Playing with money laundering and terrorism legislation

Introduction
Guyana joined the Caribbean Financial Action Task Force (CFATF) in 2002, twelve years after it was established in May 1990. The CFATF is an associate member of the Financial Action Task Force (FATF), the international body established in 1989 charged with examining countries’ money laundering techniques and trends, reviewing the actions which they had already taken, and setting out the measures that still needed to be taken to combat money laundering. Following the terrorist attacks of September 11, 2001, the FATF added terrorist financing to its mandate.

By 2002, Guyana had already passed the Money Laundering (Prevention) Act 2000 which granted to the Minister of Finance the discretion to appoint the Bank of Guyana or some fit and proper person as the Supervisory Authority for the Act. Favouring the latter course, some time in 2005 the Minister of Finance handpicked Mr Paul Geer to head a Financial Intelligence Unit located in the Ministry of Finance. Mr Geer’s experience included five years as head of the Guyana Bank of Trade and Industry, which he left abruptly – officially for personal reasons ‒ in a golden parachute and after a meeting of the bank’s Board of Directors.

Despite the allocation by the National Assembly for the FIU of more than two hundred and seventy-five million dollars since Mr Geer took up the position, the unit has had virtually no success in pursuing even the limited objectives of the 2000 Act. Not surprisingly then, Guyana’s reputation as a prosecutor of money-laundering has no gloss. Some have blamed the deficiencies of the Act but Mr Geer did not help the government’s case by his unavailability to meet the press or unwillingness to answer questions about the FIU.

Following some critical reviews of the by then limited 2000 Act and the country’s anti-money laundering efforts, the government introduced the Anti-Money Laundering and Countering the Finance of Terrorism Bill on June 4, 2007. After nearly two years and fifteen sittings of a Select Committee the National Assembly on April 30, 2009 passed the Bill. Reinforcing the perception that he was never serious about pursuing crime and its proceeds, then President Jagdeo took one hundred and seven days before he assented to the Bill on August 14, 2009. And then it took another 87 days before the publication of Order # 22 of 2009 to bring the Act into force.

The later Act was equally poorly administered prompting President Jagdeo some time in 2011 to publicly castigate the unit for its inability to meet even basic annual reporting obligations to the National Assembly. Put bluntly, the FIU of the 2009 Act and its predecessor Supervisory Authority under the 2000 Act have been disastrous failures, so much so that we probably could have done without them, without noticing their absence.

Continue reading Playing with money laundering and terrorism legislation

Another try at preventing money-laundering

Introduction

The current select committee review of Bill No 18 of 2007 Anti-Money Laundering and Countering the Financing of Terrorism Bill 2007 took me back to the Hansard report of the debate on The Money Laundering (Prevention) Bill 1998 which was piloted by then Attorney General Charles Ramson when he famously announced how proud he was to be associated with a government that had “zero tolerance for corruption.”

On that occasion the government rejected pleas by the parliamentary opposition to refer the bill to a select committee and seemed to have paid little attention to the submission of the Guyana Association of Bankers (GAB) on the bill. To read Mr Ramson extolling the bill’s virtues, strengths and capacity to solve what had become a scourge that distorted every single measure of the economy was like celebrating the discovery of sliced bread. He said for example that the new law if given scope could exorcise the much wider range of illegal schemes which can be “disruptive of the conventional economic matrix.” He did not explain what constituted that matrix.

Ten years on a select committee of the National Assembly is meeting to bury that bill which has really never seen much light or action, although there is a Financial Intelligence Unit (FIU) that was set up not within the Bank of Guyana as recommended by the GAB, but essentially as a one-man operation within the Ministry of Finance and which never published a single report on its activities.

The 1998 bill became law and is still on the statute books as The Money Laundering (Prevention) Act 2000, but for the near-life of the act (an SN editorial to mark the third anniversary of its enactment described it as a “bear in hibernation”) it has been more words than action.

The list of persons who pronounced on the act at various stages included then Finance Minister Sasenarine Kowlessar who after the act’s assent announced that no decision had been made as to who would supervise the act; President Jagdeo, who one year after the act was passed said no funds had been budgeted for its implementation; then Director of Budget Dr Ashni Singh who pronounced that “money-laundering could have significant influence on currencies, market prices and financial stability”; Home Affairs Minister Gajraj who in discussing money-laundering spoke of non-working millionaires and the “Siamese twins of the narcotics scourge”; his successor Ms Gail Texeira who called on consumers to boycott drug lords’ businesses and Commissioner General Kurshid Sattaur who announced that GRA’s software would pinpoint money launderers.

But perhaps the most striking non-action was the establishment in 2001 of a special task force under Dr Roger Luncheon to oversee the implementation of the act – that too never got anywhere. Significantly, never a word from the Director of the FIU.

History favours pessimists

History is not therefore on the side of the optimists. Between then and now money laundering has earned itself – helped by the inaction of the politicians and technocrats – to become one of the most significant segments in the economy although the Bank of Guyana hardly thinks it worthy of comment in its just released report for 2007. The non-bank cambios, almost all controlled by individuals, have become lawful vehicles for the pursuit of unlawful activities. Someone needs to explain why we would not allow insurance companies and commercial banks to operate as sole traders but would do so for the non-bank cambios, with little reporting obligations and no audit requirements.

To argue that we need the cambios because of the fear of driving foreign currency transactions underground is to admit that there is something wrong with the market and the regime for foreign exchange, including the exchange rate. As currently operated the cambios have legal cover to transact transactions, a number of which involve laundering.

A more ambitious task

What is different this time? The 2000 act had the modest objective of “the prevention of money laundering and for matters connected therewith,” and had a total of twenty-nine (29) sections. The new bill is far more comprehensive and now extends to the prevention of the financing of terrorism, a consequence of the attack of September 11, 2001, that allowed US President Bush to reorganise the priorities of all regulators in a one-size-fits-all solution. The bill now extends to “politically exposed persons,” and I hope that the lawyer/politicians now reviewing the bill will cover all the bases and not leave any technical loopholes to be exploited by their political parties, particularly at elections time.

The bill, an immensely complex piece of legislation covering some one hundred and fifteen (115) sections, will require several pieces of supplementary legislation to support it and confers both powers and duties, some of which are mandatory and others discretionary. Even if only some of these were to be carried out with minimum efficiency, it would require a significant bureaucracy and budget which the government may be unwilling or unable to finance, and external financing may be required for its viability. In fact we will probably hear, as we did with its predecessor, that there is no money to operationalise it.

The bill optimistically assumes that a politically appointed director supported by an attorney-at-law and an accountant with personnel trained in financial investigation or other employees (s. 9) will be able to administer this legislation that would include both domestic and cross-border transactions. The same structure and person could not enforce the 2000 act, and never prepared a report or analysis to indicate the favourable features and its weaknesses, so it must therefore be wishful thinking to believe that a similarly structured FIU could administer a more complex piece of legislation.

Look out

I believe it would be helpful if various options across similar jurisdictions with similar legislation were explored. Data suggest that while FIUs appear to be the most common form in the Caribbean, these are not uniformly staffed and that there is no single, uniform structure. As drafted, there is no parliamentary oversight and the minister is not required to table the annual report of the FIU in the National Assembly.  In Barbados the FIU comes under the Anti-Money Laundering Authority that has wide professional membership including the Commissioner of Police, the Comptroller of Customs, the Commissioner of Inland Revenue, the Supervisor of Insurance, the Registrar of Corporate Affairs and Intellectual Property and representatives of the Governor of the Central Bank and the Solicitor General.

Look at

Despite some serious lapses that have eroded public confidence, the bill presupposes adequate regulatory mechanisms, the existence of a capacity and independence within the police force and Office of Director of Public Prosecutions to investigate and prosecute suspected wrongdoers, and a court that is attuned to the many forms of money-laundering. Will the court under the new law allow a major public company to refuse to divulge to its regulator the identity of the individuals behind major blocks of trustee-held shares?

Ministerial authority for the legislation is split between the Ministers for Legal Affairs and Finance. Yet the Ministry of Legal Affairs has taken a secondary role at the select committee level, and one wonders whether this will be another example of one thinking the other will act and both ending up doing nothing. The other main legislation where there is such joint responsibility is the Companies Act 1991, which has not been very successfully implemented and which cries out for amendments. It must be over one year ago that I made detailed representation to the Minister of Finance on some necessary amendments to the Companies Act but all I have heard is that the recommendations are engaging the attention of the Ministry of Legal Affairs.

Having had the opportunity to appear before the select committee I was struck by the exuberance of some of the members about the expected effectiveness of the bill which is largely an imported piece of legislation. Its origin is the international Financial Action Task Force set up by western governments, but even that body recognises in the Glossary to its 40 Recommendations and 9 Special Recommendations that “countries have diverse legal and financial systems and so all cannot take identical measures to achieve the common objective.” There is little evidence, however, that this bill has been sufficiently localized, and it does not identify the necessary consequential amendments to a number of other statutes, including the Bank of Guyana Act. Unless this is done, we can expect some lawyers having a real field day as they draw attention not only to the conflicts with other laws but also with the constitution which is the supreme law.

Gail’s barons

Apart from the laundering associated with the drug barons, the fuel smugglers and those who are called businesspersons, money-laundering is also related to tax evasion for which we already have many laws and other arrangements which are seldom invoked. We clearly need to develop capacity in the Guyana Revenue Authority to deal with rampant tax evasion, the proceeds of which must themselves be laundered, and I can only wonder why better use is not made of the Property Tax Act and the exchange of information provisions under the Double Taxation Treaties with Canada, the UK and Caricom states and the Income Tax (Exchange of Information) USA Order.

There is in fact a raft of other legislation that can help to ferret out money-laundering, with the Integrity Commission Act coming to mind, but what about the Companies Act itself, section 496, which allows for the Minister of Finance “on his own motion” and for the protection of the public to appoint inspectors to look into the affairs of a company. Certainly one prominent company comes to mind, but is there the will?

Conclusion

The real test of this bill is in the detailed provisions as well as the subsidiary legislation to follow. These should ensure a balance between dealing with money laundering and the financing of terrorism and the pursuit of legitimate business. But in the final analysis it will be in how serious the government is in stamping out money-laundering or whether this bill will be simply as ineffective as its predecessor.

If, as we are told, there has been no promise of a casino licence to anyone there should be more time for debate

I distinguish Mr Al Creighton from his former UG colleague Dr Desrey Fox, Prime Minister Sam Hinds, Home Affairs Minister Clement Rohee, Health Minister Dr Leslie Ramsammy and Mr Odinga Lumumba all of whom have suddenly discovered casino gambling as a development strategy for Guyana. Mr. Creighton in his letter captioned “The same debate took place in other Caribbean countries where casino gambling was introduced” (2007.01.13) took the academic’s approach of grading the pronouncements of those opposed to casino gambling and then said yes, but even those with merit are flawed. On the other hand Dr. Fox and Messrs Rohee and Lumumba targeted the Christian community in a manner that inevitably raised the question whether they were playing only the religion card.

While Mr. Creighton accepts the critics’ concerns about the dangers of casino gambling, those on the Government side can see only jobs and investments. Indeed, Dr. Ramsammy makes bold to state that casino gambling is ‘not a sham for money laundering’, ignoring the evidence gathered by one of the world’s leading accounting firms Ernst & Young which puts the amount of money laundered annually by criminal networks at US$1 trillion dollars, with casinos being one of the easiest and therefore preferred options. Trinidad and Tobago is no doubt among Dr. Ramsammy’s ‘hundred countries’ in which casino gambling is legal. That country permits casino-style gambling in members’ clubs only and which, depending on how you count them, number about forty, several offering no more than a few pin-ball machines in backstreets without even telephone numbers. The number of ‘10,000 direct jobs’ provided by casinos in Trinidad and Tobago is plain wrong.

But what is particularly striking about Dr Ramsammy’s paper is that in the same paragraph in which he referred to my S/N letter of January 7, 2007, he assures the nation that ‘casino gambling is also not being permitted because of any accommodation of any particular person or group.’ The French say it cutely: ‘He who excuses himself accuses himself’.

Why was that assurance necessary? Knowing Mr. Creighton as I do I am sure that he would be concerned that someone who is facing a serious charge of fuel smuggling is being financed partly by taxpayers’ money and that he would be interested as we all are in knowing the nature and value of concessions the government has granted that person. And would Dr Ramsammy tell us whether any space has been set aside for casino gambling in Buddy’s International Hotel.

It is hard to believe that, in the words of Dr Ramsammy, the Government has ‘studied the experiences of other countries, some in our own region of the Caribbean.’ If it had, then it would be aware that in the Budget Speech reported in the Trinidad Express of October 5, 2006, Prime Minister Manning vowed to eliminate casino-type establishments in his country. The ‘industry’ in Suriname is under the strong influence of the Ukrainian Mafia while in Venezuela, the owner of the Casino de Venezia told the court that the hotel was frequented by a group of Italians associated with the Italian Camorra, known for its Mafia connections. In South Korea several public officials including a minister of the Government have been guilty of accepting bribes in connection with the granting of licences to sell gambling machines while in the Philippines a close ally of President Arroya owns the Metrowall Mall in which an illegal casino was recently opened and which is associated with the assassination of a previous owner. And Cyprus admits to contemplating casino gambling because ‘it is the lesser of two evils’. Is that the kind of globalisation and development this country favours? Mr. Creighton, whose writing and contribution to Guyana is unmatched by any of his colleagues at the University of Guyana, dismisses the arguments against casino gambling as emotional. He demonstrates more faith than most Guyanese that the government would ‘do the right things’ to mitigate the adverse consequences of casino gambling and its attendant evils. His research would have alerted him to the fact that the state that hosts the gambling capital of the world Las Vegas, has the second highest rate of homelessness in the US, twice the national average and that even developed countries like the USA and the UK can barely regulate their gambling industry.

Mr Creighton whose field is the arts, might not even be aware that while the government bowed to international pressure and passed legislation in 2000 to prevent money laundering, the legislation was not brought into effect even as the illegal narco-trade, fuel smuggling, tax evasion and money laundering took root in the country and along with other elements of the underground economy now account for some 40% of the economy. Simultaneously, the Government has ignored warnings that the non-bank cambios do much, much more than change money for the person who may not have access to the commercial banks or who care simply about a better rate.

As an intellectual and commentator, does Mr Creighton accept PM Hinds’ argument that those who oppose casino gambling should vote out the PPP/C in 2011 as an informed position on what democracy means? It is not emotions that drive the concern that the constitutional provision on consultation is being ignored or that the President has reneged on his publicly stated commitment to consult with the population. How many of those who favour casino gambling have read the draft casino gambling legislation and are aware that Guyanese would be welcome in these new beacons of development? If Dr Ramsammy had read the Bill which he supports and promotes he would not have said that ‘only visitors would be able to take advantage of this new activity’. In fact any registered guest can enter the casino and all you have to do is pretend to pay for the registration and in return you are given tokens often of a higher value so as to entice you into the place. If as we are assured there has been no promise to any person or group, and if, as Dr. Ramsammy points out, the government has encouraged the debate (which encouragement must have gone undetected by most Guyanese), then only good can come from allowing further time to an informed debate beyond the letter columns, mainly in the Stabroek News, or the rantings of the uninformed in the National Assembly.

That would be my recommendation and I ask Mr. Creighton to support this.

Casinos are widely favoured by drug interests as potential laundries

Any decision to introduce casino gambling in Guyana requires at a minimum a complete and thorough examination of its moral, economic and social implications. The leaders of the various religious communities in Guyana including Pandit Reepu Daman Persaud of the Guyana Hindu Dharmic Sabha, the Central Islamic Organisation of Guyana and Bishop Alleyne of the Catholic Church have unanimously expressed their opposition to casino gambling.

The concerns of these gentlemen cannot be dismissed as the encroachment of religion into matters political. The views expressed reflect the values and opinions of large segments of the population with whom the religious leaders interact as often as weekly and certainly more regularly than politicians. They have as much of a stake and interest in the type of society we shape and bequeath as any politician. The views therefore ought to be seriously considered in any national debate.

Even those who advocate gambling acknowledge its great social cost. Indeed in many countries there are facilities to address the question of gambling addiction and only recently the US found it necessary to ban internet gambling partly as a result of an expose on the effect on students as well as legal implications. So often careers have been destroyed, families broken and valuable economic potential wasted because so many seek the elusive dream of a fortune. One only has to look at the number of actual winners to those engaged in gambling to understand how loaded the dice is against the bettor.

It is true that many countries including some of the most pious theocracies have a double standard when it comes to gambling and some even have state gambling on the pretext that these are more fairly run! These seldom change the ratio of winners to losers and even when gambling is run by the state it amounts to no more than a form of taxation, since it goes into the coffers of the state. Readers are of course familiar with the Lotto and how those proceeds are divvied up.

But the operation of casinos takes gambling to a different level and it is not surprising that even in the gambling capitals of the world, it is one of if not the most regulated activity. Indeed in some places they are deemed financial institutions for reporting purposes under money laundering laws and law enforcement officers and other regulators are present in casinos to manage crime and to ensure that no illegality is perpetrated.

That Guyana is proposing entry into this minefield raises questions well beyond the moral and religious and speaks to the type of society we wish to create. Few doubt that significant sectors and activities are already criminalized and as we scan the landscape on which casinos are being proposed, this is what we see:

1. Significant segments of our economy are dominated by unethical business practices, financed by unexplained funds and thrive on tax evasion.

2. There is great fear of even mentioning the names of certain individuals and businesses which extends beyond the fear of libel to fear of being harmed by agents of those who consider themselves as beyond question.

3. We have had recent experiences of officially sanctioned phantoms who according to a prominent citizen are now spawning baby phantoms.

4. The level and quality of regulatory enforcement in banking, the non-bank cambios, insurance and corporate and securities are at best merely superficial and ineffective.

5. Our police force is struggling to shed an image of incompetence and corruption, of questionable leadership and has been the subject of much study and recommendations but no action.

6. Public sector wages including those of the police are so low that bribery and corruption are an accepted fact.

7. A highly deficient court system that is seen by many as compromised, inept and unable to deliver justice. Not a single successful prosecution has been brought against any major personality before the courts.

8. A political culture characterized by poor governance, little accountability and increasingly seen as compromised by shady interests.

In the context of this environment, I draw attention to some of the dangers of casino gambling from actual examples in states/countries where casinos operate.

1. The Maryland Attorney General Curran’s Executive Summary On Casino Gambling is quoted as saying: “Known mob figures frequent casinos to gamble and launder money, and organized crime families attempt continually to infiltrate ancillary industries and to capitalize on an increased market for drugs, illegal gambling, and other ills.”

2. Dexter Temple, a confessed former drug dealer told the Des Moines Register that “Iowa drug dealers have pinpointed casinos as ideal places to quietly launder the large bills they earn selling methamphetamine, cocaine or other illegal drugs.” He noted that “When you think about it, you’ve got some money in your pocket or you’re making money off drugs, it’d be a good place to go and hit a jackpot and have some ‘legitimate’ money.”

3. The New York/New Jersey High Intensity Drug Trafficking Area (HIDTA) estimates that drug traffickers launder between $4 billion and $8 billion annually in the New York/Northern New Jersey metropolitan area. A report out of that state body notes that the gaming industry in the United States remains vulnerable to drug money laundering and identifies as one of the techniques used to launder drug proceeds through casinos, the structuring of cash purchases of casino chips or tokens to avoid reporting requirements and subsequently redeeming the chips for cheques drawn on, or wire transfers from, casino bank accounts.

4. Corruption can also involve casino employees and operators and one former Bally’s (a top Las Vegas Casino) casino host was convicted after pleading guilty to charges of money laundering and helping to wash drug-trafficking proceeds. One such case surfaced from a sting operation in which the operator allowed a ‘customer’ to use fake identifications to launder more than $400,000 of drug money. In fact one host in that case admitted that his job as a host was to help high-rollers who wanted to gamble.

5. Nevada, which can claim to be the gambling capital of the world, has one of the largest FBI offices in the USA because of crime linked to gambling.

6. Following a cocaine and marijuana bust some years ago, Peter Djinis, associate director of the Treasury Department’s Financial Crimes Enforcement Network in the US, known as FinCEN, reported that casinos are easy targets for criminals seeking ways to disguise origins of money.

7. U.S. Representative Frank Wolf (R) of Virginia lamented in a letter to President Bush that ‘Casino gambling … is now coming to cities and even small towns across America and bringing with it all its social ills, like higher crime and suicide rates, increased personal bankruptcies, and the breakup of families.’

8. The US DEA reports that Canadian drug traffickers are laundering illicit cash and clandestinely shipping shady money to the Caribbean and South America, again using casinos to launder their proceeds by the standard technique of purchasing and surrendering chips or opening an account at the gambling establishment.

9. In 2004, the Canadian Broadcasting Corporation reported law enforcement officials as saying that loan sharking, money laundering and other criminal activities have become a reality inside Ontario’s legalized casinos.

10. In 2005, the Conservative Party Leader in the UK Michael Howard stepped up his attack on the Government over money laundering concessions for casino operators.

11. The (Scottish) Sunday Herald quotes Jeffrey Robinson, the UK Gaming Regulator Chief and a leading authority on money laundering as warning that Britain must take action to prevent suffering the same fate as the US, where, he says, casinos are still viewed by organised crime groups as “giant Laundromats”.

12. In the Caribbean Aruba has been named in “The Drug Trade in the Caribbean: A Threat Assessment” as playing a significant role as an offshore centre for drug-related money laundering while Trinidad and Tobago, not an important regional or offshore financial centre, has been used by drug traffickers to launder money using overvalued purchase prices, real estate, casinos, stockbrokers, insurance companies, and other non-financial establishments.

13. The argument that casino gambling will promote tourism and economic development is best answered by Attorneys Guy Martin, Don Baur and Jena MacLean, Perkins Coie, LLP of the USA who told a gathering of the International Municipal Lawyers’ Association in 2003 that ‘for every dollar a community collects from gambling taxes, it must spend three dollars to cover new expenses, including police, infrastructure repairs, social welfare and counseling services.’

I am not at all convinced of the reasons for rushing into law casino gambling, or why President Jagdeo believes that genuine tourists as opposed to those merely looking for a laundry service would prefer Guyana to other established gambling locations, or why he would wish to alienate large segments of the Guyana population to favour casinos which benefit only a few. The fact that this was not part of the manifesto that the PPP/C offered the populace in a covenant for their votes makes the case for an informed debate inescapable. It is not something that should be taken by Guyanese as a done deal.

Given the potential for casino gambling of a further criminalised economy shunned by serious investors, this is a defining issue which imposes on all Guyanese a historic duty to contribute to the debate. As Abraham Lincoln said ‘To sin by silence when they should protest makes cowards of men’ (and women).