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Local Banking Industry Denounces P.R.’s Inclusion in Laundering Blacklist

By on February 22, 2019

Editor’s note: The following originally appeared in the Feb. 21 -27, 2019, issue of Caribbean Business.

For Alberto Bacó Bagué, the former director of the Economic Development & Commerce Department (DDEC by its Spanish acronym), the European Commission’s (EC) recent decision to include Puerto Rico on the list of countries with deficiencies in their strategies against money laundering and to combat the financing of terrorist cells is an ill-informed action against a jurisdiction such as Puerto Rico, which is going through its most precarious economic period of the past 50 years.

Bacó Bagué, who works in the private sector as founder of the think tank Partnership for Modern Puerto Rico, which promotes change and the modernization of the island through various economic strategies, strongly condemned the decision to include Puerto Rico on the list along with such countries as Panama and Iraq, and said it was unacceptable.

“It’s unjustifiable. For me, that was a political move of very bad faith and we must fight to make them look ridiculous because what they are doing is just that, being ridiculous. Puerto Rico is part of the United States and, like I tell it, we don’t have the IRS [Internal Revenue Service] here but we do have the FBI [Federal Bureau of Investigation]. We also have an excellent commissioner of financial institutions, in addition to having a banking system that operates at the highest quality standards,” Bacó Bagué said in an aside with the press after delivering a speech at the sixth Puerto Rico Investment Summit.

“All states and territories are part of the U.S. banking system. Why do they go after and abuse the smallest?” the former government official questioned, adding he trusted that the governor of Puerto Rico, Ricardo Rosselló, the resident commissioner in Washington, Jenniffer González, and Financial Institutions Commissioner George Joyner will sound the alert in the appropriate forums “because this is an outrage and it does us a lot of damage to compare us with Panama, the Cayman Islands or with Iraq. These are things that I have fought against, to let it be known that we don’t want scoundrels here. What we want here are people who create jobs, who create economic activity and do things well. That is the north and we must defend that until the end.”

Bacó Bagué explained that the inclusion of Puerto Rico on that list constitutes an international warning that indicates that making financial and banking transactions with those countries, including Puerto Rico, could expose the European financial system to money laundering and terrorist financing risks.

In addition to Puerto Rico, Panama and Iraq, the list includes Afghanistan, American Samoa, Bahamas, Botswana, North Korea, Ethiopia, Ghana, Guam, Iran, Libya, Nigeria, Pakistan, Saudi Arabia, Sri Lanka, Syria, Trinidad & Tobago, Tunisia, Yemen and the U.S. Virgin Islands.

However, Bacó Bagué assured that the risk being addressed by the EC is not necessarily linked to the fact that Puerto Rico is one of the U.S. jurisdictions with the lowest tax rates and categorically held that there is no correlation between the rates and money laundering.

“There is no relationship. Money laundering is done by people who are operating illegally in any jurisdiction. If you do not attack them properly, it happens, but that has nothing to do with the tax rates because they earn so much money that the last thing they care about is these low rates,” he said.

“The reason really is how flexible that jurisdiction is in complying with the laws. That kind of practice happened in, for example, Panama, because they were not doing their job legislating and regulating well there. It has nothing to do with how much Panama charged in taxes. So there is no correlation. There are also many jurisdictions with high taxes that do nothing to avoid these criminals,” he added.

Last week, the U.S. Department of the Treasury rejected the EC’s justification to include Puerto Rico on the list and said it “does not expect U.S. financial institutions to take the European Commission’s list into account in their AML/CFT [Anti-Money Laundering & Countering the Financing of Terror] policies and procedures.”

Treasury said the EC’s process “did not include a sufficiently in-depth review,” provided the “affected jurisdictions with only a cursory basis for its determination,” notified them that they would be included on the list “only days before issuance,” and “failed to provide” them “with any meaningful opportunity to challenge their inclusion or otherwise address issues identified by the commission.”

The agency explained that the Financial Action Task Force (FATF) is the entity in charge of developing global standards to combat money laundering and terrorism and proliferation financing, and that the “commitments and actions of the United States in implementing the FATF standards extend to all U.S. territories.” It further stressed that the same AML/CFT “legal framework that applies to the continental United States also generally applies to U.S. territories.”

The executive director of the P.R. Fiscal Agency & Financial Advisory Authority (Aafaf by its Spanish acronym), Christian Sobrino Vega, and Financial Institutions Commissioner George Joyner this week joined the U.S. Department of the Treasury to reject the European Commission’s determination to include several U.S. territories on the list of high-risk jurisdictions for money laundering. According to the officials, the Government of Puerto Rico has a robust legal and regulatory framework to prevent, detect and combat such practices.

The officials said they collaborate with Treasury’s Office of Terrorist Financing & Financial Crimes (TFFC) and that the government of Puerto Rico has a “robust legal and regulatory framework to prevent, detect and combat said practices.”

“The FATF, which includes the United States, the European Commission, 15 EU member states and 20 other jurisdictions, already develops a list of high-risk jurisdictions with AML/CFT deficiencies as part of a careful and comprehensive process,” which the EC lacked, Treasury said in its statement.

For its part, Aafaf and OCIF expressed that they have been communicating and collaborating with the Office of Terrorist Financing & Financial Crimes (TFFC) of the U.S. Department of the Treasury. Both the Aafaf executive director and the OCIF commissioner thanked Treasury for its commitment and support of the Government of Puerto Rico in the implementation of national and global standards to prevent, detect and combat the aforementioned practices.

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