Those FIU (non)reports – continued

The mandate
Now let us turn to the wider mandate of the FIU with respect to the prevention of money-laundering and combatting the financing of terrorism. The Act singles out Financial Institutions, and defines these along with Designated Non-financial Business or Profession in Schedule 1. Financial Institutions are mainly those engaged in any of the services normally provided by banks and other financial institutions while the second category includes casinos, real estate agents, dealers in precious metals, attorneys-at-law, notaries, other independent legal professionals and accountants engaged in certain specified activities and trustees.

The Act also defines as reporting entities persons carrying on a range of activities, also listed in Schedule 1, including the acceptance of deposits, granting of loans including consumer credit, financial leasing, money transfer agencies, cambios, pawn-broking, issuance of credit cards, travelers cheques, used car and car part dealers, real estate agents, betting shops, lotteries, and transactions undertaken by accountants and attorneys acting for clients in relation to specific activities, exporters and importers of valuable items and dealers in real estate.

Under pain of draconian penalties, financial institutions and reporting entities have serious and extensive obligations under the Act. For the purpose of this column, suffice it to say that reporting institutions and entities are required to maintain adequate records to enable the identification of their customers; to establish and maintain records of all transactions with full particulars of the customers and the transactions; to pay attention to all complex or unusual large business transactions; to monitor their business relationships with customers; to appoint a Compliance Officer to ensure compliance with the Act; to establish and maintain internal policies, procedures, controls and systems to implement the customer identification requirements and recordkeeping and retention requirements; to establish an audit function to test the policies and procedures; and to train their officers, employees and agents to recognise suspicious transactions; and most importantly to submit to the FIU any transaction which they suspect is connected to the proceeds of criminal activity, money laundering or terrorist financing.

Despite defining Designated Non-financial Business or Profession in Schedule 1, the term is not used anywhere in the Act.

Divided responsibilities
The Act seems to impose divided responsibilities for compliance by reporting entities. In his 2013 Budget Speech the Minister of Finance announced that “nine supervisory authorities have been appointed to date, in relation to casinos, cooperatives, charities, dealers in precious and semi-precious stones and precious metals, financial leasing, money transfer agencies, trust and company service providers, and insurance businesses.”

The Act identifies the Bank of Guyana as the supervisory authority for the reporting entities carrying on banking-type business, including cambios; the Securities Council for certain financial business, money-broking, share issue, unit trust and venture risk capital; and the Commissioner of Insurance for domestic and international insurance business.

What is clear is that not only are many of the supervisory authorities not carrying out their statutory obligations but no supervisory authority has been named for a number of activities, including law and accounting. If we were serious about preventing money-laundering, we not only would have had supervisory authorities named for each class of activity or business: we would have insisted that they do their job.

Perhaps as a result of the duality and uncertainty, of the twenty five or so categories of reporting entities only two categories reported any suspicious transactions for the entire 2011 and 2012. Of the 1,665 suspicious transactions reported in the two years, 1,644 reports were made by Money Transfer Agencies representing 98.74% of the reports with the remaining 21 reports (1.26%) were made by Licensed Financial Institutions (LFI’s).

The unruly cambios
While the low level of reporting by the LFI’s is surprising, the non-reporting of any suspicious transactions by the remaining categories is simply unbelievable. 2011 was an election year and money was passing through the accounts of politically exposed persons by the tens of millions of dollars. Were these reporting entities simply careless, negligent or evading their obligations to report suspicious money-laundering transactions of their customers? Or worse, did they themselves facilitate such transactions, confident of the FIU’s ineptitude and/or negligence?

But the FIU is not the only failure; the central bank as the designated Supervisory Authority was expected to supervise compliance by the cambios with the requirements of key provisions of the Act. It needed no special audit or forensic skills to recognise that an overwhelming majority of the cambios were never established with a view to compliance. From all appearances, the central bank did little to rein in the cambios. To their eternal benefit, the cambios found the FIU even more inert and benevolent.


Source: FIU Annual reports

Interestingly the annual reports of the FIU listed only the first four categories. I have listed the others so that readers can have some idea of the level to which the Act might have been ignored.

Politically exposed persons
One final point: the Act also creates a category of persons it refers to as a “politically exposed person”. It defines such a person to include “senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials, including family members or close associates of the politically exposed person whether that person is resident in Guyana or not.”

Reporting entities are required to pay particular attention to transactions with such persons including taking reasonable measures to establish the source of wealth and source of property, and conducting regular enhanced monitoring of the business relationship. Ironically, the two government officials who are empowered to declare an entity as a “specified entity” are themselves politically exposed persons. Are they going to take such action against themselves, members of the Cabinet or their political party?

While the Caribbean Financial Action Task Force has drawn attention to deficiencies in the Act, there are other weaknesses which it appears to have overlooked. Section 2 (2) (1) is clearly out of place; some of the freezing and forfeiture provisions seem to collide with fundamental rights guaranteed by the Constitution; and the provisions regarding the admission of otherwise inadmissible evidence, standard of proof and closed hearings do not seem to accord with the constitutional rights of citizens.

Apart from meeting the CFATF requirements to bring Guyana in compliance with its obligations under regional and international regime to deal with money-laundering and terrorism financing, the Act clearly has serious defects. The very structure of the Act, the role and location of the FIU and the appointment of a director who seems totally out of his depth in terms of enforcement of the Act, all suggest a feeble, cosmetic attempt to address money laundering.

This state of affairs should not be allowed to continue. Money laundering has not only social and economic implications – distorting competition, driving out legitimate businesses and fuelling tax evasion – but it also has implications for crime. The proceeds of corrupt transactions have to be laundered while the guns brought into Guyana and used to kill, are often financed by laundered money.

Guyana is among rather undistinguished company. The Government knew since 2011 that the 2009 Anti-Money Laundering Act was deficient, as was the 2000 Act it replaced. Yet it did nothing until it was too late. In that regard, the parliamentary opposition was right to force a review by the Select Committee but it then lost a good opportunity to achieve tangible results. All the AFC seems to have wanted was a Procurement Commission, even at the expense of a proper statutory and institutional framework. The APNU wanted a “good bill” but failed to make any concrete proposals to achieve that.

The PPP/C on the other hand was prepared to concede nothing: no Procurement Commission, no removal of unconstitutional provisions in the substantive Act and no concession on the existing failed model of FIU. The opposition might have been irresponsible but the PPP/C was unreasonable and inflexible. The consequence of that lethal combination is that our country can become an international pariah.

Fixing the AMLCFTA itself is not insurmountable and with the will and flexibility, there is no reason why these cannot be satisfactorily addressed within a very short period. But that technical exercise will have to be matched by a willingness to tackle corruption and crime in all their manifestations, strengthening the Guyana Police Service, the DPP’s Office and the Courts. It is time that Commissioners be appointed to the Integrity Commission, the Public Procurement Commission established, long-promised whistleblower legislation introduced and an Ombudsman appointed. Absent a proper institutional framework, all the legislation in the world will be completely ineffective.

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