25 Years of FATF

Part II

TRINIDAD and Tobago had its first Mutual Evaluation by the Caribbean Financial Action Task Force (CFATF) in April 1995 and the second round Mutual Evaluation took place in June 14-18, 2002. The third Round Mutual Evaluation of Trinidad and Tobago was undertaken from May3 0 to June 10, 2005.

Trinidad and Tobago was evaluated on the 40 Financial Action Task Force (FATF) recommendations and eight special recommendations. The ratings given by the review team after the third Round Mutual Evaluation indicated that the country was compliant with only one recommendation, largely compliant with six recommendations, partially compliant with 13 recommendations, and non-compliant with 20 recommendations. The country was found to be non-compliant in all eight special recommendations of FATF.

Shortly after this third mutual evaluation, the Anti-Terrorism Act, 2005 (ATA) was passed on September 13, 2005. In an effort to address some of the major recommended actions made by the FATF examiners, in subsequent years the authorities in Trinidad and Tobago have enacted certain key pieces of legislation such as the Proceeds of Crime (Amendment) Act, 2009, the Financial Intelligence Unit of Trinidad and Tobago Act, 2009 (FIUTTA) and the Financial Obligations Regulations, 2009 (FOR). However, as at May 2014, based on the CTATF Tenth Follow Up Report, certain deficiencies still remain which include but are not limited to the following:

The implementation of the money laundering legislation does not appear to be effective as there have been no convictions. Concerns have been raised in a number of forums about the effectiveness this country’s anti-money laundering legislation as well as the capacity of the differing institutions charged with the mandate of protecting the financial system against anti-money laundering activity. While admittedly quite a lot of effort has been expended in developing the country’s AML/CFTA framework, there is the question of enforcement. Since the Financial Intelligence Unit (FIU) was established the number of suspicious transactions/activities (STRs/SARs) moved from 111 in 2010 to 554 in 2013. How many of these suspicious transactions and activities have resulted in successful prosecution?

An analysis of the breakdown of reporting entities highlights the continuing dominance of the banks and remittance companies in submitting SARs due to the volume of transactions conducted by the very nature of the businesses. Total SARs submitted by listed businesses was 200 with four remittance companies accounting for 182. As such, only 18 SARs have been submitted from a combined number of over 1,400 registered listed businesses. This suggest that there may be a lack of understanding of the requirements to conduct AML/CFT due diligence by these businesses, and possible a lower level of priority placed on these matters.

The FIU conducted 17 onsite visits during the first seven months of 2013 and 38 during the period August 2013 to January 2014, a significant improvement over a total of 9 inspections carried out during 2012. The on-site inspections have been conducted using a risk-based approach which targets the large and higher risk institutions in the relevant sectors. While the increased numbers of examined compliance programmes and inspections may demonstrate the improved supervisory function of the FIU, it should be noted that the number of registrants total over 1,500 which can represent a major challenge for effective supervision by the FIU.

The recommendation for regulatory measures to prevent criminals or their associates from holding or being the beneficial owner of a significant or controlling interest, holding a management function in, or being an operator of a gaming house (or private members club), pool betting and the national lottery on line betting games still remain outstanding.

Credit unions must be supervised for compliance with AML/CFT obligations. A decision was taken to place the supervision of credit unions under the Central Bank. Since June 2010, a credit union bill has been drafted and under review but has not been enacted to date.

The outcome of this assessment had a number of implications for Trinidad and Tobago. In the first instance Trinidad and Tobago was placed on a monitoring programme after the third round Mutual Evaluations were conducted. It was not until 2012 that FATF indicated that Trinidad and Tobago was not subject to any further monitoring. However, non-compliance of so many recommendations begs the question of how did the international community view the country? What are the reputational and financial risks posed to Trinidad and Tobago by this interpretation? Did this lack of compliance suggest that Trinidad and Tobago was viewed as very vulnerable or worse a haven to ML and FT? Indeed this appeared to be the case at the end of the G20 summit in France, when French President Nicolas Sarkozy, named 11 countries, including Trinidad and Tobago, as tax havens for failing to meet transparency standards. Did the country attract increased criminal activity as a result of these deficiencies? These questions to a large extent remain valid for the next round of evaluations.

The scope of the evaluations for the fourth round Mutual Evaluation is expected to involve two inter-related components that deal with technical compliance and effectiveness. The technical compliance component will assess whether the necessary laws, regulations or other required measures are in force and in effect, and whether the supporting AML/CFT institutional framework is in place. The effectiveness component will assess whether the AML/CFT systems are working, and the extent to which the country is achieving the defined set of outcomes.

Trinidad and Tobago needs to see compliance with FATF recommendations as a means of minimising the threat to the country’s businesses and communities from money laundering and terrorist financing, and to use the standards to reduce crime and make communities safer. The implications for Trinidad and Tobago not meeting FATF standards can over time can result in the following:

A weak regulatory AML/CFT framework increases the prospect that organised criminals and terrorists can exploit a country’s financial system for criminal ends. This would have negative consequences on a country’s economy, international relations including international trade, society and, importantly, on victims of crime. Trinidad and Tobago is a small open economy for which international trade is its life blood. As such having access to the international financial system is vital to ensure international trade transactions such as making payments or receiving trade financing take place.

The likelihood of increased costs of borrowing overseas borne both by the government as well as firms in the private sector, since overseas lenders may form the view that the non-compliant country poses a greater financial risk. Additionally, companies operating in non-compliant country can experience difficulties in doing business overseas; this can result in the loss of business opportunities. It is entirely plausible that any bad evaluation arising from the fourth round Mutual Evaluations can result in greater scrutiny being paid by Correspondent banks. This can take the form of a significant increase in the queries pertaining to customer transactions and the beneficial owners of the businesses engaging in those transactions. For example, it may take far longer to conclude foreign currency cross border transactions or even suffer rejection of the transaction itself. If these transactions contain payments that can be classified as time sensitive, there may be significant penalties incurred by the affected business clients as well as loses suffered. This may result in an increase in the cost of goods and services as businesses attempt to pass on the increased costs from both penalties and lengthy delays from correspondent banking.

Difficulties may arise in trade negotiations at a government-to-government level, since foreign governments may be reluctant to extend trading privileges to non-compliant countries.

There can be a reduction in the flow of foreign direct investments into the economy as potential investors worry about reputational risks of association as well as the ability to get funds out of the country.

There may also be impacts on relations with international organisations, such as the World Bank, the International Monetary Fund, and the United Nations.

Internationally, countries and international organisations can take the view that the non-compliant country is a lenient on money launderers and terrorism financers.

Trinidad and Tobago has to exercise care internationally, since compliance with FATF standards contribute to maintaining a country’s reputation as a nation and signals that it is fully committed to international efforts to combat money laundering, terrorist financing and corruption. Indeed, compliance with FATF recommendations is viewed as a measure of the robustness of a country’s AML/CFT measures. Can Trinidad and Tobago afford to have a poor evaluation in January of 2015, when the fourth round Mutual Evaluation will be conducted?