Caribbean Trade Law and Development

Category: AML/CFT

  • Communique from the 23rd Meeting of the CARICOM Council for Foreign and Community Relations

    Communique from the 23rd Meeting of the CARICOM Council for Foreign and Community Relations

    The following is the official communique from the meeting:

    The Twenty-Third Meeting of the Council for Foreign and Community Relations (COFCOR) of the Caribbean Community (CARICOM) was held virtually on the 7-8 May 2020, under the Chairmanship of His Excellency Dr. Claude Joseph, Minister of Foreign Affairs and Worship of the Republic of Haiti.
     
    The COFCOR was attended by the Honourable E. P. Chet Greene, Minister of Foreign Affairs, Immigration and Trade of Antigua and Barbuda, Senator Dr. the Honourable Jerome Walcott, Minister of Foreign Affairs and Foreign Trade of Barbados, the Honourable Wilfred P. Elrington, Minister of Foreign Affairs of Belize, Dr. the Honourable Kenneth Darroux, Minister for Foreign Affairs, International Business and Diaspora Relations of Dominica, the Honourable Peter David, Minister for Foreign Affairs of Grenada, Dr. the Honourable Karen Cummings, Minister of Foreign Affairs of Guyana, His Excellency Dr. Claude Joseph, Minister of Foreign Affairs and Worship of Haiti, Senator the Honourable Kamina Johnson-Smith, Minister of Foreign Affairs and Foreign Trade of Jamaica, the Honourable Mark Brantley, Minister of Foreign Affairs and Aviation, St. Kitts and Nevis, the Honourable Sarah Flood-Beaubrun, Minister of External Affairs, Saint Lucia, Her Excellency Yildiz Pollack-Beigle, Minister of Foreign Affairs of Suriname and Senator the Honourable Dennis Moses, Minister of Foreign and CARICOM Affairs of Trinidad and Tobago.
     
    The Bahamas was represented by His Excellency Reuben Rahming, Ambassador of The Bahamas to CARICOM, and St. Vincent and the Grenadines by Ms. Sandy Peters-Phillips, Permanent Secretary, Ministry of Foreign Affairs, Trade and Commerce.
     
    OPENING CEREMONY
     
    Opening Remarks were delivered by the Assistant Secretary-General, Foreign and Community Relations, Ambassador Colin Granderson, on behalf of the Secretary-General of the Caribbean Community, Ambassador Irwin LaRocque, the Honourable C. Peter David, Minister of Foreign Affairs and Labour of Grenada, outgoing Chair of the COFCOR, and His Excellency Dr. Claude Joseph, Minister of Foreign Affairs and Worship of the Republic of Haiti and Chair of the COFCOR.
     
    They highlighted various challenges facing the Community, which have been compounded by the multi-faceted negative impact of the COVID-19 pandemic.  They underscored the critical role of the Council for Foreign and Community Relations as the forum in which CARICOM Ministers of Foreign Affairs have the opportunity to jointly reflect and deliberate on regional, hemispheric and international matters of importance to the Community, and to agree on coordinated foreign policy positions.  They all spoke of the necessity to be unified as a region on matters of critical importance, in particular in response to the global pandemic and the economic devastation that has ensued. In this regard, they paid tribute to the regional institutions – the Caribbean Public Health Agency (CARPHA) and the Pan-American Health Organisation (PAHO) – and the front-line workers fighting the pandemic.
     
    The speeches can be accessed at www.caricom.org.
     
    CANDIDATURES
     
    The discussions on candidatures are an important facet of CARICOM foreign policy coordination. The COFCOR reiterated the importance of CARICOM’s participation in international decision and policy-making bodies, including through the pursuit of increased CARICOM representation in these organisations.  In this regard, Ministers considered and endorsed a number of CARICOM candidatures to the United Nations (UN) and other international and regional organisations. They also deliberated on the requests from Third Countries for CARICOM’s endorsement of their candidates to these bodies.
     
    BILATERAL RELATIONS
     
    The Council for Foreign and Community Relations reviewed its relations with both its traditional and more recent partners and discussed ways and means by which these relations could further be strengthened.   The COFCOR also reflected on the need to engage new partners with a view to promoting an appreciation of the Community’s interests and catalyzing new development platforms.
     
    Particular attention was paid to developments, such as BREXIT and the negotiation of the successor to the Cotonou Agreement, which are having a profound impact on the nature of existing relationships, hence the focus on relations with the UK in its new dispensation and the European Union (EU).
     
    In view of the adverse impact of COVID-19 on the conduct of international relations and given that a global response is indispensable to confront global challenges, the COFCOR exchanged views on the best options available to treat with the fallout from the pandemic. They noted the continuing erosion of multilateralism as many States have adopted a “country-first” posture in reaction to the pandemic. They however acknowledged that initiatives had been taken to offset the lack of global leadership and expressed appreciation for those of the UN Secretary General, addressing the unique challenges of Small Island Developing States (SIDS). They also lauded the EU’s efforts to mobilise financial support for global research into the novel coronavirus through the hosting of the Coronavirus Global Response Pledging Conference held virtually on 4 May 2020 and commended the vital role played by the World Health Organisation (WHO) in the international fight against the pandemic.
     
    Foreign Ministers were called upon to support the advocacy efforts initiated by the Chairperson of CARICOM outlining the Community’s position vis-à-vis accessing assistance to meet the fiscal challenges arising from the pandemic.
     
    Appreciation was also expressed to international development partners which have provided support in various forms to the Community in its fight against the virus.  
     
    With the Seventh CARICOM-Cuba Summit scheduled to be held in Cuba in December 2020, the COFCOR received an update on the status of relations. The COFCOR paid tribute to the Government and People of Cuba for the provision of public health personnel to boost the Region’s limited capacity in the face of the spread of the Coronavirus pandemic despite the country’s own challenges aggravated by enhanced US sanctions.  Foreign Ministers called for an immediate and unconditional lifting of the US economic, commercial and financial embargo against Cuba.
     
    Foreign Ministers made reference to the deepening of relations with Latin America and noted the recent re-energising of ties with several Latin American countries which had become dormant over time. They acknowledged the need for the wider region to share experiences and best practices in response to the pandemic and the resulting coordination meetings under the umbrella of the Organisation of American States (OAS), the Community of Latin American and Caribbean States (CELAC) and the Association of Caribbean States (ACS).  Foreign Ministers acknowledged the need for the Community to be more strategic in its engagements with Latin America.
     
    CARICOM Foreign Ministers highlighted the recent developments in the relations between CARICOM and Africa underpinned by reciprocal official visits of CARICOM Prime Ministers and African Presidents which have brought the two regions closer. They expressed regret over the postponement of the proposed CARICOM-African Union Summit in June 2020 owing to the spread of the COVID-19 virus. Initiatives for enhancing relations between the Community and Africa were also explored. In this regard, the COFCOR welcomed the provision of office space for CARICOM diplomatic representation in Nairobi by Kenya. The establishment of an Africa Group-CARICOM Caucus (AfCAR) Collaboration Initiative at the United Nations, New York, was welcomed and endorsed.
     
    COFCOR ENGAGEMENT WITH THIRD STATES
     
    In accordance with its traditions, the COFCOR engaged with the Foreign Ministers of two third states – Norway and Canada. The engagements provided the opportunity to exchange views on matters of mutual interest and for the COFCOR to express appreciation for the supportive voice and cooperation assistance provided by both states over the years. Foreign Ministers also voiced their deep concern over the multifaceted impact of the COVID-19 pandemic. They sought the continued advocacy of these partners in support of CARICOM’s representation to the international financial policymaking bodies to review their eligibility criteria which bar access to development assistance, grants and concessional financing. These financial resources would be invaluable at this moment of deep economic recession to fight the pandemic and underwrite recovery.
     
    BLACKLISTING
     
    The COFCOR rejected the arbitrary and unilateral imposition of blacklisting by the EU on several Member States of the Community. They expressed concern over the constant shifting of goal posts, the continued lack of prior consultation or notification and the unwillingness to take into account the efforts at compliance made by CARICOM Member States. The measure was viewed as detrimental to the economies of the affected states which are already in recession. The Community called on the EU to take into consideration the disproportionate impact of the COVID-19 pandemic on the economic wellbeing of the small states of CARICOM in their policy-making.
     
    MULTILATERAL AND HEMISPHERIC RELATIONS:
     
    United Nations (UN)
     
    Foreign Ministers took note of the long-term implications of COVID-19 for the economies of Small Island Developing and Low-Lying States and the context in which these implications should be addressed through important UN initiatives such as the SAMOA Pathway, Financing for Development and the realisation of the UN 2030 Agenda for Sustainable Development (SDGs). They commended the attention being paid by the UN Secretary General and UN agencies such as the Economic Commission for Latin America and the Caribbean (ECLAC) to the issues of indebtedness and access to concessional financing of SIDS and Middle Income Countries which have become obstacles to the development of these countries as well as to their post-pandemic recovery, a situation exacerbated by the economic and financial ravages of the pandemic.
     
    Organisation of American States (OAS)
     
    The COFCOR received an update on the issues of interest to the Community before the OAS.  Ministers underlined the critical importance of the development pillar of the organisation at this point in time and stressed the need for CARICOM to leverage its influence at the OAS by speaking with one voice.
     
    Community of Latin American and Caribbean States (CELAC)
     
    The COFCOR commended the re-energising of CELAC since the assumption of the Presidency Pro Tempore (PPT) for 2020 by Mexico and expressed satisfaction with the CELAC technical meetings of experts on the COVID-19 pandemic and the convening of the Ministerial Meeting with China. Ministers renewed their commitment to the activities of this integration process which has helped to build bridges between the Region and Latin America.
    Association of Caribbean States (ACS)
     
    CARICOM Foreign Ministers commended the coordination activities taking place within the ambit of the ACS, in particular the revival of inter-Secretariat meetings, and the coordination meetings addressing COVID-19. They also noted the coming changes of leadership at the organisation which brings together the countries of the Greater Caribbean, another important link to Central and Latin America.
     
    The COFCOR agreed that the Community should continue to highlight the importance of the Caribbean Sea Initiative and the Caribbean Sea Commission and stressed the need for continued engagement and active participation in the work of the ACS.
     
    The COFCOR expressed its appreciation to Dr June Soomer for the invaluable work she has done during her tenure as Secretary-General which ends in July of this year.
     
    Commonwealth
     
    Ministers regretted the understandable postponement of the Commonwealth Heads of Government Meeting (CHOGM) which was due to be held in Rwanda in June 2020. The Community was looking forward to addressing issues of interest and concern with their Commonwealth counterparts. This forum has always been viewed as a valuable opportunity for exchanging views with members of the G7 and G20 which play an influential role in shaping global economic and financial affairs. This would have been opportune, given the present need for the support required by CARICOM states whose economies have been decimated by the pandemic. This forum is also of significance because of the importance it has ascribed traditionally to the situation of small states.
     
     
     
    BORDER ISSUES
     
    Belize – Guatemala Dispute
     
    The COFCOR received an update on the recent developments between Belize and Guatemala. The COFCOR welcomed the submission of the case arising from Guatemala’s claim to the International Court of Justice (ICJ) for final and definitive resolution, in accordance with the Special Agreement to Submit Guatemala’s Claim to the ICJ. They further noted that the ICJ had extended the time-limits for the filing of the initial pleadings.
     
    Pending a resolution of the case before the ICJ, the COFCOR urged Belize, Guatemala and the OAS to respect and implement fully the Confidence Building Measures as agreed under their Framework Agreement of 2005.They further called on both countries and the OAS to redouble their efforts to engage in the design and development of a mechanism of cooperation for the Sarstoon River, which remains outstanding.
     
    The COFCOR reiterated its support for the crucial role of the OAS in the process aimed at resolving the dispute, arising from Guatemala’s claims on Belize, and called on the international community to continue supporting the OAS Office in the Adjacency Zone.
     
    The COFCOR reaffirmed its unwavering support for the sovereignty, territorial integrity and security of Belize.
     
    Guyana-Venezuela Controversy
     
    CARICOM Foreign Ministers received an update on the most recent developments between the Cooperative Republic of Guyana and the Bolivarian Republic of Venezuela.
     
    Ministers noted that Guyana was to have presented its case in oral pleadings scheduled for the week of 23 March 2020 as to why the ICJ was properly vested with jurisdiction by the United Nations Secretary-General under the Geneva Agreement 1966 for a final resolution to the controversy between Guyana and Venezuela. Ministers further noted that the oral pleadings had to be postponed by the Court due to the global pandemic caused by COVID -19.
     
    Ministers reiterated the Community’s full support for the judicial process that is intended to bring a peaceful and definitive end to the long-standing controversy between the two countries. They further reiterated their firm and unswerving support for the maintenance and preservation of the sovereignty and territorial integrity of Guyana.
     
    FINDING COMMONALITY ON SENSITIVE SOCIAL ISSUES
     
    Foreign Ministers underscored the importance of maintaining a coordinated position in multilateral fora on sensitive social issues which have become quite contentious during discussions at the UN.  They agreed on the importance of determining CARICOM’s core positions on these issues.
     
    STRENGTHENING CARICOM ELECTION OBSERVATION
     
    The COFCOR recognised the importance of CARICOM Election Observation Missions (CEOMS) in promoting and maintaining the Community’s democratic values. They noted the challenges that currently exist in assembling missions and examined ways in which the process could be improved. The COFCOR agreed that the Declaration of Principles for International Election Observation and the Code of Conduct for International Election Observers should be adopted.
     
    SYMBOL OF CARICOM
     
    The COFCOR considered and agreed, in principle, to a proposal for the CARICOM Standard, the symbol of the Caribbean Community, to be displayed along with the national flag at all the Diplomatic and Consular Offices of CARICOM Member States.

  • The EU’s Updated Draft AML/CFT List of High Risk Third Jurisdictions ‘Take Two’: A Critique

    The EU’s Updated Draft AML/CFT List of High Risk Third Jurisdictions ‘Take Two’: A Critique

    Alicia Nicholls

    In the midst of the human and economic challenges wrought by the novel coronavirus (COVID-19) pandemic, another threat looms for three Caribbean countries. The European Commission (the Commission) last week released its draft updated List of High Risk Third Jurisdictions which have strategic deficiencies in their Anti-Money Laundering and Countering the financing of terrorism (AML/CFT) regimes that pose significant threats to the financial system of the 27-nation bloc. Barbados and Jamaica now join The Bahamas on the updated draft EU list.

    Readers would recall that the Commission’s previous draft list of February 13, 2019 was ultimately rejected by the Council of the EU on March 5, 2019, sending the Commission back to the drawing board. Unfortunately, the Commission’s release of the revised draft list has occurred in the middle of the COVID-19 pandemic – widely acknowledged to be the worst economic shock to hit the global economy, including the economies of those Caribbean countries listed.

    While the draft list still requires European Parliament and Council approval, and is set to apply only from October 1 2020, mere inclusion on such a list could still present reputational risks and other financial implications for those countries listed, particularly for Barbados and The Bahamas which are International Financial Centres (IFCs). This article briefly looks at the implications of the updated list for the countries named and possible next steps.

    What is the EU’s AML/CFT List of High Risk Third Countries?

    The EU’s draft AML/CFT List of High Risk Third Countries is completely distinct from its list of non-cooperative jurisdictions for tax purposes. Indeed, this draft list forms part of a suite of measures proposed by the European Commission designed “to further strengthen the EU’s framework to fight against money laundering and terrorist financing”. The EU’s stricter approach to AML/CFT supervision was prompted, in particular, by a number of high-profile money laundering scandals involving European banks over the past few years. The EU has also this week proposed the creation of a Pan-European AML/CFT authority.

    However, despite these threats in its own backyard, the EU has chosen to focus a good part of its attention on purported AML/CFT risks posed by third States. According to the EU’s website, the list “aims to address risks to the EU’s financial system caused by third countries with deficiencies in their anti-money laundering and counter-terrorist financing regimes”. The first EU AML/CFT list of high risk third jurisdictions was drawn up in 2016 based on the Financial Action Task Force (FATF) lists and has been updated regularly by subsequent delegated regulations. In 2017, the EU commenced working on its own methodology for identifying third jurisdictions with strategic deficiencies in their AML/CFT regimes. This new EU methodology, which only uses the FATF lists as a starting point, was adopted in 2018. The now rejected February 13, 2019 list is the first to be drawn up according to this new methodology which was again revised in May 2020.

    Under the EU’s Fourth Anti-Money Laundering Directive (4AMLD), banks and other ‘obliged entities’ in the EU are required to apply enhanced customer due diligence (ECDD) on transactions and business relationships involving those countries listed as high-risk third countries. In other words, transactions originating from or going to those countries will be subject to enhanced scrutiny, which could mean longer wait times for completion and more frequent risk assessment reviews of the relationship.

    Who is included in the updated draft list?

    The EU in its methodology for identifying high risk jurisdictions, indicated that its proposed AML/CFT blacklist would use the FATF lists as its starting point. As such, the Bahamas, which is on the FATF list of jurisdictions under increased monitoring (loosely referred to as the ‘grey list), remains on the updated Commission list. Barbados and Jamaica, which were added to the FATF grey list of February 21, 2020, were added to the new draft EU AML/CFT List of High Risk Third Jurisdictions. Like the other countries on the FATF grey list, The Bahamas, Barbados and Jamaica were identified as having strategic deficiencies in their regimes to counter money laundering, terrorist financing and proliferation financing but have undertaken a high-level political commitment to implement a FATF-agreed action plan to address these deficiencies.

    The other countries included on the EU’s updated draft list are Botswana, Cambodia, Ghana, Mauritius, Mongolia, Myanmar/Burma, Nicaragua, Panama and Zimbabwe, which are also on the FATF grey list of February 2020. However, the draft list does not include Iceland, a non-EU Member Country but part of the European Economic Area, which was also added to the FATF’s grey list.

    Issues with the List

    First, it is unfortunate that the European Commission would release this updated list while these countries’ economies are already suffering the harsh impact from the COVID-19 pandemic and could be further impacted by the reputational fall-out from this unilateral action. Indeed, although this measure is not supposed to take effect until October 1, 2020, the mere mention of these countries’ inclusion could spook investors and clients at a time when these countries’ economies are in a tailspin from COVID-19.

    Second,  like its failed list before, the EU is lumping jurisdictions which are on FATF’s grey list, that is, the list of monitored jurisdictions with an action plan with those which are on the actual FATF blacklist, that is, those countries for which there is a FATF call for action, namely North Korea and Iran. That poses additional reputational risks for named countries. It is incomprehensible to suggest that the AML/CFT risk posed by Barbados, The Bahamas or Jamaica is equivalent to that posed by those two countries for which a FATF call for action exists.  

    Third, as with the list before, the listed countries have complained that they were not given any advance notice of the updated list or any opportunity to query or contest their inclusion. The EU has stated it will provide technical assistance to those countries listed, but what will such assistance involve and how is it different from the assistance offered by the Caribbean Financial Action Task Force, the FATF regional body for the Caribbean?

    Fourth, the EU methodology only uses the FATF lists as the baseline for identification of countries with strategic deficiencies in their AML/CFT regimes. It begs the question why would the Commission, which is a full FATF member, see the need to create a separate list from FATF – the globally recognized standard-setting and monitoring body for AML/CFT matters. Moreover, unlike the FATF which provides detailed country-specific information through the mutual evaluation reports (MERs), the EU did not publish any detailed reasons for the inclusion of each jurisdiction.

    Fifth, the level of due diligence imposed by the EU goes beyond what is expected by FATF for countries listed as having strategic deficiencies in their AML/CFT regimes with an action plan. The FATF does not call for the application of ECDD to jurisdictions with strategic AML/CFT deficiencies with an Action Plan, but encourages its members to take into account the information presented in its risk analysis.

    Sixth, while the EU list does not impose sanctions or any other restrictions on trade, once a country has been listed as high-risk, European banks and other ‘obliged entities’ are required to apply ECDD on any transactions and relationships involving natural persons or legal entities based in such countries. Further, the EU’s Fifth Anti-Money Laundering Directive (5AMLD) provides additional guidance as to the type of ECDD required, which includes obtaining supplementary information on customers and beneficial owners.

    Implications for the Countries Listed

    There are already implications for the Bahamas, Barbados and Jamaica being on the FATF list but they increase with the EU list. The required ECDD on transactions  involving  clients  and  intermediaries from these countries could result in costlier and longer clearance times for transactions.

    The EU says its list is not a “name and shame” exercise, but there are reputational implications of being blacklisted or the threat of being blacklisted, especially in the increased climate of bank de-risking. Many large global banks in their risk rating of countries rely on FATF and other countries’ lists to assess country risk. Increased perceived country risk has implications for a jurisdiction’s attractiveness as an IFC and for its foreign direct investment (FDI) attraction more broadly. Some financial institutions may simply decide the enhanced transaction and business relationship monitoring is too much work and choose to de-risk.

    There are, of course, attendant implications for the ease of doing business, cross-border trade and financial transaction flows, which are the lifeblood of these countries’ economies.

    Next Steps?

    The updated draft list still requires approval by the European Parliament and the Council of the EU. So what can the named countries do in the interim? Since the EU has stated the FATF lists are its starting point, Barbados, The Bahamas and Jamaica have and should continue to prioritise addressing the outstanding issues highlighted by CFATF in order to exit the FATF grey list.

    The Bahamas, Barbados and Jamaica should continue public awareness and outreach activities to local stakeholders, as well as to external stakeholders, on their commitment and progress toward technical and effective compliance with the FATF recommendations.

    Lastly, whenever the EU unjustly and arbitrarily includes our countries on a list such as this, there is a chorus of indignation from our leaders about the morality reprehensibility of such lists. We need to go beyond emotional arguments and present sound empirical research on the impact of blacklisting or the threat of blacklisting on our economies. Perhaps that way we could truly empirically show the negative economic impact of these heavy-handed actions instead of simply appealing to moral suasion.  

    Alicia Nicholls, B.Sc., M.Sc., LL.B is an international trade and development specialist. Read more of her commentaries here or follow her on Twitter @licylaw. All views expressed herein are her personal views and do not necessarily reflect the views of any institution or entity with which she may from time to time be affiliated.

  • FATF releases Guidance on Correspondent Banking Services

    Alicia Nicholls

    The Paris-based Financial Action Task Force (FATF) has released its long-awaited guidance on the application of FATF standards in the context of correspondent banking services following its plenary session held October 19-21st, 2016. The purpose of the guidance is to address de-risking and has been prepared in collaboration with the Financial Stability Board (FSB).

    The target audience for the guidance includes not just banks and money or value transfer service (MVTS) providers engaged in providing correspondent banking or respondent bank services, but financial institutions with account holders that are MVTS which in turn provide correspondent banking-type services to their own customers, as well as competent authorities (particularly AML/CFT regulators and supervisors of banks and of MVTS providers).

    Key Points from FATF Guidance on Correspondent Banking Services

    Some key points from the Guidance are as follows:

    • FATF recommendations do NOT require the correspondent bank to know its customer’s customers (KYCC). In other words, correspondent banks are not required to conduct CDD (Customer Due Diligence) on the individual customers of its respondent institution.
    • While noting that simplified CDD are never appropriate in the cross-border correspondent banking context, FATF explains that not all correspondent banking services carry the same level of money laundering or terrorist financing risk so enhanced due diligence measures must be commensurate with the degree of risk identified.
    • FATF identified some factors to consider in assessing correspondent banking risks, including the respondent institution’s jurisdiction, products/services offered and customer base. FATF recommended the risk factors included in Annex II of the BCBS Guidelines on Sound Management of Risks related to ML/FT.
    • However, FATF stopped short of defining what constitutes a higher risk on the basis that doing so could lead to ‘a tick the box approach’ which could encourage, rather than discourage, de-risking.
    • The requirements of FATF Recommendations 10 (Customer Due Diligence) and 13 (Correspondent Banking) must be met before correspondent banking services may be provided to a respondent institution.
    • Correspondent institutions may obtain information required by FATF recommendations 10 and 13 directly from the respondent institution but this information MUST be verified in order for it to meet those requirements.
    • FATF provided some examples of sources of verification from BCBS General Guide on Account Opening
    • On-going due diligence of existing and new CBRs is required but the frequency should depend on the level of risk associated with each relationship.
    • FATF recommended maintaining an on-going, open dialogue with correspondents and noted that while FATF requirements require termination of customer relations where identified risks cannot be managed in accordance with the risk-based approach (RBA), the other options offered by recommendation 10 should be explored before the relationship is terminated.

    This is welcomed news especially for Caribbean countries which, according to a World Bank study released in September 2015, appear to be the most affected by the loss of correspondent banking relationships.  This guidance is an important step in tackling de-risking by providing definitive clarity on a number of key areas, including on the hitherto confusing issue of KYCC.

    It also stresses against the wholesale termination of CBRs as a first resort, but rather keeping an open dialogue with respondent banks. If followed, therefore, the guidance should reduce the alacrity with which some banks have restricted or terminated correspondent banking relationships. However, this guidance is not binding and the effectiveness will depend on the level of observance by foreign banks and by their regulators.

    The Guidance on Correspondent Banking Services is to be read in conjunction with FATF recommendations and guidance papers, including the guidance on RBA for the Banking Sector. It also complements other guidance on correspondent banking services previously released by the Wolfsberg Group and the Committee on Payments & Market Infrastructure (CPMI).

    The full FATF Guidance on Correspondent Banking Services may be read here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

  • FATF congratulates Guyana on AML/CFT Improvements

    FATF congratulates Guyana on AML/CFT Improvements

    Alicia Nicholls

    At its recently held plenary session on October 19-21, 2016, the Paris-based Financial Action Taskforce (FATF) congratulated Guyana on the “significant progress” the country has made in addressing the deficiencies in its framework for anti-money laundering/combatting the Financing of Terrorism (AML/CFT).

    Background

    Since its establishment in 1989, FATF has sought to protect the integrity of the global financial system from threats posed by money-laundering (ML), terrorist financing (TF) and the financing of proliferation of weapons of mass destruction. Its main role is setting and promoting standards on these areas and its 40 plus 9 Recommendations are the international standards for AML/CFT and the financing of the proliferation of weapons of mass destruction. FATF’s work is complemented by the nine FATF-style regional bodies, including the 27-member Caribbean Financial Action Task Force (CFATF), of which Guyana has been a member since 2002.

    The AML/CFT Mutual Evaluation is a peer review process to evaluate each member country’s level of compliance with FATF’s Recommendations. These reviews are concerned not just with the jurisdiction’s technical compliance with the recommendations but also now with the effectiveness of the country’s AML/CFT systems.

    CFATF was very critical of Guyana’s technical compliance with the FATF recommendations in its third round Mutual Evaluation report dated July 2011. Inter alia, the reviewers had highlighted several deficiencies in the Anti-Money Laundering and Countering of the Financing of Terrorism (AML/CFT) Act 2009, the  lack of statistics, staffing shortages and limited staff training. As a result, the country was placed on expedited follow-up and required to report every Plenary. Due to internal political wrangling over the proposed bill’s content, for many sittings Guyana’s legislature could not pass the proposed amended AML legislation.

    This inaction, however, had several negative consequences. Starting in May 2013, CFATF had named Guyana among its list of jurisdictions with strategic AML/CFT deficiencies that had not made sufficient progress in addressing them and had warned that if Guyana did not take specific steps by November 2013, not only would it call upon its members to consider implementing counter measures to protect their financial systems from the ongoing ML/TF risks emanating from Guyana but would consider referring the country to the FATF International Cooperation Review Group (ICRG) which analyses the AML/CFT threats from high-risk jurisdictions.

    After Guyana had failed to meet the agreed timelines in the action plan, the regional watch body followed through on its threat in its public statement released May 2014 in which it called on its Members to “consider implementing further counter measures to protect their financial systems from the ongoing money laundering and terrorist financing risks emanating from Guyana”.

    That language may sound extreme to the reader considering that Guyana is not an international financial centre and any AML/CFT lapse is unlikely to cause even a ripple in the global financial system. Regulatory costs are burdensome for cash-strapped small states which often lack the financial resources and the human resource capacity to meet all the requirements. What little technical assistance is given is often not adequate. As countries which are not members of FATF Caribbean countries also have little say in the regulatory framework or agenda which are often slanted towards the interests of advanced economies.

    However, these important inequities aside, a sound AML/CFT framework is important for countries, especially those with porous borders and which are dependent on foreign investment and foreign trade. Having a reputation for a deficient AML/CFT framework could make it difficult for an FDI-dependent country to attract new investment as some parent companies may prohibit the establishment of subsidiaries in a country with a deficient AML/CFT regime. It also increases the country’s risk profile which would make financial transactions and relationships with businesses and persons in that country subject to enhanced due diligence due to the higher level of perceived risk, increasing the chances of its local banks losing their foreign correspondent banking relationships and  thereby restricting its access to the global trade and financial systems.

    Guyana’s progress to date

    Since coming to power in 2014, the new government in Guyana has been able to implement several reforms to improve the country’s level of compliance with FATF recommendations. These changes have been well-documented in this article by Anand Goolsooran. However, some of those identified in CFATF’s 10th Follow Up Report released June 2016 include the passing of the AML/CFT (Amendment) No.2 Act 2015 in January 2016 and  of the AML/CFT (Amendment) Act No. 15 of 2016 in May 2016 and the issuance of AML/CFT Directives and Guidelines.

    As a result, the CFATF assessors concluded as follows:

    Guyana has significantly improved its overall level of compliance and most importantly Guyana has fully addressed the core and key Recommendations. While Guyana satisfies the criteria for application to exit the follow-up process, it is still in the FATF ICRG process which it needs to complete first. As such it is recommended that Guyana stay in enhanced follow-up and be required to report on continuing implementation to the next Plenary in November 2016

    In mid-September 2016, the visiting FATF/ICRG delegation praised Guyana’s progress towards bringing its framework in compliance with FATF recommendations.  As of October 2016, Guyana is no longer subject to FATF’s on-going global AML/CFT compliance process.  Guyana will continue to work with CFATF to address the outstanding issues with the goal to exit the CFATF follow-up process.

    The outcomes of the FATF October 2016 Plenary session may be viewed here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.