Why the EU should reconsider blacklisting Ja
THIS NEWSPAPER is unambiguous that Jamaica must have an effective regime to prevent its financial system being used for money laundering and for transferring funds to terrorists.
For, weak anti-money-laundering arrangements are not merely somebody else’s problem. They represent, too, a threat to the country’s security and provide loopholes that facilitate domestic corruption.
Our position notwithstanding, we are surprised at, and gravely concerned about, the timing of the European Union’s (EU) decision last week to place Jamaica on a blacklist of countries whose “strategic deficiencies” on the anti-money laundering and counter-terrorism financing (AML/CTF) front, the EU says, threaten its financial system. Two other Caribbean Community (CARICOM) members, Barbados and The Bahamas, joined Jamaica on the EU’s list.
This will mean that Jamaica-related transactions – and those of the other countries – with European banks will automatically be subjected to “enhanced customer due diligence”, placing a drag on the conduct of business. It is not improbable that some banks may even decline from doing business with Jamaica all together, exacerbating the correspondent banking problem that so exercised minds three years ago, when many international banks felt that the global regulatory framework made it too expensive to do business in small markets like ours.
Herein lies our worry over the timing and scope of the EU’s actions against presumably friendly countries, whose economies are in deep crisis because of the COVID-19-induced global recession. The International Monetary Fund has projected that Jamaica’s economy will decline by 5.6 per cent this year. For Barbados and The Bahamas, the slump is expected to be worse – 7.6 per cent and 8.3 per cent, respectively.
If these economies are faced with additional transactional costs because of the enhanced due diligence that European banks will be obligated to perform, which others, to be safe, might be inclined to follow, an already-treacherous circumstance could be worsened.
Until recently, the determination of countries’ adherence to global AML/CTF recommendations was primarily the job of the Financial Action Task Force (FATF), a 30-year-old organisation that works in conjunction with FATF-style regional organisations such as the Caribbean Financial Action Task Force (CFATF).
The CFATF/FATF’s latest evaluation of Jamaica, published in January 2017, based on a review done in June 2015, highlighted a mixed legislative and institutional performance in the island’s antimoney-laundering efforts. It proffered a host of recommendations to make the system work better. But like Barbados and The Bahamas, Jamaica was deemed to have a“high level of political commitment” for fixing its problems.
‘GREY-LISTED’
However, in February of this year, the FATF placed Jamaica on its“grey list”of countries to watch because of their “strategic deficiencies”. The finance minister, Dr Nigel Clarke, blamed this development on the FATF’s decision to, in its reviews, give priority attention to countries with financial sectors that have assets of US$5 billion or more and changing the formula for measuring those assets.
Previously, in determining the amount of money in a financial system, the FATF, according to Dr Clarke, used M2, a measure that includes cash, checking, and saving deposits, and ‘near money’ such as moneymarket securities, time deposits, and mutual funds. The new method employs M3, which, effectively, covers all the requirements of M2, plus larger time deposits in the system.
“This arbitrary change meant that for the first time, Jamaica exceeded the US$5 billion threshold … ,” the minister complained.
The decision, however, provided the basis for the EU, using a methodology that underpins its own regime for sanctioning non-EU countries that are deemed not to have sufficiently effective anti-moneylaundering arrangements. “FATF constitutes a baseline for the EU list, and this methodology builds on the listing process followed by FATF,”the EU document says. In other words, an FATF grey-listed country could now automatically fall on the EU’s blacklist.
We acknowledge Jamaica’s problems and urge the Government to work apace with the EU and the FATF to fix identified shortcomings. An enhanced AML/ CTF regime, however, shouldn’t be so onerous as to continue to exclude the large swathes of unbanked Jamaicans from the most basic accounts.
At the same time, given the economic circumstances, the EU should roll back the blacklisting of Jamaica and its CARICOM partners in exchange for a measured programme of reform. Indeed, it beggars the imagination that the EU could see Jamaica, Barbados, and The Bahamas on the same plane as some of the other countries it placed on the blacklist.