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Post-Ponzi scheme, Grenada to reopen for offshore banking

Outlandish fraud bilked investors of $170 million in 2002. Now, the Caribbean nation vows to change its oversight – and its international reputation.

By Colin WoodardCorrespondent of The Christian Science Monitor / May 31, 2008

St. George's, Grenada

It's one of the world's quieter capitals: a town of 7,500, modest buildings perched on hillsides surrounding the bright blue anchorage.

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But St. George's was headquarters to one of the most outlandish banking frauds, in which US and Canadian retirees were defrauded of millions while local officials looked the other way.

Now Grenada is preparing to reopen its offshore financial services sector six years after it collapsed in a wave of international criminal investigations, trials, and allegations of government collusion.

The country has replaced its fractured regulatory regime with a single organization to oversee all offshore financial activities, from insurance companies to credit services. The head of the new institution said this week that amended finance laws will allow the attorney general authority to take immediate court action against any offshore entity suspected of fraud.

Angus Smith, executive director of the Grenada Authority for the Regulation of Financial Institutions, says it will be several months before the sector restarts and that he is meeting with consultants to determine whether to focus on banking or other offshore financial services such as mutual funds or trusts. "We're putting things in place," he says. "We're not going to rush into it this time."

Critics fear little has changed since an American with no money, no experience, and a passport from a fictitious country was allowed to capitalize a bank, defrauding investors of $170 million.

"The government of Grenada is run as a crime syndicate," says attorney and former opposition senator Anselm Clouden. "They have not put into place the stringent regulatory measures that are needed. They are just changing the window dressing."

"Nothing's changed," says David Marchant, publisher of OffshoreAlert, the Miami-based newsletter that first exposed the most flagrant fraud, involving the First International Bank of Grenada (FIBG). "The same people are in power now that were in power then, and they knowingly, willingly, and gleefully entered into a criminal partnership with dubious individuals to defraud foreigners."

Public officials say nothing could be further from the truth. "We are trying to make sure that what happened last time does not happen again," says Mr. Smith. "Our reputation was harmed and we cannot afford to have that happen again."

The offshore banking scandals began emerging shortly after Grenada licensed its first offshore bank in 1997. Such banks cater to depositors from abroad, sometimes attracted by the possibility of sheltering assets from taxation or review by their home governments or law enforcement.