Furor over AML/CFT Evaluations of Caribbean States – Who Makes the Next Move?
Ambassador Curtis A. Ward
(16 May 2017) — A number of Caribbean governments have responded bitterly to the recent negative “evaluation” of their anti-money laundering and countering financing of terrorism (AFL/CFT) legal and administrative capacities. More specifically, the U.S. State Department 2016 INSCR named nine Caribbean countries, four of which are CARICOM Member States (Antigua and Barbuda, The Bahamas, Belize, and Haiti) specifically as “major money laundering states”, or as “Jurisdictions of major concern.” These are among a group of 67 countries including Australia, Canada, France, Germany, Japan, the U.K., and the United States named as “major money laundering states.” All other CARICOM Member States, except for Dominica, are listed in the next category, “Jurisdictions of concern.” Dominica falls in the “Monitored” category.
To put this in perspective, all countries in the world have issues with money laundering. The amount of money laundered in CARICOM states and other small economies pales in comparison to money laundered in large economies. However, the impact or potential impact on small economies, such as CARICOM states, is far greater than on large economies. That’s why Caribbean countries should pay attention, and why they should seek remedial action rather than merely crying foul. The latter has become a common practice, which does not serve the region well. After all the noise, the problem remains, or becomes worse.
There are considerable weaknesses in the AML/CFT regimes of most Caribbean countries. While there are efforts to fix these problems, there can be no hiatus in building new anti-AML/CFT capacities. Money launderers and transnational criminal networks do not take a break. They are always devising new money laundering techniques in order to be ahead of anti- AML/CFT capabilities because, for them, the stakes are high. The stakes are also high for Caribbean governments.
According to the UN Office on Drugs and Crime (UNODC), “the estimated amount of money laundered globally in one year is 2% – 5% of global GDP, or $800 billion – $2 trillion in current US dollars.” The bulk of money laundering takes place in the financial systems of developed countries where they are more easily absorbed without the possibility of detection. On the other hand, money laundering, even on a minor scale, can have far greater impacts on small economies.
The potential to do considerable harm, in particular on small vulnerable economies, is well documented. We know money-laundering fuels corruption and organized crime. We know money laundering facilitates corrupt public officials in hiding bribes and pilfering of public funds. All forms of transnational crimes, including drug trafficking, illicit arms trade, and human trafficking generate large amounts of cash which are laundered. Effective anti-money laundering laws and regulations and the capacities to fully implement them are the bane of transnational criminals and corrupt officials.
Caribbean Central Banks and financial institutions in the region know that off-shore banking and shell corporations where the beneficiaries remain anonymous are known vehicles used for money laundering. They know the importance of effective Currency Transaction Reports (CTRs) and setting realistic cash transactions reporting requirements; they know the importance of vigorous enforcement of Customer Due Diligence/Know Your Customer (CDD/KYC) rules; they know the importance of adequately regulated and monitoring of Offshore Financial Centers; they know they must enact laws requiring identification of shell company beneficial ownerships; they are understanding of the value of Suspicious Transaction Reports/Suspicious Activity Reports (STRs/SARs) in investigating and prosecuting money laundering; and they understand the possible money laundering facilitation role of unregulated International Business Companies (IBCs):
The countries of the Caribbean also know what they are supposed to do and they know where to go for help. The 40 Recommendations of the Financial Action Task Force (FATF) explains what needs to be done. The U.S. FATCA requirements places emphasis on some required standards. The U.S. Treasury Department’s Office of Technical Assistance (OTA) has a program in place to help those countries who seek help. As noted on the Treasury Department’s website in October 2016, the OTA “was initiating new projects and proactively assessing requests for assistance from countries that have expressed concerns about a decline in access to correspondent banking relationships in their countries, coupled with a commitment to enhance their AML/CFT regime.”
Treasury cited an example of OTA preparing to help Belize “to develop the capacity of the financial intelligence unit as the central focus of that country’s AML/CFT regime.” Treasury also cited “a recently completed OTA assessment of the Eastern Caribbean Central Bank, which supervises banks in eight Caribbean countries, concluded that there is potential for an effective AML/CFT technical assistance engagement there.” As the Treasury Department said, its AML/CFT technical assistance program is intended to help those countries who seek help. Rather than attack the messenger, Caribbean governments must proactively act upon the message.
Unfortunately, the answer being pushed by some CARICOM states is to hire Washington lobbyists to seek a political solution to what is a technical capacity deficiency fueled by lack of political will. This doesn’t play very well in Washington; not now, not ever. Instead of hiring lobbyists, Caribbean governments should hire technical expertise that can guide and help build AML/CFT capacity building. When will Caribbean governments understand that political solutions rather than technical solutions are ephemeral?
This brings me to a problem I have discussed very briefly in a prior TWP article, President Donald Trump’s prosed budget cuts which, if approved by the Congress, will take $800 million from the Treasury Department’s international programs. This will, undoubtedly, affect OTA’s future AML/CFT technical assistance programs. That’s another reason Caribbean governments need to get to the head of the line and get on OTA’s short list for AML/CFT capacity building programs.
Ambassador Curtis A. Ward
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