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An overhaul of the Bahamian banking system should be completed by the end of next month after the government imposed a tough regimen of audits and regulations aimed at diminishing the country’s reputation as a haven for tainted money. Many Bahamian banks, including subsidiaries of U.S. and European banking companies with operations there, are rushing to meet a March 31 deadline imposed by the country for banks to complete the “retroactive due diligence” of every account regardless of the deposit amount or when it was opened. “Banks would be required to do it if you had 50 cents in your account,” said banking compliance consultant Nancy Saur, a senior vice president with V2R Financial Services in Antigua. Major U.S. banks such as Bank of America, Citibank and Wachovia operate offices in the Bahamas and other countries in the Caribbean to serve multinational conglomerates and international clients because banking regulations there offer more relaxed requirements concerning capital ratios and lending limits. “Traditionally, offshore banks provide the mother bank an outlet to do certain banking activities that may be otherwise restricted in their home country,” said international banking attorney John Friedhoff, a Miami partner with Fowler White Burnett. Failing to comply with new Bahamian banking regulations could result in fines and even the closure of an institution. The Bahamas adopted stricter banking legislation in 2000 that included the retroactive due diligence after the country was blacklisted by the Paris-based Financial Action Task Force on Money Laundering. A report issued by the task force, an independent international group that sets standards for international banking operations, criticized the Bahamas for having a “serious deficiency” in the enforcement of its existing money-laundering legislation. Fourteen other countries were criticized by the task force for failing to crackdown on money laundering. It is unclear how much money and time banks operating in the Bahamas are spending to comply, Saur said. She said the Bahamian legislation is further reaching than the controversial USA Patriot Act passed in the aftermath of the Sept. 11 terrorist attacks. The Patriot Act, for example, instructs banks operating in the United States to implement its comprehensive “know your customer” requirements for future clients only, not existing ones. “They [Bahamian bankers] are trying to show that they have really made progress against money laundering and now, of course, terrorist financing,” said international banking attorney Alcides Avila, head of Holland & Knight’s banking and finance practice in Miami. An official with the Central Bank of the Bahamas asked for questions about the banking regulations to be sent via e-mail. The central bank did not respond to the e-mail before deadline. Saur and Alcides discussed the latest banking regulations in Latin America and the Caribbean at the ninth annual Money Laundering Conference and Exposition in early February at the Fontainebleau Hilton Resort and Towers in Miami Beach. More than 1,100 people from around the world attended the three-day conference organized by Miami-based Money Laundering Alert. BLACKLISTED The Bahamas and five other countries in Central America and the Caribbean were criticized for not cooperating in the fight against money laundering by the Paris-based task force. The blacklisted countries included Panama, the Cayman Islands, St. Kitts and Nevis, and St. Vincent and the Grenadines. The Cayman Islands also adopted a retroactive due diligence program that forced banks in that country to comply by October 2003. “There is a general recognition by everyone that money laundering, terrorist financing and corruption harm our community,” Avila said. “That money is the proceeds of illegal activities and affects everyone. If you can stop the money laundering, hopefully you can cripple that activity.” In the Bahamas, a lack of personal information about the owners of trusts and international companies operating there was considered unacceptable by the task force. The task force was also critical of the country’s banking regulations for allowing companies to issue bearer shares that do not require a registered owner and can be collected when presented. This practice has been linked to money laundering because the identities of shareholders are never revealed, according to the task force’s report. The task force’s finding was a blow to the import-dependent Bahamas, which relies on tourism and international banking for jobs and taxes. After the report, multinationals were reluctant to do business with companies in the Bahamas. U.S. and European financial institutions were instructed by the task force to pay special attention to business relations and transactions with individuals, companies and financial institutions based in blacklisted countries. The Bahamas and the Cayman Islands have since complied with many of the task force’s recommendations and were removed from the serious-deficiency list in June 2001. Caribbean accounts have been popular for laundering the proceeds of illegal activity and for hiding money from the Internal Revenue Service. These accounts typically offer the holders confidentiality and pay higher interest rates than U.S. accounts. Caribbean countries are increasingly willing to accept directives from the United States and other entities after decades of marketing themselves as being beyond the reach of banking regulators and law enforcement in other countries. The shift in philosophy comes as many island nations try to establish legitimate banking operations in hopes of diversifying their economies to deal with intensifying globalization and their loss of trade preferences with the United States and Western Europe. “This action by the respective jurisdictions is a response from pressure from the outside,” Friedhoff said. Guatemala is the only country in the Americas still on the task force’s list. It was added in June 2001. Since then, Guatemalan banking regulators have worked to improve its laws, but have had problems enforcing them to the degree required by the task force, Avila said. He said it is a common problem with most developing countries. Avila said his Guatemalan clients tell him that they want their country removed from the list so they can begin the process of rebuilding their country’s banking system much like the Bahamas has done. “There is a recognition in this list that the countries in Latin America have made an effort to improve their anti-money laundering legislation that is good enough to not be on this list,” Avila said. “It is a starting point. But just because a country is not on this list doesn’t mean it is free of money laundering activities.”

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