Title: Bahamas’ Financial Sector Under Scrutiny: FATF Report Highlights Money-Laundering Concerns

The FATF Report: A Must-Read for Tracking Illicit Financial Flows and Fighting Corruption

In July 2022, the Financial Action Task Force (FATF) released a damning report on the Bahamian financial sector, revealing its vulnerability to money-laundering and other illicit financial activities. Conducted in collaboration with experts from Anguilla, the Cayman Islands, and Trinidad and Tobago, the report garnered limited attention amidst summer holidays. However, it is a crucial read for those monitoring illicit financial flows and combating corruption.

The Bahamian Financial Sector: Pride and Prejudice

Promoting the Bahamas as a Global Financial Hub

Billed as one of the world’s leading tax havens, the Bahamas’ financial services industry proudly promotes the archipelago as “one of the world’s principal international financial centres.” Achieving impressive assets, Bahamian banks hold a total of US$ 279 billion, with 95.9% sourced from the offshore banking sector.

Flagged for Money-Laundering Risks

Despite its accomplishments, the Bahamian banking sector is frequently flagged by the US State Department and other sources for its high risk of money laundering, particularly concerning foreign tax evasion. Bahamian banks and offshore companies have been linked to numerous cases of large-scale crime and corruption.

The FATF’s Critique: Alarming Weaknesses

Falling Short of International Standards

The FATF’s critique indicates that although Bahamian banks and non-financial businesses are “overall well aware” of anti-money laundering regulations, their performance in combating financial crime is alarmingly weak.

FATF’s Effectiveness Assessment

The Bahamas earns a “low” score on six and a “moderate” rating on five of FATF’s eleven “effectiveness” measures. This falls short of the “substantial” or “high” levels reached by other countries.

Acknowledged High Money-Laundering Risks

An internal draft risk assessment by Bahamian authorities acknowledges the high risk of money laundering in its private banking and trust company sectors.

Areas of Concern: Limited Capacity, Infrequent Use of Sanctions, Lack of Convictions, and Few Suspicious Transactions Reports

Limited Law Enforcement Capacity

Bahamian law enforcement agencies lack the capacity to effectively pursue money laundering investigations due to insufficient specialized human resources.

Infrequent Use of Sanctions and Administrative Fines

Though Bahamian authorities possess the legal power to oversee the financial sector, the report points out that sanctions are rarely employed, and administrative fines are “rarely used.”

Lack of Money Laundering Convictions

Despite a significant financial sector, there are no money laundering convictions for the reviewed period, including none for tax evasion.

Few Suspicious Transactions Reports

Financial institutions are expected to file reports with the authorities when they encounter suspicious transactions. The report raises concerns about the low number of such reports given the size of the financial sector in the Bahamas.

Bahamian Business Leaders vs. International Pressure

Business leaders in the Bahamas have expressed concerns about the burden of stringent requirements and an anti-money laundering system that disproportionately affects smaller territories. However, FATF’s findings lend credence to concerned public officials, who are increasingly vocal about the country’s shortcomings in this area.

Accountability Inevitable: The Costs of Illicit Financial Flows

As the world becomes more aware of the devastating costs of illicit financial movements, a financial sector the size of Colombia’s economy is unlikely to evade accountability for much longer.