If the web shop sector is going to be allowed to exist then it should be regulated, Governor of the Central Bank of The Bahamas Wendy Craigg told The Nassau Guardian.
Noting that web shops are operating outside the regulatory framework, the governor said they really are not underground businesses.
"It does not fit the definition of underground activities," she said of the sector. "It has a face. It is very visible."
The governor pointed out that the Central Bank and local commercial banks adhere to strict national and international standards aimed at guarding against money laundering and terrorist financing.
When she was contacted for comment recently, Craigg did not take a position on whether web shops should be allowed to operate, as it is a highly political issue in the purview of the government.
Instead, the governor pointed to the dangers of having an unregulated web shop sector.
"As a Central Bank, we are certainly aware that last year the domestic banks took explicit measures in compliance with these AML (anti-money laundering) regulations to have accounts that were operated by these number houses closed," she said.
"That definitely came to our attention, and so they were left with a dilemma as to what to do with these large cash balances.
"We know that some of them were directed to the Central Bank to acquire government paper, government registered stock, treasury bills, but since we are also bound to comply with national KYC (know your customer) requirements, we had to deny those requests."
Ian Jennings, president of Commonwealth Bank, told The Nassau Guardian that the bank is still abiding by the position that the numbers businesses are operating illegally.
He said Commonwealth Bank will not entertain these accounts because it has to comply with know your customer and other requirements.
"Obviously, since the referendum, the whole question has been called into account as to whether or not it is illegal or legal activity," said Jennings, referring to the gambling referendum which took place one year ago today.
"For Commonwealth Bank, until the court rules otherwise or there's a change of the law the bank is still at the position that it is an illegal activity."
A legal challenge filed by web shops in the wake of the failed referendum remains tied up in the courts.
Jennings noted there is no clear evidence of what is happening to the proceeds of the unregulated industry.
"It's like the governor said, we hear anecdotal stories, but there is nothing we have that can prove to anybody [what they're doing]."
Jennings also said, "We're concerned with regard to the extention of credit."
He added, "The total level of credit, if it is not being regulated just adds more burden onto the consumer."
VULNERABLE
Craigg said unregulated businesses involved in "cash intensive activities" could be vulnerable to criminal exploitation.
"And that is why they've been recognized by the international organizations as requiring oversight under national AML so they have to abide by those requirements," she said, "the same way the casinos [have to]. Casinos today have to comply with AML/CFT (combatting the financing of terrorism) regulations."
The governor said some of the businesses involved in numbers made applications to the Central Bank for permission to invest overseas.
"And then the informal information that has come to our attention is that they are becoming very important providers of credit which is outside of the formal regulated banking sector and if these activities are sizeable, this certainly creates an unleveled playing field for regulated credit entities and it basically results in an under reporting of the value of credit activities in the economy," she said.
"Our understanding is that some of them are engaged in the provision of small loans, consumer loans perhaps through becoming owners of or funding pay day advance companies.
"They provide mortgages. They do in-house financing for housing and condominium development. They are owners of large commercial housing developments, so this is just a way that they are investing their cash resources that they cannot place within the banks on deposit."
The governor added that this unregulated sector could also be distorting important national economic data.
"If they are not being measured as a part of the activity that's taking place in the economy then we have an under reporting of economic information such as employment, personal income, GDP output data for the country, and by their very nature these web shops or number houses are very cash intensive."
The Nassau Guardian contacted the governor for comment on this highly divisive issue after Prime Minister Perry Christie said she had concerns about the unregulated numbers industry.
In a recent interview with The Nassau Guardian, Christie said, "Today, the governor of the Central Bank is demonstrating concern for this because what has happened is there has now been the evolution of a new economy that is underground, a new banking order that is taking place where mortgages are being given and where huge sums of money are moving.
"You always have money laundering concerns when you don't regulate, but I'm thinking now of when the banks say you can't bank your money, the Central Bank says you can't invest in treasury bills, the Central Bank says you can't export your money, you can't put it in another country, then you ask the question if that is the case, what is supposed to be happening to the money?
"And so, that is a very trying set of circumstances for me now."

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