Financial pirates

Are Ponzi schemes on the rise in the Caribbean?

A recent report by the Caribbean Investigative Journalism Network (“CIJN”) claimed that Ponzi and pyramid schemes have proliferated across Caribbean countries during the pandemic, with authorities struggling to stop them.

A Caribbean based financial crime expert was not entirely convinced, “I am not necessarily sure that the Caribbean has seen more Ponzi schemes than any other jurisdiction in the world. Historically, 15 to 20 years ago, the Caribbean had a lot of more of these types of Ponzi entities. [More recently], following the ‘Panama Papers’, things have changed.”

“Historically, 15 to 20 years ago, the Caribbean had a lot of more of these types of Ponzi entities. [More recently], following the ‘Panama Papers’, things have changed.”

Financial crime expert, Caribbean

A financial analyst in the region agreed, “Typically we only become aware of Ponzi schemes when they collapse, and they collapse when people want their money back. COVID-19 has intensified people’s need for cash, and presumably that has brought about this idea that there are more schemes in existence now, but I don’t think that’s necessarily true.”

Separately, the International Labour Organisation (“ILO”) recently warned about the growth of pyramidal schemes sold as financial solutions like high profitability short-term savings plans.

The ILO research points at a policy failure in combating the financial consequences of the pandemic and economic uncertainty due to the lack of clear financial assistance networks in Caribbean countries such as Anguila, Antigua and Barbuda, Dominica, Montserrat, St Lucia, Bahamas and Trinidad and Tobago.

The CIJN report highlights a legislative gap, deficient regulatory responses and a lack of cross-border collaboration as potential causes. The article reports, “Though financial fraud involving both formal and informal non-banking operations has plagued the region in past decades, many countries, including Trinidad and Tobago and Antigua and Barbuda, have never explicitly banned pyramid and Ponzi schemes.”

The financial analyst we spoke to agreed that more could be done, “It comes back to the local regulators – they need the appropriate skills, expertise and resources to adequately police these entities. Some jurisdictions in the Caribbean are known to be less active, whether that is perception or reality, regulators need to step up their game. I think there is local appetite to do this.”

“Some jurisdictions in the Caribbean are known to be less active, whether that is perception or reality, regulators need to step up their game.”

Financial analyst, Caribbean

Looking to the future, our sources see a bigger risk from more sophisticated financial crimes, “If we look at cryptocurrency and different technology platforms, there are now new ways to conceal and transfer funds, the unfortunate consequence is that it will be harder to hold people to account. On the offshore side of things, many companies incorporated in the Caribbean don’t necessarily operate here. And there is a big push to attract tech and fintech companies in the region increasing vulnerabilities in these areas.”

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