (FATF), for progress made, with indications that "the steps taken are very encouraging because in many instances the responses have been very rapid".

The FATF will continue to monitor progress towards meeting international standards and addressing the perceived deficiencies. It will assess the progress made by these jurisdictions over the coming months to determine the removal of any jurisdiction from the list of NCCTs, i.e. countries and territories identified as "non-cooperative". FATF President, José Maria Roldán declared in Madrid that "..we are generally pleased with the positive steps taken by many jurisdictions named in June as non-cooperative."

In making the assessments, the FATF will need to be satisfied as to the existence of comprehensive and effective anti-money laundering systems. It will attach particular importance to reforms in the area of criminal law, financial supervision, customer identification, suspicious activity reporting, and international co-operation. As necessary, legislation and regulations need to be enacted and to have come into effect before removal from the list can be considered. In addition, the FATF will seek to ensure that the jurisdiction is implementing the necessary reforms.

The Bahamas delegation to Europe met with President Roldán, and with FATF Executive Secretary Patrick Moulette. The Prime Minister sought to obtain a clear understanding from the FATF on the adequacy of information considered, and still under review by the FATF, which led to The Bahamas' undeserved listing as an uncooperative jurisdiction in the international anti-money laundering effort.

The Bahamas provided detailed information on anti-money laundering processes in The Bahamas for consideration by the Plenary Session of the Task Force.

Throughout the trip, the Prime Minister continued meetings with heads of major international banks headquartered in European capitals but with significant operations in The Bahamas. In Switzerland, he also resumed his strategic discussions and meetings with the Basel Committee on Bank Supervision, The Bank for International Settlements, the Financial Stability Forum, the Swiss Federal Banking Commission and the Minister of Finance.

At the end of July, The Prime Minister, Minister of Finance, and Governor of the Central Bank lead a team on a 10-day trek to meet with government officials in the US and Canada, and with the heads of major international banking institutions operating in The Bahamas.

The Bahamas' stated position regarding amendment to and/or adoption of new legislation to enhance regulation and supervision of the Bahamian financial services sector was well received in both the United States and Canada. The Canadian Government, which has been critical of the FSF, the FATF and the OECD processes, undertook to lobby its G-7 partners on the importance of establishing an exit strategy and a time limit for removal from the various lists of jurisdictions satisfactorily addressing identified weaknesses.

The Government of The Bahamas remains confident that the country will overcome the current challenges, describing the vast majority of financial business conducted in The Bahamas as sound, legitimate and a vital part of international financial services. It has resolved to address, properly and adequately, the threat to the country's financial services sector, and to inoculate the system from criminal intervention. Government's attention and energies are being devoted to developing, implementing and enforcing necessary mechanisms.

At the beginning of October, The FATF announced that a decision would be made early next year as to whether The Bahamas -- along with several other countries -- would be removed from the blacklist following a series of concrete measures taken to address specific concerns identified. In responding to the announcement, BFSB Chairman Ian Fair indicated that industry leaders remain optimistic that the Bahamas will "exit" the list once all new legislative initiatives are implemented.

Particularly, early establishment of the Financial Intelligence Unit intended to monitor and investigate suspicious financial activity was considered a first step in securing the FATF's recognition that The Bahamas operates under the best international standards and practices.

Further conditions on the licensing of bank and trust companies are anticipated as a result of the tightening of regulatory measures. The Central Bank of The Bahamas has retained an international banking supervision expert to assist in the restructuring of its regulatory function and is recruiting additional supervisory staff internationally. Additionally, the CBB is expected to conclude a Memorandum of Understanding with the Swiss Federal Banking Commission, dealing with on-site inspections and cross-border supervision of Swiss banking institutions licensed to conduct business from The Bahamas.