CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account etc.
The Minister of Finance is responsible for the supervision, control and direction of matters relating to the financial affairs of The Bahamas.
Regulation and supervision of the Financial Services Sector, and the Group of Financial Services Regulators is the responsibility of the Minister of Finance.
The Group of Financial Services Regulators have always had a duty to report to the Minister of Finance on the affairs of their licensees/registrants with regard to their compliance with, among other things, CRS/FATCA/AML/CFT/CPF. This reporting takes place on a regular basis between the Minister and the persons in charge of each regulatory agency. Reporting includes informing the Minister of Finance of any risks/threats/circumvention of CRS/FATCA/AML/CFT/CPF. This procedure is used for the prudential monitoring and management of The Bahamas’ financial services sector.
All reportable FIs, Controlling persons and non-reportable FIs and persons, for the purposes of the CRS, (be they investment vehicles or licensed FIs, etc.), are subject to the Financial Transactions Reporting Act 2018 (FTRA) and Financial Transactions Reporting Regulations 2018 (FTRR) and their subsequent amendments.
As such, all customer relationships are subject to the FTRA 2018 and FTRR 2018 requirements. Further, The Bahamas maintains that its AML legal framework (which has been implemented from January 2001 with amendments in 2018) is compliant with best practices and international standards which cover 95 -98% of CRS due diligence requirements. The Bahamas AML framework has been assessed against FATF AML standards and was found to be compliant with FATF requirements. The Bahamas was rated as ‘Compliant’ with FATF Recommendation 10 - Customer Due Diligence Requirements.
The Bahamas has an FATF compliant AML framework for verifying and identifying facility holders identifies. Accordingly, The Bahamas maintains that it is substantively compliant with the CDD requirements of the CRS framework via its AML Framework that captures the identification and verification of beneficial ownership information required by CRS.
In practice, The Bahamas AML/CFT/CFP framework which includes risk based AML monitoring, meets international best practices, as we have achieved ‘compliant an largely compliant’ ratings for 38 out of 40 FATF international AML standards which include effective CDD ongoing monitoring with obligation on FIs to maintain accurate and up-to-date information on all facility holders in the financial and non-bank financial sectors covering securities, banking, insurance, gaming corporate service providers and the services offered to corporates, trusts, foundations, investment vehicles, etc.
Onsite examinations, for the purposes of AML/CFT/ CFP/ CRS consist of interviews and testing of compliance by actually handling of files to verify compliance. Reports are prepared regarding any gaps in FIs compliance programs with dates for addressing concerns. On occasion FIs’ activities have been restricted until concerns are addressed. When warranted, operational risk assessments are carried out by independent firms of accountants. Administrative fines are also levied for non-compliance.
The Bahamas has one for the most robust ongoing AML/CFT/CFP monitoring according to industry stakeholders.
To enhance our AML/CFT/CFP Framework, The Bahamas enacted the Register of Beneficial Ownership Act, 2018 which allows the Ministry of Finance, as well as law enforcement agencies, the Central Bank, Insurance Commission, Securities Commission, Gaming Board and the Compliance Commission and the FIU to request a search of the Beneficial Ownership Secure Search System and obtain information on beneficial ownership of legal persons (companies and international business companies), partnerships, segregated companies, and non-profit companies . The establishment and maintenance of the BOSSs has greatly assisted the country in responding to international partners with reference to exchange of information requests.
The Bahamas, through the Financial Transactions Reporting Act, 2018 (FTRA, 2018), was deemed to have addressed all deficiencies identified regarding FATF Recommendation 10 which deals with Customer Due Diligence.
The obligations for all FIs to conduct ongoing CDD is set out in section 12 of the FTRA, 2018 and is consistent with anti-money laundering standards established by the FATF. The Bahamas’ covers the definition of FIs in sections 3 and 4 of the FTRA.
Section 7(1)(a) of the FTRA, 2018 imposes the obligation on all FIs to identify the identity of facility holders, while section 8 imposes obligations for FIs to undertake identification and verification measures.
Legal persons that are corporate entities, Financial Transaction Reporting Regulations –
Regulation section 5(1)(a) - (c) provides for verification through name, legal form, proof of existence and powers that regulate and bind such entities;
Regulation 5(1)(d) provides for verification of the natural person who will be responsible for operating the entity;
Regulation 5(1)(e) provides that documentary evidence of identification and verification of the identity of beneficial owners must be obtained;
Regulation 5(1)(f) provides for the verification via Registry of Companies as documentation on good standing with the registry (good standing certificate) is a requirement for due diligence of legal persons;
Regulation 5(1)(g) which requires FIs to verify through location of registered office, if different to the principal place of business.
Information also required to be obtained from legal persons is as follows -
A description and nature of the business of the legal entity including commencement date, principal location of the business, and products and services, etc.,
Purpose of the facility and potential parameters of the facility, and
Any other document that could be used to determine the ownership and control structure of the legal person.
Section 7 (1)(b) and (c) of FTRA, 2018, FIs are required to identify and verify the identity of any person purporting to act on behalf of a facility holder which would include senior managers. Section 7(1) and (5) of the FTRA outlines the verification measures FIs are required to undertake in relation to trusts - to identify the settlor, trustee(s), the protector if any, the beneficiary or class of beneficiaries and any other natural person exercising control over the trusts. Further, Regulation 7 of FTRR 2018 imposes an obligation on all FIs to undertake identification and verification measures for other types of legal arrangements similarly as those required with respect to trusts.
Section 7(1) FTRA and Regulation 6 of the FTRR 2018, provides measures for partnerships and unincorporated businesses. Section 7(7) requires that all information obtained to verify and identify facility holders are to be kept accurate and up-to-date.
Section 5 of the FTRA, 2018 requires FIs to identify, assess and understand risks and appropriately manage and mitigate such risks regarding all facility holders. FIs are also required to take into account risk assessments when applying CDD measures. Further, FIs are not permitted to apply simplified CDD when there is a suspicion of activities related to any identified risk and in such cases are required to employ enhanced due diligence (EDD) pursuant to section 7(3) and 7(4) of the FTRA, 2018 respectively. EDD procedures are laid out in Section 13 of the FTRA 2018.
Where an FI cannot obtain the necessary documentation to carry out proper due diligence of a facility holder, the relationship is abandoned, as it is prohibited for FIs to maintain facilities for potential clients that cannot deliver required documentation as per FTRA 2018 requirements.
Please note that the FTRA 2000, our first CDD statute, required verification of identities of all existing facility holders and the Central Bank’s Bank Supervision Department and other Regulators were required to monitor the process of verification of all client relationships and accounts. All relationships or account holders that were unable to deliver required
CDD documentation were suspended and terminated if the information was not provided.
Four years ago, The Bahamas established a Ministerial Council, comprising the Attorney-General, the Minister of Finance, the Minister of Economic Affairs, the Minister of Foreign Affairs, the Minister of National Security and the National Identified Risk Framework Coordinator. The Council meets to determine identified risks related to AML/CFT/CPF, and any other risks that affect the financial services industry, including CRS matters, and the interaction of The Bahamas’ AEOI and AML/CFT/CPF Framework. The Council assesses and make recommendations, as necessary.
An Identified Risk Framework Steering Committee was also established and is chaired by the National Identified Risk Framework Coordinator. The Committee meets once a month, or more frequently as may be required. Identified risks are reported to the Coordinator at the monthly meetings; and also whenever such risks arise. These procedures are used to coordinate the monitoring and surveillance of the Financial Services Industry.
Along with the Coordinator, the Committee is comprised of representatives from the Group of Financial Services Regulators, the Office of the Attorney-General, the Director of Public Prosecutions, the Financial Intelligence Unit, the Customs Department, the Royal Bahamas Police Force, the Royal Bahamas Defence Force, the Department of Immigration, the Ministry of Finance, the Ministry of Economic Affairs, the Ministry of Foreign Affairs, and representatives of statutory bodies that have as part of their function a requirement to regulate financial institutions.
The Coordinator reports these matters to the Ministerial Council.
The Automatic Exchange of Financial Account Information (Amendment) Bill 2022 delegates the powers of the Minister of Finance to "Designated Supervisory Authorities" , i.e., the Group of Financial Services Regulators - Central Bank of The Bahamas, Compliance Commission of The Bahamas, the Gaming Board of the Bahamas, the Insurance Commission of The Bahamas, and the Securities Commission of The Bahamas.
Thus, empowering the Regulators to act on behalf of the Minister of Finance in relation to all matters relating to the AEOI; and allowing access to relevant CRS information for the carrying out of these duties.
The Bill has been tabled in Parliament, and should be passed into law by July 2022.
In relation to the application of penalties and sanctions covering all aspects of non-compliance, the Minister of Finance, in his capacity as the Competent Authority for AEOI, determines the penalties and sanctions that are to be applied. A meeting is held with the Attorney General, the Minister of Economic Affairs, the Governor of the Central Bank, and representatives for the Financial Intelligence Unit, and the Group of Financial Services Regulators to discuss these matters. The Minister of Finance then issues a Compliance Notice to the Reporting Financial Institution/Controlling Persons that are in breach of the CRS.
These parties must comply with the Notice, otherwise, Bahamian law enforcement will commence legal procedures for tax crimes, which may result in a prosecution.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
Please note the context of the country reporting a 50% rejection rate. The country reported an error message with one file out of a total of two files submitted. An error message on one file out of a total of two files is a small sample to draw the conclusion that “This is a relatively high amount when compared to other jurisdictions and it has increased over time”.
In fact, most of the queries about matching rates relate to information requested from partner jurisdictions that are “Optional Mandatory” in the OECD schema guidelines 2019. These guidelines are applied in the Vizor, now part of Regnology, AEOI software automated application utilized by The Bahamas for the collection, implementation of validation rules and exchange of information required for OECD CRS reporting. If we do not follow the layout and the validation rules of the Schema a filing would be rejected from the CTS.
Some of the partner jurisdictions are asking for TIN & DOB which is “(optional) mandatory” in the 2019 schema along with other information used for domestic purposes. For example, one country informed The Bahamas that they use an automated matching system and matching is made using TIN, DOB, Names, Street, Building Identifier and Addresses outside home country and the TIN must match the other elements in the matching process.
Another country informed The Bahamas that their matching process is in line with the OECD schema guidelines and the matching exercise performed and feedback given to the OECD was not intended to suggest that The Bahamas does not follow or use the OECD Schema guidelines. The matching rates communicated are purely an indication of the challenges faced when trying to match data received and they understand that TIN is currently a contentious topic across the AEOI network.
Therefore, the percentage of countries reporting issues is low relative to the total number of exchange partners.