A Lighter Shade of ‘Grey’…
Are We Out of the Woods Yet? Part I

In May 2011, the Chamber published a series of articles looking at the issue of the potential ‘blacklisting’ of this country by the Financial Action Task Force (FATF) if it is found to be insufficiently compliant with international regulations.  Trinidad and Tobago was subsequently placed on the ‘dark grey list’ with a condition to fast-track implementation of compliance efforts. In February 2012 the FATF will again sit in plenary to review progress of countries which it monitors.

Originally established by the 1989 G-7 Summit in Paris, the FATF is an independent, inter-governmental body that develops and promotes policies to protect the global financial system against Money Laundering (ML) and Terrorist Financing (TF). Recommendations issued by FATF define criminal justice and regulatory measures that should be implemented to counter ML/TF. The FATF recommendations are recognised as the global Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) standard.

Since 2007, the FATF’s International Co-operation Review Group (ICRG) has been espoused as the body responsible for analyzing high-risk jurisdictions and recommending specific action to address the ML/TF risks emanating from these jurisdictions. On the basis of the results of the ICRG review, jurisdictions may be publicly identified in one of two FATF public documents that are issued three times a year.

In the second of these two public documents, FATF identifies jurisdictions which have strategic AML/CTF deficiencies for which they have developed an action plan with the FATF. In February 2010, Trinidad and Tobago was one of the countries named as having made a high-level political commitment to work with the FATF and CFATF to address its strategic AML/CTF deficiencies.

As of October 2011, FATF acknowledged the efforts made by Trinidad & Tobago to improve its AML/CTF regime noting however, that certain strategic AML/CTF deficiencies remain. Specifically, (1) implementing adequate procedures to identify and freeze terrorist assets without delay (Special Recommendation III); and (2) establishing a fully operational and effectively functioning Financial Intelligence Unit, inclusive of supervisory powers (Recommendation 26).

Implications for Trinidad & Tobago

Several organizations have spoken out on the implications for Trinidad and Tobago, among them the Association of Compliance Professionals of Trinidad and Tobago (ACPTT). This is a legally authorized association in Trinidad and Tobago which deals with the development of compliance and the compliance professional in this country.  They have expressed their concerns that Money Laundering and Terrorist Financing are global challenges that need to be addressed collectively by the international community and as such, the strength of global AML/CFT measures depends on the strength of its weakest link. To the extent that a country is perceived as a haven for ML/TF, it is likely to attract further criminal activity. This perception, coupled with French President Nicolas Sarkozy’s naming of Trinidad and Tobago as one of 11 countries that fail to meet transparency standards and being a tax haven at last year’s G20 Summit, can potentially impact the perception of our country held by the international community. This in turn carries with it financial and reputational risk.

The ability to access the international financial system and conduct international trade transactions (trade financing, payments, etc) can be and in some instances, already have been severely, curtailed. In December 2010, Trinidad and Tobago was placed on a ‘Restricted Country List’ by TD Ameritrade, Scottrade and Options Xpress as a country that they ‘do not conduct business with.’

Furthermore several financial institutions have found that there is greater scrutiny from our correspondent banking relationships with increased queries regarding customer transactions and beneficial owners. This can potentially have the following effect:

• Lengthy delays in completion of foreign currency cross border payment transactions. If payments are time sensitive, penalties or losses may occur to our affected business clients;
• The cost of doing business in Trinidad and Tobago may escalate as businesses attempt to offset losses or other expenses due to the increased restrictions and delays;
• Termination of certain key correspondent banking relationships – limited means to access foreign currency or facilitate cross border payment transactions.

The main correspondent relationships for many of the local banks are in the United States. The US Regulator can impose conditions and even prohibit US financial institutions from transacting with correspondents in a designated jurisdiction. With the US as our largest trading partner, this will have a severe socio-economic impact on the country and also holds true for any of our trading partners.

There is no doubt that continued inclusion of T&T on FATF’s publications can influence our international credit ratings and by extension our bi-lateral and multi-lateral trade agreements due to a loss of confidence in the integrity of our financial system and lead to a perception that our country may lack the political will to implement and enforce compliance with applicable AML/CFT legislation. This could result in:

• A reduction in the flow of direct foreign investments into the local economy and potentially, loss of trading partners;
• Merger and acquisition activities across the region or internationally may be further stymied as regulations become even more prohibitive – cost of capital requirement; degree of regulatory scrutiny etc.
• Cost of borrowing increasing as a result of reduced access to foreign currency.

Ultimately, negative reactions by the international community have the potential to impact funding from international agencies such as the World Bank and the International Monetary Fund.

So, are we out of the woods yet? According to the ACPTT, the short answer is “No” – but emphasizes that “…as custodians of prudent practices and gatekeepers within this market, all stakeholders have a responsibility to continue to lobby the government to critically address the remaining FATF identified deficiencies in a meaningful way.” The Chamber fully concurs with this position, since to not do so could lead to further erosion of our reputation which could translate into significant economic costs for Trinidad and Tobago.