Govt. points out deficiencies in EU’s “High Risk Third Countries” list

Govt. points out deficiencies in EU’s “High Risk Third Countries” list

NASSAU, BAHAMAS – The government moved to respond on Sunday to last week’s scathing review by the European Union College of Commissioners, which listed The Bahamas among high-risk countries for Anti-Money Laundering and Counter Terrorism Financing (AML/CFT) deficiencies.

The international body believes that The Bahamas has some work to do in regards to cracking down on its regulatory framework, to ensure that money laundering and terrorism financing is eliminated.

The government, however, feels otherwise.

The government on Sunday referred to last week’s listing as a “flawed” process and not a blacklist.

On Wednesday, February 13, 2019, the Justice and Consumers Unit of the European Union College of Commissioners published a draft AML list of countries it deems a threat to their financial system, due to what it considers strategic deficiencies in the ability to prevent terrorism financing and money laundering.

The Bahamas was placed on this draft AMF list.

A statement released Sunday from the Office of the Prime Minister outlined that, “This is not a “blacklist,” but if agreed to by EU members at a subsequent meeting, it would require financial institutions to engage in “enhanced customer due diligence” for financial transactions to and from The Bahamas.

According to the government, this draft AML list represents an advisory, issued by the EU, which is similar to the advisories issued by the US and UK in October 2018, when The Bahamas was placed on the FATF  (Financial Action Task Force) Action Plan.

The government’s statement noted that a variety of working groups within the EU impact The Bahamas, and the two most relevant at this time are: the Taxation and Customs Union, and the Justice and Consumers Unit Financial Crime.

The Taxation and Customs Union works on a list of “non-cooperative tax jurisdictions for tax purposes.”

The Justice and Consumers Unit Financial Crime works on the list of “high-risk third countries presenting strategic deficiencies in their national anti-money laundering/counter-terrorism financing AML/CTF) regimes.”

“In early January 2019, Prime Minister Minnis and Attorney General Bethel met with the head of the Taxation and Customs Union,” the statement read.

“The Taxation and Customs Union concentrates on issues related to ‘Base Erosion and Profit Shifting (BEPS),’ which generally relates to the way in which a broad range of financial services are provided in and from The Bahamas as an international financial services centre.

“BEPS specifically relates to tax-avoidance strategies where businesses “shift” their “profits” from higher-tax jurisdictions (like some in Europe) to lower tax jurisdictions, thereby “eroding” the “tax-base” of the higher-tax jurisdictions.”

The government noted that failure to meet requirements by the Taxation and Customs Union within the EU may lead this body to recommend to the EU of Finance Ministers that The Bahamas be placed on a “Blacklist” of countries that are “non-cooperative for tax purposes.”

According to the government’s statement, a “blacklist” is expected to be produced over the next few months, however, The Bahamas believes it has met requirements expressed by the Taxation and Customs Union and has provided requested clarification over the last several weeks as a result of a healthy dialogue and exchange.

The government’s statement said it has been very cooperative, and Prime Minister Minnis is fully committed to meeting international obligations while maintaining the integrity of the domestic financial services sector.

The government said the draft AML list issued last week is unrelated to the “Base Erosion and Profit Shifting (BEPS)” issues discussed by Prime Minister Minnis and Attorney General Bethel in Brussels on January 15, 2019.

It is also unrelated, the government said, to recent amendments to the Commercial Entities (Substance Requirement) Act.

“The Bahamas became aware of the possibility of being included on the Justice and Consumers Unit draft AML list in a January 21, 2019 memo from the EU’s diplomatic representative to the Caribbean, based in Jamaica,” the government’s statement said, adding that the Minnis Administration regretted this decision and wishes to point out several deficiencies in the approach to listing The Bahamas.

The deficiencies outlined are as follows:

  • The Justice and Consumers Unit failed to consider the progress made by The Bahamas since May of 2017, based on the FATF criteria. As stated by the Unit, work prepared by the FATF is used to consider additions to this list, and old criteria for The Bahamas was considered.
  • The Bahamas was informed that the Unit was advised that The Bahamas does not have any law that criminalizes money laundering or terrorist financing. This is not accurate.
  • The Justice and Consumers Unit notes failures to prosecute all types of money laundering but does not consider the increase in money laundering prosecutions and convictions in The Bahamas.
  • The Bahamas does not believe the process used by the Justice and Consumers Unit included a sufficiently in-depth review necessary to conduct an assessment relative to the consequences of such a list.
  • The Bahamas does not believe it was given sufficient notice of inclusion, which would allow for constructive dialogue with this Unit in the EU, allowing The Bahamas to challenge or address issues raised.
  • The Bahamas also questions the Unit’s approach in simply announcing an intention to list The Bahamas. This appears contrary to the EU’s own written methodology set forth in a “working paper.” This EU methodology sets out a specific process whereby the actual risk, if any, posed by each individual country is intended to be assessed on a sliding scale from “low’ to “moderate” to “severe.” Listing The Bahamas together with wholly non-compliant war-torn States is disproportionate and inflicts harm and punishment on The Bahamas without consideration for reforms and improvements in the AML/CFT framework.

The government’s statement said The Bahamas poses no threat to the EU financial system and regrets this action by the EU, especially in light of it being based on out-of-date information.

“The Bahamas stands ready to meet its international obligations and has shown a willingness and ability to work constructively in this regard.”