The Bahamas
This report analyses the implementation of the AEOI Standard in The Bahamas with respect to the requirements of the AEOI Terms of Reference. It assesses both the legal frameworks put in place to implement the AEOI Standard and the effectiveness of the implementation of the AEOI Standard in practice.
The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.
Overall findings
AEOI legal framework
The Bahamas’ legal framework implementing the AEOI Standard is in place but needs improvement in order to be fully consistent with the requirements of the AEOI Terms of Reference. While The Bahamas’ international legal framework to exchange the information with all of The Bahamas’ Interested Appropriate Partners (CR2) is consistent with the requirements, its domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) has deficiencies significant to the proper functioning of elements of the AEOI Standard. Most significantly, a jurisdiction-specific Non-Reporting Financial Institution is provided for that does not meet the requirements and incorrect values may be reported in relation to certain Controlling Persons of trusts.
Overall determination on the legal framework: In Place But Needs Improvement
Effectiveness of AEOI in practice
The Bahamas’ implementation of the AEOI Standard is not compliant with the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. While The Bahamas is on track with respect to exchanging the information in an effective and timely manner (CR2), there are fundamental issues with respect to ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1).
Overall rating in relation to the effectiveness in practice: Non-Compliant
General context
The Bahamas commenced exchanges under the AEOI Standard on a non-reciprocal basis in 2018 (i.e. it sends but does not receive information).
In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, The Bahamas:
enacted the Automatic Exchange of Financial Account Information Act 2016 (amended in 2017 and in 2019);
introduced the Automatic Exchange of Financial Account Information Regulations 2017 (amended in 2017); and
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 July 2017. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 31 December 2017 and on Lower Value Individual Accounts and Entity Accounts by 31 December 2018.
Following the initial Global Forum peer review, The Bahamas made various amendments to its legislative framework to address issues identified, the last of which was effective from 30 April 2019.
With respect to the exchange of information under the AEOI Standard, The Bahamas is a Party to the Convention on Mutual Administrative Assistance in Tax Matters and activated the associated CRS Multilateral Competent Authority Agreement in time for exchanges in 2018.
Table 1 sets out the number of Financial Institutions in The Bahamas that reported information on Financial Accounts in 2021 as defined in the AEOI Standard (essentially because they maintained Financial Accounts for Account Holders, or that were related to Controlling Persons, resident in a Reportable Jurisdiction). It also sets out the number of Financial Accounts that they reported in 2021. In this regard, it should be noted that The Bahamas requires the reporting of Financial Accounts based on a prescribed list of exchange partners and some accounts may be required to be reported more than once (e.g. jointly held accounts or accounts with multiple related Controlling Persons), which is reflected in the figures below. These figures provide key contextual information to the development and implementation of The Bahamas’ administrative compliance strategy, which is analysed in the subsequent sections of this report.
Table 2 sets out the number of exchange partners to which information was successfully sent by The Bahamas in the past few years (including where the necessary frameworks were in place, containing an obligation on Reporting Financial Institutions to report information, but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to The Bahamas’ exchanges in practice, which is also analysed in subsequent sections of this report.
In order to provide for the effective implementation of the AEOI Standard, in The Bahamas:
the Ministry of Finance (the tax authority) has the responsibility to ensure the effective implementation of the due diligence and reporting obligations by Reporting Financial Institutions and for exchanging the information with The Bahamas’ exchange partners, supported by the Central Bank, the Securities Commission and the Insurance Commission (with an amendment to the Automatic Exchange of Financial Account Information Act 2016 delegating the powers of the Ministry of Finance to monitor the compliance with the AEOI Standard by Financial Institutions under their respective supervision due to be passed into law shortly);
technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place through an online portal; and
the Common Transmission System (CTS) is used for the exchange of the information, along with the associated file preparation and encryption requirements.
It should be noted that the review of The Bahamas’ legal frameworks implementing the AEOI Standard concluded with the determination that The Bahamas’ domestic legal framework is In Place But Needs Improvement and its international legal framework is In Place. This has been taken into account when reviewing the effectiveness of The Bahamas’ implementation of the AEOI Standard in practice.
Findings and conclusions on the legal frameworks
The detailed findings and conclusions on the AEOI legal frameworks for the Bahamas are below, organised per Core Requirement (CR) and sub-requirement (SR), as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Domestic legal framework: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.
Determination: In Place But Needs Improvement
The Bahamas’ domestic legislative framework is in place and contains many of the key aspects of the CRS and its Commentary requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures, but it needs improvement in some areas relating to the scope of Reporting Financial Institutions required to report information (SR 1.1) and the reporting requirements (SR 1.3). Most significantly, a jurisdiction-specific Non-Reporting Financial Institution is provided for that does not meet the requirements and incorrect values may be reported with respect to certain Controlling Persons of trusts.
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
The Bahamas has defined the scope of Reporting Financial Institutions in its domestic legislative framework in a manner that is largely consistent with the CRS and its Commentary. However, a deficiency has been identified. More specifically, The Bahamas provides for a jurisdiction-specific Non-Reporting Financial Institution that is not in accordance with the requirements. The scope of Reporting Financial Institution, including the provision of Non-Reporting Financial Institutions, is material to the proper functioning of the AEOI Standard, which may materially impact the proper functioning of the AEOI Standard.
The Bahamas should amend its domestic legislative framework to remove Bahamas Executive Entities from its list of categories of jurisdiction-specific Non-Reporting Financial Institutions, as they do not meet the requirements of the AEOI Standard.
SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.
The Bahamas has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to identify them in accordance with the CRS and its Commentary.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
The Bahamas has incorporated the reporting requirements in its domestic legislative framework in a manner that is largely consistent with the CRS and its Commentary. However, deficiencies have been identified. Most significantly, The Bahamas has guidance advising that in the case of a Reportable Person who is a settlor of an irrevocable trust, or a protector or any other natural person exercising ultimate effective control over any trust (revocable or irrevocable), the account balance attributable to them is zero if that person has no beneficial interest in the trust. The reporting of account balance or value is a key element of the reporting requirements and is therefore material to the proper functioning of the AEOI Standard.
The Bahamas should amend its domestic legislative framework to ensure that lodging a notification of reporting in another jurisdiction is not a substitute for reporting on Reportable Accounts maintained in The Bahamas in the limited circumstances where reporting may be required in both jurisdictions.
The Bahamas should amend its domestic legislative framework to require the account balance or value with respect to all Controlling Persons of a trust holding a Reportable Account to be reported in accordance with the AEOI Standard.
SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.
The Bahamas has a legislative framework in place to enforce the requirements in accordance with the CRS and its Commentary.
CR2 International legal framework: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.
The Bahamas’ international legal framework to exchange the information is in place, is consistent with the Model CAA and its Commentary and provides for exchange with all of The Bahamas’ Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from The Bahamas and that meet the required standard in relation to confidentiality and data safeguards) (SRs 2.1 – 2.3).
SR 2.1 Jurisdictions should have exchange agreements in effect with all Interested Appropriate Partners that permit the automatic exchange of CRS information.
The Bahamas has exchange agreements that permit the automatic exchange of CRS information in effect with all its Interested Appropriate Partners.
SR 2.2 Such an exchange agreement should be put in place without undue delay, following the receipt of an expression of interest from an Interested Appropriate Partner.
The Bahamas put in place its exchange agreements without undue delay.
SR 2.3 Jurisdictions should ensure that the exchange agreements in effect provide for the exchange of information in accordance with the requirements of the Model CAA.
The Bahamas’ exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.
Assessed jurisdiction’s comments on the assessment of its legal frameworks
The Bahamas is in the process of making amendments to the second schedule of the Automatic Exchange of Financial Account Information Regulations 2017.
Findings and conclusions in relation to effectiveness in practice
The detailed findings and conclusions in relation to effectiveness in practice of AEOI for the Bahamas are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
The Bahamas’ implementation of the AEOI Standard is non-compliant with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures. More specifically, while The Bahamas is meeting expectations with respect to collaboration with its exchange partners to ensure effectiveness (SR 1.6), there are fundamental issues with respect to ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5). The Bahamas should continue its implementation process to ensure its effectiveness, including by addressing the recommendations made.
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account. This includes having in place:
an effective administrative compliance framework to ensure the effective implementation of, and compliance with, the CRS. This framework should:
be based on a strategy that facilitates compliance by Reporting Financial Institutions and which is informed by a risk assessment in respect of the effective implementation of the CRS that takes into account relevant information sources (including third party sources);
include procedures to ensure that Financial Institutions correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions;
include procedures to periodically verify Reporting Financial Institutions’ compliance, conducted by authorities that have adequate powers with respect to the reviewed Reporting Financial Institutions, with procedures to access the records they maintain; and
effective procedures to ensure that Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures;
effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions;
strong measures to ensure that valid self-certifications are always obtained for New Accounts;
effective procedures to ensure that each, or each type of, jurisdiction-specific Non-Reporting Financial Institution and Excluded Account continue to present a low risk of being used to evade tax; and
effective procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported in order to establish the reasons why such information is being reported.
In order to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, The Bahamas implemented some of the requirements in accordance with expectations. However, fundamental issues were identified. The key findings were as follows:
The Bahamas is developing an overarching strategy to ensure compliance with the AEOI Standard. This is informed by its risk assessment in relation to AML, although the information sources in relation to compliance with the AEOI Standard could be expanded and it should explicitly include a plan to ensure that the interaction between The Bahamas’ AEOI and AML frameworks always results in reporting in accordance with the AEOI Standard. In terms of communicating with Reporting Financial Institutions, The Bahamas has issued guidance and has undertaken a series of briefings for the financial service industry participants and regulators.
The Bahamas does not yet have an overall understanding of its population of Financial Institutions. While the Central Bank, the Securities Commission and the Insurance Commission have an understanding of the entities under their supervision for their respective regulatory purposes, the Ministry of Finance has not combined this information with other information sources to identify the total population of Reporting Financial Institutions, such as non-regulated entities that are Financial Institutions for the purposes of the AEOI Standard.
The institution responsible for implementing The Bahamas’ compliance strategy appears to have the necessary powers to discharge its functions, although it is not clear whether resources have been allocated to monitor and ensure the compliance of Reporting Financial Institutions.
There is an amendment to the Automatic Exchange of Financial Account Information Act 2016 which delegates the powers of the Ministry of Finance to other regulators to monitor the compliance with the AEOI Standard by Financial Institutions under their respective supervision, but the amendment has not been implemented. The Amendment has been tabled in Parliament and should be passed into law shortly. It is also unclear how the proposed arrangements between the Ministry of Finance and other regulators will be coordinated and whether the regulators will be sufficiently informed with respect to the data reported under the AEOI Standard and related information to effectively ensure compliance with the AEOI Standard.
The Securities Commission has carried out desk-based surveys of some entities under its supervision to gather information on their potential CRS obligations as well as sample testing of self-certifications held by several of the entities subject to its supervision, primarily Investment Entities, but it does not currently have the authority to access reported information to directly verify the accuracy of reported information against the records held by these Financial Institutions. Also, The Bahamas has reported that the Group of Financial Services Regulators has initiated onsite examinations.
The Bahamas has not yet planned or carried out verification activities covering other categories of Reporting Financial Institution, including in key areas such as ensuring the information reported is complete and accurate, and ensuring a valid self-certification is always obtained, but has plans to do so in the future.
It is not clear whether the institutions in The Bahamas have established procedures for the application of penalties and sanctions covering all aspects of non-compliance in relation to the AEOI Standard and The Bahamas does not seem to be monitoring or following up on undocumented accounts. With respect to undocumented accounts, The Bahamas highlighted that they introduced robust AML controls in the past, which should have dealt with them.
The Bahamas has taken effective action to address circumvention of the reporting requirements when it has been detected, with reporting of the information being enforced and a penalty being applied in respect to the circumvention scheme identified.
The Bahamas will also keep its jurisdiction-specific Non-Reporting Financial Institutions under review to ensure they continue to pose a low risk of being used for tax evasion purposes (it does not have a jurisdiction-specific list of Excluded Accounts).
Table 3 provides a summary of the specific activities undertaken, or that are planned to be undertaken, in relation to each of the key parts of the framework described above.
The Bahamas was not able to confirm that it collects and monitors information on the proportion of Financial Accounts that are reported that include information on the Tax Identification Numbers and/or dates of birth with respect to the individuals associated with them. These data points are key to exchange partners to effectively utilise the information and are important to developing an effective compliance strategy to ensure the AEOI Standard is being effectively implemented. The Bahamas was also not able to confirm that it collects and monitors information on the number of undocumented accounts reported by its Reporting Financial Institutions. This information is crucial to implementing the requirement to follow up on undocumented accounts.
More generally, many of the exchange partners that received a significant number of records from The Bahamas indicated that they achieved a success rate when matching the information received from The Bahamas with their taxpayer database that was broadly equivalent to, or better than, what they usually achieve. Eight exchange partners highlighted issues with respect to the information received, such as missing dates of birth, missing or invalid TINs and incomplete address data.
Based on these findings it was concluded that The Bahamas is not meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. More specifically, fundamental issues have been identified, including with respect to developing and implementing a complete and overarching compliance strategy that identifies the population of Reporting Financial Institutions and verifies their compliance with due diligence and reporting obligations. The Bahamas should therefore continue its implementation process accordingly, including by addressing the recommendations made.
The Bahamas should further develop its overarching compliance strategy to underpin its compliance activities, informed by a risk assessment that takes into account a range of relevant information sources.
The Bahamas should ensure that it allocates adequate resources to carry out its compliance strategy.
The Bahamas should further develop and implement a process to identify its population of Financial Institutions and ensure that they correctly apply the definitions of Reporting Financial Institution and Non-reporting Financial Institution and report information as required.
The Bahamas should further develop and implement an appropriate framework, including in-depth reviews, to verify whether Reporting Financial Institutions are effectively implementing the AEOI Standard, including the active monitoring of the interaction of its AML framework and its CRS framework to ensure that the collection and reporting of information is always in accordance with the AEOI Standard.
The Bahamas should develop and implement effective procedures to monitor and verify whether Reporting Financial Institutions are obtaining valid self-certifications as required, including dedicated communication activities, with a particular focus on self-certifications obtained after the opening of a Financial Account.
The Bahamas should put in place procedures to monitor Reporting Financial Institutions that report undocumented accounts and procedures to follow up with them to ensure that the requirements are being complied with.
The Bahamas should implement systems to monitor the reporting of Tax Identification Numbers and dates of birth by Reporting Financial Institutions to inform its compliance strategy.
The Bahamas should address the issues raised by its exchange partners.
SR 1.6 Jurisdictions should collaborate on compliance and enforcement. This requires jurisdictions to:
use all appropriate measures available under the jurisdiction’s domestic law to address errors or non-compliance notified to the jurisdiction by an exchange partner; and
have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.
It should be noted that, as The Bahamas exchanges information on a non-reciprocal basis and does not therefore receive information, it is not required to have in place procedures to notify its exchange partners. SR 1.6 b) has therefore not been assessed in this case.
In order to collaborate on compliance and enforcement, it appears that The Bahamas implemented all of the requirements in relation to issues notified to them (i.e. under Section 4 of the MCAA or equivalent) in accordance with expectations. While no such notifications have yet been received, The Bahamas has the necessary systems and procedures to process them as required.
Based on these findings it was concluded that The Bahamas is fully meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. The Bahamas is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
CR2 Effectiveness in practice: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard.
The Bahamas’ implementation of the AEOI Standard is on track with respect to exchanging the information effectively in practice, including in relation to sorting, preparing and validating the information (SR 2.4), correctly transmitting the information in a timely manner (SRs 2.5 – 2.7), and providing corrections, amendments or additions to the information (SR 2.9). The requirements in relation to the receipt of the information (SR 2.8) have not been assessed as The Bahamas exchanges information non-reciprocally, so does not receive information. The Bahamas is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
Feedback from The Bahamas’ exchange partners did not raise any specific concerns with respect to their ability to process the information received from The Bahamas and therefore with respect to The Bahamas’ implementation of these requirements. More generally, 4 (or 6%) of The Bahamas’ exchange partners reported rejecting more than 25% of the files received, of which one reported rejecting more than 50% of files received, due to the technical requirements not being met. This is a relatively high amount when compared to other jurisdictions and it has increased over time. It was noted that The Bahamas is in the process of addressing the issues.
Based on these findings it was concluded that, overall, The Bahamas is meeting expectations in relation to sorting, preparing and validating the information. It was also noted that there is room for improvement with respect to validating the data and following up with issues when files are rejected. The Bahamas is therefore encouraged to continue its implementation process accordingly, including by addressing the recommendations made.
The Bahamas should review its systems and processes to sort, prepare and validate the information to ensure they meet the requirements of the AEOI Standard.
The Bahamas should continue to work with its exchange partners to address the issues raised.
SR 2.5 Jurisdictions should agree and use, with each exchange partner, transmission methods that meet appropriate minimum standards to ensure the confidentiality and integrity of the data throughout the transmission, including its encryption to a minimum secure standard.
In order to put in place an agreed transmission method that meets appropriate minimum standards in confidentiality, integrity of the data and encryption for use with each of its exchange partners, The Bahamas linked to the CTS.
Based on these findings it was concluded that The Bahamas is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. The Bahamas is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.6 Jurisdictions should carry out all exchanges annually within nine months of the end of the calendar year to which the information relates.
One exchange partner highlighted delays in the sending of information by The Bahamas. It was noted that The Bahamas successfully addressed the issue and sent the information as soon as possible thereafter.
Based on these findings it was concluded that The Bahamas is fully meeting expectations in relation to exchanging the information in a timely manner. The Bahamas is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.7 Jurisdictions should send the information in accordance with the agreed transmission methods and encryption standards.
Feedback from The Bahamas’ exchange partners did not raise any concerns with respect to The Bahamas’ use of the agreed transmission methods and therefore with The Bahamas’ implementation of this requirement.
Based on these findings it was concluded that The Bahamas is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. The Bahamas is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.8 Jurisdictions should have the systems in place to receive information and, once it has been received, should send a status message to the sending jurisdictions in accordance with the CRS Status Message XML Schema and the related User Guide.
It should be noted that, as The Bahamas exchanges information on a non-reciprocal basis and does not receive information, it is not required to have in place systems to receive the information and provide status messages. SR 2.8 has therefore not been assessed in this case.
SR 2.9 Jurisdictions should respond to a notification from an exchange partner as referred to in Section 4 of the Model CAA (which may include Status Messages) in accordance with the timelines set out in the Commentary to Section 4 of the Model CAA. In all other cases, jurisdictions should send corrected, amended or additional information received from a Reporting Financial Institution as soon as possible after it has been received.
While it is unclear whether The Bahamas’ approach will ensure that corrected, amended or additional information is provided in a timely manner, it has not been tested and no such concerns were raised by The Bahamas’ exchange partners and therefore with respect to The Bahamas’ implementation of these requirements.
Based on these findings it was concluded that The Bahamas appears to be meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information. The Bahamas is encouraged to continue to ensure the ongoing effectiveness of its implementation.
Assessed jurisdiction’s comments on the assessment of effectiveness in practice
CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account etc.
The Minister of Finance is responsible for the supervision, control and direction of matters relating to the financial affairs of The Bahamas.
Regulation and supervision of the Financial Services Sector, and the Group of Financial Services Regulators is the responsibility of the Minister of Finance.
The Group of Financial Services Regulators have always had a duty to report to the Minister of Finance on the affairs of their licensees/registrants with regard to their compliance with, among other things, CRS/FATCA/AML/CFT/CPF. This reporting takes place on a regular basis between the Minister and the persons in charge of each regulatory agency. Reporting includes informing the Minister of Finance of any risks/threats/circumvention of CRS/FATCA/AML/CFT/CPF. This procedure is used for the prudential monitoring and management of The Bahamas’ financial services sector.
All reportable FIs, Controlling persons and non-reportable FIs and persons, for the purposes of the CRS, (be they investment vehicles or licensed FIs, etc.), are subject to the Financial Transactions Reporting Act 2018 (FTRA) and Financial Transactions Reporting Regulations 2018 (FTRR) and their subsequent amendments.
As such, all customer relationships are subject to the FTRA 2018 and FTRR 2018 requirements. Further, The Bahamas maintains that its AML legal framework (which has been implemented from January 2001 with amendments in 2018) is compliant with best practices and international standards which cover 95 -98% of CRS due diligence requirements. The Bahamas AML framework has been assessed against FATF AML standards and was found to be compliant with FATF requirements. The Bahamas was rated as ‘Compliant’ with FATF Recommendation 10 - Customer Due Diligence Requirements.
The Bahamas has an FATF compliant AML framework for verifying and identifying facility holders identifies. Accordingly, The Bahamas maintains that it is substantively compliant with the CDD requirements of the CRS framework via its AML Framework that captures the identification and verification of beneficial ownership information required by CRS.
In practice, The Bahamas AML/CFT/CFP framework which includes risk based AML monitoring, meets international best practices, as we have achieved ‘compliant an largely compliant’ ratings for 38 out of 40 FATF international AML standards which include effective CDD ongoing monitoring with obligation on FIs to maintain accurate and up-to-date information on all facility holders in the financial and non-bank financial sectors covering securities, banking, insurance, gaming corporate service providers and the services offered to corporates, trusts, foundations, investment vehicles, etc.
Onsite examinations, for the purposes of AML/CFT/ CFP/ CRS consist of interviews and testing of compliance by actually handling of files to verify compliance. Reports are prepared regarding any gaps in FIs compliance programs with dates for addressing concerns. On occasion FIs’ activities have been restricted until concerns are addressed. When warranted, operational risk assessments are carried out by independent firms of accountants. Administrative fines are also levied for non-compliance.
The Bahamas has one for the most robust ongoing AML/CFT/CFP monitoring according to industry stakeholders.
To enhance our AML/CFT/CFP Framework, The Bahamas enacted the Register of Beneficial Ownership Act, 2018 which allows the Ministry of Finance, as well as law enforcement agencies, the Central Bank, Insurance Commission, Securities Commission, Gaming Board and the Compliance Commission and the FIU to request a search of the Beneficial Ownership Secure Search System and obtain information on beneficial ownership of legal persons (companies and international business companies), partnerships, segregated companies, and non-profit companies . The establishment and maintenance of the BOSSs has greatly assisted the country in responding to international partners with reference to exchange of information requests.
The Bahamas, through the Financial Transactions Reporting Act, 2018 (FTRA, 2018), was deemed to have addressed all deficiencies identified regarding FATF Recommendation 10 which deals with Customer Due Diligence.
The obligations for all FIs to conduct ongoing CDD is set out in section 12 of the FTRA, 2018 and is consistent with anti-money laundering standards established by the FATF. The Bahamas’ covers the definition of FIs in sections 3 and 4 of the FTRA.
Section 7(1)(a) of the FTRA, 2018 imposes the obligation on all FIs to identify the identity of facility holders, while section 8 imposes obligations for FIs to undertake identification and verification measures.
Legal persons that are corporate entities, Financial Transaction Reporting Regulations –
Regulation section 5(1)(a) - (c) provides for verification through name, legal form, proof of existence and powers that regulate and bind such entities;
Regulation 5(1)(d) provides for verification of the natural person who will be responsible for operating the entity;
Regulation 5(1)(e) provides that documentary evidence of identification and verification of the identity of beneficial owners must be obtained;
Regulation 5(1)(f) provides for the verification via Registry of Companies as documentation on good standing with the registry (good standing certificate) is a requirement for due diligence of legal persons;
Regulation 5(1)(g) which requires FIs to verify through location of registered office, if different to the principal place of business.
Information also required to be obtained from legal persons is as follows -
A description and nature of the business of the legal entity including commencement date, principal location of the business, and products and services, etc.,
Purpose of the facility and potential parameters of the facility, and
Any other document that could be used to determine the ownership and control structure of the legal person.
Section 7 (1)(b) and (c) of FTRA, 2018, FIs are required to identify and verify the identity of any person purporting to act on behalf of a facility holder which would include senior managers. Section 7(1) and (5) of the FTRA outlines the verification measures FIs are required to undertake in relation to trusts - to identify the settlor, trustee(s), the protector if any, the beneficiary or class of beneficiaries and any other natural person exercising control over the trusts. Further, Regulation 7 of FTRR 2018 imposes an obligation on all FIs to undertake identification and verification measures for other types of legal arrangements similarly as those required with respect to trusts.
Section 7(1) FTRA and Regulation 6 of the FTRR 2018, provides measures for partnerships and unincorporated businesses. Section 7(7) requires that all information obtained to verify and identify facility holders are to be kept accurate and up-to-date.
Section 5 of the FTRA, 2018 requires FIs to identify, assess and understand risks and appropriately manage and mitigate such risks regarding all facility holders. FIs are also required to take into account risk assessments when applying CDD measures. Further, FIs are not permitted to apply simplified CDD when there is a suspicion of activities related to any identified risk and in such cases are required to employ enhanced due diligence (EDD) pursuant to section 7(3) and 7(4) of the FTRA, 2018 respectively. EDD procedures are laid out in Section 13 of the FTRA 2018.
Where an FI cannot obtain the necessary documentation to carry out proper due diligence of a facility holder, the relationship is abandoned, as it is prohibited for FIs to maintain facilities for potential clients that cannot deliver required documentation as per FTRA 2018 requirements.
Please note that the FTRA 2000, our first CDD statute, required verification of identities of all existing facility holders and the Central Bank’s Bank Supervision Department and other Regulators were required to monitor the process of verification of all client relationships and accounts. All relationships or account holders that were unable to deliver required
CDD documentation were suspended and terminated if the information was not provided.
Four years ago, The Bahamas established a Ministerial Council, comprising the Attorney-General, the Minister of Finance, the Minister of Economic Affairs, the Minister of Foreign Affairs, the Minister of National Security and the National Identified Risk Framework Coordinator. The Council meets to determine identified risks related to AML/CFT/CPF, and any other risks that affect the financial services industry, including CRS matters, and the interaction of The Bahamas’ AEOI and AML/CFT/CPF Framework. The Council assesses and make recommendations, as necessary.
An Identified Risk Framework Steering Committee was also established and is chaired by the National Identified Risk Framework Coordinator. The Committee meets once a month, or more frequently as may be required. Identified risks are reported to the Coordinator at the monthly meetings; and also whenever such risks arise. These procedures are used to coordinate the monitoring and surveillance of the Financial Services Industry.
Along with the Coordinator, the Committee is comprised of representatives from the Group of Financial Services Regulators, the Office of the Attorney-General, the Director of Public Prosecutions, the Financial Intelligence Unit, the Customs Department, the Royal Bahamas Police Force, the Royal Bahamas Defence Force, the Department of Immigration, the Ministry of Finance, the Ministry of Economic Affairs, the Ministry of Foreign Affairs, and representatives of statutory bodies that have as part of their function a requirement to regulate financial institutions.
The Coordinator reports these matters to the Ministerial Council.
The Automatic Exchange of Financial Account Information (Amendment) Bill 2022 delegates the powers of the Minister of Finance to "Designated Supervisory Authorities" , i.e., the Group of Financial Services Regulators - Central Bank of The Bahamas, Compliance Commission of The Bahamas, the Gaming Board of the Bahamas, the Insurance Commission of The Bahamas, and the Securities Commission of The Bahamas.
Thus, empowering the Regulators to act on behalf of the Minister of Finance in relation to all matters relating to the AEOI; and allowing access to relevant CRS information for the carrying out of these duties.
The Bill has been tabled in Parliament, and should be passed into law by July 2022.
In relation to the application of penalties and sanctions covering all aspects of non-compliance, the Minister of Finance, in his capacity as the Competent Authority for AEOI, determines the penalties and sanctions that are to be applied. A meeting is held with the Attorney General, the Minister of Economic Affairs, the Governor of the Central Bank, and representatives for the Financial Intelligence Unit, and the Group of Financial Services Regulators to discuss these matters. The Minister of Finance then issues a Compliance Notice to the Reporting Financial Institution/Controlling Persons that are in breach of the CRS.
These parties must comply with the Notice, otherwise, Bahamian law enforcement will commence legal procedures for tax crimes, which may result in a prosecution.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
Please note the context of the country reporting a 50% rejection rate. The country reported an error message with one file out of a total of two files submitted. An error message on one file out of a total of two files is a small sample to draw the conclusion that “This is a relatively high amount when compared to other jurisdictions and it has increased over time”.
In fact, most of the queries about matching rates relate to information requested from partner jurisdictions that are “Optional Mandatory” in the OECD schema guidelines 2019. These guidelines are applied in the Vizor, now part of Regnology, AEOI software automated application utilized by The Bahamas for the collection, implementation of validation rules and exchange of information required for OECD CRS reporting. If we do not follow the layout and the validation rules of the Schema a filing would be rejected from the CTS.
Some of the partner jurisdictions are asking for TIN & DOB which is “(optional) mandatory” in the 2019 schema along with other information used for domestic purposes. For example, one country informed The Bahamas that they use an automated matching system and matching is made using TIN, DOB, Names, Street, Building Identifier and Addresses outside home country and the TIN must match the other elements in the matching process.
Another country informed The Bahamas that their matching process is in line with the OECD schema guidelines and the matching exercise performed and feedback given to the OECD was not intended to suggest that The Bahamas does not follow or use the OECD Schema guidelines. The matching rates communicated are purely an indication of the challenges faced when trying to match data received and they understand that TIN is currently a contentious topic across the AEOI network.
Therefore, the percentage of countries reporting issues is low relative to the total number of exchange partners.