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Meeting the Legal and Regulatory Challenges – Lessons Learnt

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Meeting the Legal and Regulatory Challenges – Lessons Learnt MEETING THE LEGAL AND REGULATORY CHALLENGES – LESSONS LEARNT A Paper delivered by the Hon. Justin L. Simon QC, Attorney General of Antigua and Barbuda at the 2nd CARIFORUM Conference on the International Financial Services Sector in the Caribbean Region at Sandals Grande Antigua Resort & Spar – October 30 & 31, 2012 Our experience here has been unique and may serve as a call to the entire Region fore a more focused attention on the need for implementing measures to ensure that the guardians of our financial services regulatory framework are themselves not allowed a carte blanche remit. In 2007, Antigua and Barbuda was the subject of a CFATF Mutual Evaluation Examination, which assessed the effectiveness of our legal and regulatory regime in respect of our offshore financial services sector. We had in place then, and still do, one piece of legislation, the International Business Corporation Act passed in March 1983 but subsequently amended through the years, which establishes the Financial Services Regulatory Commission as the regulatory body for off-shore financial corporations, and also provided for the incorporation of off-shore corporations, the financial reporting of these corporations, the licensing requirements of international banking businesses, trust businesses, and insurance businesses, and additionally spoke to the investigation and winding up of these businesses. In February 2009, in the midst of our implementation of the recommendations made by the Examiners in their Report, to “place our house in order” so to speak, came news of the seizure by the US Securities and Exchange Commission of all assets wherever located of Stanford international Bank, Stanford Group Company, and Stanford Capital Management LLC, and the arrest of R Allen Stanford accused of fraudulently selling US$8 billion in high yield certificates of deposit in a Ponzi Scheme that stretched from Texas to Miami through Latin America and the Caribbean. We are all fully aware of the subsequent trial and conviction of R Allen Stanford for mail fraud, wire fraud and money laundering and that he was sentenced to 108 years imprisonment by a court in Texas, USA. All roads of enquiry into that Ponzi Scheme led to Antigua and Barbuda in light of the fact that his vehicle for that elaborate Scheme was the Stanford international Bank – an off-shore entity registered and regulated by our Financial Services Regulatory Commission (FSRC). The net effect was all-encompassing and devastating both on our local banking system with potential regional impact, and our economy. Consider these facts: the run on his local bank, the Bank of Antigua of which he was the sole shareholder which had to be taken over by the Eastern Caribbean Central Bank under its emergency powers, and pump EC$89M to prevent its collapse which would have had serious implications for the banking system within the OECS; the Stanford group of companies consisting of 26 locally incorporated companies and 4 off-shore corporations was the largest private employer in the country with over 800 employees with gross monthly earnings of over EC$2.4M; that six of the companies held title to 45 parcels of prime commercial and residential land consisting of an aggregate of 245 acres, some within the compound of our international airport; while the Stanford International Bank held title to 1517 acres of waterfront land, including 3 undeveloped off-shore islands; Antigua and Barbuda currently faces 2 class action lawsuits filed in the United states by depositors/creditors of Stanford International Bank, who have embarked on a smear campaign aimed at stopping foreign aid, investors, and tourists from coming to Antigua and Barbuda. It is perhaps instructive to know that in 1996 R Allen Stanford had headed a Government Advisory Board to revise our off-shoe banking sector, and out of this emerged the Financial Services Authority with R Allen Stanford as Chairman and funded by a Stanford loan. One immediately recognizes the conflict of interest which there arose, notwithstanding any goodwill to assist. Under pressure from the US, that Authority was disbanded and replaced by our current Financial Services Regulatory Commission with the chief administrative/executive position given to Leroy King, a citizen, who is now alleged to have facilitated Allen Stanford’s Ponzi Scheme, and is currently fighting extradition to the United States. We have accepted that there were serious deficiencies in the regulatory enforcement of Stanford International Bank by FSRC under Leroy King’s administrative leadership. Clearly, mandatory bank examinations repeatedly failed to rigorously apply effective supervisory techniques, and further failed to monitor, measure, and control exposure to market risks given SIBL’s rapid investment portfolio growth. I must needs add that falsified bank documents which grossly misrepresented the accounts were regularly submitted by the bank’s Houston, Texas head office. Antigua and Barbuda has, as a result, been the subject of intense scrutiny by CFATF (the Caribbean Financial Action Task Force), and understandably so; the ARRG (Americas Regional Review Group) and the ICRG (International Co-operation Review Group ) have added their calls to the pressure. With the assistance of CFATF, we obtained the services of internationally-recognized industry specialists to conduct an investigation into the structure and operations of our FSRC, and to make recommendations to strengthen the integrity of the financial services sector. We will shortly be enacting a stand-alone piece of legislation which will provide for a strong, professionally managed FSRC Board with persons qualified in accountancy, banking and commercial law, and finance, with a clearly defined supervisory role over executive officers in a revised organizational structure. An MOU was developed and signed between FSRC and ONDCP (our financial investigative unit) which provides for the sharing of information, expertise, and due diligence activities between our regulatory authorities for offshore financial and domestic financial institutions respectively, as well as allowing for co-operation and consultations on all areas of mutual interest and concern. The provision in the Banking Act which restricts persons to own no more than 20% of the paid-up capital and total voting rights has been introduced in non-banking financial institutions – unfortunately that legislation passed in 1991 expressly provided that that restriction would not apply to then existing banks, and R Allen Stanford escaped with dire consequences to us. Amendments have been made to our Insurance Act, the Co-operatives Society Act, the IBC Act, among others, to cure noted deficiencies, introduce the concept of the “fit and proper persons” test for significant shareholders, directors, and senior managers with compulsory notification of management changes, and regular on-site inspections with administrative sanctions for immediate implementation. The ONDCP has established a Financial Compliance Unit to conduct overall AML/CFT examinations of all financial institutions not under the jurisdiction of the FSRC to ensure that all vulnerable financial institutions are captured within our regulatory regime. Guidelines and Directives are issued with increasing frequency by FSRC in respect of on-site examinations and the reporting of Suspicious Transactions. New legislation has provided for the immobilization of Bearer Shares, and the strict compliance of regulations by Money Services Businesses whose default may result in the denial, suspension, or revocation of their licences. The goalpost has been constantly changing for us; and our reporting on progress has been constant which necessitates travelling to far off countries. The process has been expensive and relentless. Certainly, our experience should serve as a wake-up call for the Region; but perhaps we should re-look at our regional oversight structure, the CFATF, and examine whether its agenda fits our needs given our developing societies, our scarcity of resources and personnel and our overall financial sector activity. I thank you. .
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