Guyana Anti-Money Laundering Memorandum

8/14/2019 Guyana Anti-Money Laundering Memorandum

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Guyana: Anti-Money Laundering ... 2013

Guyana: Anti-Money Laundering

and Counter ing the F inancing of Terror ism

and Proli feration

Road Map

for

The Way Forward

By


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Content

Page

Section 1: Background and Context 1

Introduction 1 Defining money-laundering in the Guyana context 1

Money-laundering and political crimes 2 Money-laundering goals 3 Money-laundering process in Guyana 3

- Placement 4- Layering 4- Integration 5

Facilitating money-laundering 5 Money-laundering methods 6 Off Shore Financial Centres 7

Section 2: Ori gins of Money Launder ing 9

Economic origins 9 Off Shore Financial Centres and Tax Havens 13 Three Streams 14

Section 3: The Regulatory Framework 15 Global 15

- Financial Action Task Force 15- The Ruling International Standards 17


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List of Schedules

Page

Schedule 1: Caribbean Money Laundering: Ten Most Reported Vehicles 6

Schedule 2: Ten Leading Financial Services Offered by Caribbean OFCs 8

Schedule 3: FATF Operational Framework (AML & CTF) 20

Schedule 4: Guyanas Outstanding Core and Key Recommendation (2013) 24

Schedule 5: Guyana: Underground Economy (Faals estimates) 29

Schedule 6: Guideposts for a Strategic Way Forward 34

Schedule 7: Key Markers 39

Schema 8: Road Map for a Strategic Way Forward 40


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Section 1: Background and Context

Introduction

This Memorandum is submitted to the Special Select Committee on Money Laundering,

National Assembly, Guyana. It is hoped that it would form part of the considerations the

Committee take into account as part of its dedicated deliberations on the Anti-Money Laundering

and Countering the Financing of Terrorism and Proliferation (AML&CFT), (Amendment) Bill

2013.

1. Defin ing money-launder ing in the Guyana context?To avoid ambiguity this Memorandum begins with some basic background information, which

informs it throughout. The immediate concern is what is meant by money laundering in this

Memorandum. In financial, economic, and legal theory, (as well as their current practices

worldwide) money laundering is considered an extremely complex and complicated

phenomenon. Not surprisingly, there are numerous definitions of it. Nonetheless, I have found

the definition presented below the most suitable one for introducing the concept in a formal, yet

easy way. That definition is:

Money-laundering represents illicit financial flows that are generated fromcrime, corruption, embezzlement and tax evasion and are then transformedinto legitimate flows


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made to evade tax laws and regul ations in the disposition of this income and wealth that

illegality enters into the picture and therefore, the potential for illicit flows arises. Put anotherway, legitimately earned income and wealth become involved in money-laundering only when

they are transferred outside Guyanas jurisdiction in contravention to its relevant tax laws and

regulations; such laws and regulations would of course include financial and foreign exchange

control regulations.

It is important to remind Members of the Special Select Committee that there is a qualitative

dif ference between tax evasion and tax avoidance. Tax evasion is a criminal offence, because

persons or businesses evade the payment of taxes and other fees that are legally due to the state.

Tax avoidance, however, is not a criminal act in Guyana because the persons or businesses use

legal or regulatory opportunities available to them to avoid paying taxes and fees. This is an

important distinction, although in practice it is difficult to observe and to enforce. The general

working rule is that the weaker is the tax regime of a country or jurisdiction the harder it is to

observe the distinction in practice.

As shall be observed more fully later, arising out of this distinction tax havens have

mushroomed across the world, leading to a distinct subset within the generic phenomenon

known as money-laundering. As implied, tax havens specialize in creating opportunities for

d b i t d t l d l ti B i ll th d thi b ff i


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It is not unusual, however, for jurisdictions where money-laundering thrives, to possess all three

dimensions simultaneously: criminal activity, tax-evasion and terrorist financing andproliferation. In practice, however specialisations have emerged. Thus for example, in the

Caricom region relatively little has been alleged about its role in financing terrorism. Indeed the

specialisation for which the region is famous is tax evasion. Guyana, however, (and to a lesser

degree Jamaica and Trinidad and Tobago) are well known for their links to criminal activity,

especially organized crime in the form of drug-trafficking, trafficking in persons, gun-running,

smuggling, and global cyber crimes.

The distinction between tax evasion and the other forms of criminal activity (including terrorist

financing) is well observed when money-laundering is considered from a Caricom perspective.

There are at least twelve (12) CARICOM jurisdictions, which are recognised worldwide as tax

havens facilitating tax evasion and twenty-two (22) in the wider Caribbean area. The reputation

of all tax havens is such that it carries the presumption they are complicit in tax evasion.

Money-launderi ng goals

As the definition given above has indicated the ultimate goal of money laundering is to transform

illicit flows into financial instruments and funds that are seemingly legitimate. In Guyana and

Caricom, over the years this has become more and more the task of specialist groups of criminals

( l d ) h di ti t f th d l i l f i i l h t th


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purposes, money-laundering can be conveniently categorized as a three-stage process involving:

placement, layering and integration. Each of these is explained in turn below.

Placement and Smur fs

Money laundering is aimed at converting illicit flows of funds into legitimate ones through

placing them into legitimate financial institutions in such a manner that they cannot be traced as

the proceeds of crime. This is perhaps the most difficult stage in the money laundering process

and, as would be expected, it involves several complex procedures. To take an example, if the

illicit sum to be laundered is large then it must first be broken down into smaller non-traceable

amounts so as to avoid attracting attention. This requires multiple transactions.

Usually low-level criminals, (called smurfs) are utilized for this break-down of the funds into

smaller amounts. In some instances the task is so huge and tedious that some researchers have

suggested a pre-wash phase in the laundering of illicit funds. Placement involves the physical

assembly of the illicit funds, before they are placed into a financial depository. This is required

so as not to draw attention to the deposits as they are being made. In several countries an

important instrument used in this phase, is the pre-paid money card. This card not only ensures

anonymity, but it is also easily transferable within the country as well as easily convertible into

other currencies. Guyana needs therefore to monitor this financial product.


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Integration

The final stage of the process requires that after layering, the funds are integrated into the formallegal financial system in a manner where they become indistinguishable from legitimate funds

and therefore free from inquiry and audit disclosure. At this stage it is expected that the funds

cannot be traced back to its criminal origins. Some analysts have sought to add to this stage a

further effort known as legitimization.

Committee Members would recognize by now that money-laundering is a highly skilled criminal

endeavour. The chief skills utilized in this activity are those offered by lawyers, bankers, and

accountants. These do not constitute the typical run of the mill criminal elements, which make

these persons exceptionally dangerous. Their specialist knowledge and skills are placed at the

service of criminal endeavours and not the promotion of national well-being.

Facil itating money launderi ng

Analytical studies of money laundering in Caricom reveal certain definite patterns. First and

foremost, these studies have revealed that the nature of the ruling political regime is a major

consideration. It has been found that the more members of the political ruling class mix and co-

mingle with those reputed to be linked to organised criminal endeavours (whether socially,

through business dealings, or benefitting from political donations) the easier it is for illicit

fl t t bilit b i ti


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commit tax evasion in its jurisdiction are hampered if the jurisdiction develops a reputation for

lawlessness and links to organized crime. Such circumstances invariably invite the glare ofglobal financial surveillance, which is not good for those involved in serious white collar crimes.

Across the Caribbean OFCs are viewed as major development vehicles. Trinidad and Tobago,

which had a couple of years ago flirted with this sort of criminalization has quickly recognized

the error of its ways and is today advertising its ful l compliance with anti-money laundering

agencies as the foundation on which it plans to build itself as the premier financial centre in the

Caribbean, Central and South America.

Finally, another factor facilitating money laundering in Guyana and Caricom is that regional

economies remain, by and large, heavily cash dependent. By this is meant that it is standard for

transactions to be conducted primarily in cash; other financial instruments are rarely used. This

provides an excellent economic environment for smurfsto operate in without drawing attention

to their criminal actions.

Main Methods

As advanced in this Memorandum Guyanas money-laundering is directlyrooted in crime from

the very inception,while for most of the rest of the Caribbean this is not by any means the usual

circumstance. In those other Caricom countries it has been principally founded on tax evasion.

B d i id t di th t t t d l d i hi l i di t d i


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Several observations should be noted about the information displayed in the Schedule. First and

perhaps most importantly, all the money laundering vehicles listed there are distinguished by thefact that they either involve considerable cash (currency) accumulation in small forensically

untraceable currency bills or have the potential for same. Second, it would be very difficult in

most practical circumstances todistingui sh legitimate cash(curr ency) transactionsfrom those

that are illicit. Indeed the law requires that there has to be the legal presumption that nothing

illicit is involved, since an illegal transaction can only be legally established as such through due

process.

Third, all of the listed mechanisms in the Schedule may not be significant factors in all

Caribbean OFCs at all times or indeed at any time. Flowing from this observation, the further

conclusion is that, the importance of the vehicles listed in Schedule 1 (both as a group and

individually) varies among Caribbean countries.

Finally, Members should note that, some of the vehicles used in money laundering, which were

prominent a couple of decades ago are not so anymore. A good example of this is a fake or

fi ctitious bank account. This has been since replaced by the direct capture of banks or other

depository financial institutions and fictitious corporate vehicles by organised groups of money

launderers.


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insurance, securities trading, banking and the like; transport service corporations on the other

hand, may be more interested in the ship and aircraft registry operations of Caribbean OFCs.

The leading types of financial services provided by OFCs are displayed below in Schedule 2. As

can be seen some of these are easily understood from their descriptors: for example international

banking, wealth management and insurance services. (As an aside, it should be noted that there

has been remarkable recent innovation in all types of insurance services provided by Caribbean

OFCs). Some of the descriptors however, such as structured finance and collective investment

vehicles refer to more complex activities. Thus the range of collective investment vehicles is

considerable, including: mutual funds, hedge funds, unit trusts, and joint ventures. Additionally it

should be observed that some of the descriptors refer to realand not simply financial activity, as

is in the cases of foreign direct investment (FDI), and ship and aircraft registration.

Schedule 2: Ten Leading Financial Services Offered by Caribbean OFCs

1. Collective Investment Vehicles

2. Asset holding and protection

3. Foreign Direct Investment (FDI)

4. Derivatives Trading

5. International Banking6. Structured Finance

7. Insurance


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Section 2: Origins of Money Launderi ng

Tax evasion is perhaps the most important single driver of money laundering globally, and

specifically in the Caricom region (other than in Guyana and to a lesser extent Jamaica and

Trinidad and Tobago) where other criminal pursuits are more apparent. Historically, the crime

of tax evasion is reputed to have been first legally prosecuted by the United States Government

as part of its fight against organized crime over eight decades ago (the famous Al Capone trials

of the early 1930s). Money laundering however, as a major organized criminal endeavour firstengaged widespread media coverage much later, in the 1970s and early 1980s. Indeed it was

only in the early 1980s that the first legal cases against money launderers were prosecuted by the

US authorities. It is clear that, from the outset, those cases were closely allied to official

onslaughts on major organized crime including, murder for hire, racketeering, and trafficking in

narcotics, arms, and persons.

Economic Origins

There is wide consensus among financial, economic, and international legal analysts and

historians that the origins of money laundering are rooted in two economic phenomena. One is

the historic distortions that were still being perpetuated in the global economy during the 1960s

and 1970s, well after the profound economic dislocations of World War II. And, the other has

been the paradigm shift that was occurring (although not sufficiently recognised at the time) in


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the interest rates, which banks could pay/charge, as well as on the specifications of the loans that

banks could make (sectors, time profile, period of loan etc). It should be pointed out that thesepolicy prescriptions were pursued eagerly in both rich and poor countries alike. It was indeed the

politi call y correctapproach of the time!

It was in these circumstances that the Euro-dollar (and later the Euro-currency) financial

markets emerged laying the platform for the rise of Off Shore Financial Centres (OFCs) and the

explosive growth of money-laundering. What is the Euro-dollar market? With restrictive

financial regulations in force, banks based in Europe soon realized that any US dollar

denominated accounts, which they could obtain would be beyond the effective regulatory reach

of the US Federal Reserve System. Under existing laws these deposits could be accumulated

therefore, at a premium interest cost and then lent out to investors beyond the reach of either the

United States jurisdiction or that of the National Authority where the bank was based! Thus was

created the Euro-dollar financial market. To be sure the current formal definition of this market

is one for United States dollar-denominated deposits at foreign banks (or foreign branches of

US banks).

Members of the Special Select Committee should note that it is only because of its origin in

Europe that the financial market was termed the Eurodollar market. This name has no necessary

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The basic conclusion to observe is that banks saw the opportunity for attracting deposits, which

were outside the jurisdiction of both local and foreign banking supervision and regulationthrough paying premium interest rates. However, the universal rule still applied: the less is the

banking supervision (and regulation) in place, the greater is the risk these deposits are taking.

Furthermore because financial markets adopted a no questions askedacceptance of Eurodollar

and Eurocurrency deposits, these have become attractive to two groups of economic agents. One

constitutes those countries and banking/financial venues outside Europe, which were prepared to

compete with Europe for these deposits. And, the other is that group of economic agents seeking

to move funds in a clandestine manner; that is, beyond national supervision and regulation.

It is these two incentives that spawned the worldwide emergence of OFCs and alongside these

money-laundering on a world scale including in Guyana. At this stage Members would have

come to realize that they cannot expect to form an intelligent appreciation of money laundering,

and fulfil their Parliamentary responsibilities in regard to the several serious challenges Guyana

presently faces in this regard, without, at the very least, a rudimentary appreciation of some

related contextual issues.

Although OFCs were initially located in selected European countries, under competitive

pressures these markets first spread to other countries within Europe and later beyondEurope as

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are located in non-sovereign territories like the Cayman Islands (73 per cent of the total

amount) while most of the sovereign states individually hold amounts far less than one -twentieth of that total.

Europe also played very active roles in promoting the establishment of OFCs in these venues

because the sector was seen (next to tourism) as the most potentially vibrant one for the

development of small poor open economies. This policy preference was aided by the low start-

up costsof the sector. Consider the following information in support of this view: 1) this sector

reduced the burden (costs) on European treasuries for promoting economic well-being in those

territories it had responsibility for, as it only required Europes implicit endorsement to advance.

Once investors were convinced Europe supported the OFC sector as a leading investment

strategy, they felt confident in risking their funds in these locations. 2) While low or zero taxes

would have constituted the prime attraction for potential investors, the economic benefits that

otherwise came to a small economy in the form of hotel accommodation, travel, entertainment,

and other services were, in the absence of tax benefits, ample for offering these economies

diversified economic structures and good livelihoods. 3) Other supportive measures were also

low cost; for example, passing laws and regulations regarding: bank secrecy and anonymity;

minimal surveillance of financial transactions; a regime for banking regulation; and, tough laws

deterring extradition of persons legally resident within the jurisdiction of OFCs.


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OFCs and Tax H avensAs earlier illustrated in this Memorandum the origins of money-laundering as a global

phenomenon are closely tied to the international spread of OFCs and the opportunities these

provide for the spread of tax avoidance and evasion; the latter being of course a criminal offence.

At the early stages of this development OFCs were primarily seen as opportunities for tax

avoidance because of their low tax status; their transition towards offering tax evasion came

later.

As it turned out it was the European countries, which favoured the development of OFCs as an

appropriate strategy for the diversification and development of its small open low income

territories, dependencies, and ex-colonial possessions. The European connections to these

jurisdictions provided investors with confidence in their political and social stability.

Furthermore, shortly after this process started, the Group of Seven leading industrial economies

(G7) also endorsed this strategy, especially for those OFCs located in small poor open

economies.

As events unfolded however, more and more investors came to see these Centres as offering not

only opportunities for tax avoidance, but for tax evasion as well. And, the Authorities in most if

t ll OFC ith f ilit t d thi t iti t d bli d t it V th ft th


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Three Streams

The emphasis this Memorandum places on the role of OFCs (Tax Havens) as a driver of moneylaundering is justified historically. Presently however, it should be emphasized there are two

other drivers that are at the very least, ofequal global and regional signif icance. One of these

has accompanied tax evasion from its inception, while the other has emerged as a principal driver

only since the early 2000s; the former is organi zed crimeand racketeeringand, the latter is the

fi nancing of terr orismand the prol if eration of weapons of mass destruction.

As a driver organized transnationalized crime and racketeeringincludes such heinous criminal

endeavours as trafficking in narcotics, arms, persons, counterfeit artefacts, as well as illegal

services (prostitution, gambling and blackmail information). Specifically, for our purposes it is to

be stressed that is in this stream that Guyanas money laundering is firmly located. All the

crimes listed above typically involve cross-border transactions and are therefore founded on the

existence of international markets for their wares. The anonymity, confidentiality and secrecy

provided by laws and regulations serve to create an environment in which criminal practices do

not only thrive, but the illegal proceeds thereby generated can be readily converted or washed

in a manner such that they emerge as legitimate proceeds. The third driver, which is the

financing of terrorism and proliferation emerged to the fore following the terrorist attacks on the

United States (9/11/2001).


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Section 3: The Regulatory Framework

GlobalA key proposition put forward at the end of the previous Section is that there have been three

principal drivers pushing money laundering and related concerns to the level of massive global

threats these now represent. To recall these three drivers are tax evasion; organized crime and

racketeering; and terrorist financing and its proliferation. In actuality though, these three drivers

comingle and are identified separately in this Memorandum solely for purposes of analysis and

presentation. Experience worldwide shows that few, if any of the major criminal networks found

to be involved in organised money laundering are motivated by one driver only. Despite this

practice, it is still fair to assert Guyanas money laundering is firmly located within the second

driver; that is, organized crime and racketeering, while the rest of Caricom is, by and large,

situated within the first driver; that is, tax evasion, which is directly related to their status as

OFCs.

As was pointed out earlier, while the G7 Group of Leading Industrial Economies had initially

supported, if not encouraged, the proliferation of OFCs in the Caribbean, during the latter half of

the 1980s the Group had become quickly disenchanted, if not hostile to this development. And,

at the G7 Summit of 1989, the Group established a F inancial Action Task Force (FATF ),

situated in Paris, France to remedy this situation.


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attacks in the United States on 9/11/2001, the FATF hurriedly expanded its mandate to deal with

matters related to the financing of terrorist organisations. For this purpose Eight Special

Recommendations were announced in 2001, and later in 2004 a Ninth Special Recommendation

was added to the eight on terrorist financing.

Seven years after the first revision of the Forty Recommendations (in 1996), these

Recommendations were again revised and published in 2003. These Forty Recommendations

have been since endorsed by more than 180 countries and after later revisions these presently

represent the definitive in ternational standardsto guide regulatory supervision and enforcement

of anti-money laundering measures and combating the financing of terrorism and proliferation.

Over the years several affiliated bodies from different regions around the world have joined

FATF. These are described as FATF-style Regional Bodies (FSRBs). Among them is the

Caribbean Financial Action Task Force (CFATF ). Other bodies have also attained observer

status as Observer Organisations; these include the International Monetary Fund (IMF), World

Bank, and United Nations special agencies.

In 2012, following on the FATFs third round of mutual evaluations of Member Countries,

FATF reviewed and updated their Recommendations (Mutual evaluations are a central feature of

FATF ti Th l ti d t k i d t h M b St t


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A summary therefore of FATFs main tasks today would include: 1) examining money

laundering techniques and trends, because this is a fast changing area of criminal endeavour and

in order to be able to effectively regulate it, the Authorities need to be one or more steps ahead of

the criminals 2) setting international and national standards, 3) effectively implementing the

legal, regulatory and operational measures for anti-money laundering and combating the

financing of terrorism (AML&CFT) as well as the proliferation of instruments of terror, mass

destruction and related threats to the international financial system, and 4) working

collaboratively with international, regional and national stakeholders.

The Ruling I nternational Standards

What are the ruling international standards today? As was noted the original publication of the

Financial Action Task Force (FATF) Forty Recommendationsin 1990 had been later revised in

1996 and again in 2003. In between these two years, and following on the terrorist attacks in the

United States on 9/11/2001, Eight Special Recommendations were added to the Forty, and

shortly thereafter the Eight was expanded to Nine. Following on the Thi rd Round ofMutual

Evaluations among its Members, the FATF in collaboration with the FATF- style Regional

Bodies (FSRBs) and Observer Organisations thoroughly revised and updated these

Recommendations and released them in 2012. This 2012 FATF document detail s the defi ni tive

International Standards for combating money laundering, the financing of terrorism and

lif ti f f f d t ti Th 2012 d t h t k i t t th


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Policies and Coordination

Under this grouping of international standards, the main items that are dealt with include 1) the

identification and assessment of risks which Members should routinely undertake, 2) the need for

their continuous assessment of these, and 3) the follow up actions that should be taken by the

Authorities and financial institutions. This grouping also details the required levels of

cooperation and coordination of national policies (both internally and externally) on anti-money

laundering and combating terrorist financing (AML&CFT).

Money Launderi ng and Confi scation

A standard that FATF emphasises is the requirement that money laundering is comprehensively

criminalised on the basis of the Vienna Convention and the Palermo Convention. Based on these

two Conventions, and together with the Terrorist Financing Convention, the Competent

Authorities should have power to freeze, seize and confiscate property that is money laundered;

the proceeds from (and or connected to) money laundering offences; as well as the proceeds

from (and or connected to) terrorist financing. These should be allowed to take place with or

without a criminal conviction along with the offender being required to demonstrate the lawful

origin of the property alleged to be liable for confiscation.

Terr orist F inancing and the F inancing of Proli feration

FATF d t it b i f i i li i t i t fi i th T i t Fi i


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record keeping 3) the treatment of politically exposed persons 4) the handling of cross-border

transactions (including correspondent banking, money transfer services, wire transfers and new

financial products appearing in the market place) 5) internal controls and foreign

branches/subsidiaries 6) activities in designated high risk countries and 7) reporting of

suspicious transactions (including tipping-off and confidentiality). The grouping also deals with

the treatment of related non-financial businesses and professions (lawyers, accountants, business

consultants).

Transparency and Benefi cial Ownership

This grouping addresses measures to prevent the misuse of legal persons and legal arrangements

for purposes of money laundering and terrorist financing. This requires that there is adequate,

up-to-date and timely information on beneficial ownership and control of legal

persons/arrangements in both financial businesses and related non-financial businesses and

professions.

Powers/Responsibi li ties of Competent Author iti es

This grouping addresses the central issue of the powers of enforcement and regulation by the

Competent Authorities. It speaks to their required regulatory and supervisory functions and

explicitly deals with the powers of Supervisors, the Financial Intelligence Unit, Law

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of the Proceeds from Crime and the Financing of Terrorism (2003). It also provides for mutual

assistance among countries, especially in relation to such issues as information exchange; assets

seizure and confiscation; extradition; and other forms of cooperation that might arise. For the

convenience of Members of the Select Committee, these groupings together with the summaries

of the key items, which are included within each are presented in the Schedule below:

Schedule 3

FATF Operational Fr amework (AML & CTF)

Targeted Ar eas Selected I tems of Concern

1. Policies and Coordination Risk assessment; risk-based approaches; nationalpolicy; and, institutional cooperation andcoordination.

2. Confiscation Fixing offences; corresponding penalties &measures.

3. Terr orist F inancing and Proliferation The related offences; proliferation and sanctions;and, the treatment of non-profit organisations.

4. Prevention Secrecy; record-keeping; customer due diligence;politically exposed persons; cyber transactions; othersuspicions transactions; and, related matters (tipping-

off, disclosure, investigation)

5. Transparency//Beneficial Ownershi p With special reference to legal persons and legalt


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the Nine Recommendations no longer stand separate and apart from the Forty

Recommendations. In other words, the countering of the financing of terrorism and proliferation

of weapons of mass destruction are now fu ll y mainstreamed in to theForty Recommendations.

Secondly, as part of its revision process, the FATF has set about deliberately and systematically

to incorporate the global financial oversight and regulatory frameworks of both the International

Monetary Fund (IMF) and the World Bank into the assessment methodology it now requires

Member States to follow.

And, finally as part of the above mentioned far-reaching changes, the FATF has also set about to

be inclusive in devising these changes. This has meant the systematic involvement of other

stakeholders in its mission and operations; the principal stakeholders that were engaged are from

civil society, the private sector, professional bodies, and academia.

While such developments are no doubt quite striking, they should not lead Members of the

Special Select Committee to forget the originalset of considerations that impelled the formation

of the FATF, as these still apply. To recall, the leading industrial regions and organisations (that

is Europe, North America, G7 and OECD) while initially strongly promoting Off Shore

Financial Centres (OFCs) as a major development vehicle for small poor open economies, this

attitude was radically revised when it came to be realized that OFCs not only threatened to, but

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For our present purposes the key overall conclusion Members should draw from this presentation

on the 2012 FATF international standards is that the regional operations of the CFATF, (which is

designated a FATF-Style Regional Body (FSRB)), fall entirely under the rubric of FATF

International Standards. Indeed it would be fair to assert that, with or without the CFATF,

Caribbean/Caricom Members of FATF (including Guyana) would still have been expected to

fully implement the FATF International Standards. In a real sense therefore the existence of the

CFATF is in part attributable to the need to soften the blunt reality of the FATF.

As indicated earlier the FATF standards are applied to Member States through a rigorous mutual

evaluation procedure, which has already been described. This procedure, as we have seen, is

conducted on the basis of an assessment methodology that is applied universall y. Indeed in

order to avoid ambiguities and uncertainties arising from differences in local and regional

situations, the FATF has supplemented its written international standards with the following: 1)

interpretive notes 2) definitions and a glossary of terms 3) worked examples, and 4)

guidance/best practices papers and other similar documents.

Regional

Caribbean Financial Action Task Force

CFATF emerged out of the national indignation and outrage the OFCs felt on the announcement

f th f ti f th FATF Th t i ti t d b th t th ti t i ht


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fiscal and financial regulations designed to negate the attractiveness of OFCs. These included: 1)

not allowing deductions to non-compliant jurisdictions 2) withholding taxes on payments to

residents in non-compliant jurisdictions 3) stiffening the reporting requirements of non-

compliant jurisdictions and also terminating tax treaties with these. Broader economic

restrictions were also applied in some instances, such as refusal to grant aid; technical assistance;

maintain special surveillance; as well as placing additional charges on transactions involving

non-compliant jurisdictions.

Caricom countries were perhaps the most vocal opponents of the FATF actions at the time. This

did not last long, as under the pressures from the leading industrial powers they felt compelled to

fold. As matters have turned out the Caribbean area, led by Caricom was the first to establish a

FATF-style Regional Body (FSRB) - the CFATF. Ironically, today this body that originated in

protest now epitomizes regional self-driven efforts aimed at becoming the best executing

regional agency (FSRB) dedicated to the fulfilment of FATFs mission!

CFATF comprises 29 Caribbean Member States and is headquartered in Port-of-Spain, Trinidad

and Tobago (Notably, Cuba is not a Member, but there are initiatives currently underway to

secure this). CFATF has several Observer Organisations, attached to it including the

Commonwealth Secretariat; European Commission; IMF; World Bank; IADB; and several

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regulations, guidelines and other requirements, as well as the capacity, implementation, and

effectiveness of the regulatory and other systems in place.

Guyanas last on-site visit by the CFATF Team arising from its MER was in 2011 and the

resulting Report was adopted by the CFATFs Council of Ministers the same year (2011). As a

result of that Report, Guyana was placed on expedited Foll ow-Upand required to report at every

CFATF plenary. A Third Follow-Up Report was presented towards the end of 2012. Later a

Fourth Post-Plenary Final Follow-Up Report was presented in 2013.

The Fourth Report summarized Guyanas progress as follows: 1) Anti Money Launder ing and

Counter ing the Financing of Terrorism (Regulations) was enacted. (This was designed to

supplement the existing law by focussing on identification, record-keeping, reporting and

training procedures) 2) theAnti- Money Laundering and Countering the Financing of

Terror ism (Amendment) B il l of 2013 was laid in the National Assembly on April 22, 2013 (this

was one week before its deadline for implementation- April 30, 2013). The Bill is designed to

meet MER recommendations. Additionally, the F inancial In telli gence Uni t (FI U) started

training programmes for relevant agencies in order to heighten their awareness and

understanding of their responsibilities and legal obligations. The resources of the FIU

(human/physical/financial) were also augmented in order to build its capacity.


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Section 4: Threats Money Laundering Pose to the Modern State

The end of the last Section carried a brief description of the current situation of Guyana in regardto the CFATF. The next Section will be devoted to addressing the way forwardin light of the

present impasse with regard to the proposed new anti-money laundering legislation and

Guyanas broader relations with CFATF. Members however need a broad indication of the

scale and extent of money laundering at the international level, in order to appreciate the highly

significant threats this phenomenon presently poses to the functionality of the modern state and

operations of the global economy. This is provided in this Section.

Threats

While the threats posed by the financing of terrorism and the proliferation of weapons of mass

destruction are in a sense, vividly self-evident, it is therefore important that readers do not as a

consequence underestimate the systemic threats which, the growth of money laundering poses to

the modern state. Four of these threats are indicated below.

First tax evasionlies at the heart of all forms of money laundering, and therefore, in so far as it

thrives, this systematically erodes the fiscal capacity of states. And, with less revenue at their

disposal, modern states are less able to afford all types of expenditures, ranging from social

services and public infrastructure to national and personal security.


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markets presumed advantages for the efficient accumulation of income and wealth in market-

based economic systems.

Fourth, the negative impacts of these criminal-led distortions of markets are not only felt among

economic agents, but through them on the economic regulators as well. Thus to take an

everyday example, the heavily relied on open market macroeconomic regulation of the modern

economy becomes fatally disrupted when criminally motivated transactions become significant.

This has been revealed in situations where a criminally-led underground economy drives the

production of economic livelihoods thereby resulting in the market regulation of the formal/legal

economy becoming largely ineffectual.

The four cases described above reveal the gravity of the threats, which money-laundering

potentially poses to the modern state. Indeed, one can further argue that these threats strike at the

core of the dynamic governing the extended reproduction of the capitalist economy. Members

can from this observation therefore, better appreciate why in the 1980s the leading industrial

nations reversed so rapidly from promoting OFCs as a development vehicle towards efforts to

contain their growth to the strict provision of legal and legitimate financial services only. The

global size and scale of money laundering (discussed below) also shows how deeply embedded it

is in cross-border transactions in the present international economy. Indeed the Canadian

th iti h ti t d th b d i t f t i t ti i th i t t


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be known. However organizations associated with the FATF have offered estimates. Thus the

United Nations Office on Drugs and Crime has estimated criminal proceeds at 3.6 percent of

global GDP and money laundering per se at 2.9 percent of global GDP. This is within the IMF

range.

Currently, the annual value of global money laundering most commonly reported is at least

US$1.6 trillion. The United Nations (2010) has estimated that, in the decade 2001-2010, the

annual money laundering outflow rate from poor statesaveraged 8.6 percent. This compares to

their real GDP growth rate of 6.0 percent over the same period. Of note these estimated outflows

combine both proceeds from crime and legitimate funds transferred outside the jurisdictions of

states in contravention of their tax laws and/or incurring breaches of exchange control

regulations. Of great concern losses of poor states from tax evasion have been estimated at ten

times larger than the overseas development assistance (foreign aid) they had received over the

same period.

The Third World Economics (2013) cites a joint study produced by the African Development

Bank and Global Financial Integrity, which revealed that while Africa is the most aid-dependent

region in the world, with ODA inf lows approximating US$50 bill ion annuall y, yet over recent

decades (1990-2009) about US$1.5 tril lion i lli citly left A fr ica. This huge outflow is linked to tax

i ti d l d i St iki l h f thi d k it h b


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Section 5: Strategic Road Map for the Way Ahead

GuidepostsThis Section portrays a strategic road map for the way aheadin light of the current impasse in

Guyanas relations with the CFATF. There are four principal guideposts that should govern the

way ahead, namely:

1) The sizeand scaleof the money laundering threat to Guyana

2) The assessment of governments strident demands for the immediate passage of the

legislati ve amendments before the Special Commi ttee

3) Thedimensionsof Guyanas money laundering situation and

4) The core weaknesses of Act . 13 of 2009, which the proposed legislative amendments

seek to address. These are considered in turn below.

Guidepost 1: Size and Scale

The most important consideration for devising a strategic way ahead is the magnitude of the

threat posed by money laundering and related concerns. The FATF (and by extension the

CFATF) has adopted the position that since these matters are criminal in nature, no one can

measure their truemagnitude. While strictly speaking this is correct, the use of proxy indicators

combined with personal judgements still have useful roles to play in providing estimates. As was

earlier indicated, several renowned international organisations have offered such estimates; for


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These proxy indicators suggest the size and scale of the money laundering problem in Guyana is

considerable. This assessment also confirms to my personal professional experiences.

Pertinently, a recent Kaieteur News Editorial (September 29, 2013) under the caption Guyana

and the drug tradestates:

The drug trade is pervasive ... the authorities would complain they cannot getinformation ... but we could catch the most serious drug dealers on tax evasion ...

we have so far failed to hear or read about anyone being prosecuted.

The Editorial goes on to assert bluntly:

Money laundering is the order of the day and those tasked with correcting the

situations are weaker than could ever have imagined.

Although the Editorial does not provide numerical estimates, Members of the Select Committee

would realize that it represents a fairly commonplace perception among the Guyanese public.

Schedule 5: Guyana: Underground Economy (Faals estimates)

Period Average size (% of off icial GDP)

1970s 39.70

1980s 76.00

1990-2000 47.18

2001-2008 61.00

Source: Thomas, Jourdain and Pasha, Transition, Issue 40, 2011


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the government itself has been dealing with these matters since the 2000s, while these parties

have not! Crying wolf also allows the Governmental to represent to CFATF that delays and

deficiencies in Guyanas fulfilment of its Recommendations are due to present local politics, or

worse (better!) the irresponsibility of the Opposition.

At this juncture the earlier assessment of the CFATF needs to be recalled. The main inference

from that assessment is, I believe, the intr insic ambiguityof that body. While arising out of anti-

colonial and anti-imperialist rhetoric in defence of the sovereignty of small Caribbean states, as

was observed CFATF now zealously pursues the main Mission of FATF. Because of this

ambiguity I believe CFATF would lean towards supporting Caribbean states, save and except

where it is amply demonstrated their non-compliance with the Forty Recommendations (2012) is

extreme, flouting, and in blatant disregard and disrespect of that body. The position taken here is

supported by the following considerations: 1) In regard to Guyanas compliance, CFATF has

rightly distinguished between the legislative and non-legislative elements of its

Recommendations to Guyana. CFATF appears to have accepted the latter elements are being

satisfactori ly addressed and 2) there is absolutely no intended automaticity to CFATFs

required actions against Guyana, if the legislative element is not fulfilled. First, CFATF has

executive discretion over the steps it can take if the legislation is not passed by November.

Second, CFATFscall to its Members is: to consider implementing counter measures to protect

th i fi i l t ( h i ) Thi i di ti ll A d thi dl ft th ll


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Guidepost 3: Dimensions

Recognizing that thus far the Special Select Committee would have focused on the legal aspects

of the proposed legislative amendments before that body, Members should however realize that

the reformof the Anti-Money Laundering and Countering the Financing of Terrorism Act 2009

cannot be reducedto a task of legal draf ting.

Money-laundering challenges in Guyana are inherently multi-dimensional. The challenges are

political, in the sense that successful challenges to money-laundering require politi cal will on the

part of the government; trust and cooperationamong the government and Opposition; as well as

transparency and inclusiveness in the process of tackling this, in order to ensure citizens

willingly engage in a social contract whereby they give sustained support towards creating a

sound framework for anti-money laundering and countering the financing of terrorism efforts.

An indispensable ingredient in the pursuit of this is public awareness of the gravity of the threats

these pose. Without that awareness the Select Committee will find little public support for its

efforts.

The challenges are also economic because money laundering is a considerable part of Guyanas

underground economy. A substantial number of livelihoods are dependent on the illegal

workings of money laundering. Moreover, econometric studies on money laundering reveal its

ti i t i th fi i l t bilit (i d i k f f d t ti l


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As the Editorial quoted earlier reveals, the Authorities do not seek explanations of sudden

displays of wealth and neither does the public clamour for this to be done. As my extended

essays on Guyana: the Cr imi nal ization of the State argue, the nexus between political elites and

organized criminal groups has created a cabal that systematically utilizes its combined influence,

power, authority, and resources to make the state progressively a vehicle for the pursuit of

criminal endeavours.

For this and other reasons, I had gone as far as to suggest this phenomenon represented a new

state typology, while bearing resemblance to several other modern state deformations. This

guidepost therefore, highlights the reality that tackling money laundering and related challenges

in Guyana is simultaneously a political, cultural, economic and social transformative task. This is

not for the faint-hearted and non-visionaries.

Guidepost 4: Core Weaknesses of Act 13, 2009

The fourth guidepost requires the Committee to take its bearings from the core weaknessesof

the present Anti-Money Laundering and Countering the Financing of Terrorism Act, 2009.

Several systemic weaknesses have been widely acknowledged.

The first of these is that banking, legal and other analysts with whom I have discussed this

bl h ti t d th t t l t 70 t f th t d diti f th t A t ( hi h


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Consider the following examples: 1) In addition to lacking functional autonomy and

independence those bodies are understaffed and under-financed 2) With the penetration of

criminal elements into the workings of the state, it has become well nigh impossible to design a

system for regulating the identified regulators in the Act. The fact that the Executive does not

presently control the National Assembly makes that body an attractive location for oversight

functions. That body does not have however, to overload itself by seeking to perform all these

functions itself, but should seek to create what hopefully could become delegated independent

bodies. A good example is the Bank of Guyana, which already performs its banking oversight

role with a reputation for integrity and independence.

Thirdly, the one body established in the Act that is dedicated solely to combating money

laundering is the Financial Intelligence Unit (FIU). From the outset this has lacked the capacity

required to fulfill its tasks. As a result the FIU is distinguished by having no great track-record of

effective enforcement of the law; no asset seizures; weak cooperation with other nations; and,

little impact on addressing citizens with the legal status of politically exposed persons as

written into that Act.

Fourthly, the Act does not read (to laypersons) as if it is strategical ly focusedon the areas of

vulnerability for money launderers. These are the so-called choke points identified earlier as 1)

Th i t t hi h th illi it h t G fi i l t ( i t f l t


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Drives the increasingly complex multi-dimensionality of money launderingchallenges and

Highlights the systemi c weaknessesof the original Act, Number 13, 2009.

The Schedule below highlights the key features of the guideposts for a strategic way forward that

is designed to address the current impasse facing Guyana and the Caribbean Financial Task

Force (CFATF) as together they seek to contend with the legislative part of Guyana s

outstanding obligations the CFATF (and by extension the global Financial Action Task Force -

FATF). These guideposts provide dynamic guidelines for not only resolving the immediate

stalematebut also providing the basis for a strategy designed to reform anti-money laundering

and combating the financing of terrorism and proliferation over the medium-term in to the long-

term.

In summary these guideposts are rooted in the acknowledgement of 1) The considerable scope

and scale of the money laundering threat in Guyana 2) The profound multi-dimensionality of

that threat, covering as it does political, economic, social, cultural and behavioural spheres of life

3) The tension, which exists between the Government and the Opposition due to call for

immediate action by the former over the perceived threat of external sanctions by the CFATF

and FATF 4)The core weaknesses of the current money laundering legislation (Act 13 of 2009).

S h d l 6 G id t f St t i W F d


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Following on these guideposts, the next consideration is specific markers Members of the

Special Select Committee on Money Laundering should apply to the legislative amendments

before them. The first set of these markers should focus on incentivizing the frontline

regulatory/oversight bodies and others that are engaged in countering money launder ing and

combating the fi nancing of terr orism and prol if eration.

Marker 1: Earmarking Seized Assets for F rontl ine Bodies

Key among the glaring weaknesses observed with the existing intelligence and enforcement

authorities in Guyana are the limited resources they have to fulfil their functions. It is therefore,

recommended that the Committee should consider in detail, and then apply, a legislative

schedule for rewarding those bodies (and their personnel) with part of the proceeds of assets

seized form money launderers and terrorist financiers. This will not only incentivize the frontline

bodies, but it will help also create a supplementary basis for the sustained financing of these

bodies.

However, it should be made clear however that this is a recommendation aimed at generating

supplementary resour ces for the frontline agencies and personnel. It would be ill-advised to

depend on this for providing the regular resources of public bodies. Indeed it is vital for

personnel of the regulatory and oversight regime to be principally motivated by their

f i l t i i d bli ti t t t th l f l d t t fi i l i


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Marker 3: The Technology Gap

The second setof markers the Committee should keep in mind relates to the likelihood (for all

sorts of reasons that directly or indirectly relate to available resources) of a widening gap in IT

technology available to money launderers and financiers of terrorism as against Guyanas

Competent Authorities. Worldwide this tension between the capacity of states and criminals

generally plays a central role in determining criminal outcomes.

Criminals seek to harness innovation and ingenuity to their cause because they recognize that

these attributes enhance their ability to game the Authorities. The Authorities therefore cannot

risk falling behind and allowing a significant technology gap to emerge. And, since the best

general motivating force making for the availability of skills is willingness to pay, the

Authorities have to be in a position to recruit these skills for themselves. Here again the proceeds

from assets seizure can help.

Marker 4: Cost of Compli ance versus Non-Compli ance

The general economic expectation is that those affected by regulatory regimes would, if they

were rational, weigh the probabilistic cost of their compliance against the costs of their non-

compliance. Committee Members therefore, need to weigh the outcome of this calculation as

th d t l i l ti Th d fi it th lti d t f


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match the growth of the other (the Competent Authorities capacity to enforce the rules). Based

on worldwide experiences of modern public policy management it would be safe to prescribe

here that the credibilityof rule-makingand policy-making bodiesis essential to the successful

pursuit of policy changes, including reforms.

Second worldwide experience also reveals that there is always one potentially fatal threat facing

all regulatory regimes. That is, regulatory capture of the regime by those it is established to

regulate. With the large amount of estimated sums laundered in Guyana, this is indeed a very real

risk, which the reform recommendations should consider.

The flip side to the coin of regulatory capture is the real danger that the legally defined

regulatory bodies are unable to display functional autonomy and independent action. Many

factors can affect this outcome, not least of which is the professionalism of those who are called

upon to Head those bodies. These appointments therefore, should not be made by the Party in

Government alone or its Ministers they should be subject to the approval of the National

Assembly.

Marker 7 & 8 Socio-cultur al political dynamics

Again there are two principal markers under this heading. Legislation of the scope before the

S l t C itt l d if it t f f d d t t d


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intense outside political leadership. In such an environment political persons are able to

deter regulators and are therefore allowed to act with considerable impunity. The main

recommendation I have here, is to let peer pressure work by devising a mechanism fo r naming

(and in so doing shaming) those suspected of infringements and irregularities. Those names can

be forwarded to the Integrity Commission.

Markers 9-11 Reporti ng Requirements

The next set of three markers all relate to the reporting requirements of the bodies listed under

the Act. Three of these requirements are of principal concern. The first marker is clearly to

whomthe various Competent Authorities should report. While this would have to be defined in

terms of the specific bodies, the principle that should rule is for reporting to finally reach the

National Assembly. It is my view that if al lMembers of the National Assembly are given these

reports that would help ensure their adequate circulation to the general public.

The second marker is that reporting should be mandatory and automaticfor all bodies obligated

to do this. The law should use the verb shall and not may as it is now frequently does under

Act #13, 2009 where reporting is concerned,

Thirdly, to underscore the mandatory requirements for reporting, the legislation should affix

i t l ti f ll th b di d d f lti l i d d t i d d


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Schedule 7: Key Markers

Number Markers

1 Earmarking Seized Assets for Frontline Bodies

2 Earmarking for the General Public

3 Technology Gap

4 Compliance Vs Non-compliance Costs

5&6 Regulators and the Regulated

7&8 Socio-Cultural- Political - Dynamic

9-11 Reporting Requirements

12 Related Governance Changes

Source: Authors construction

For the convenience of Members of the Special Select Committee, the Schema presented on the

next page offers a visual guide of the strategic road map for the way forward, in regard to the

money laundering situation in Guyana.


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40 Page

Schema 8:Road Map for a Strategic Way Forward

7

G

U

I

D

E

P

O

S

T

Item

Magnitudeof Threat

Indicators

Numerical estimates proxy indicators,& informed opinion

Prescription/Assessment

Highly significant

Dimension Manifestations in economic, political,social, cultural, behavioural spheres

Profoundly multi-dimensional

Guyana -CFATFRelations

Outstanding Recommendations (Core,Key, Other) (Compliant/Partiallycompliant/Non-Compliant)

Core and key = 15Non core and Non key =25 (partially 10) and (non-compliant) (15)

Act # 13, of2009

Core weaknesses (implementationdeficit; lack of independence ofdesignated Authorities; systemicweaknesses of FIU; not focused enoughon choke pints).

Carefully revisedlegislative amendments, inlight of Guideposts &Markers

Markers: 1 2 3 4 5 6 7 8 9 10 11 12

Key: 1 = Earmarking Seized Assets for Frontline Bodies

2 = Earmarking for the General Public

3 = Technology Gap

4 = Compliance Vs Non-compliance Costs

5&6 = Regulators and the Regulated

7&8 = Socio-Cultural-Political-Dynamic

9 to11 = Reporting Requirements

12 = Related Governance Changes

Documents

Guyana Anti-Money Laundering Memorandum