Anti-Money Laundering Service for Belize

Abstract

Belize is a small Central American country with a low population, small financial sector, and a banking and financial environment as yet more or less free of significant AML and terrorism financing activities. its framework for anti-money laundering and for combating the financing of terrorism consists of adopting the major FATF recommendations of the World Bank and the IMF and its legal regulations are slowly evolving with changing global situations, the emergent country needs, the directions set by its ruling government and international compulsions, primarily of the continental neighbor, the powerful US. It has laws like the MLPA, the FIU Act and the IBA, the Offshore Banking Act, etc that bear upon banking and financial activities, both onshore and offshore. In its AML and CFT initiatives and legal provisions, Belize essentially borrows from the various International Conventions and the World Bank and IMF prescribed FATF recommendations and guidelines. Although there appear to be no significant money laundering or terrorism financing activities in the country, the presence of drug syndicates and some criminal activities in the offshore banking and financial sector are a cause of some concern, at least. Growing terrorism, the need to protect its financials, and also the necessity to cooperate with leading governments fighting the menace of international terrorism which derives sustenance through cross-border financial funding and money laundering transactions, are a pressing need for the State which needs to be addressed in full steam. The regulatory and supervisory system of the CBB, the Belize Central Bank, does have its shortcomings, and these need to be addressed also. Essentially, the country needs to follow the leaders in the field of AML and CFT and tailor international expertise into its country-specific regulatory framework.

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Introduction

Belize is a small country located in Central America, with a population estimated to be around 3, 00, 000 by the official government website (2008). There are 5 domestic commercial banks and 8 offshore banks licensed under the provisions of the Banking and Financial Institutions Act (BFIA). The Central Bank of Belize (CBB) instituted this Act based on recommendations made by its Financial Sector Supervision Department (FSSD). This step helped the CBB align its regulatory framework with those recommended by the Basle Committee on Banking Supervision set up by the Bank for International Settlement (BIS). The INSCR 2007 (2008) mentions that “there are nearly 32,800 registered and active International Business Companies (IBG), one licensed offshore insurance company, a mutual fund company, and around 30 trust companies and agents. There are also some unregulated internet gaming sites.” (p. 102). The financial sector comprises banks, insurance companies, building societies, international business entities, credit unions, and the Development Financial Corporation under the Belize government. The government has also tried to develop the offshore financial activities, which provide cost-effective, tax-free opportunities to international business companies and other banking companies. While the local banks and FIs deal in Belizean currency (the Belize Dollar or BZ$), foreign banks deal in international currency only.

Money Laundering in Belize

An IMF review of the country’s financial sector regulation and supervision (2004) notes: “the banking sector complies with or is largely compliant with most of the Basel Core Principles.” (p. 6). The report also states: “AML/CFT awareness is generally high both in the government and in the private sector. While identified cases of money laundering within Belize have been few, several elements of the Belize financial structure pose special vulnerabilities to money laundering that will require continuing vigilance and, perhaps, some tightening up of practices. Issues arise particularly with respect to the heavy reliance of the trust and company service provider sector on overseas introductions, where verification of beneficial owners is particularly difficult.” (p. 7). As the recent and definitive INCSR 2007 Volume II notes (2008): “Belizean officials suspect that money laundering occurs primarily within the country’s offshore financial sector. Money laundering, primarily related to narcotics trafficking and contraband smuggling, also occurs through banks operating in Belize. Criminal proceeds laundered in Belize are derived primarily from foreign criminal activities. There is no evidence to indicate that money laundering proceeds are primarily controlled by local drug-trafficking organizations, organized criminals or terrorist groups.” (p. 101). However, the same report also states: “Notwithstanding official controls, both bankers and AML officials expressed concern that both free zones and the more recently authorized Cambios have opened avenues for illicit cash to enter the formal financial system with limited ability to identify the true source of funds. Unsupervised money transmitters are another potential vulnerability to the AML/CFT regime, although their operations are understood to be small.” (p. 16). The Belize government authorities have also reported on the spiraling financial crimes, which include frauds, encashment of forged checks, and the issue and use of counterfeit local and US currency notes. The CSR Report to the US Congress (2006) also notes: “The State Department’s list of major money laundering countries (also categorized as “jurisdictions of primary concern”) includes six Caribbean countries – Antigua and Barbuda, the Bahamas, Belize, the Dominican Republic, Haiti, and St. Kitts and Nevis and one British Caribbean dependency, the Cayman Islands” (p.CRS-9) The report also mentions: “In Belize, money laundering is believed to occur primarily in the country’s growing offshore financial center” (p. CRS-10).

Terrorist Finance

Of the twelve principal international conventions which are concerned with global prevention and suppression of terrorism and terrorism-related activities, the state has already ratified nine, although there is no significant terrorist incident in Belize to date. These include The International Convention for the Suppression of Terrorist Bombings, The International Convention for the Suppression of Financing of Terrorism, and The Hague Convention for the Unlawful Seizure of Aircraft (CHRI, 2007). The Money Laundering Prevention Act (MLPA) defines “Terrorism” as applicable to both individuals and legal entities and the original Act criminalized terrorism as an indictable offense (originally enacted in 1999 and later modified). Terrorism is an offense in Belize by Section 3A of the MLPA which states that “A person who, after the commencement of this Act, engages in terrorism commits an offence and shall be liable on conviction to the same penalties as for money laundering prescribed in Section 6 of this Act”. Again, while terrorism was criminalized, finance of terrorism or FT was not. The state of Belize criminalized terrorist finance by amendment of the MLPA through the Money Laundering (Prevention) (Amendment) Act, 2002. While the central bank CBB supervises the Belizean banking and financial system and helps ensure compliance to anti-money laundering and counterterrorist financing legal framework.

AML & CFT in Belize

The defining guidelines are the 40 recommendations by the Financial Action Task Force (FATF) for Anti-Money Laundering (AML) and the 9 Special Recommendations on Combating the Financing of Terrorism (CFT) as evolved by the World Bank in collaboration with the IMF, supplemented by the Basle Core Principles for Effective Banking Supervision (BCP) and the Insurance Core Principles of the International Association of Insurance Supervisors (IAIS).

Legal Framework

“Money laundering and terrorist financing may compromise the reputations of financial institutions and jurisdictions, undermine investors’ trust in those institutions and jurisdictions, and, therefore, weaken the financial system. Trust underpins the existence and development of financial markets” (The IBRD, The World Bank, and The IMF, 2005) Belize, although relatively free as yet of any significant money laundering and/or terrorism financing activities in its internal banking and financial system as also in its offshore financial systems, realizes the dangers involved in not developing a suitable AML/CFT framework for protecting its financial system and national security and has tried to keep pace with the evolving trends in global anti-money laundering measures as expounded by the World Bank and the IMF. SO it is that there are a host of legal acts and provisions for addressing national and international concerns relating to anti-money laundering and for combating the financing of terrorism. These mainly include the Money Laundering Prevention Act, 2000, the Money Laundering (Prevention) (Amendment) Act, 2002, the Financial Intelligence Unit or FIU Act, 2002, the Money Laundering Prevention Guidance Notes, the Misuse of Drugs Act, Money Laundering Prevention Regulations or MLPR, 1998, the Offshore Banking Act, 2000, the International Banking Act or IBA, 2002.

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Financial Intelligence Unit or FIU

One of the key instruments of effective anti-money laundering and prevention of financial crimes including the combating of terrorist financing is the Financial Intelligence Unit or FIU as recommended for setting up by the FATF. These essentially help the state track suspicious transactions on an ongoing basis and enable it to counter borderless terrorism finance and money laundering. Belize, which set up its FIU by statute in 2002, also became a part of the Edmont Group as a collaborative and active member of this global informal exchange for information from across the world for combating terrorist finance and other financial crimes. The FIU in Belize is under the control of a Director, a competent authority as envisaged by the FATF recommendations.

Key Definitions

As per the provisions of the MLPA “money laundering means engaging, directly or indirectly, in a transaction that involves property that is the proceeds of crime, knowing or having reasonable grounds for believing the same to be the proceeds of crime or receiving, possessing, managing, investing, concealing, disguising, disposing of or bringing into Belize any property that is the proceeds of crime, knowing or having reasonable grounds for believing the same to be the proceeds of crime” (2003).

The same Act defines “terrorism as the use or threat of action where:

The action falls within sub-paragraph:

  • the use or threat is designed to influence the government or to intimidate the public or a section of the public;
  • the use or threat is made for the purpose of advancing a political, religious or ideological cause.

Action falls within this sub-paragraph if it:

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  • involves serious violence against a person;
  • involves serious damage to property;
  • endangers a person’s life, other than that of the person committing the action;
  • creates a serious risk to the health or safety of the public or a section of the public;
  • is designed seriously to interfere with or seriously to disrupt an electronic system.

The use or threat of action falling within subparagraph (b) which involves the use of firearms or explosives is terrorism whether or not sub-paragraph (a) (2) is satisfied; (d) in sub-paragraphs (a), (b) and (c)-(i) action includes action outside Belize; (2) a reference to any person or to property is a reference to any person, or to property, wherever situated; (3) a reference to the public includes a reference to the public of a country other than that of Belize.”(Revised Act, 2003).

“Freezing” means temporarily prohibiting the transfer, conversion, disposition, or movement of property or temporarily assuming custody or control of the property on the basis of an order issued by a court or other competent authority (MLPA, 2003).

“Forfeiture” means the permanent deprivation of property by Order of a court or other competent authority (MLPA, 2003). The term “forfeiture” includes any fine or penalty imposed on any convicted person under his sentence (Forfeiture Act, Dec 2000).

“Forfeiture order” means an order made under section 29 or 30; Misuse of Drugs Act FIU Act, 2002 “crime” includes an offense punishable under the Criminal Code or any other statute, rule, regulation, or order.

“Financial Intelligence Unit” means the Financial Intelligence Unit established under section 3 while “Foreign Financial Intelligence Unit” means such body or bodies in another jurisdiction as may from time to time be designated by Order of the Minister and which performs functions similar to those of the Financial Intelligence Unit (FIU, 2003).

Role of the Central Bank of Belize (CBB)

Anti-money laundering supervision

The CBB supervises and ensures compliance of financial transactions and activities in the country with anti-money laundering and financial counterterrorism. While it effectively manages the internal banking structure, it also regulates the offshore financial sector. It licenses the International Business Companies or IBCs, However, the AML and CFT framework as guided by the FATF is similar for both onshore and offshore banks and FIs.

Due Diligence and KYC Guidelines

The CBB Supporting Regulations and Guidance Notes, 1998 prescribe the Know Your Customer guidelines for ensuring compliance with due diligence provisions. Accordingly, customers need to be properly identified, their transactions monitored, and suspicious activities need to be reported by banks & financial institutions to the Financial Intelligence Unit or FIU (US Dept of State Bureau for IN and LE Affairs, Mar 2007).

Records of financial institutions and Reporting by the FIU

The MLPA (2003) states that “A financial institution shall – (a) keep a business transaction record of any business transaction for five years after the termination of the business transaction so recorded” The MLPA adds: “Upon a reasonable suspicion that the transactions described in subsection (1) above could constitute or be related to money laundering, a financial institution shall promptly report the suspicious transactions to the Supervisory Authority” (2003).

Freezing of Funds

The MLPA (2003) states that: “Where the Supervisory Authority has reasonable grounds for believing that the person by, for or on behalf of whom any funds are held is or may be-(a) a person who commits, attempts to commit, facilitates or participates in the commission of acts of terrorism, or who finances such acts; (b) a person controlled or owned directly or indirectly by a person in (a), or (c) a person acting on behalf, or at the direction, of a person in (a), the Supervisory Authority may by notice direct that those funds shall be frozen and shall not be made available to any person.”

Disclosure of Customer Information

Whereas an important tenet of conventional banking and finance is the secrecy of customer-specific information to third parties, and in keeping with a larger global necessity for effectively combating the misuse of banking and financial channels for money laundering and terrorism financing activities, Belize has not adopted any secrecy clause and can freely exchange any information that the State sees fit with third parties in the larger interests of the nation. The relevant provisions of the MPLA state that: Subject to the provisions of the Belize Constitution, the provisions of this Act shall have effect notwithstanding any obligation as to secrecy or other restriction upon the disclosure of information imposed by any law or otherwise….It shall not be unlawful for any person to make any disclosure in compliance with this Act.”

Financial Reporting by individuals

The MLPA states: “A person who leaves Belize with more than twenty thousand dollars in cash or negotiable bearer instruments (in Belize currency or equivalent foreign currency) without first having reported the fact to the Supervisory Authority, shall commit an offence under this Act and shall be liable on conviction to a fine not exceeding ten thousand dollars” (Sec 18) (2003) As of 2007, all cross-border financial transactions over $10,000 in cash or a NI needs to be reported by persons leaving the country via a declaration filed with the Customs, the CBB and the FIU. (INCSR, Mar 2007).

Suspicious Transaction Reports (STRs)/ Fines and Punishment in Law

“Section 13 of the Act makes it an offence for any financial institution or its employees to fail to promptly report any suspected money laundering activity. Failure to make such reports or to willfully falsify such reports constitutes an offence that is punishable with a fine of up to $50,000. The license of any such financial institution may also be suspended or revoked by the relevant authority” (MLPA, 2003) The Act also clearly mentions the examples of Suspicious Transactions and comprehensively outlines the ways by which money may be sought to be laundered across banking, financial, insurance, investment, offshore, etc activities and also prescribes a hefty fine for non-reporting or false reporting any suspected money laundering transaction: “Section 13 of the Act makes it an offence for any financial institution or its employees to fail to promptly report any suspected money laundering activity. Failure to make such reports or to willfully falsify such reports constitutes an offence that is punishable with a fine of up to $50,000. The license of any such financial institution may also be suspended or revoked by the relevant authority.” (MLPA, 2003).

As regards the investigation of a crime, the Belize police and PPO have sufficient powers for the same. The punishment is also quite stringent. Thus, the Act states that: “Anyone found guilty of a money laundering offence shall be punishable with a fine of not less than $25,000 and up to $100,000 and/or imprisonment of not less than 3 years and up to 6 years.” And it also states that: “The crime that may be subject to money laundering offences are prescribed in …..They include serious crimes such as drug trafficking, counterfeiting, false accounting, forgery, illegal deposit taking, arms trafficking, robbery and theft involving more than $ 10,000, and fraud.”

Information Exchange and International Cooperation

Belize is conscious of its global duties to the future of the human race and also wishes to effectively protect its national institutions and people. Hence, it frequently participates in international conferences, its FIU exchanges relevant information with other countries, and even have in place extradition treaties with select countries like the USA. Its FIU is also permitted by law to share its information with the FIUs of other countries…

Forfeiture and Seizure of Assets

The Belize police and the FIU are permitted by the law to seize and confiscate assets, as also freeze accounts and assets. Frozen assets may also be confiscated by Belize Finance Ministry. Any suspicious terrorist financing activities as also cases of money laundering may be effectively tackled through freezing and seizure of any kind of asset within the country. In this respect, although the State has sweeping powers, it needs to obtain permission in cases from the legal court permission.

Alternate Remittance Systems

These are illegal in Belize. However, near the borders and primarily relating to offshore banking and finance activities, the country has identified the existence of such alternate channels that bypass normal financial detection systems as mandated by Belize legal and financial framework.

Asset Sharing

One of the key recommendations of the IMF sponsored (Nov 2004) report on the review of Belize financial sector regulation and supervision was the need for broadening asset sharing between governments for preventing, identifying, and combating AML/CFT across borders. The UN Office on Drugs and Crime has also stated (Excerpts, 1988 to 2001) “States should also consider the possibility of sharing forfeited assets and – under specific conditions and always through judicial or other legal proceedings – of confiscating or seizing illicit proceeds without a criminal conviction, or confiscating or seizing sums that are higher than those relating to the crime for which judgement has been passed” The US CRS Report (to Congress) (Aug 2004) has expressed the view of various US enforcement agencies as to the necessity of freezing and blocking terrorist assets and laundered funds irrespective of borders and this necessarily means an internationally stepped up efforts at global asset sharing for effective AML & CFT achievement.

Conclusion

The country Belize is yet to evolve a system of supervision and regulatory control as necessitated by increasing global terrorism and the vast amount of funds channeled into illegal and terrorist channels. It is a small financial region and, in the absence of any major incident of terrorism financing or money laundering or any evidence as to the depth of the linkage of the drug and crime syndicates operating in the region with terrorism activities, Belize may as yet not need to urgently step up its AML and CFT efforts. However, it needs to follow international practices and, at the very least, be a vibrant and active member of the global community focused on eradicating the world of terrorism, terrorist finance, money laundering, or any such criminal activities. It can only learn from the US experience in recent history, as also, to a significant extent, implement major recommendations of the world sentinel and policy-making organizations like the IMF and the United Nations

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