Monday, December 17, 2018
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Dirty money taken to cleaners
Charles Arthur
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While the money laundering blacklist shortens, the problem is unlikely to disappear.

With the removal of Dominica from the roster of countries blacklisted because of their lax stance toward money laundering, only two Caribbean countries remain on the list. But officials warn that drug traffickers and others seeking to conceal their gains from illegal transactions will seek new methods.

The Financial Action Task Force (FATF) of the Organization of Economic Cooperation and Development (OECD) removed Dominica from its blacklist in October. Earlier this year, in an effort to clean up the island’s image, the government put two offshore banks into receivership after US courts convicted top officials and major shareholders of money laundering. Dominica’s Parliament also passed new anti-money laundering legislation and established a regulatory financial intelligence unit.

Now only Grenada and St. Vincent and the Grenadines remain on the FATF list.

Although no exact figures are available, estimates of money laundering worldwide range from US$600 billion to $1.5 trillion. The United Nations, which uses the lower figure, estimates that about $60 billion is laundered in the Caribbean.

In an attempt to diversify economies that rely heavily on tourism, many Caribbean countries have turned to financial services and offshore banking. During the 1990s, the offshore financial sector mushroomed, bringing in foreign businesses and capital investment that spurred rapid growth in communications infrastructure and construction. The Cayman Islands and the Bahamas were the most successful.

Financial sector growth, however, nearly always occurred without effective regulation or oversight. Toward the end of the 1990s, in particular, the region became increasingly vulnerable to money laundering and other financial crimes. Although money laundering would appear to have few direct consequences for host nations, the negative effects — tax evasion, smuggling, bribery and corruption of public officials and politicians — can be serious.

To legitimize cash from illegal sources, launderers break down large amounts into smaller sums by making bank deposits or purchasing monetary instruments like money orders. Those funds are then wired into accounts in other parts of the world or used to purchase investment instruments. The money finally enters the legitimate economy through investments in real estate or businesses.

In the Caribbean, money laundering is also usually closely associated with drug trafficking, as the islands have become transshipment points for South American cocaine destined for the United States (LP, March 12, 2001). Traffickers often launder their money by purchasing real estate or setting up businesses. The effect on property prices can be devastating for local people, and legitimate businesses are jeopardized by the sudden appearance of competitors that are not primarily concerned with making a profit, because they are mainly front operations.

International efforts to combat money laundering began to take effect in the late 1990s. In June 2000, the FATF issued its first list of countries that had failed to bring legislation, financial supervision, and enforcement practices into line with its standards. Five of the 15 countries on the list were in the Caribbean (LP, July 31, 2000).

The FATF threatened sanctions, such as denying the countries’ banks further licenses to operate in member states and advising the financial institutions of member states against operating in the blacklisted countries. Because the members of the FATF are 29 of the world’s most financially powerful countries, the potential consequences were serious.

Caribbean countries complained that the FATF criteria were applied selectively. They argued that countries such as Argentina and Mexico, which were not on the list, did not always comply with the rules. There were also charges that the blacklist targeted the financial service industries in small countries while failing to recognize that laundered money usually ends up in major financial centers such as London and New York.

The Bahamas and the Cayman Islands, which took steps to improve legislation, supervision and enforcement, were removed from the FATF blacklist in June 2001. Other Caribbean countries, however, continued to object to being asked to implement standards that OECD member states refused to apply to themselves.

In September 2001, Grenada was added to a list that still contained St. Kitts and Nevis, St. Vincent and the Grenadines, and Dominica.

The FATF appeared determined to enforce its standards, however. An October 2001 decision to expand the FATF’s mission to include a worldwide effort to combat financing of terrorists seems to have persuaded recalcitrant Caribbean states to comply.

St. Kitts and Nevis enacted reforms and was removed from the list last June, and Dominica followed in October. Grenada received international assistance from the Caribbean Anti-Money Laundering Program (CALP) funded by the European Union, the United States and Great Britain.

"A lot of these countries have diversified, but they haven’t had the laws, the training or the law enforcement agencies to handle money laundering," CALP manager Brian Reynolds said. "Our job is to try to get a holistic approach and try to make things better."

St. Vincent and the Grenadines has been on the blacklist from the beginning, and although the country has enacted most of the required legislation and regulations, this year’s FATF report indicated that some deficiencies remain.

Colin Williams, acting offshore inspector for St. Vincent and the Grenadines, recently complained the only reason that the country remains on the list is that the FATF has failed to send an assessment mission to the island. "The Prime Minister wrote to the FATF saying it wasn’t the fault of St. Vincent and the Grenadines that no assessment visit has taken place," he said.

In October, FATF executive secretary Patrick Moulette praised the progress that has been made in the region, but warned that money launderers will look for new ways to legitimize their cash. And with the Caribbean facing economic problems because of a drop in tourism and the impending removal of European Union trade privileges for bananas and sugar, efforts to combat money laundering in the region may unravel.



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