2000-2001

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Associated Press, 18-Aug-00

NASSAU, Bahamas: Creating an uproar in the financial industry, Premier Hubert Ingraham told tightlipped bankers something almost inconceivable even weeks ago: the Bahamas will fully

cooperate in international investigations and scrap secretive laws that got it on a black list of nations branded uncooperative in the fight against money laundering.

"The people that aren't saying anything are the people who are just listening and deciding how they are going to break this to head office", Lucia Broughton, a Bahamian who works at a private bank and trust company, said of Ingraham's private meeting on Wednesday with about 200 mainly foreign financial executives.

"Quite frankly, the entire industry is up in arms at this point," she said.

She and others said some companies may consider pulling out of the Bahamas, an expensive location that without the advantage of secretive laws would be competing with ordinary onshore institutions in places like London and New York.

Owen Bethel, the Bahamian president of Montaque Securities International, said, "What you have seen happen today is basically somewhat of a shock wave."

Before Ingraham visited the United States and Canada two weeks ago to consult officials, he said, the premier gave them "assurances there would be dialogue with the financial sector, and that confidentiality was not to be an issue."

Ingraham's determination played out in Parliament this week, when senators from his governing party passed an amendment to strengthen anti-money laundering laws despite a walkout by opposition politicians who charged the government was railroading through changes that would seriously affect many without consulting the Bahamian people.

 The amendment is intended to answer criticism overseas that secretive banking laws offer a haven to criminals to hide illegal funds. It permits foreign and local investigators to obtain evidence from offshore banks and other institutions without a lengthy and obstructive legal process to obtain a court order. Other legislation is in the works.

Cayman Islands - the world's fifth largest financial center - has rushed through similar legislation and St. Kitts and Nevis is promising to do the same.

The industry had not felt any immediate fallout after the Paris-based Financial Action Task Force, set up by the Group of Seven rich nations, in June listed the Bahamas among 15 countries and territories - one third in the Caribbean - considered uncooperative in the global fight against money laundering.

The United States followed that up by warning its financial institutions to give extra scrutiny to all transactions with those countries. The money-laundering list is to be reviewed in Paris in October, and countries that do not make an effort to comply with

what the task force considers international norms could face sanctions next year.

Bethel said financial institutions would be deciding whether to remain in the Bahamas: "It has been made quite clear what the government's decision is, and so now I think people can start making decisions. That is what you will probably find taking place in the board rooms around the world today."

Broughton was pessimistic: "The fact is the leaders in the finance industry in this country are foreigners. They don't bother to make adjustments in local jurisdictions. "They leave".(AP)

October, 2000

It is anticipated that as a result of the supervisory regime being implemented, there will be a reduction in the number of managed banks operating in The Bahamas. Of the 400+ companies licenced to conduct banking and/or trust business, it is estimated that some 125 operate as brass plates, i.e. with no physical office or employees in country.

Since the enactment of new financial services industry regulations, and the Government's announced intention not to encourage such operations, some of this number have decided not to remain in The Bahamas. Importantly, however, it is estimated that approximately half of the managed banks will remain and comply with local regulations - effectively establishing a physical presence in The Bahamas and expanding their operations.

A recent interview with Governor Julian Francis of The Central Bank of The Bahamas revealed that there have been no new licences granted for "managed banks" over the last 2 years, and that it has been the Government plan to phase out this category of bank licence in due course. Banks will be able to operate under "management agent" arrangements, but subject to strict conditions relative to management contracts and senior officer staffing, records being maintained in The Bahamas, and physical presence requirements.

Participating on a local radio Talk Show, the Prime Minister of The Bahamas recently confirmed his belief that there will be no net loss of jobs resulting from this initiative but, rather, the creation of new employment. "The Government is keenly interested in the growth and development of our financial services sector, an important and treasured pillar of our economy, and in the continued availability of employment for qualified Bahamians in the sector". The Prime Minister also has stated that in seeking to act prudentially in addressing issues resulting from various international initiatives, the Government took advice from the financial services industry, and most particularly the banking sector.

Central Bank Governor Francis in recent interviews also has projected that some 60 erstwhile-managed banks will be providing jobs in both senior and non-managerial positions. A move in that direction is anticipated to increase the demand for office space. The Governor also has stated his firm belief that The Bahamas is doing the things necessary to ensure that it continues to be seen as a serious jurisdiction, one that is perceived to embody those things that are attractive to legitimate business -- businesses which want to be in a mainstream, solid, well-regarded jurisdiction.

Since 1965 (introduction of banking regulation), The Bahamas has had uninterrupted growth and development, underpinned by the commitment of long-term partners. Economic stability and a strong partnership between the government and the constituents of the financial services sector have contributed to this success. The presence of the many international corporate partners in The Bahamas has been credited by the Prime Minister as giving encouragement of a bright and prosperous future for The Bahamas, particularly as a thriving international financial center.

The Prime Minister of The Bahamas, the Rt. Hon. Hubert A. Ingraham, is introducing legislation in the House of Assembly which will bring major changes in the financial services of the country. These are in response to the recent "blacklisting" of The Bahamas by three international groups because the leading countries of the world feel that the country has been too lax in its banking supervision. For those countries not complying with international regulations, the consequences of sanctions would be harmful to the financial industry. These proposed laws will be in addition to action already taken and will bring The Bahamas into full compliance with international standards.

The Prime Minister has recently returned from an extended visit to many European countries. This followed a previous visit to the United States and Canada to assure these countries that The Bahamas will comply with their requirements. He felt that because of the seriousness of these actions, he should personally discuss with world leaders and financial organizations the necessary changes to bring The Bahamas into favorable status again. The Bahamas has retained experts from abroad to give legal financial advice and with their assistance will introduce new legislation and amendments to current laws. The main impact of these changes will reduce the opportunities for anonymous use of our financial services and the use of Bahamas' financial services for unauthorized purposes. This legislation will be debated when Parliament meets again at the end of October.

The international financial services sector contributes significantly to the economy, employing 15 percent of the labour force and contributing 15 percent of the Gross Domestic Product of the country.

PREVIOUS RELATED ARTICLES

The Bahamas was named one of 15 countries in the world that were not cooperating in the efforts of the industrial nations against money laundering. The United States issued a Financial Advisory to banks and other financial institutions dealing with the Bahamas listing the problems but adding that they should not curtail legitimate business involving The Bahamas. The Bahamian government has stated that it remains determined in its stand against money-laundering, drug trafficking and related crimes. The weaknesses in the system relate to regulation and supervision of financial services including legal and accounting firms. The Bahamas will be taking all necessary steps required to be removed from the list.

The Prime Minister met with leaders in the United States and Canada and the Minister of Finance met with British representatives to determine what legislation will have to be enacted to satisfy the demands of the leading industrial nations of the world so that the Bahamas will no longer be on the "blacklist." The government will introduce appropriate legislation to amend the Money-Laundering (Proceeds of Crime) Act to respond to the identified weaknesses in the system. "It is in our best interest, and we will fully comply with international best standards and practices," the Prime Minister, the Rt. Hon. Hubert Ingraham stated.

The government has already passed a two measures which will begin the process of complying with the requirements. The legislation will increase the reporting of suspicious and unusual financial transactions.

Bahamas Named As Uncooperative (1 August 2000 Abaconian)

The Bahamas has been named on a list of 15 countries as uncooperative in the fight against money laundering. The G-7 countries, the most industrialized countries in the world, have listed the 15 in an effort to force these countries to change their bank secrecy laws to stop the practice of anonymous bank accounts and to accommodate the wishes of these larger countries. The G-7 nations include the United States, Canada, Great Britain, France, Italy and Japan. These countries will put pressure of these small countries to bring about the changes they demand. These could include suggesting that the International Monetary Fund consider this list when deciding whether to extend loans or even making compliance a condition for IMF loans. The United States has already sounded warnings to banks and other financial institutions to use caution when doing business with banks with the blacklisted countries. This might also involve embargoes on financial transactions with the Bahamas and other listed countries.

The Bahamas immediately issued a release which states that it is determined in its stance against money laundering, drug trafficking, corruption and criminality in all forms. But these recent problems stem from weaknesses in the regulatory supervision of financial institutions. The Bahamas is particularly concerned about this recent initiative as the financial services sector is a critical part of our economy. It represents 15 percent of the gross domestic product of this country and employs 10 percent of the labour force. How the suggested new banking rules will affect this segment of our economy will depend on what these larger countries will require the Bahamas to do in order to comply.

His Excellency Joshua Sears, presented the position of the Bahamas in his remarks to President Bill Clinton when he presented his letter of credence naming him the new Bahamian Ambassador to the United States. He assured the president that the Bahamas is committed to reducing or eliminating the abuse of the financial services sector by money launderers. The Bahamas was in the process of adopting strong anti-money laundering measures which would apply to money from other major crimes such as arms-dealing, prostitution, kidnapping and terrorism. The Bahamas is accepting technical help from the United States in applying administrative procedures to satisfy the demands of the G-7 countries. The Cayman Islands, another of the blacklisted countries, is hurriedly passing legislation which will take them off the list. The closing of Parliament in Nassau has been delayed to allow time to pass new legislation to satisfy the demands placed on the country

US Department of Justice, Attorney's Office, Southern District of Texas

Merven M. Mosbacker, US Attorney

April 27, 2000

CONTACT: Richard Berry; Assistant U. S. Attorney, Phone: 713/567-9730

HOUSTON) Mervyn M. Mosbacker United States Attorney for the Southern District of Texas announced today that Jerry Vernon Ford, of New Braunfels, formerly of Houston, and Preston John Engebretson, of Houston, were charged by a federal grand jury sitting in Houston with unauthorized trade with Libya.

The indictment alleges that Ford and Engebretson used Thane-Coat, their company in Houston, to send approximately 3,100,000 liters of pipe coating, valued in excess of $28,000,000 to Libya from 1993 to 1996. The indictment alleges that Ford and Engebretson incorporated three companies in the Bahamas TIC, Limited; Tam; and Eshbach to circumvent the United States trade embargo with Libya from 1993 until 1996. The indictment alleges that Ford and Engebretson used bank accounts at Barclays Bank in the Bahamas to launder approximately $8,000,000 in proceeds derived from their illegal trade with Libya. The indictment alleges that Ford and Engebretson supplied the pipe coating to a Korean company for use in the Great Man-Made River Project in Libya.

Ford and Engebretson are each charged with numerous counts of unauthorized trade with Libya, making false statements to the Customs Service and the Department of Commerce on export documents, laundering money and conspiracy to commit these offenses. Each count of money laundering to forward the unauthorized trade with Libya carries a maximum prison sentence of 20 years. Each count of money laundering and each count of unauthorized trade with Libya carries a maximum prison sentence of 10 years. Each count charging a false statement to Customs and to the Department of Commerce carries a maximum prison sentence of 5 years. The conspiracy count carries a maximum term of imprisonment of 20 years.

Indictments and criminal informations are formal accusations of criminal conduct, not evidence. Defendants are presumed innocent unless and until convicted through due process of law.

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The Bahamas became independent from the UK in 1973, although the Queen remains Head of State. Beginning 50 miles off Florida, in the Caribbean, the Bahamas has 700 islands and a population of 285,000. The official language is English. The capital is Nassau, there are a number of international airports with good connections, and there are excellent port facilities. The climate is sub-tropical. The Westminster-style government is business-friendly. Next elections in 2002.

Economy Based on Financial Services and Tourism

The Bahamas was a trust and tourist jurisdiction very early in the 20th century, but was relatively late in developing as a financial centre. The economy is heavily dependent on tourism (4m visitors a year), but financial services are growing in importance. GDP is $3.4bn, and GDP per head is $12,000, good for the region but not wonderful. Unemployment is a problem, but has eased recently. The Bahamas are very dependent on imports and have a structural trade deficit

The Bahamas' Stock Exchange

In May 2000, the Bahamas' new stock exchange (BISX) went live, originally with 2 established brokers but its continuing success will allow for larger expansion. The BISX has an upgraded infrastructure from which remote trading across a secure private WAN and the launch of an international segment can take place.

The Bahamas' Lowtax Specialisations

Leading sectors are banking (over 400 banks with external assets over $150bn) and mutual funds ($70bn under management). Trust management is also prominent. Captive insurance is weak; new legislation is needed. Professional services are excellent. The shipping registry has been very successful for larger vessels. The Government has passed a modern securities law which will lead to the opening of a stock exchange.

No income tax in the Bahamas!

There is no income tax, capital gains tax, VAT, sales or use tax or wealth tax. Annual government fees are imposed on businesses and there are national insurance, stamp duties and property taxes. Local businesses are controlled by licensing and somewhat protected, although there are good investment incentives in some sectors. Offshore operations take place through International Business Companies or other tax-exempt forms.

FATF Blacklist

In June 2000, the Bahamas was identified by the FATF as a non-cooperative and harmful tax haven. The result of this is that the Bahamas is one of fifteen tax jurisdictions placed on an OECD blacklist. Each 'harmful' tax haven has a year in which to correct its tax regulations and legislation, once it has done so the tax haven will be removed from the list.

Those who do not conform within the year will be dealt with by measures set out in a US Anti-Money Laundering Bill. The Bill is currently in the draft stage, but it aims to give sweeping powers to the US, which will prevent US financial institutions from dealing directly with errant jurisdictions or with specified institutions in those jurisdictions.

At the beginning of October 2000 the FATF reviewed the 15 jurisdictions on its money laundering list and announced that the Bahamas was one of the jurisdictions that had made "significant progress" in improving banking oversight. The FATF praised the "very encouraging" measures taken by the Bahamas, which includes the Money Laundering (Proceeds of Crime) (Amendment) Act 2000, the Evidence (Proceedings in Other Jurisdictions) Act 2000 and the Evidence (Proceedings in Other Jurisdictions) (Amendment) Act 2000. Other new or amended bills have also been proposed.

However, the list will not be amended until early 2001, by which time The FATF will have decided whether or not the Bahamas should be removed from the list.

US Treasury Advisory Information

In July 2000, The Bahamas was placed on an OECD blacklist of harmful tax havens which possess the potential to launder money. Consequently, the US Department of State issued an Advisory against The Bahamas. The US Treasury Secretary, Larry Summers, has warned that the Advisory is a caution to US financial institutions to give extra scrutiny and caution to transactions with The Bahamas.

Again, there is light at the end of this tunnel as the Bahamas' efforts to be removed from the FATF blacklist is likely to encourage the OECD and the US Department of State to reconsider its opinions in the near future.

Immigration Controlled by Residence and Work Permits

With an unemployment problem, the Government controls access to Bahamian jobs with a system of work permits. Access to housing has been recently relaxed for foreigners, who are now encouraged to buy or build 'second homes'.

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REUTERS, 28-Feb-01

WASHINGTON, Feb. 28 — U.S. Senate investigators on Wednesday faulted several major U.S. banks for failing to pay enough attention to accounts they held for foreign counterparts allegedly linked to money laundering and other crimes.

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Releasing three new case studies from a year-long probe of so-called correspondent banking, the investigators criticized Citibank (NYSE:C), Bank of America (NYSE:BAC), Chase Manhattan (NYSE:JPM) and Bank of New York (NYSE:BK) for being too quick to open accounts for shadowy offshore banks, too lax in monitoring them and too slow to close them down when problems emerged.

The studies supplement a report by the Democratic staff of the Senate Investigations subcommittee earlier this month that found correspondent accounts were a "significant gateway" for money launderers to move their ill-gotten gains through the U.S. financial system.

It recommended that Congress act to bar U.S. banks from opening such accounts for so-called "shell" banks -- which have no physical presence anywhere -- and to tighten due diligence requirements for dealings with offshore banks and institutions located in secretive financial havens.

The subcommittee will begin three days of hearings on the issue on Thursday.

The new case studies faulted Citibank for its dealings with two "shell" banks, Cayman Islands-based M.A. Bank and Bahamas-based Federal Bank.

Investigators said a correspondent account held at Citibank by M.A. Bank, a unit of Argentine financial group Mercado Abierto, was used to launder $7.7 million in drug money for Mexico's Juarez cartel between 1997 and 1998.

Although the U.S. government filed seizure warrants seeking to attach those funds in May 1998, Citibank did not immediately review the account in the light of the action and it remained open until March 2000, they said. In the interim, more than $302 million moved through the account.

The investigators also said Citibank's partnership with Federal Bank's parent, Argentine investment group Grupo Moneta, in a local holding company may have "colored" its judgment in administering a correspondent account for the bank.

More than $4.5 billion moved through the account in just over eight years, including large sums that shifted between Federal Bank and other offshore vehicles linked to Grupo Moneta, they said.

"The Minority staff consulted several experts with respect to wire transfers and money laundering and not one ... could explain a reasonable business justification for this pattern of transfers," the report notes.

Citibank also apparently misled the Argentine Central Bank when asked in 1998 for any information it had on Federal Bank's ownership structure, the report said, calling the episode "a troubling mystery."

"Despite repeated references in their own documents and records to the fact Federal Bank was 100 percent owned by Grupo Moneta ... Citibank Argentina responded to the Central Bank that their 'records contain no information that would enable us to determine the identity of the shareholders,'" it said.

Bank of America, Chase, and Bank of New York were also cited for failures in their relationships with two Antigua-based banks, Swiss American Bank and Swiss American National Bank, described by investigators as "repositories of illicit funds from several illegal operations."

"These relationships can be characterized by failure of the U.S. correspondents to respond quickly to patterns of problems and questionable activity in the relationship and inadequate due diligence and ongoing monitoring," the report said.

"The banks' failure to act more quickly and decisively stemmed in part from what appears to have been a general convention throughout the correspondent banking field, a reluctance to sever a relationship once it is established."

Copyright 2001 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters.

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February 5, 2001

By Kathleen Day

The failure of U.S. banks and regulators to track transactions with foreign banks enables criminals to route billions of dollars from drug sales, Internet gambling, tax evasion or other illegal activities into the United States each year, a new Senate subcommittee report concludes.

Although regulators have prodded U.S. banks in recent years to bolster their efforts to control money laundering through individual accounts, the Senate permanent subcommittee on investigations found that banks and regulators have been lax in applying similar standards to correspondent banking, in which foreign banks use U.S. banks to perform wire transfers and other transactions.

The subcommittee's report, which concludes a yearlong investigation, is to be made public today. Regulators and bankers familiar with the inquiry say it is the first comprehensive look at this aspect of banking and how it facilitates money laundering.

"Inattention and disinterest by U.S. banks in screening the foreign banks they take in as clients have allowed rogue foreign banks and their criminal clients to carry on money laundering and other criminal activity in the United States and to benefit from the protections afforded by the safety and soundness of the U.S. banking industry," said Sen. Carl Levin of Michigan, the senior Democrat on the subcommittee.

The subcommittee launched its investigation after a Russian money-laundering scandal erupted at Bank of New York 18 months ago. It examined a number of well-known banks, including Bank of America, Citigroup, J.P. Morgan Chase & Co. and First Union Corp.

In all, the subcommittee staff questioned 20 institutions and pursued, in detail, cases at more than a dozen U.S. banks involving "dirty money" flowing through U.S. accounts from suspicious foreign banks, especially offshore banks in jurisdictions with weak money-laundering laws, according to the report.

J.P. Morgan Chase & Co., Bank of America, Citigroup and First Union each said they terminated the accounts studied by the subcommittee as soon as they became aware of suspicious activity. They also said they are constantly monitoring and improving oversight of money laundering, correspondent accounts in particular.

"We're constantly trying to balance a customer's right to privacy with the monitoring of bank activity," said Shirley Norton at Bank of America. "It's not easy."

Correspondent banking is a legitimate banking practice, allowing companies to transact business globally for clients. So is offshore banking. Most U.S. financial institutions have established offshore banks in jurisdictions such as the Cayman Islands or the Bahamas because they have fewer regulations than the United States and can offer higher interest rates or lower tax rates.

But the estimated 4,000 offshore banks in such jurisdictions are also used by criminals to launder money into the United States, according to the subcommittee report. That's because many of these jurisdictions have secrecy laws that prevent law-enforcement inquiries and have few if any money-laundering regulations.

The correspondent relationships that offshore banks have with American banks have become a major tool to facilitate such laundering, the report says.

Money laundering, which the Clinton administration declared a national security threat, is the act of concealing the source of funds obtained from an illegal activity. An estimated $1 trillion is laundered each year -- about half of it, or $500 billion, through the United States, according to the report.

Although money laundering is a crime and the law requires banks to have policies to guard against it, neither criminal statutes nor bank regulations detail what banks must do. Regulators have issued guidelines telling banks that one important way to guard against money laundering is to know each customer, and banks have stepped up their efforts when individual accounts are openned.

But this "know-your-customer" standard has been routinely ignored by correspondent divisions of American banks, the Senate subcommittee report says.

"U.S. banks rarely ask their client banks about their correspondent practices and, in almost all cases, remain unaware" of who the ultimate clients are using the accounts, the report says.

Even when U.S. banks do ask questions, they can end up unwittingly facilitating crime, the report says. In one case, for example, subcommittee investigators found that a convicted felon in California used Citigroup to launder nearly $8 million obtained through credit-card fraud.

The money first went from the United States through bank accounts in the Cayman Islands to those in the South Pacific island country of Vanuatu and then back into the United States via an account in New York at Citigroup.

The transactions occurred without Citigroup knowing the criminal origin of the money, the report says, even though Citigroup executives asked questions about where the money in the Vanuatu accounts had come from and conducted on-site visits of the bank.

Public and government attention was focused on correspondent banking in the summer of 1999, amid news accounts chronicling how $7 billion in suspicious money flowed from several Russian banks into the U.S. through several accounts at Bank of New York. Last year, a former Bank of New York vice president, her husband and three shell corporations pleaded guilty to charges of conspiring to launder money.

Reuters, 02.22.01, 1:59 PM ET

MIAMI (Reuters) - Regulators in the Bahamas and eastern Caribbean have shut down four offshore banks cited earlier this month in a U.S. Senate report that criticized such "brass plate" banks as key conduits for money laundering.

In the Bahamas, which suspended the licenses of two suspect banks last week, Finance Minister Sir William Allen told Bahamas lawmakers Wednesday that the shutdowns were part of a broader review that will lead to "the suspension of licenses and indeed the closure of a number of other institutions."

The shutdowns and sweeping reviews signal that banking regulators in the Atlantic and Caribbean islands are feeling the heat from recent U.S. criticisms and international blacklists of countries that allegedly fail to stem the movement of ill-gotten money.

A U.S. Senate report released on Feb. 5 by Democratic Sen. Carl Levin of Michigan outlined how the banks in question were used to launder criminal proceeds through correspondent accounts with U.S. banks.

The suspect banks often have no buildings or staff in the islands where they are licensed and do not offer local checking and saving accounts. Their clients are foreign banks. While some are legitimate operations, others are merely conduits to move money quickly from one bank and one country to another, often to conceal the source of the money.

"These banks that often have imposing names are nothing more than a brass plate tacked onto some lawyer's office," said Charles Intriago, a former federal prosecutor who publishes the Money Laundering Alert newsletter in Miami.

The Levin report exposed "a gaping hole in global money laundering controls," Intriago said.

"Everybody dealing with this has been focusing primarily on customers, the bad dudes walking in with drug money. Now it turns out that ingrained in the banking system are relationships bank-to-bank that have been exposed as being the equivalent of an intersection at a high-speed freeway without traffic lights."

Since the report came out, four of the 10 offshore banks it examined have been stripped of their licenses.

Offshore banking has been a boon for many Caribbean nations seeking to diversify economies dependent on farming and tourism. But the industry came under fire last year from the Organization for Economic Cooperation and Development and the G-7 Financial Action Task Force, which issued blacklists of nations deemed lax on money laundering and tax evasion.

The implied threat of sanctions has spurred many of them to toughen their financial laws and crack down on rogue banks.

BAHAMAS ACTS AGAINST BRASS PLATE BANKS

In the Bahamas, Central Bank Governor Julian Francis signed a Feb. 13 notice freezing accounts of the Federal Bank and the British Bank of Latin America and ordered their liquidation.

The latter, described by the Levin report as an affiliate of Lloyds TSB Bank of London, accepted clients only from Colombia. U.S. banking regulators have said it received $1.57 million wired at the instruction of drug traffickers to the bank's correspondent account at a New York bank during Operation Casablanca, a massive money laundering sting conducted by the U.S. Customs Service in the late 1990s.

Federal Bank was singled out by the Levin report as a "classic shell bank" that existed only on paper and moved funds of suspicious origin. It serviced Argentine clients and apparently operated from Uruguay, investigators said.

"These are institutions which in our view are not adding anything significant to our financial system, but indeed they threaten the integrity of the international financial system. So we will be moving briskly to deal with these," Allen told Bahamian lawmakers.

He said the Bahamas also suspended licenses held by five "international business companies," which operate investments such as offshore mutual funds. Those were Chase Bank of Texas National Association, the Bank of Virginia Bahamas Ltd., Apax Banks and Trust Company Bahamas Ltd., United Overseas Bank and Trust Companies Bahamas Ltd and Bank One Oklahoma NA.

In the eastern Caribbean island of Dominica, Finance Minister Ambrose George said the license held by British Trade and Commerce Bank was revoked on Feb. 15 due to "poor financial status" and PriceWaterhouse of Grenada had been appointed to liquidate its assets.

The Levin report said that bank moved millions of dollars associated with money laundering, financial fraud and illegal gambling over the Internet.

And the two-island federation of Antigua and Barbuda revoked the license of Hanover Bank as part of an investigation that could lead to its liquidation, the Miami Herald said.

Hanover Bank had no Antigua office and was operated from Ireland by owner Michael Anthony Fitzpatrick. One of its clients allegedly allowed a U.S. citizen, William Koop, to use a Hanover account to launder $13 million of proceeds from fraud in transactions with correspondent banks at U.S. accounts.

Koop pleaded guilty last summer to money laundering and defrauding investors in a bank note scheme. Fitzpatrick has denied knowledge of the illegal transactions. Copyright 2001, Reuters News Service.

The Kalorama Letter

by:

 Today, I write as a concerned citizen for whom the Bahamas is beloved, for what seems to be - with all due respect - a rather timid policy on the Blacklist sponsored by The Financial Action Task Force (FATF); created by the Organization for Economic Corporation and Development (OECD) - in the interest of stemming the tide of money laundering. The danger of this initiative is breath-taking: if we comply with the current FATF proposals, and lose banking secrecy, as has been reported, we would effectively lose even the strategic sovereignty we possess, our banking industry would be dead...positively; and this may have a catastrophic effect on the standard of living of every Bahamian.

We have approximately 400 banks registered in the Bahamas, with some $ 200 billion dollars in financial assets. Listen: we cannot begin to calculate the value of such a privilege. These dollars distinguish us from many small countries who spend their time hustling to get the attention of larger more powerful countries. Some readers may question whether these banks hire Bahamians directly, as a consequence of which they question the importance of banking to the economic life of the Bahamas. Let me, in answer to that attitude tell a little story.

In 1992, while participating in a roundtable on The Economics of Freedom at a Mont Pelerin Society meeting in Vancouver, I turned to the scholar next to me and said: Freedom is not merely a set of privileges, but a series of costs. That scholar introduced himself to me as Dr. Milton Friedman - the Noble Prize winner for Economics. in 1976. We talked a little about my country - The Bahamas - and the Commission of Inquiry which convened after the 1992 elections in which the FNM became the government of The Commonwealth of the Bahamas. Sovereignty is a series of costs too, he said. I thought on that conversation extensively at Vancouver. I thought about our fragile situation in the world, and how the loss of confidence in the Bahamas could mean that we are reduced to basket-case status in the world community. With all due respect to our tourism professionals, we would be-come a financial back-water where people from wealthy countries come only to play native. In this respect tourism maybe our largest industry, but banking is the most important.

As result of this thinking, I wrote a letter called the Vancouver Letter - Concerning the need for a Thorough Commission of Inquiry, which was published in some of our leading papers.

My concern was that the drama of our domestic issues were being played onto a world stage. How we handled ourselves, determined how we would be treated in the international community, again, as a series of costs. Respectfully, I have concerns with the way the Inquiry proceeded, and with its conclusion, which are not fully relevant here. I will say only, in a world where impressions are now more immediate than ever, our approach to our own internal issues are no longer internal matters. And new economic partnerships in a highly competitive world may hinge on the perceptions our own actions tend create.

That is why we must act with a mature foresight in the current crisis. I tell you in the strongest terms, whether or not the many banks we have employ Bahamians directly is not an issue. Since we have $ 200 billion dollars it means that the world financial community cannot ignore us. It means that through our contacts with that community over money and banking, we may win other concessions on trade and immigration or allowances for education for instance. It means opportunities for the development of venture capital enterprise, that prestigious international corporations with specific needs have to deal with us because of the skill pool we developed handling those funds. Through such relationships, the international partners of our banks, or their own clients may decide to give the Bahamas a try for investment purposes. That, my fellow Bahamians, means jobs and the maintenance of our standard of living ! Therefore losing our banking industry and our sovereignty may very shortly become a set of costs, and bluntly, a disaster for our way of living. I am sure we all agree that money laundering is dangerous to our economic health. We could start by saying it is morally wrong. If we examined the possible corruptions to our reputation and our banking system, we may simply say money laundering is:

1. inflationary - it causes prices to rise and fall sporadically - since it introduces loose or arbitrary credit and cash into an economic system, often outside the discipline of the legitimate economic institutions, such as in our case the Central Bank.
2. Depending on its point of entry into an economic system, money laundering can have a variety of effects. In some cases it develops through bogus corporations and companies. The effect of this can mean that earnest Bahamians could find themselves suddenly out of jobs they thought had long term prospects. As such, it could have a punishing effect on the loss of skilled labour applied to production and services, which enriches the economic life of the Bahamas.
3. Direct money laundering through the Banks is yet another type of money laundering which has altogether different effects. One of the main issues here - which one may accept as a rule is that going after bad money interferes with good money. That is, in an effort to smoke out the dubious investor, we may give the legitimate investor the wrong impression. He or she may decide that it is not worth the hassle to have to deal with the inquiries into such private matters, and decide to take their business elsewhere.

Though I believe we in the Bahamas have acted during the 1980s to defeat the notion that our Banks are engaged in discreet money laundering, if we are not careful, if we allow others to dictate to us, if we become reactionary and panic-stricken, we could lose our second largest industry by accident.

I would like therefore to outline some of the issues in ways which I have not seen so far in the press. First, let me lay out very shortly, some of the basic questions before us. I will say something about the OECD, the reason they support this policy, what I really think it is all about and what we can do about.

Who are the OECD ? They are a group of the 29 richest countries, based in Paris. USA, Britain, Germany, France, Italy and Canada, or the major industrialized countries in the world operate through this group, whose polices can have profound effects on international bodies such as the IMF, the World Bank, the WTO and the GATT. All this should tell us that any sanction initiating from the OECD must be taken seriously.

The Blacklist itself is not a sanction. It is a first step in that direction. Although, if investors are frightened away because we may be blacklisted, again we are the losers. What about the Blacklist itself ? How does a country end up on it at all ? It is believed that over $600 billion dollars in illicit funds are roaming through the banks of off-shore financial centres like the Bahamas. The big countries have decided to get tough, since if this money is laundered, drugs traffickers will have access to clean funds.

Does this mean that these threats of blacklisting are about getting after the proceeds of drug dealing ? In my view, yes and no. Obviously, we must develop comprehensive strategies to deal with drugs trafficking. If Mafia leaders and drugs traffickers have access to substantial amounts of clean funds they could pose a danger to legitimate business and governments; wrecking havoc on regional economic systems, costing billions in policing and security. In a country of our size they could have a deleterious effect on small business by financing false competition and again, causing wild movements in prices. However, FATF - the OECD body in Paris - have been very sloppy if they are really targeting drug dealers attempts to clean money. First, their efforts are only concerned with bank accounts. I indicated at the beginning that there are many types of money laundering. Bogus businesses, land deals, trust arrangements and so forth. It is not enough to say money ends up in the bank from these practices anyway, since funds maybe cleaned BEFORE it gets into the banks. In fact, structurally, banking is the least interesting way to clean money.

Why then this evangelistic approach to getting countries like the Bahamas to comply such haphazard policies ? In my view it is not drugs money at all, but tax dollars that they are after. That means they are after what they have always been after: BANK SECRECY in off-shore centres. It is also interesting that countries like the Bahamas and Israel are under fire when, most of the off-shore centres are under G-7 control, particularly the U.K. with Jersey, Isle of White, Bermuda, Cayman and Turks and Cacois Islands; and the USA with Delaware and Alsaka.

However, you must see that the OECD countires are not being all that unreasonable either. It is no exaggeration to say that this crisis hows that we have underestimated the field in which we have been playing. Like Microsoft discovered the hard way, we cannot hope to sit in the balmy breeze and make billions of dollars without taking into account how other powerful interests may react. In the OECD countries, populations are aging. They face statistical forecasts in their countries showing in some cases, that more than 50% of their populations will be of retirement age in the next 12-15 years. This is a serious issue. It means these countries will have to face a shrinking tax base or fewer working people, therefore fewer people from whom to draw taxes. The shortfall in tax revenues could amount to an important security issue. As such, they must go after every tax dollar, Franc, Pound, Euro etc., in the off-shore centres. I think we all can understand their concerns, yet it is a well established rule of international law, that one country does not enforce anothers financial laws; they should control their own citizens.

But what shall we do about this problem that does not hurt us in the final analysis ? First, we are an adult nation, seasoned by centuries of dealing with crisis. We must not panic. We must accept some blame. The statistics on population aging have been around for decades now. We should have formed our financial policies to anticipate the current attitudes. Respectfully, officials at the Central Bank, The Bar Association, The Bankers Institute, Accounting Assoc-iations and the Chambers of Commerce, should have seen it as being in our vital national interests to have foreseen this sort of thing, and should have advised the governments of the day to form policy reflecting this understanding of the world. As an adult nation we cannot be put in the position of reacting to so profound a challenge or be seen to be reacting, since it diminishes our bargaining position and our prestige.

A few months before FATF announced the intention to form a blacklist, The Hon. Padideh Tosti - an international security scholar at the London School of Economics - wrote an article exploring the options which faced the Bahamas and other countries squeezed between the powerful drugs barons and the international enforcement authorities. It seems as if each of these sides will destroy the parties in the middle to avoid or attack the other. Tosti suggested that we in the Bahamas form a think tank to examine the issues before our country, so that we determine our policies by anticipating the possibility of initiatives such as blacklisting (I quote at length):

Tostis speculations are becoming the sources of prophesy. I would like, respectfully, to add some few tough-minded policy moves to all the above:

1. As Tosti suggested, we form a think tank as an act of national maturity and sovereignty, to explore these and other issues related to our vital national interests. This would demonstrate good faith to the international community.

Policy point: we should never again allow ourselves to be put in such a fix. We must use our professional bodies to keep on top of such things advising our governments of the day appropriately.

2. We take the lead, and invite other off-shore centers to join an international association - headquartered in the Bahamas - which sets standards for financial services regulation; while conducting our own comprehensive study of money laundering and its structure in the Bahamas , determining whether and how in the various methods of obtaining accounts in our banks the structures may be abused.

Policy point I: take the leading role and develop relationships with those who have interests similar to our own. By taking the lead in establishing an International Off-shore Financial Committee, we show professionalism, and maturity; moreover, Luxembourg, Israel, Liechtenstein, Switzerland and Hong Kong are not bad company to keep on such a committee.

Policy point II: If already the DEA are boarding Bahamian boats do we want them along with the Secret Service and the US Treasury investigating even ordinary Bahamian accounts; even recommending seizure of funds ?.We must always form our policies in ways that protect our sovereignty and prestige.

3. We should classify all of our accounts by the process of their establishment in the Bahamas, demonstrating the controls and checks we employ to show how we prevent money laundering on the basis of our own regulations - we should than publish the processes as an example of an industry standard.

Policy point: There are dozens of financial products in a sophisticated banking sector such as our own. We cannot accept a blanket review of our financial institutions by foreigners. The preliminary three steps above will force our inquirers to stipulate what sort of accounts they think are out of compliance. It means that instead of negotiating our entire banking system at once, we break it into many phases, and discuss each phase separately.

4. We must negotiate to have FATF accept a standard for account holders - such as that the person does not appear on the lists of Interpol or the DEA or the FBI, nor is currently under investigation which implicates him in money laundering.

It should be clear that I take the position that under NO circumstances should we give up our secrecy or bargain parts of it away. (Though I am told that this has already occurred, I refuse to believe it). We must determine what the sanctions are. Perhaps we can survive the initial stages while we seek a resolution to them. (Why should we react when the penalties are still unclear ?) Also, we have natural allies in among the G-7. We must begin to put together a coalition to protect our interests. For instance, we give life to the economy in Florida, with hundreds of millions of dollars in business, it is time to pressure the public officials and economic interests in Florida who benefit from our business to defend our vital interests - since it protects their business also.

You may ask why should FATF accept our assurances of self-regulation that we are doing all we can to stem the flow of laundered money in the Bahamas. I remind that reader of the admonishment in the Vancouver Letter to be diligent and thorough. That is why we must pursue our domestic issues with our eyes open to our position in the world. The reason that Austria capitulated so swiftly undermining its banking secrecy is of course the Haider Affair. We have no such affairs to worry about. The question is do we have the clout and prestige to insist upon self-regulation ? If not why not ? If we do not get to the bottom of such questions, our sovereignty may carry a series of costs which we are unable to pay.

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Paris, 1 February 2001

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Update of overview of Actions Taken by Jurisdictions since June 2000

FATF, June 22, 2000

FEBRUARY 2001

FEBRUARY 5, 2001