Banking & Capital Markets

Bahamas Banking Audit Deadline Looms

Financial institutions must complete a retroactive due diligence examination of every account.
Marie LeoneMarch 3, 2004

Multinational corporations may feel better about doing business with Bahamas-based banks after March 31, when those institutions must comply with tough new auditing standards aimed at strangling the money laundering trade in that country.

The government-imposed audits require that banks complete a retroactive due diligence examination of every account, regardless of the account size or date it was opened, reported the Miami Daily Business Review. The audits are designed to extract more-complete personal information about the owners of trusts and international companies that do business with Bahamian banks.

Failure to comply with the new regulations could result in fines or closure of the bank, noted the paper.

Several major U.S. banks, including Bank of America, Citibank, and Wachovia, operate Bahamas-based subsidiaries. “Traditionally, offshore banks provide the mother bank an outlet to do certain banking activities that may be otherwise restricted in their home country,” John Friedhoff, a banking attorney with Fowler White Burnett, told the Review.

Such offshore havens are popular because regulations regarding capital ratios and lending limits are relaxed. What’s more, anonymous account holders can shield income from the Internal Revenue Service and often receive higher interest rates than on U.S. accounts.

The Bahamian government’s crackdown is part of an effort to polish the country’s tarnished reputation for being a money laundering refuge. The government adopted its new attitude after The Financial Action Task Force on Money Laundering (FATF) blacklisted the country in 2000 for failing to stop the spread of the white-collar crime.

After the task force’s report was issued, many multinationals were reluctant to do business with companies in the Bahamas. In fact, the Review reported that U.S. and European financial institutions were instructed by the FATF to pay special attention to business relations and transactions with individuals, companies, and financial institutions based in 14 blacklisted countries, 5 of them in Central America and the Caribbean.

The Paris-based standards-setting group cited a “serious deficiency” in the enforcement of existing Bahamian money laundering laws. However, the Bahamas and the Cayman Islands were removed from the serious-deficiency list in June 2001 after complying with task force recommendations. Guatemala is the only country in the Americas that remains on the FATF blacklist.

Since the blacklist was made public, Panama, the Cayman Islands, St. Kitts and Nevis, and St. Vincent and the Grenadines launched retroactive due-diligence programs.