We must not allow criminals to wash the blood off the profits of drug sales, or finance terrorism or underwrite all manners of crime, by leaving open avenues for the laundering of the proceeds of crime.  One cannot disagree with that sentiment, albeit colorfully expressed, by President Clinton.  No reputable business is interested in taking in blood money.

But, for one extremist element, money laundering and bank secrecy are the same.  In their view, bank secrecy “threatens vital interests of the United States.”^[3]  They are opposed to any kind of bank secrecy because they believe it blocks American investigations.^[4]  Offshore financial centers in this region should be punished, according to that viewpoint, by for example denying such centers access to US financial markets by stopping their connection with the SWIFT wire transfer system.

Money laundering is done by criminals.  But, when they use your business, you become a money launderer too.^[5]

Offshore sting operations will continue to take place.^[6]

A Serious Crime Community or Culture: that is how a writer describes what he found in banking in the Bahamas from the late 1950's to the early 1980's.^[7]

“THIS HOUSE BELIEVES THAT ALL OFFSHORE CENTERS SHOULD BE CLOSED DOWN.”  Thus, is framed the closing debate of a recent international bank fraud conference.^[8]

b)  Definition of the problem.

Crime does not pay.  That is the thinking underlying the relevant money laundering offences.  Apart from attacking the primary crimes themselves, one can stop or deter crime by taking the profit out of crime and by cutting off the means of disposing of the proceeds through money laundering.  By reporting and retaining records, the idea is to create an audit trail for investigators to follow in order to bring the criminal to justice.

In simple language, money laundering is disguising assets so they can be used without detection of the crime that produced them.^[9]  You are required to report not only your knowledge, but also your suspicion, of any act of money laundering.

2.  How big is the problem?

Worldwide it is said that money laundering is a problem of staggering proportions.  Global estimates vary widely.  On the one hand, some estimates are in the hundreds of billions of dollars.  On the other hand, other estimates are more modest.  One of the more reliable single countries estimates available was US$2.8 billion for Australia alone in 1995.  No reliable data appears to be available for the Caribbean or the Bahamas.  Therefore, the bottom line is that there is “insufficient data to support any credible estimate,”^[10] although it is generally agreed that the proportions of the global and regional problems are huge.

3.  Sunny Funny Money

The background to the thrust against money laundering was the anti drug wars of the 1970's and 1980's.  Having experienced some success in dealing with the drug problem, countries extended money laundering to other indictable crimes as well.  The most notable documents include: the 1988 Basle Supervisors’ Committee Statement of Principles on Money Laundering; the 1988 UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances; the 1989 establishment of the Financial Action Task Force (FATF); the Caribbean FATF; the efforts of the Organization of American States (OAS) and other regional organizations; and the 1991 European Community (EC) Directive.  The Bahamian legislation is modeled to a large extent on the English legislation.^[11]  The 1985 AIBT Code of Conduct also made a notable contribution.

Standards of regulation vary sharply across the region. Indeed, the money launderer looks for the weakest link in the chain. But, at the moment, practically every Caribbean country with a significant international financial sector has either adopted, or is considering adopting, money laundering legislation.^[12]

Not all financial scams involve money laundering, but money laundering usually involves a scam of some sort, at times with the complicity of corrupt bank employees or other professionals.  It is necessary to identify hot money and refuse to do business.

The sources of international hot money include drugs, financial or white collar crime, smuggling of highly taxed items, such as alcohol or tobacco, and organized crime.  White collar crime includes a variety of offences, such as bank fraud, credit card fraud, investment fraud, bankruptcy fraud, and embezzlement.  Organized crime comes from traditional locations such as Italy, Colombia, Japan, and the Far East, but also from Russia, Eastern Europe, and Nigeria.  When possible, they use instantaneous electronic funds transfers to confuse the audit trail.

The trend is away from drug trafficking alone to fraud and other white collar crimes which attract lower criminal penalties, and away from banking to non-bank financial institutions, such as exchange offices and remittance services, and non-financial professions, such as accountants, lawyers, secretarial companies, notaries, financial advisors and other fiduciaries.  Cash smuggling continues to be significant, especially where there are inadequate or no border controls.^[12]  The points of vulnerability also include the point of entry of cash into the financial system, and transfers within and from the financial system.

Every bank here has its share of scams, schemes and incidents, which I call sunny funny money.  There are numerous and ingenious ways in which criminal money is laundered.  Appendix a of the Bahamian Guidance Notes^[13] sets out several examples.  It is necessary to be constantly vigilant.

Antigua

Several weeks after the Washington Post detailed a series of drug-related scandals in Antigua, the US News and World Report branded the island-nation as "the money laundering capital of the Caribbean,” a place where the Russian mafia, drug cartels and other notorious organizations and individuals launder a million of dollars without having to answer any questions.

According to one estimate, up to $50 billion from the sale of narcotics, out of an annual world total of $500 billion, is laundered through the Caribbean. By depositing the money into offshore financial institutions where no questions are asked, the origin of the money is hidden. Funds can then be transferred through other banks as if the money had a legitimate origin, allowing the criminals to use illegal profits legally.  Then, moving the money through banks with wire transfers is much easier than moving it physically.^[14]

One bank that has drawn the scrutiny of U.S. authorities  is European Union Bank, chartered in Antigua. EUB describes itself as the first bank on the Internet, offering to open accounts, wire money, order credit cards or write checks by computer from anywhere in the world, 24 hours a day.  EUB caught the attention of investigators when it was chartered in July 1994 as an offshore subsidiary of Menatep, a large Russian bank.  Menatep denied it was ever involved in EUB or had any ties to organized crime.  Antigua's Finance Ministry told the bank that it was "not in good standing." It continues to operate, however.^[15]

The Government of Antigua and Barbuda launched new initiatives in the struggle against illegal drug trafficking and money laundering.  In early 1996, the government outlined details of the new initiative to the Assistant Secretary General of the Organization of American States (OAS).  A delegation from Antigua and Barbuda, headed by Attorney General and Minister of Justice met with Thomas stating that the new initiative "seeks to more vigorously address the issue of drug trafficking and money laundering."  Also, a financial intelligence unit was established in an effort to monitor any cases of money laundering in Antigua and Barbuda.  A money laundering bill was tabled in 1996 which is expected to be enacted in 1997.  The government signed an MLAT with the US on the 31st October, 1996, and is negotiating with the UK for an MLAT.^[16]

The Money Laundering (Prevention) Bill of Antigua is presently awaiting enactment.  It was presented to the House of Representatives by the Attorney General on November 14, 1996.^[17]

Aruba

Anti money laundering ordinances came into force on the 1st March, 1996, requiring obligatory reporting of suspicious transactions.

Bahamas

The first country to ratify the 1988 UN Convention on drug trafficking and psychotropic substances.  The Bahamas will undergo evaluation of its money  laundering controls by the Caribbean Financial Action Task Force in 1997.

Belize

Belize is party to the 1961 Single Convention and the 1972 Protocol thereto. Although it has not yet acceded to the 1988 UN  Convention, the government of Belize has cooperated with other governments in efforts to meet the Convention's goals and objectives.  The Money Laundering (Prevention) Act 1996 came into force on the 1st August 1996.^[18]

Bermuda

The government has circulated, but not yet tabled, the Proceeds of Criminal Conduct Bill.  Speaking to Commonwealth Finance Ministers in Bermuda in September 1996, the British Chancellor of the Exchequer said: “International criminals seeking a safe harbor for their criminal proceeds are no respecters of international borders - they will always locate the weakest links in the anti-money laundering chain.”^[19]

The international FATF, following a full evaluation of the UK's legal and regulatory system for combating money laundering, suggested that the UK's regime could serve as a model for other countries to follow.  The FATF also updated its Forty Recommendations, to reflect changes in the money laundering threat.  The Commonwealth fully supports these revised Recommendations.  The Commonwealth guidance notes, in many cases, go beyond what is required by the FATF.

Cayman Islands

On the 20th September, 1996, the Cayman Islands Government passed the Proceeds of Criminal Conduct Act, which is also based on the UK's Criminal Justice Act 1993. Scheduled to enter into force in 1997, it was developed in close consultation with the private financial sector in the Cayman Islands and carefully balances the legitimate rights of the individual to privacy with the need for transparency and disclosure in the public interest of defeating crime.

The legislation builds on the Mutual Legal Assistance Treaty between the Cayman Islands and the US, and the anti-money laundering provisions of the Misuse of Drugs Law 1973 which was revised in the early 1990's and re-enacted in 1995.

Key points of the Proceeds of Criminal Conduct legislation include: making it a criminal offence if a financial services provider fails to report any suspicions he may have that a client has been engaged in or benefited from crime; allowing for an application to be made to the Grand Court for an order restraining criminal proceeds pending prosecution and ultimately confiscation whether they be the contents of a bank account or movable or immovable property;  allowing for confiscation orders made in designated countries to be registered in the Cayman Islands and enforced by the Grand Court.

According to the Cayman Islands' Attorney General, “this legislation makes it clear that the Cayman Islands is not a place for those who wish to hide illicit proceeds. It will also reassure those legitimate users of the financial services in the Cayman Islands that their business will not be tainted by any illicit proceeds. The Cayman Islands have once again demonstrated our commitment and determination to assist in the fight against international crime."^[20]

The British Government is now encouraging other Dependent Territories and Crown Dependencies to follow the Cayman Islands’ example as soon as possible.^[21]

Dominican Republic

In 1995, the government of the Dominican Republic criminalized money laundering and provided for the seizure of  assets in criminal cases, including drug offenses. Although this new  law is comprehensive, there is some question whether it can be  implemented given the country's large, unexplained money flows,  unsupervised exchange houses, and burdensome tax system.

Haiti

In 1995, Haiti became a party to the 1988 UN Convention. The Government of Haiti participated in money laundering conferences and began drafting money laundering legislation.  The government attempted to strengthen the country's judicial system, which was plagued by scarce resources, incompetence and corruption. In 1995, Prime Minister Werleigh announced an anti-corruption campaign as part of her basic program.

Jamaica

During 1995 the Government of Jamaica passed a mutual legal assistance treaty (MLAT) enabling act and completed all internal procedures to enable ratification of the U.S.-Jamaica MLAT. The government also presented to parliament and passed a money laundering bill, and drafted a precursor chemical control bill.  Also, in December 1995, the government acceded to the 1988 UN Convention,  making Jamaica the last major country in the Western Hemisphere to  become a party to the Convention.  The Jamaica money laundering act deals only with drug offences and not other offences.

Panama

A presidential decree in  March 1995 formalized the position of "drug czar" and established a  permanent presidential commission to oversee money laundering  controls. In November, the government passed a new anti-money-laundering law, which mandated suspicious transaction reporting, "know your client"  provisions, "whistle-blower" protection, and penalties for violations.  The government also acknowledged severe domestic abuse problems and pursued  prevention and education campaigns.

Among the government’s most significant accomplishments were the November  arrests of two major money laundering suspects in response to a U.S.  extradition request.

St. Maarten and the Netherlands Antilles

St. Maarten in the Netherlands Antilles recently enacted legislation against money laundering.  The Ordinance on Identification when Rendering Financial Services was passed on the 10th February 1996 and was to enter into force in January 1997.  As a duty-free zone, it permits the relative lack of customs formalities.  That makes it easier to bring in large amounts of cash.  Moreover, reporting of suspicious transactions is still voluntary in St. Maarten.^[22]

Trinidad and Tobago

Trinidad and Tobago are the host country for the CFATF Secretariat.  They participated in the first mutual evaluations conducted by the CFATF and were examined in April 1995.

The vast majority of the Caribbean countries have either criminalised, or are on the way to criminalising, money laundering and to providing for seizing the proceeds of crime.  The Caribbean FATF is increasingly a focus of this effort.

4.  The Case of The Bahamas

Two major offences under the Bahamian act are money laundering and failure to report a suspicion of money laundering:

i)  Money laundering.  A person is guilty of an offence if -

he uses, transfers the proceeds of, sends or delivers to any person or place, transports, transmits, alters, disposes of or otherwise deals with, in any manner and by any means, any property or any proceeds of any property with intent to conceal or convert that property or those proceeds and knowing that all or a part of that property or of those proceeds was obtained or derived directly or indirectly as a result of -

(a) the commission in The Bahamas of any offence under the Dangerous Drugs Act;

(b) the commission in The Bahamas of any offence which is punishable by a term of imprisonment of not less than five years;

(c) an act or omission anywhere that, if it had occurred in The Bahamas would have constituted an offence under the Dangerous Drugs Act;

(d) an act of omission anywhere that if it had occurred in The Bahamas would be punishable by a term of imprisonment of not less than five years.  (Section 9)

Punishment: summary 5 years, information 10 years.

ii)  Failure to disclose knowledge or suspicion of money laundering.  A person is guilty of an offence if -

(a) he knows or reasonably suspects that another person is engaged in money laundering;

(b) the information, or other matter in which that knowledge or suspicion is based came to his attention in the course of his trade, profession, business or employment; and

(c) he does not disclose the information or other matter to the Supervisory Authority or the Attorney General as soon as is reasonably practicable after it comes to his attention.  (Section 22)

Punishment: summary not exceeding $10,000.00 or 1 year or both.

Such informants are immune from criminal or civil liability.  Any disclosure is not treated “as a breach of any restriction respecting the disclosure or information imposed by law or otherwise.”  Thus, the disclosure of such information by a banker or his staff is not actionable as a breach of the contractual duty of bank secrecy established by Tournier v. National Provincial & Union Bank of England [1924] 1 KB 461 nor of the statutory duty imposed by Section 10 of the Banks and Trust Companies Regulation Act (Ch.287).

The Attorney General may obtain restraint orders in relation to property to which Section 9(1) money laundering applies.  In Sections 10, 11 and 12, the restraint order procedure is not unlike that of the Mareva injunction in civil law.  Forfeiture of property on conviction and related matters are dealt with in Sections 13 to 21. 

Other offences are set out in the legislation.  The Bahamian law, regulations, and guidance notes are contained in the following major documents:  the Money Laundering (Proceeds of Crime) Act (No. 8 of 1996);^[23] the Money Laundering (Proceeds Of Crime) Regulations 1996;^[24] the Designation of Supervisory Authorities Notice 1996;^[25] and the Guidance Notes for Banks.^[26]

5.  What is not money laundering?

There is some considerable controversy on this point.  For the region, tax avoidance is not money laundering.

You will come into contact with persons who wish to set up new accounts for tax reasons as part of their estate or financial planning.  In the absence of special treaty arrangements, countries do not enforce the revenue laws of other countries.  The health of the financial sector depends on confidentiality.^[27]

At the same time, the absence of a structured taxation system denies the government the ability of using the tax laws and tax infrastructure as a means of investigating possible money laundering.  It is all the more important to turn the financial sector into agents of law enforcement.

6.  How do you protect yourself and your financial institution?

Points which may be misunderstood by financial institution personnel include:

a) Proper identification and due diligence.  To a considerable extent, the requirements of the money laundering legislation are what bank tellers, new account personnel and other officers are already used to.  Know Your Customer.  It is important to identify and properly record the contracting party and the beneficial owner and other required data.

b) Internal control and communication. Suspicion.  When, how and to whom to blow the whistle?

            i) Recognize the unusual.  As a first step, red flags should appear if the customer does something outside the range of what is normal for him.  Appendix F of the Guidance Notes provides a shopping list of suspicious transactions.   What is unusual for one customer may be normal for another.  Avoid suspecting the obviously innocent and ignoring the apparently respectable.

            ii) The second step is to decide whether the unusual act is suspicious.  Ensure there are no known facts which negate the suspicion.

            iii) The front line staff reports his suspicion to the reporting or compliance officer.

            iv) The reporting or compliance officer makes a determination.

You should, for example:

1.  Beware of Activity Not Consistent with the Customer’s Business.  Transactions in cash rather than checks.

2. Beware of Unusual Features.  A customer who often visits the safety deposit box area immediately before making cash deposits.

3.  Beware of A Customer Who Provides Insufficient Information.  A customer who is unwilling to provide personal background information when opening an account or purchasing monetary instruments.

4.  Beware of the enemy within and the dangers of corruption.^[28]  Do the right thing.  Positively encourage staff to do the right thing.  Make it impossible or at least very difficult to get away with corruption.   If you suspect your fellow employee may be involved in money laundering, you commit an offence if you do not report your suspicion to a compliance officer.

c) Reporting and Notification to the Supervisory Authority or the Attorney Genaral help the AG and the police.  It is useful to prepare a package of evidence.

d) Record Keeping.  The prescribed period is 5 years in the Bahamas.  Documents need to kept for that period only. .

e) Awareness measures and training is required by law.  Con men will avoid the smartest persons in the financial institution.  They seek out the least perceptive.  Training is important.

7.  Challenges

Though still in its infancy, the anti money laundering regime presents challenges at many levels:

1.  Personnel, especially front line personnel, are challenged to implement the legislation in good faith, and to protect themselves, their institutions, and the good name of the country as a first class international financial centre.  There is a need for ongoing vigilance.

2.  At the business level, you have to weigh professional integrity versus client alienation.  Due diligence at what price?  You have to balance the legitimate needs of confidentiality and the requirements of effective due diligence.  Compliance departments are often called “business prevention departments.”

3.  You have to make provision for the financial costs of compliance with the legislation.  That is particularly relevant to the smaller institutions, who do not have the benefit of large metropolitan audit and compliance departments.

4.  Senior and middle management commitment is needed to an ongoing, effective compliance programme.

5.  If possible, you should have a written compliance programme.  Certainly, each step of the internal and external reporting of acts or suspicions should be in writing.

6.  There is a need for additional police and prosecution resources.  The investigation of financial crimes is labor intensive and highly sophisticated.  They also have to be carried out in a timely and well-coordinated manner.  If the legislative programme is to be more than cosmetic, a very substantial amount of resources will be needed in this area.

7.  Training and awareness measures should be considered separately and taken seriously.  The commitment of the institution will affect licensing.  Other sanctions are provided.

8.  At the level of international cooperation, we are also not yet out of the forest. Bluntly put, the dilemma is to what extent can you cooperate with a trend, which according to some influential foreign politicians, should lead to your extermination as a financial center.  Indeed, transfers to financial secrecy destinations, such as the Caribbean, figure very commonly and prominently among the suspicious activities considered onshore for money laundering reporting and investigation. At one extreme, some institutions turn away accounts held by US residents or with any US connection.  Hence, the subject matter is still somewhat in a state of flux.  This situation is exacerbated by divergent and opposed positions regarding tax and extraterritorial jurisdiction.

In conclusion, the Caribbean countries have made it increasingly clearer that they are not havens for dirty money.  Since developments of the 1980's, such as the international cooperation in the war against drugs, they have improved their images and reputations as important international financial centers.  The emerging anti money laundering regime is another important reaffirmation of the region’s interest in and commitment to ethics, responsibility, clean money and good business.

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