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External review creates ‘webshop’ regulation pressure

Anti-money laundering chief says decision on numbers houses needed in 6-12 months
  • Government is discussing how to best regulate the numbers industry. FILE

ALISON LOWE
Guardian Business Editor
alison@nasguard.com

Published: Oct 29, 2013

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A senior anti-money laundering official has revealed that government discussions are underway on how best to regulate the numbers industry, asserting that within “the next six to 12 months” The Bahamas must make a decision on how to regulate the sector, or face the possibility of a negative evaluation from the Caribbean Financial Action Taskforce (CFATF) that could hurt the economy overall.

An upcoming CFATF review of Bahamian anti-money laundering efforts and The Bahamas’ decision to take up the chairmanship of that body has created new impetus to bring the numbers/webshop industry under government regulation, with the government’s lead coordinator on anti-money laundering suggesting it is “the only responsible thing to do”.

At a Caribbean Gaming Forum held at Atlantis resort on Paradise Island yesterday, Stephen Thompson, the recently appointed national coordinator for the National Anti-Money Laundering Taskforce, told Chairman of the Gaming Board Dr. Andre Rollins that the numbers industry must be a part of a forthcoming national risk assessment that will see the government liaise with all financial industries in the country to determine areas that are vulnerable to this crime.

In an interview with Guardian Business, Thompson said that while he would not wish to pre-empt the government, “discussions have begun” concerning the regulation of the numbers industry, including which body would be the regulator.

“Very early in the new year, I believe we would have looked at the whole business of all forms of gaming. All forms of gaming will be caught by some form of regulation, it will only be determined later on who is best to regulate those types of activities,” he told Rollins, later adding: “I believe in the next six to 12 months a determination would have to be made on sectors like that.”

Thompson’s comments at the forum, hosted by the UK-based International Governance and Risk Institute under the theme, “Fostering growth, transparency and social responsibility”, come as The Bahamas faces in 2015 a “more thorough” external review by the CFATF than it has ever faced.

Thompson told delegates at the forum that the body now has a heightened “focus” on casinos and gaming as it looks to cause countries to clamp down on the potential for money laundering and related financial crimes.

The fact that The Bahamas assumed the deputy chairmanship of this body in November 2012 makes compliance with its 40 recent recommendations on clamping down on this crime all the more compelling, suggested Thompson.

The government is already attempting to ensure that it corrects deficiencies identified in the last mutual evaluation via the Gaming Bill that is currently being debated in Parliament, such as the fact that a casino cannot have its license revoked at present for committing certain infractions.

Rollins, addressing Thompson during the question and answer session of a panel discussion on “Anti-Money Laundering and Casinos: The Bahamian and Caribbean Context”, led by Thompson, asked if the government official felt the numbers industry should be looked at when making an assessment on Bahamian vulnerability to money laundering.

National risk assessment

“We’re here talking about regulatory responsibilities and the reputation of this jurisdiction. You referenced earlier points inclusive of an imminent external review, the vulnerability of the sector and the need for a strong AML (anti-money laundering) regime, you asked the question how can someone use the process for financial gain

and you also talked about an imminent thorough national risk assessment.

“As you well know we are about to begin debate in the House of Assembly pertaining to new gaming legislation. Seeing that you are one of the persons chiefly responsible for anti-money laundering, I’m wondering what your thoughts are as it relates to whether it is important for the discussion to also relate to the existence of numbers houses or webshops in the country at this time?” asked Rolllins.

To this, Thompson responded, “Yes it should.”

“It is not good enough for any jurisdiction to have particular laws on their books, [but] more importantly it is the effectiveness of those laws.”

This the former mutual evaluator for the CFATF described as a “change” in the way the evaluation is conducted, making it “more thorough”.

Thompson highlighted a major forthcoming initiative that will affect all financial sectors – the national risk assessment – which is expected to begin either this year or early next year, as the starting point for identifying areas at risk to money laundering.

“So a national assessment means first and foremost that The Bahamas has the opportunity to say, in a responsible manner, that these are the areas of vulnerabilities when it comes to money laundering. At this point, it has to be determined whether the numbers houses should fall into that category.

“I don’t want to preempt the work of the national coordination, but I suspect, and I believe most people in here suspect that any time you have an unregulated sector, which is generating huge sums of monies on a daily basis, the only responsible thing to do is to look at that sector and determine how do we manage this process; do we need to bring it under the regulatory regime.

“And then the next question is if we regulate this sector, is it to be best regulated by financial services regulators or some other regulators? It might be that we determine at the end of the day that the number houses need to be regulated. That’s one part of the puzzle. The next part is which agency existing would do it, or do we create an agency to do it.

“It’s a little too early to do that at this point, but I believe in the next six to 12 months a determination would have to be made on sectors like that,” said Thompson.

Dialogue

The national anti-money laundering coordinator told Guardian Business that he strongly supports dialogue with the numbers industry.

“The first thing we need to do is to find out – and I am not sure if we’ve done this properly – is to find out how those businesses operate; bring them to the table. I am all for dialogue; I am all for consultation.

“And I believe the best thing to do is to bring them to the table and say how do you operate – show them in plain English these are the vulnerabilities, if you continue to operate this way – and I am not sure how they operate – but if they do, then this mode of operation puts them at risk of money laundering.

“Say to them also, ‘This is how we can mitigate those risks’. We would hope they would buy into that. If they don’t, we would hope simultaneously that we have to look at a regulatory framework to oversee that process.”

Thompson said that while he doubts a “blacklisting” of The Bahamas could occur if external reviewers are not happy with the treatment of numbers shops, or any other “financial” institution, he said the possibility of a pall being cast over The Bahamas as a place to do business is not unlikely.

“I don’t think we’d go down that road now (a blacklisting) – but the FATF and other bodies are making what they call ‘public statements’, which means when they put out a statement that this jurisdiction has lax regulation of a particular sector or industry, what they are saying is ‘you are going to need to be careful not to do business there’. And there is fall out from that, there are dire consequences from that.”

Full support

Thompson said that the national anti-money laundering taskforce he was appointed to coordinate in May of this year has the “full support of policy makers.”

“They want us to conduct a very thorough national risk assessment, and we will revisit all of our financial services legislation to see what needs to be updated,” said Thompson.

In January, voters in The Bahamas overwhelmingly rejected a referendum to legalize gambling for Bahamians.

In a two-part referendum, Bahamians voted on whether “webshops” should be legalized, regulated and taxed, and if the government should create its own national lottery.

Prime Minister Perry Christie then announced that all webshops must close or their operators would face prosecution; however, this did not happen and no steps to enforce his statement were taken by law enforcement.


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