Barbados’ long-established and hard-earned reputation as a mature, well-regulated and transparent jurisdiction for global business is one of the many pull-factors which have enticed investors to its sun-kissed shores.
While global foreign direct investment (FDI) flows declined some 42 per cent in 2020 due largely to the novel coronavirus pandemic, Barbados was one of the few jurisdictions which saw a 22 per cent increase in FDI inflows over that same period.[i] Indeed, even as the island confronts the pernicious shock to its economy from this on-going pandemic, compliance with international standards and best practices, including anti-money laundering, countering the financing of terrorism and proliferation financing (AML/CFT/PF), remains a top priority. This is doubly important as the global business sector has again proven itself to be a resilient sector in the face of economic adversity.
Exiting FATF Grey List Is A Priority
Barbados has for a long time recognised the importance of having a robust legal and regulatory framework which adheres to the highest, albeit ever-changing, international standards and best practices. It is one of the reasons why Barbados has promoted a treaty-based approach and prioritised attracting businesses of substance to its shores to promote real economic activity which redounds to the benefit of the economy while also complying with international best practices. For this reason, exiting the FATF list of jurisdictions under increased monitoring remains a priority for the island.
In February 2020, Barbados was placed on FATF’s list of jurisdictions subject to increased monitoring following the adoption of its fourth round Mutual Evaluation Report (MER) dated February 2018.[ii] As noted on the FATF’s website, this list is of countries which have committed to “resolve swiftly the identified strategic deficiencies within agreed timeframes and subject to increased monitoring”. This list, often called the ‘grey list’, is different from the FATF list of ‘high risk jurisdictions for which a FATF call to action applies’ and on which only two countries are present: North Korea and Iran.[iii] It is, therefore, unfortunate that even though these two FATF lists are significantly different, Barbados, like other jurisdictions on the FATF grey list, has been lumped together with those on the Call to Action list by the EU and later the UK, which both refer to their respective lists as lists of ‘high risk third jurisdictions’.
Barbados’ 4th Round MER found that the “overall position of Barbados is that it has exhibited progress towards improving its AML/CFT regime since the 3rd Round Mutual Evaluation” but noted some remaining technical deficiencies. Barbados was found to be ‘compliant’ on five of the 40 FATF recommendations, ‘largely compliant’ on 20, ‘partially compliant’ on 13 and ‘non-compliant’ with two. On the matter of effectiveness compliance, the overall level of effectiveness in Barbados was found to be low, taking the 11 Immediate Outcomes into account.
Steps Taken To Improve Compliance
In February 2020, Barbados made a high-level political commitment and developed a multi-year action plan with the FATF and CFATF to address the identified deficiencies in its 4th round MER and strengthen the effectiveness of its AML/CFT regime in order to secure exiting the FATF list as soon as possible. This commitment persists even as the COVID-19 pandemic continues to adversely impact the country’s economy. Tourism, the country’s main foreign exchange earner, was significantly impacted and this disruption was a large reason why the Barbadian economy contracted nearly 18 per cent in 2020, according to the Central Bank of Barbados (CBB).[iv] Although economic recovery appears underway given the latest figures from the January-September 2021 review, it is a shock which has also been accompanied by ash fall from the La Soufriere volcanic eruption on the neighbouring island nation of St. Vincent and the Grenadines and weather-related shocks, such as Hurricane Elsa which was the first hurricane to impact the island since Hurricane Janet in 1955.[v] Despite this, Barbados has continued to make progress and the FATF generally welcomed “the progress made by these countries in combating money laundering and terrorist financing, despite the challenges posed by COVID-19”.[vi]
Barbados has continued to update its legislative arsenal to keep up to date with constantly evolving rules and best practices on preventing, detecting and prosecuting money laundering and terrorist financing, sending a clear signal that Barbados refuses to be a safe haven for money launderers or terrorist financiers. Moreover, it shows that the island does not want to be perceived as risky for doing business which could jeopardise its investment attractiveness at a time when its economy needs these capital inflows now more than ever.
For example, it enacted the new Proceeds and Instrumentalities of Crime Act, 2019 to address deficiencies outlined in its technical compliance rating where it was originally rated ‘partially compliant’ under Recommendation 4. In 2019, Barbados conducted its second Report on Assessment of National Money Laundering and Terrorist Financing Risk (National Risk Assessment) taking into account the criticisms made of the first NRA in the 4th Round MER. The NRA (2019) found that the highest threats for money laundering were fraud and drug trafficking and then money-laundering as a stand-alone offence. It found the threat of terrorist financing to be low but took into account the island’s proximity to jurisdictions it believed had high terrorist financing threats.[vii]
Another initiative has been the application of risk-based supervision and sanctions on financial institutions and trusts and corporate services providers (TCSP). For instance, the Financial Services Commission (FSC), the regulator for non-bank financial institutions (FIs), requires entities to know and be able to articulate the possible AML/CFT risks they would be exposed to. The Ministry of International Business’ International Business Unit has conducted a risk assessment of the TCSP sector and this risk assessment will be an ongoing process with the period of inspection cycles for TCSPs in line with their risk classification.
Regulators have increased their outreach to clients on the importance of filing of suspicious activity reports (SARs). The AMLA has published guidelines for designated non-financial businesses and professions (DNFPS), including the legal, real estate and trust service providers and the not-for-profit organisation (NPO) sector.[viii] Regulators have also ensured they maintained regular contact with the relevant sectors through regulatory updates through emails and webinars.
Importance Of Compliance-Based Recovery
Though Barbados remains on the FATF list of jurisdictions under monitoring as of October 2021, the island continues to make strides towards compliance. CFATF acknowledged Barbados’ progress on technical compliance in its second Enhanced Follow-up Report of February 2020 in which it received ratings upgrades on 11 recommendations: Recommendations 1,4,7, 8, 19, 20, 29, 32, 33, 34 and 38.
Exiting the FATF follow-up process is even more important now for Barbados as the island seeks to increase FDI inflows as part of its COVID-19 pandemic economic recovery strategy, by increasing business with existing investors and courting those in countries which have not traditionally been significant trading and investment partners. Recently, Barbados and Kenya held a Business Forum on the sidelines of the UNCTAD XV Quadrennial, charting the path for increased trade and investment between Barbados and the continent in both traditional and newer areas such as FinTech and renewable energy.
Acceleration of digitalisation and technology adoption has been an on-going part of Barbados’ reforms, even prior to the COVID-19 pandemic but have intensified since then. The Corporate Affairs and Intellectual Property Office (CAIPO) has taken steps to allow for online submission of applications and filing for several services.
As Barbados positions itself for recovery, the need to be regarded as a compliant jurisdiction is ever more important. In line with its action plan, Barbados continues to prioritise addressing existing deficiencies in its AML/CFT/PF framework. The global business sector has proven itself to be a resilient source of foreign exchange and government revenue even in the midst of a global pandemic. Businesses in the sector were largely able to pivot and maintain their operations at a high-level of efficiency and keep client satisfaction high by implementing remote working arrangements while business support organisations increased client engagement, including on the country’s strides towards full compliance. If ever there was a doubt that Barbados was punching above its weight, as then UN Secretary General Kofi Annan once said, it was the fact that Barbados hosted the UNCTAD XV Quadrennial on October 3-7, 2021, in hybrid format in the middle of an-ongoing pandemic, reinforcing to the world that despite its small size, Barbados can do ‘big things’. Moreover, the high up-take of the Barbados Welcome Stamp and the promising forward bookings for the upcoming winter tourist season show that Brand Barbados remains highly desirable and competitive.
[i] See UNCTAD. 2021. World Investment Report 2021. Accessible here: https://unctad.org/system/files/official-document/wir2021_en.pdf.
[ii]This 4th Round MER summarises the AML/CFT measures in place in Barbados as at the date of CFATF’s on-site visit 5-16th December 2016 and may be accessed here: https://www.fatf-gafi.org/media/fatf/documents/reports/mer-fsrb/MER-Barbados.pdf
[iv] Central Bank of Barbados. 2021. Review of the Barbados Economy for 2020. http://www.centralbank.org.bb/news/article/10176/central-bank-of-barbados-review-of-the-economy-in-2020
[v] Central Bank of Barbados. 2021. Review of the Barbados Economy for the first nine months of 2021. http://www.centralbank.org.bb/Portals/0/Files/Central%20Bank%20Review%20of%20the%20Economy%20-%20January%20to%20September%202021.pdf
[vi] See https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-october-2021.html
[vii] See Barbados’ National Risk Assessment (2019). Accessible here: https://barbadosfiu.gov.bb/wp-content/uploads/2019/12/Barbados-National-Risk-Assessment-Report-December-2019.pdf
[viii] These guidelines may be found here: https://barbadosfiu.gov.bb/Topic/aml-cft-guidelines/.
Alicia D. Nicholls is an international trade consultant with over a decade of experience providing bespoke trade research and advisory services to a variety of clients. She is currently a research fellow and part-time lecturer with the University of the West Indies. Miss Nicholls is the founder of the Caribbean’s leading trade policy and development blog, www.caribbeantradelaw.com, since 2011. She also presents regularly at both regional and international academic and industry-related conferences and webinars. While she maintains an interest in all issues affecting Caribbean trade and trade policy, her specific research focuses primarily on global financial regulation and small States, foreign investment law and policy and international business.