CFATF: Anti-money laundering system remains vulnerable

PHILIPSBURG – St. Maarten is the only member of the Caribbean Financial Action Task Force (CFATF) that can be considered a risk to the framework of anti-money laundering and the fight against the financing of terrorism. That sobering message came on Thursday morning from Dawne Spicer, the CFATF’s executive director during a central committee meeting about cross-border money transfers.

“It is important to look at the legislation,” Spicer warned, adding that the fourth mutual evaluation of the situation in St. Maarten is scheduled for the first quarter of 2023. “That evaluation deals with the implementation of the legislation.”

The central committee discussed a draft national ordinance designed to amend the already existing ordinance that makes reporting cross-border money transfers mandatory. The amendment includes two of the forty CFATF-recommendations that deal with anti-money laundering and combating the financing of terrorism (AML/CFT).

Recommendation 32 requires the country to have measures in place to detect physical the cross-border money transportation of currency and bearer negotiable instruments. a declaration and/or disclosure system has to be put in place. According to this recommendation, these declarations can be oral or written, but travelers are required to actively declare if they carry currency or bearer negotiable instruments worth $15,000 or more. In the draft legislation, St. Maarten has increased this threshold from 20,000 ($11,173) to 25,000 guilders ($13,966).

Authorities should have “adequate financial, human and technical resources” and ensure that staff maintains “high professional standards, including standards related to confidentiality, be of high integrity and be properly skilled,” recommendation 32 states.

Recommendation 33 requires the country to maintain comprehensive statistics relevant to the efficiency and effectiveness of its AML/CFT systems.

A CFATF-report from May 2017 notes that St. Maarten had not yet complied with ten of its forty recommendations. “This makes the AML/CFT system in St. Maarten vulnerable for the risks posed in the region.”

In June 2016, St. Maarten presented an action plan at a plenary meeting of the CFATF. Because this action plan failed to meet previously made commitments, the plenary meeting applied “the first level of action” against St. Maarten.

The money laundering watchdog made clear on that occasion what needs to be done: “We strongly recommend that St. Maarten prioritizes and enters into force AML/CFT legislation prior to 2018 and that it provides updates about compliance with Financial Action Task Force standards.”

Justice Minister Cornelius de Weever told the central committee that the proposed ordinance is necessary “to bring St. Maarten up to par with international benchmarks.” Not doing so, the minister said, would affect interest rates, the cost of living, the way local banks are able to do business and hurt the population. Failure to adhere with the CFATF-recommendations would earn St. Maarten a place on a list of high-risk countries, De Weever pointed out.

The minister furthermore referred to St. Maarten’s economic growth over the past couple of decades whereby large investments have been made in real estate and casinos while “at times it was unclear where the money was coming from, thus creating an environment for money laundering.”

The draft ordinance goes above and beyond CFATF-recommendation 32 by including “precious metals, jewelry and other valuable movable property” with a value of 25,000 guilders or higher.

All in all, the minister answered 45 questions, posed by MPs during an earlier meeting about this issue on January 23. He noted that the proposed legislation is already in force in more than 180 countries around the world.

MP Luc Mercelina had trouble with a couple of terms in the Dutch legislation, like ‘overdraagbare zaken’ and ‘vermoeden van witwassen.” He considered the first term to be vague and asked for an objective interpretation of the term vermoeden (suspicion). “Given the assistance of Dutch customs, how do you guarantee an objective interpretation of ‘vermoeden’?” he asked.

MP Sarah Wescot-Williams asked attention for de-risking and corresponding banks: “You said that this legislation could help with the matter of de-risking. Where do things stand with this matter?”

MP Franklin Meyers observed that there are “too many gray areas” in the draft law. In particular, he had a problem with the fact that the Financial Intelligence Unit (aka MOT) does not have to answer to questions from citizens. Wescot-Williams agreed: “There should be no organization that does not have to give account.”

CFATF-director Spicer explained the levels of sanctions that await non-compliant member-countries. The first level is a simple letter to the government; the second level is a high level mission. This mission, originally scheduled to take place in October 2017, was postponed for obvious reasons and finally took place on August 24, 2018, where the CFATF discussed St. Maarten’s lack of progress.

St. Maarten had to submit a report by February 25, 2019, indicating how it has addressed deficiencies in its AML/CFT legislation.

“That report would go to the Plenary meeting of May 29, 2019,” Spicer said. If St. Maarten fails to meet this deadline, it could still submit the report by March 26, two months before the plenary meeting.

“If St. Maarten fails to do that, the CFATF would put St. Maarten on a public statement,” Spicer said. “This statement would ask countries to consider the risk of doing business with St. Maarten. The statement would be sent to all member-states and it would be published on our global network.”

According to Spicer, the statement would point out the risks of doing business with St. Maarten based on the deficiencies in its legislation. In November there will be a second plenary meeting. If St. Maarten still has not addressed its legislative deficiencies by then, the CFATF will call for an upgraded public statement. “This statement will ask members to implement counter measures.”

Spicer also briefly addressed the issue of de-risking. “This has negatively impacted the Caribbean region. Essentially, the risk appetite of international banks is limited,” she said. “International banks look at the AML/CFT regulatory framework that governs (international) banks that operate in a jurisdiction in a way that would protect them from liabilities. If they feel that there is no protection they will de-risk. At times, American banks have been fined hundreds of millions of dollars.”

Spicer said that the corresponding banks look at the customers a bank has. “If they see that a bank has casinos as a client, they’ll say that they are not going to offer corresponding services because they are not willing to take risks related to money laundering and the financing of terrorism.”

To get around this issue some jurisdictions have made their central bank the correspondent bank.

In St. Maarten, local banks have attempted in the recent past to rid their portfolio of casinos for these reasons but so far the court has blocked these efforts.