Clearing Banks: 'Difficult to anticipate' U.S. response to web shop plan

Wed, Jun 11th 2014, 10:13 AM

The head of the Clearing Banks Association said it is "difficult to anticipate" what the reaction of key international bodies and the United States will be to the government's plan to regularize the web shops, noting that a "challenge" in this regard is that there is "much speculation but little definitive information" about the web shops' business activities.
Commenting after banking executives warned in Guardian Business on Tuesday that "regularization" plans proposed by the government may not "fix" the problem they represent as far as banks are concerned, Marie Rodland-Allen told Guardian Business that it appears that the unregulated activity being conducted by web shops extends beyond "potential breaches of the Gaming Act".
While not explicitly clarifying, her comments would seem to be making reference to the fact that some web shops have now started offering financial services, such as loan products - activities which may not be specifically regulated under the Gaming Act proposed by the government.
Pointing to the range of challenges that will arise as the government moves to regulate web shops, Rodland-Allen said: "Regularization of web shop gaming covers the issues of regulating the industry, regulating the participants in the industry and addressing the proceeds of the activity for the period before the activity is regulated."
She added: "In the modern financial environment, dominated by Financial Action Task Force (FATF) member countries, the proposed regularization covers issues that are of key concern to FATF members. Without knowing the specifics of the proposed legislation, it is difficult to anticipate what may be the reaction from the FATF and, in particular, the United States. Greater scrutiny is also being placed on anti-money laundering (AML) and know-your-customer (KYC) processes of correspondent banking relationships."
FATF is an inter-governmental body directed and controlled by the G-20/G7 focused on developing and promoting policies to combat money laundering and terrorist financing. In 2000, FATF placed The Bahamas on a damaging "blacklist" of "non-compliant" countries for allegedly having weaknesses in its financial services regulatory regime that could facilitate money laundering.
While not directly stating that CBA member banks would not do business with web shops under the "regularized" regime out of fear of blacklisting, Rodland-Allen stated: "The CBA members will continue to apply their AML/KYC due diligence standards to all customers to ensure they do not assist money laundering or terrorist financing or any other activity that may be harmful to the reputation of this jurisdiction".
Her comments come after Ian Jennings, Commonwealth Bank's president, said that dealing with the problem posed by web shops to the Bahamian economy and financial system is "not as simple" as the government appears to think.
Jennings and another bank executive speaking on condition of anonymity suggested it would remain unlikely once this legislation is passed that retail banks would feel comfortable with doing business with web shops - who are presently unable to find banks willing to transact business with them in The Bahamas due to their dubious legal status - given concerns that they will not meet strict standards of compliance with international norms set out by the Financial Action Task Force (FATF).
Rodland-Allen's comments regarding how they would expect web shops to be able to "regulate participants in the industry" and "the proceeds of the activity for the period before the activity is regulated" further clarifies some of the impediments web shops may face in meeting these strict standards.
Jennings noted the importance of the correspondent banking relationships Bahamas-based banks must maintain with banks in the U.S. and elsewhere as key to local banks' decision as to how to proceed with respect to the web shops.
He said: "Just by regularizing the web shops is not going to get rid of the problem, as far as the banking sector is concerned..."
"All of our transactions and trade is with the U.S. and (the correspondent banks) are coming under increased scrutiny from their regulators to make sure that their Caribbean correspondents are performing to the highest level. That's a relationship that no Bahamian bank can afford to give up, so we have to make sure we maintain our reputational position.
Another banking executive, speaking on condition of anonymity, suggested that if the government's "regularization" plan does not allow web shops to put their money in Bahamian bank accounts, this will have further negative effects on the government's ability to collect tax revenue from them.
The local banks' concerns are being echoed by actions recently taken by banks in Trinidad and Tobago.
In May 2014, the Republic Bank announced that it would be closing the bank accounts of the country's so-called "private members' clubs" - casinos which operate largely illegally in the country and which have yet to be regulated to the extent that would allow them to meet evolving international standards on compliance with anti-money laundering and terrorist financing.
In a statement to the Trinidad Express, Republic Bank said: "This decision was taken as a result of the significant impact that this type of industry has on the bank's compliance requirements. Republic Bank understands that many banks in the country have adopted a similar approach."
The Bahamian government has proposed to pass a new Gaming Act which will "regularize" the web shops once it is finished debating and passing the 2014/2015 budget.

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