Money laundering, the process of cleaning up the earnings from drug trafficking, has become a battle of wits between banks and the international drug lords.
And one of the main battlegrounds is the Caribbean, where about US$60 billion -12per cent of the US$500 billion believed to be laundered across the world by the illegal drug business – is said to end up.
This should not be surprising, considering that about 40 per cent of the cocaine trade from Latin America to the US and Europe is said to pass through the Caribbean, and a substantial portion of the proceeds stays behind. The region is also home to thousands of offshore banks, some of which, deservedly or not, are seen as conduits for tainted money because of the secrecy which has traditionally surrounded their operations.
No matter how the drug money moves, to be properly “laundered” it has to end up at some point in the traditional domestic banking system, where it then becomes part of the “respectable” financial stream and the link with its criminal origins is severed.
This positions the Caribbean banking system at the centre of the war between the forces of righteousness and the forces of darkness — a responsibility it would rather not shoulder, but one which it simply cannot avoid. After all, the term “money laundering” was probably unknown 25 years ago, and in a relatively short time the banks have found themselves burdened with the task of being the first line of defence against what is probably the world’s fastest-growing crime.
US$60 billion sounds like – and is – a huge amount of money; it has the potential to corrupt entire island communities and to disrupt the finely-tuned money supply systems that reflect the financial policies of national banking authorities. Faced with the reality of a Caribbean financial system targeted by criminal elements eager to find ways of disguising their ill-gotten gains, the banks have thrown themselves into the task of frustrating the launderers’ ambitions with gusto.
Trinidad and Tobago had one of the first laws in the Caribbean to criminalise the proceeds of drug trafficking and provide for confiscation orders. It was passed in 1991, and the country’s banks pretty soon thereafter decided they had no option but to pitch in and help.
“There were two issues involved,” recalls Peter Aanensen, today the Assistant General Manager for Information Systems Security at the Royal Bank of Trinidad and Tobago, who had direct oversight of money laundering matters at the time. “One was moral – the banks will not help criminals. The other was commercial. If we had a mortgage on a house that was found to be purchased with laundered money and the authorities seized it, for example, that would leave the bank exposed without security.”
What the banks did, in December 1992, without any pressure from the authorities, was to introduce a “source of funds” declaration, which customers depositing TT$25,000 or more in cash, or the equivalent in foreign exchange, had to fill out.
Small amounts, if deemed “suspicious”, also had to be explained. Naturally, not every customer took kindly to this, and Mr Aanensen has at least one letter still on file from an irate depositor who objected strongly to having to declare the provenance of his funds. “It was difficult at the beginning. We had to deal tactfully with those who objected.”
When the Central Bank recommended in 1995 that the declaration threshold for cash deposits be lowered to TT$10,000, which drew many more customers into the net, the banks’ job became even harder. “But over the years the general public has come to understand the reasons for it and is co-operating.”
In its 1995 Guidelines on Money Laundering for Institutions Licensed under the Financial Institutions Act, which still remain valid today, the Central Bank also enjoined the banks to verify the identity of all their customers, including established ones. New customers had to produce a photograph and signature confirming that they were who they said they were, usually an ID card or passport. Addresses also had to be established via utility bills. In that same year, the police got into the act and asked the banks to send the “really suspicious declarations” on to the Financial Intelligence Unit (FlU) of the Office for Strategic Services (OSS) in the Ministry of National Security.
The breaching of time-honoured customer confidentiality was a matter of major concern to the banks from the start. After all, banks live by confidentiality and by the trust their customers place in them. The Royal Bank, for example, Mr Aanensen says, works closely with the FlU to identify suspected money laundering, while remaining conscious of the confidentiality aspect.
But the 1994 amendments to the Dangerous Drugs Act effectively opened up a hole in the common law system of banking secrecy by including the following provision: “Where a person discloses to a police officer a suspicion, or belief, that any property (a term which included a bank deposit) is, or in whole or in part directly or indirectly represents, another person’s proceeds of drug trafficking, or discloses to a police officer any matter on which such a suspicion or belief is based, the disclosure shall not be treated as a breach of any restriction upon the disclosure of information imposed by any contract or by any enactment, regulation, rule of conduct or other provision.”
The 1994 amendments confirmed the banks’ importance as the first line of defence against money laundering by making bank staff culpable for not reporting their suspicions about attempts by individual or corporate customers to launder drug money. Section 47(2) of the Act says “a person is guilty of an offence if, knowing or having reasonable grounds to suspect that any property is or in whole or in part directly or indirectly represents another person’s proceeds of drug trafficking, he conceals or disguises that property or converts, transfers or disposes of that property or removes it from the jurisdiction.” Section 47(4) also speaks of “receiving, possessing or converting drug money.” The penalty: a TT$50,000 fine and imprisonment for five years on summary conviction, a TT$100,000 fine and imprisonment for 10 years on indictment.
Little wonder that Mr Aanensen says the banks “take this thing very seriously.” In Royal’s case, “when our internal auditors go out to the branches, possible money laundering is one of the aspects they cover. They talk to staff, they make staff aware of it, they make sure everybody is following everything. Bank inspectors, too, have a role in this.” Royal even has a five member Money Laundering Committee which brings together representatives from all parts of the Group, to take a “pro-active look” at how the systems in place are working.
Have bank employees ever been suspected of helping money launderers (as opposed to unwittingly helping them by failing to spot a suspicious transaction)? Mr Aanensen says no. “At the Royal, we have never had any cases where we suspected staff of assisting in money laundering. Our staff understand through our training programmes that they will face serious disciplinary action if any such thing is suspected.”
Manuel Vasquez, a national of Belize who is now working out of Trinidad as the financial specialist in the US$ 7.2 million Caribbean Anti-Money Laundering Programme funded by the US, UK and EU, confirms all that Peter Aanensen says about the scourge of money laundering, particularly the banks’ defensive role.
“Eighty percent of the battle against money laundering is either lost, or won, at the gates – and the banks are the gatekeepers. Once they have effective mechanisms, the chances are that they will be able to prevent it.”The 20 per cent that gets past the bank teller can be detected at a later stage, through the paperwork and reporting procedures that Mr Aanensen describes.
“Know your customer” is the mantra of the money-laundering prevention business. “Every bank must have knowledge of a customer’s line of business. With such knowledge, it will know the level, and nature, of his expected transactions.” For example, a bank has a client running a gas station and he (or she) deposits, on average, TT$20,000 a week – then, all of a sudden, the deposit becomes TT$100,000. “That’s a red flag,” says Vasquez. “Of course, there could be a perfectly legitimate reason – he might have sold a piece of property or something. But if he does not have a proper explanation, that should put the bank on alert and subject the account to close scrutiny.”
It is popularly believed that some of the offshore banks (those operating, in effect, as lightly-regulated “postboxes” for large financial transactions that companies or wealthy individuals in the developed world want to conceal from the authorities in their own countries) are, unlike the heavily-regulated domestic banks, allies of the money launderers. The club of developed countries known as the Organisation for Economic Co-operation and Development (OECD) has long hinted as much, and in June published a list of offshore financial jurisdictions in the world which it says are inadequately supervised and are being used by OECD citizens to evade taxes and by drug traffickers to sanitise their money. Fifteen Caribbean countries were on the list, most of which have vigorously challenged the OECD’s homework.
Mr Vasquez, whose job before going to Trinidad was Adviser to the Cayman Islands Monetary Authority, in the course of which he prepared Guidance Notes on money laundering for the banking sector in that territory, does not believe that all offshore banks are bad.
“I would say there are a lot of myths when it comes to offshore financial centres. I am sure there are offshore banking centres around the world that are not as prudent as they ought to be. But by the same token, I have had experience of having more difficulty in opening an account in an offshore jurisdiction than in a non-offshore jurisdiction. You can’t use a broad approach in this matter. After all, money laundering was probably being practiced in domestic banks before it began to affect offshore banks.”
The Caymans have at least 590 offshore banks and trust companies in a country of 36,000 people whose largest island, Grand Cayman, is 22 miles long and four miles wide. Last year, the Cayman authorities “seized a bank … for suspected irregularities and have since arrested 12 people on money laundering charges. They could not have done that if the law had not allowed them to be able to investigate the bank’s affairs.”
Most Guidance Notes on money laundering for Caribbean commercial banks were drawn up in 1995, and one of Mr Vasquez’s jobs is to update them. “I am preparing a document of about 100 pages with appendices,” he says. “It will be a prototype that is broad enough for any Caribbean country to adapt quite easily to its own circumstances. It will be given to the regulators and the banking sector.”
Despite the horrendous task it has on its hands, the Caribbean banking sector is generally regarded as holding its own in the continuous battle with the money launderers.
The Caribbean Financial Action TaskForce (CFATF), which groups 25 Caribbean Basin countries in a collective effort to thwart money laundering, has a “very high and credible international profile,” says its current chairman, Robert Mathavious, Director of Financial Services of the British Virgin Islands (BVI). So much so that CFATF’s executive director, Calvin Wilson, a Trinidadian attorney, was invited to Tanzania last year to advise on a similar institution for East Africa. The Caribbean Anti-Money Laundering Programme works closely with CFATF and is housed in offices at Sackville Street, Port of Spain.
Perhaps the determination of banks and other institutions in the Caribbean to stand fast against money laundering is motivated not only by a desire to conform to the law but also because of a fine appreciation of the human factors involved. As Mr Vasquez points out: “Every presentation I make on the subject, I link money laundering to the brutality of what this business is all about. This money is linked to drug trafficking, addiction, even murder, and I tell bank employees and other people, ‘You don’t want to have anything to do with that. If you facilitate it by turning a blind eye, then you yourself become part of the problem. And no decent banker would want to be associated with that.”
Anti-laundering legislation is at different stages of development in the Caribbean, so the obligations of banks vary. In Trinidad and Tobago, for instance, it is an offence to “conceal, disguise, convert, transfer or dispose of property” where there are “reasonable grounds” to suspect that it “directly or indirectly represents another person’s proceeds of drug trafficking.” A proposed Proceeds of Crime Act will remove the exclusive link between money laundering and drugs, and will add other offences to the list, thus increasing the burden of responsibility on the banks.
In Barbados, the Central Bank’s Anti-Money Laundering Guidelines for Licensed Financial Institutions allows banks to choose not to report suspicious transactions, but urges them in such cases to “sever relations with the customer and close all his accounts forthwith in their own interest.” Banks wishing to report should do so on the basis of “transactions suspected to form part of a criminal activity or which otherwise appear suspicious.” Customers should not be alerted to the fact that such a report is being made.
The Bahamas, the leading offshore banking centre in the Caribbean Community, takes a tougher line and makes the nondisclosure of unusual banking transactions punishable by fine and/or imprisonment. The Bahamas’ famous banking secrecy is thus breachable with impunity in such circumstances, and the bank staff concerned need not fear civil or criminal liability. The Regulations to The Bahamas Proceeds of Crime Act also require banks and other financial institutions to appoint a “money laundering reporting officer”, to whom suspicious transactions are referred. He or she, in turn, passes the information on to the Supervisory Authority or the Attorney General.
Jamaica has compulsory reporting requirements under its Money Laundering Act. Cash transactions of US$10,000 and up, or the equivalent in Jamaican currency, must be reported to the Director of Public Prosecutions. The individual or company so reported must not be alerted to this fact. In addition to the threshold requirement, the Jamaican act was recently amended to include the necessity for banks to report all “suspicious transaction” .
Banks in the member territories of the Organisation of Eastern Caribbean States (OECS) operate under Anti-Money Laundering Guidance Notes issued by the Eastern Caribbean Central Bank (ECCB). These guidelines do not have the force of law but seem to be effective because the banking sector knows full well that failure to adhere to them could encourage the ECCB to make them compulsory.
Warning Signs
As part of its Guidelines on Money Laundering for institutions licensed under the Financial Institutions Act, 1993, the Central Bank of Trinidad and Tobago has advised banks how to spot money laundering through cash transactions. Some of the tell-tale signs:
• Substantial increases in cash deposits by an individual or business without apparent cause, especially if the deposits are subsequently transferred within a short period of time out of the account
• Unusually large deposits made by an individual or company whose ostensible business activities would normally be undertaken by cheques or other monetary instruments
• Deposits by means of numerous small transactions, each one unremarkable in itself but adding up to a significant total
• Cash that is constantly being paid in to cover requests for bankers drafts, money transfers or other negotiable money instruments
• Requests for hiqh-denomination notes in exchange for large quantities of low denomination notes
• Frequent exchanges of cash into foreign currencies
• Deposits in the name of the same customer in several banks in the same locality, especially if these deposits are subsequently consolidated prior to a request for onward transmission of funds
• Large cash deposits using night safe facilities, thus avoiding direct contact with bank staff.
