By LINDSAY THOMPSON

Guardian Business Reporter

lindsay@nasguard.com

Had the Free National Movement Government addressed the concerns about the banking regulatory process and the Know Your Customer (KYC) regime, it would not have been necessary to amend the Financial Transactions Report Act, 2002.

Minister of Financial Services and Investments Allyson Maynard-Gibson made this charge, as she contributed to the Parliamentary debate on an amendment to the Act for the extension of the KYC deadline for verification of existing bank accounts.

The amendment, passed in the House of Assembly on Wednesday, allows for a December 31, 2003 deadline.

"Without exception the call has come for this deadline on verification of existing accounts to be extended," Mrs. Maynard-Gibson said. "Equally, without exception the Government and Regulators have been urged to revisit this broad brush requirement, with the aim of introducing a more focussed risk-based approach to KYC.

"These recommendations have been heeded and will be reflected in a well articulated, reasoned and relevant amendment to the KYC regime, that does not dilute or compromise the international standards established for tackling money laundering."

The FTRA came about following the blacklisting of The Bahamas' Financial Services Sector by the Financial Action Task Force (FATF), which labelled The Bahamas and more than 30 other countries as "harmful tax havens". And, after the country complied with certain international standards, it was removed from the blacklist.

The FTRA provides that all accounts and facilities of financial institutions in existence on January 1, 2001, the date the Act came into force, had to be verified by December 31, 2001.

The FTRA also gave the Minister with responsibility for the Act the power to extend this deadline, by order, up to December 31, 2002, the end of this year. Two ministerial Orders extending the deadline by six-month periods were promulgated. The first was issued on December 17, 2001, extending the deadline to June 30, 2002; and the second, dated June 27, 2002, extended the deadline by a further six months to December 31, 2002.

The government has received "extensive and unanimous" representation from the industry to extend the deadline for the verification of existing customers from December 31, 2002 to December 31, 2003, Mrs. Maynard-Gibson told Parliament. This has necessitated the amendment to Section 6(6) of the FTRA.

"There are a number of other amendments that the industry is seeking and which will in due course be brought forward," Mrs. Maynard-Gibson said.

"We expect to present a comprehensive schedule of amendments in this regard within the early part of the first quarter of next year."

She stressed that the amendment is urgent because section 6(6) provides that where a financial institution has not verified an existing customer by December 1, 2002, the account of that customer must be transferred to the Central Bank. Financial Institution is widely defined to include banks, trust companies, mutual fund administrators and operators, casinos, insurance companies, lawyers, real estate brokers, cooperatives, financial and corporate service providers, car dealers etc.

Due to the onerous requirements to produce documentary evidence placed on clients of financial institutions, the compliance level for existing clients has been fairly low.

As at October 2002, only 229,001 accounts had been verified of 538,861.

That is approximately 57.5 percent of all accounts that would have to be to the central bank. This does not include other unverified accounts of others defined as financial institutions under the Act.

The PLP Government when it came to office in May 2, 2002, undertook to review generally those aspects of the financial legislation compendium passed in December 2000, with the aim of clarifying, simplifying and rationalising those elements which made the conduct of legitimate business unnecessarily complex, repetitious and frustrating. By far the greatest single inhibitor of legitimate business activity, both domestic and international, has been the rigid, overly prescriptive requirements for KYC documentation under the Regulations made pursuant to the FTRA. The obligations under these regulations require financial institutions to obtain detailed documentation on their existing clients even though the money laundering risk of such accounts or facilities may be negligible.

"This has resulted in a significant expenditure of resources by financial institutions harassing long-standing well-known clients for pieces of evidence," Mrs. Maynard-Gibson said. "This exercise has been applied to all facilities, even ones belonging to the young paperboy, grocery packing boy and pensioners.

"Clearly the opportunity for money laundering by these customers is virtually non-existent. Yet the same level of resources and efforts of exertion are applied to these groups as are applied to those higher-risk categories for money laundering.

"It is noteworthy that one of our international partners suggests that further time should be given to banks to allow further compliance with the provisions and that financial institutions should be encouraged to review their lists of outstanding accounts using a risk based approach in order not to devote excessive resources to small domestic accounts." Another partner, according to Mrs. Maynard-Gibson, suggests that the retrospective due diligence requirement should be reviewed with a threshold instituted for small accounts of pensioners who are well known to the bankers.

"I suggest that if time had been taken to truly consult and think about the practicalities of decisions about to be made in 2000, our international partners would have shared the same observations then as they do now," she told Parliament.

She charged that the situation came about because the FNM Government, in is wisdom, did not consult with the relevant agencies as the PLP Government is doing.

Mrs. Maynard-Gibson said that she has held many meetings in and outside of The Bahamas with CEOs of Banks doing business in The Bahamas and other persons at the highest levels connected with those banks and also others defined as financial institutions.

"They all welcome the new way that we do business i.e. by welcoming them to the table as partners in national development i.e. consultation," she said. "The 5 Year Strategic Plan, the Memorandum of Understanding and the Consultative Forum are all indicators of the new way that we do business in The Bahamas – in cooperation with the private sector and other interested parties."

The 5 Year Strategic Plan "is evidence" of this government's determination to consult, she said. "It is the first time that the private and public sector have come together to agree a strategy for the way forward in the financial sector."

During the past decade, the efforts of the G7 countries have demonstrated their concerns about money laundering. A decade ago the BBC on its programme Panorama ran a documentary entitled "Dirty Money" where it focused on Money laundering.

It was on the programme that a US government official first coined the expression "the offshore blackhole". It has come to light that before 1998 the government has been receiving inquiries about the way that certain persons were doing business in The Bahamas.