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BANKING SYSTEM OF THE BAHAMAS.   Term Paper ID:29298 Click to get this paper

Essay Subject: Origins of the banking system.... More...

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Paper Abstract: Origins of the banking system. History and development. Bahamas informal banking practice prior to establishment of formal institutions. Emergence of foreign-owned international banking in the 1930s. Responsibilities of the Central Bank of the Bahamas following the gaining of political independence from the United Kingdom. Money laundering. Future outlook. Paper Introduction: ORIGINS, HISTORY, DEVELOPMENT, AND CURRENT STATUS OF THE BANKING SYSTEM OF THE BAHAMAS Introduction This research reviews the banking system in Commonwealth of the Bahamas (referred to in the remainder of this review as the Bahamas). The major topic areas addressed in the review are (1) origins of the banking system in the Bahamas, (2) the history and development of the banking system, (3) the current state of the banking system, and (4) the future outlook for the banking system in the Bahamas. The territory of the Bahamas is located in the North Atlantic Ocean and stretches from a point due east of the State of Florida to a point just north of the island of Dominica (home to Haiti and the Dominican Republic). Geographically, the Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Banking secrecy is amajor attraction of many foreign individuals and corporations to theoffshore banking activities in the Bahamas. As is true of a central bank in any country, the CentralBank of the Bahamas has a myriad of responsibilities. The money laundering problem also involves international relations.The process of money laundering, when conducted on a large scale,inevitably involves the use of banking institutions in at least twodifferent national jurisdictions. The banking regulations in the Bahamas make an attempt to officiallydiscourage money laundering through the offshore banking facilities locatedin that country. Future Outlook for the Banking System Off-shore banking in the Bahamas has international significance in twoprincipal areas. Enforcement, to a great extent, relies on thecompliance of banking institutions with domestic and international laws,regulations, and agreements. Retrieved from the Internet on 2 2-11- 21 at: http://www. Business Week, 96-97.United States Central Intelligence Agency. The efforts by NorthAmerican and Western European enforcement officials to trace monies throughforeign banks often involve attempts to cause United States law or WesternEuropean to supercede the laws of other independent countries (Petras,2 2). The new and revised regulations include provisions related tothe following activities and objectives (Central Bank of the Bahamas,2 2): > Broader and more uniform supervision of bank and non-bank financial activities > Enhanced mechanisms for international cooperation between Bahamian banking supervisors and foreign banking supervisors > Enhanced mechanisms for cooperation between Bahamian banking supervisors and law enforcement agencies in the Bahamas and in foreign countries > Requirements related to corporate governance for banking institutions to promote the integrity of banking institutions > Imposing strict risk management standards > Controls restricting large institutional financial exposure > Strict conflict of interest control > A requirement that banks in the Bahamas know their customers' backgrounds and restrict the banking activity of customers with legally questionable backgrounds In recent years, the banking system in the Bahamas has incurredcriticisms from the United States and major Western European countries inrelation to banking secrecy and money laundering. These funds represent total assets in excess of $75 billion(Francis, 1999). The problem surrounding money laundering is multifaceted. Themajor topic areas addressed in the review are (1) origins of the bankingsystem in the Bahamas, (2) the history and development of the bankingsystem, (3) the current state of the banking system, and (4) the futureoutlook for the banking system in the Bahamas. Offshore banking hadlegitimate advantages to offer international businesses and individuals, aswell as a legitimate potential to create economic value for countries suchas the Bahamas. World Fact Book. (2 2). The integrity of thisinternational banking center most certainly is under threat from entitiesthat use international banking for nefarious purposes. Nassau, Bahamas. The use of off-shore banking for this purpose isgenerally referred to as money laundering (Weschler, 2 1). F. History and Development of the Banking system Before the establishment of formal banking institutions in theBahamas, the residents of the islands followed the ancient African practiceof rotating savings (esusu) brought to the islands by Yoruba slaves. Geographically, the islands of the Bahamas are included within theboundaries of the Caribbean Sea, although the territory of the Bahamas isseparated from the main body of the Caribbean Sea by islands of Cuba andDominica. The process of money laundering is, in and of itself, an illegalactivity in many countries, as noted above. Esu is an integral component of the micro economy in theBahamas, although all residents of the islands have free access to thecountry's commercial banking system (Seibel, 2 ). Langley, Virginia. Significantly, the Bahamas permits and encourages the conductof non-resident banking in the country by non-residents of the Bahamas withnon-Bahamian banks (Francis, 1999). Foreign Affairs, 8 , 4 -48. Welcome to the Central Bank of the Bahamas. ReferencesCentral Bank of the Bahamas. Theseresponsibilities include the following (Central Bank of the Bahamas, 2 2): > Promote and maintain monetary stability and credit > Manage the country's balance of payments conditions so that they are conducive to the orderly development of the economy > Promote and maintain an adequate banking system and high standards of conduct and management therein > Advise the Minister of Finance on any matter of a financial or monetary nature > Safeguard the external value of the Bahamian dollar (current policy maintains a fixed 1:1 parity with the United States dollar > Develop and administer Exchange Control Regulations > Manage and maintain the country's external monetary reserves The Central Bank also issues currency for both domestic bankinginstitutions and the government of the Bahamas. The Bahamas international banking centre: An addressed delivered at a symposium on international banking centres. As offshore banking is at thecore of the success of the Bahamas as an international banking center, thecountry has been wary of implementing laws and regulations that wouldcompromise the profitability of international banking conducted in theBahamas. origins, history, development, and current status of the banking system of the bahamas Introduction This research reviews the banking system in Commonwealth of theBahamas (referred to in the remainder of this review as the Bahamas). The Central Bank of the Bahamas emphasizes that, as an internationalbanking center, the Bahamas is a functional international banking center asopposed to a center for so-called "brassplate" operations where no realbanking activity occurs. (1999, March 31). As the levelof economic activity increased in the Bahamas, the number of commercialbanks functioning in the British colony increased (Francis, 1999). Money laundering is a process whereby the source of funds may beconcealed, while, at the same time, making the funds freely available foruse. In these instances, theillegally acquired funds are made to appear as if they were acquiredthrough legitimate activities, so that they may be freely used (Petras,2 2). These internationalbanks have a combined net worth in excess of US$3 billion (Francis,1999). Thestandards were tightened to provide better protections against activitiessuch as money laundering, the illegal sheltering of income earned in othercountries, and the transfer of money for use in international terrorismactivities. Rome: International Fund for Agricultural Development, United Nations. Although the money laundering process may be (and is) used to concealthe sources of funds acquired through either legal or illegal means, theprocess is most often associated in the public mind with funds acquiredthrough the conduct of illegal activities. The enforcement of lawsconcerning money laundering, however, is difficult for a number oflegitimate reasons. One of the first important effects terrorism will have on the practiceof banking will be in relation to offshore banking. Origins of the Banking System The first formal commercial banking institution was established in TheBahamas in 1835. At times, it may provide access to lower cost money than wouldotherwise be available (Weschler, 2 1). pdfPetras, J. Informal finance: Origins, evolutionary trends and donor options. Simultaneously, however, the country is sensitive to thecomplaints of major North American and Western European nations.Therefore, the revisions to banking laws and regulations in 2 and 2 1represented an effort by the Bahamas to satisfy important complaints byforeign governments without running the performance of the internationalbanking sector in the Bahamas ("Taxing Times for Tax Havens", 2 ). They are also told to avoid overt acts which violate thefiscal or foreign exchange laws of other countries. Regulatory standards, including criteria for the issuance ofbanking licenses in the Bahamas, were revised in 2 and 2 1. This non-resident, or offshore, banking in the Bahamas exceeds US$25 billion peryear (Weschler, 2 1). Such compliance may not occur because abanking institution does not recognize the authority of some laws andregulations or because some governments do not submit to the attemptedimposition of the laws of other countries on banking institutions in theirown countries (Petras, 2 2). Off-shore banking, in some instances, also facilitates abuses of theinternational commercial banking systems. This institutioncontinues in operation in the Bahamas as SG Hambros of the Societe GeneralGroup. Retrieved from the Internet on 2 2-11-21 at: http://centralbank bahamas.com/index.lassoFrancis, J. The Central Bank of the Bahamas was created in 1974, the yearfollowing the gaining of political independence by the Bahamas from theUnited Kingdom. Moritz, Switzerland: Central Bank of the Bahamas. bahamascentralbank.com/public/govintlbankingcntr1999. W., Governor, Central Bank of the Bahamas. Off-shore banking often facilitates internationaloperations. The country gained its political independence from the United Kingdomin 1973. The territory of the Bahamas is located in the North Atlantic Oceanand stretches from a point due east of the State of Florida to a point justnorth of the island of Dominica (home to Haiti and the Dominican Republic). In this context, the Bahamas will need to continueto be sensitive to the concerns of offshore banking customers and those offoreign governments, if the integrity and economic viability of the Bahamasas an international banking center is to be preserved. Canadian Dimension, 36(5), 27-29.Seibel, H. Theseproblems stem from the need for banking regulators in the Bahamas to besensitive to both customer demands for the protection of their privacy andthe demands of foreign governments for complete data on all bankingtransaction in the Bahamas involving citizens of their respectivecountries. Banks licensed to operate in the Bahamas are required totake all reasonable measures to assure the rejection of customers involvedin serious crime. While it is certainly true that monies derivedthrough the illegal sales of drugs, prostitution, and other overtlyrecognizable criminal activities account for a substantial proportion ofmoney laundering activities, the process is also used as a means of evadingincome taxes, to conceal bribery, and for a host of other purposes,including the support of terrorist activities (Petras, 2 2). These foreign-owned banksoffered commercial banking services to residents and tourists.International banking as a special focus of an institution's began in theBahamas in 1937, with the establishment of the Colony's first bankspecializing in international financial services. Second,governments in some countries (notably those in North America and WesternEurope) lose substantial tax revenues annually because of money launderingthrough offshore banking activities in international banking centers.Third, in the contemporary global environment, money laundering is aconvenient practice for the financing of terrorist activities (Petras,2 2). There are more than 6 mutual funds withheadquarters in the Bahamas and under management by Bahamian bankinginstitutions. Since that time, the most important economic activities of thecountry have been tourism, international banking, and investment management(United States Central Intelligence Agency, 2 2). Significantly, in the context of off-shorebanking, approximately one-half of the banks open to the public are non-resident, for exchange-control purposes. The practice continues in present day in the Bahamas under thename esu. The countries most often involved arethose which maintain strict, legislated banking secrecy, such as theBahamas, the Cayman Islands, and Switzerland. (2 1, July-August). Current State of the Banking System Today, the Bahamas is a premier international financial center. First, ifthe practice of money laundering is not stopped or, at least, significantlycurtailed, it will be far more difficult to halt the criminal activitywhich creates a need for money laundering in the first place. Off-shore banking is the term applied to the conduct of commercialbanking business in a country other than the home country of the individualor organization conducting the business. United States Central Intelligence Agency.Weschler, W. There are now than 4 licensed internationalbanks and trust companies operating in the Bahamas. Of these banks, more than 3 are public companies open to allindividuals and organizations. Practically every major bank in the world is represented in theBahamas. (2 , October 3 ). St. To state only that money laundering is a process designed to makecriminally acquired funds usable tends to restrict the scope of moneylaundering activities. The Central Bank alsofunctions as administrator and supervisor of the banking sector in theBahamas. The institution is one of the largest of the international bankinginstitutions operations in the Bahamas (Francis, 1999). Offshore banking, however, also provides an environment inwhich some banking activities may escape the regulatory authority ofnational governments. It provides an environment inwhich the amount, source, ownership, and location of funds may be shieldedfrom official scrutiny. Retrieved from the Internet on 2 2-11-21 at: http://www.uni-koeln.de/ew-fak/aef/PDFnew/ S_A 4_%2 Informal%2 Finance%2 -%2 Working%2 Paper.pdfTaxing times for tax havens. The Bahamas has an enviable record in the development of a powerfuland useful international banking center. The act of money laundering, a crime in itself in many countries,makes the control of some other forms of criminal activity more difficult(Petras, 2 2). Off-shore banking, however, also provides an environment in which somebanking activities may escape the regulatory authority of nationalgovernments. D. (2 2). While international banks in the Bahamas offer a full range of bankingservices, the greatest growth in recent years has been in theadministration of assets, trust and advisory services, and mutual fundmarketing and administration. In this context, off-shore banking activities may frustrateboth national and international economic planning and goal attainment(Weschler, 2 1). There is nothing mysterious abouteither the conduct of such business, nor about the reasons for making useof off-shore banking. (2 ). Sinceits introduction in 1937, international banking in the Bahamas hasexperienced steady growth. Approximately one-half of the licensedinternational banking institutions in the Bahamas conduct actual bankingoperations in the Bahamas (Francis, 1999). Foreign (non British) owned banking institutions began openingoperations in the Bahamas in the early-193 s. A non-resident classificationmeans that a bank can deal only in foreign currencies with non-residents ofthe Bahamas, e.g., they cannot deal in Bahamian dollars (Weschler, 2 1). Unfortunately, theintegrity of this international banking center also is under threat fromimperial governments such as that in the United States and from WesternEuropean governments, while less imperial in character, are no lessdemanding in practice. This bank was an institution owned by a British bank.This first bank, and all other banks that followed in the Bahamas through1936, served only the domestic banking needs of the Bahamas. Follow the money. The first of these areas is the quite legitimatefacilitating of international financial activities through dealingsinvolving the Eurocurrency market and similar activities. It is evident, thus, that many foreign banks are in the Bahamas to dobusiness for reasons other than participating in the Bahamian economy, andfor reasons other than to serve the residents of the Bahamas. (2 2, September-October). For decades after the establishment of thefirst formal commercial bank in the Bahamas, however, most residents of theislands (other than the colonial occupiers) continued to rely on the esusupractice. The principal resources provided by the Bahamas to encourage thelocation of off-shore banking in that country is a favorable regulatoryenvironment. Thisinformal banking served the resident of the Bahamas (other than thecolonial occupiers) until 1835. "Dirty money": Greasing the wheels of the American empire. The second ofthese areas is the quite illegitimate laundering of money. Issues related to offshore banking and money laundering, however,continue to cause problems by the banking system in the Bahamas. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.