The US government has accused “certain” Bahamian regulators of failing to accept the financial crime risks posed by online gaming and money transmission businesses.
The Trump administration, in its just-released International Narcotics Control Strategy Report (INCSR), did not name the regulators it was referring but signalled its dissatisfaction with the number of money laundering prosecutions and convictions that occurred in The Bahamas during 2019.
Pointing to the fact that prosecutions and convictions have “dropped by at least 67 percent” despite the Financial Action Task Force’s (FATFs) demand for improvements in this area before it will remove The Bahamas from its surveillance list, the US report signalled that the number of suspicious transactions reports (STRs) filed is too low for a financial sector with US$400 billion in client assets.
The INCSR, which is submitted to Congress annually zeroed in on what it described as “global money laundering challenges” posed by The Bahamas’ casino and “online gaming” sectors. The INCSR report said Central Bank statistics showed the casino and “online gaming” sectors generated US$1.3 billion and US$3.2 billion in gross gaming revenues for the first eight and nine months of 2019, respectively.
“The number of filed STRs continues to be low when compared to the size and scope of the financial sector.”– US INCSR report
Such figures, the report emphasised have never been divulged before, and it is unclear whether they are correct or have been inflated because the Central Bank is not the primarily gaming regulator. However, the report said 93 percent of all “online gaming” transactions in 2018 involved cash, while just 10 percent of all STRs came from the two gaming sectors despite their combined top line being equivalent to 27 percent of Bahamian GDP.
“Although The Bahamas has taken significant steps toward strengthening its anti-money laundering regime, potential vulnerabilities in the online gaming and money transfer business sectors are further exacerbated by certain regulators’ reluctance to acknowledge them,” the US INCSR report observed.
It said The Bahamas faces global money laundering challenges related to casino gambling and the online gaming sector, including ‘web shops’, which are restricted to citizens and residents of The Bahamas.
The timing of the US government’s report, and assertions, could not be worse for The Bahamas with the Government, financial services regulators and the wider industry all gearing up for an FATF “site visit” to the country before mid-May 2020 that is crucial to determining whether it comes off its monitoring list of states with deficiencies in their anti-financial crime defences.
The FATF is the global standard setter in the fight against anti-money laundering and terror financing, and has worked with The Bahamas on an “action plan” to address its weaknesses – a number of which have been flagged up again by the US report.
The INCSR document recognised the legislative reforms that The Bahamas has implemented in response to the FATF concerns, especially the Attorney General’s Office’s new electronic case management system and improved analytical tools for processing STRs.
Pointing to areas of concern also identified by the FATF, the US government report said “International experts have stated The Bahamas should continue to work on demonstrating that authorities are investigating and prosecuting all types of money laundering, including cases involving virtual currencies, stand-alone money laundering, and cases involving proceeds of foreign offenses such as tax crimes.
In 2019, the number of money laundering prosecutions and convictions dropped by at least 67 percent despite significant legal and regulatory progress to-date. Political will to pass legislation related to strengthening the anti-money laundering and counter terror financing regime is strong, and The Bahamas has implemented a strategic action plan to correct noted deficiencies.
“However, effective implementation may pose challenges. The number of filed STRs continues to be low when compared to the size and scope of the financial sector. As of October 30, 2019, the FIU received 454 STRs for a sector encompassing $400bn in assets, up from 332 in 2018 and slightly higher than 446 in 2017,” the report continued.