Caribbean & Central America - March 2017 (ISSN 1741-4458)

One of the issues that has increasingly been worrying small Caribbean nations has been the contraction of correspondent banking. Speaking last year, CV Hope Strachan, the minister of financial services of the Bahamas, said that the main reasons for this are “risks in anti-money laundering and counter-terrorism financing (AML/CFT) and customer due diligence and know your customer (CDD/KYC) related concerns”. It is therefore of some significance that 12 countries in the English-speaking Caribbean are still listed in the 2017 International Narcotics Control Strategy Report (INCSR) as “countries of primary concern”.

Antigua & Barbuda is cited as being “susceptible” to money laundering and other financial crimes because of its relatively large financial sector and internet gaming industry. The other main cause for concern is Antigua’s Citizenship by Investment Program (CIP) which, the INCSR says, increases its susceptibility to money laundering. The problem is, according to the report, that Antigua’s CIP “remains among the most-lax in the world”.

An individual can gain economic citizenship with a US$400,000 investment in real estate and a contribution to the National Development Fund of US$200,000. An alternative route is an approved business investment of US$1.5m.

With regard to money-laundering, the report says that while Antigua has achieved technical compliance with international Anti-Money Laundering (AML) standards, “the government has prosecuted few cases of money laundering and official corruption, and reports of corruption are endemic”.

The Bahamas is listed as a country of concern primarily because of its role as a transit point for illegal drugs bound for the US and other international markets. The report says that the major sources of laundered proceeds are drug trafficking, firearms trafficking, gaming, and human smuggling.

Money laundering trends “include the purchase of real estate, large vehicles, boats, and jewellery”. In addition, money is processed through “a complex web” of legitimate businesses and International Business Companies (IBCs) operating in the offshore financial sector.

The INCSR states: “Drug trafficking and other criminal organisations take advantage of the large number of IBCs and offshore banks registered in The Bahamas to launder money” despite requirements to report suspect transactions. The report concludes that The Bahamas has the requisite institutional and legal framework to combat money laundering but that “greater emphasis should be placed on enforcement and effective implementation of the AML regime”.

Barbados has a sizeable IBC presence, and its susceptibility to money laundering “is primarily associated with the domestic sale of illegal narcotics and the laundering of foreign criminal proceeds”. The INCSR lists as AML deficiencies the fact that Barbados’ criminal law “limits the government’s ability to seize assets acquired through criminal activity without conviction”. It urges the government to “continue developing new non-conviction-based asset forfeiture laws to increase the efficacy of asset recovery procedures”.

Other than that, the main recommendation is that the government allocate more resources to law enforcement and supervisory agencies. The report adds: “The government should consider taking a more aggressive approach to conducting examinations of the financial sector and asserting more control over vetting and licensing of offshore entities.”

Belize is not a key regional financial centre, however it is still vulnerable to money laundering “due to lack of enforcement of its laws and regulations, strong bank secrecy protections, geographic location, and weak investigatory and prosecutorial capacity”.

The INCSR says: “The Government of Belize continues to permit financial activities that are vulnerable to money laundering, including offshore banks, insurance companies, trust service providers, mutual fund companies, and IBCs.”

However, the report acknowledges, Belize has made efforts to strengthen its AML regulatory regime, including in 2016 addressing issues related to the financing of terrorism. Capacity is said to be a problem for Belize’s Financial Intelligence Unit (FIU). The INCSR says: “The FIU’s mandate to conduct its AML enforcement responsibilities far exceeds its capacity”. Limited human resources and a high turnover of staff are the main problems.

Dominica “is an offshore centre with a considerable IBC presence and internet gaming”, according to the INCSR. It adds: “Money laundering cases involve external proceeds from fraudulent investment schemes, advance fee fraud schemes, and the placement of euros related to questionable activities conducted in other surrounding jurisdictions. Domestic money laundering is chiefly linked to narcotics activities.”

Part of Dominica’s vulnerability seems to derive from its location close to French-speaking islands of Guadeloupe and Martinique. Another concern is its CIP programme that is said to have “vulnerabilities that present AML and regional security risks and that may make it susceptible to abuse by criminal actors”.

The CIP enables individuals to acquire citizenship for US$100,000 or US$200,000 for a family of four. An alternative route is to make an investment in real estate for US$200,000. There is no residency requirement, and passport holders are able to travel visa free to most Commonwealth and European Union (EU) countries.

Grenada is close to drug shipment routes from Venezuela to the US and Europe, and as such it is vulnerable to money laundering related to narcotics trafficking by local organised gangs. However, it is not a financial centre, nor does it have casinos or internet gaming sites. Corruption and a lack of trained personnel are said to contribute to money-laundering activities.

Guyana is identified as being vulnerable to both human and drug trafficking because of its geographical location. The INCSR says: “It continues to be a transit country for South American cocaine destined for Europe, the United States, Canada, West Africa, and the Caribbean.”

One identified vulnerability is the “culture of using informal networks to move money between Guyana and the diaspora”. Guyana also has a large cash-based economy. “Many criminals use cash couriers of familial networks to move large sums of money between Guyana and the United States”. Unregulated currency-exchange houses are also identified as posing a risk.

However, Guyana has now been removed from the Caribbean Financial Action Task Force (CFATF) list of countries with significant strategic difficulties in combating money laundering. It was listed in 2013, but after passing suitable legislation it was removed from the list in 2016.

Jamaica “continues to experience a large number of financial crimes related to advance-fee fraud (lottery scams), corruption, and cybercrime”, according to the INCSR. Illegal narcotics trafficking is the other main source of funds that require laundering.

The report notes that while the 2007 Proceeds of Crime Act has been used to seize approximately US$20m in assets believed to have been derived from criminal activities, the act “is still not being implemented to its fullest potential due to difficulties prosecuting financial crime and achieving convictions in these cases”.

St Kitts and Nevis “remains susceptible to corruption and money laundering because of the high volume of narcotics trafficking around the islands”. The report adds that the growth of SKN’s offshore sector “coupled with unusually strong bank secrecy laws” remains problematic. The CIP is also highlighted as having “significant deficiencies in vetting candidates and conducting due diligence on passport and citizenship recipients”. Citizenship can be acquired for a US$400,000 investment in real estate. An alternative is for the applicant to make a donation of between US$250,000 and US$356,000 (depending on the number of dependants) to the Sugar Industry Diversification Foundation.

Nevis is highlighted as a particular problem. The report says: “Financial oversight in Nevis remains problematic due to SKN allowing the creation of anonymous accounts, strong bank secrecy laws, and overall lack of transparency of beneficial ownership of legal entities.” It concludes: “The ambiguous regulatory framework regarding customer due diligence makes Nevis a desirable location for criminals to conceal proceeds.”

Money laundering in St Lucia, the INCSR says, “primarily relates to drug trafficking”. The report says that illicit drug trafficking by organised crime rings and “the laundering of drug proceeds by domestic and foreign criminal elements remain serious problems for St Lucia”. The INCSR says that financial institutions “unwittingly engage in currency transactions” involving international drug traffickers.

St Lucia’s CIP offers citizenship for US$100,000 for an individual or US$160,000 for a couple. There is no residency requirement, and an in-person interview is not required.

St Vincent & the Grenadines “remains vulnerable to money laundering and other financial crimes” according to the INCSR. SVG is a “small but active” offshore financial centre. There are two casinos on in SVG. The INCSR highlights the fact that SVG had not yet conducted a national risk assessment by the end of 2016.

Trinidad and Tobago’s “close proximity to drug producing countries, relatively stable economy, and developed financial systems make it a target for criminals looking to launder money”. Proceeds from drug trafficking, illegal arms sales, fraud, tax evasion, and public corruption are all listed as sources of laundered funds, “derived from both domestic and international criminal activity”.

The report notes that there have been no money-laundering convictions to date and that “the AML regime continues to be challenged due to capacity and resource constraints”. In the view of the INCSR, “sustained capacity building, ensuring adequate legislation, regulating the gaming industry, and increasing cooperation among law enforcement entities, the FIU, and the judiciary would greatly improve AML investigations and the rate of convictions”.

The report also notes that the failure to prosecute financial crimes successfully “has a corrosive impact on the integrity of public finances and may encourage others to engage in financial crimes”.