Bermuda’s Financial Sectors Face High Inherent Vulnerability to Money Laundering and Terrorist Financing

Introduction

A recent assessment by the Bermuda Government has identified several sectors as being at high risk of money laundering (ML) and terrorist financing (TF). The report highlights that banking, securities, trust service providers, and corporate service providers are among the highest-risk sectors.

Sectors with High Risk of Money Laundering and Terrorist Financing

• Banking
• Securities
• Trust Service Providers
• Corporate Service Providers

These sectors have inherent vulnerabilities due to their complex business structures, lack of transparency, and limited regulatory oversight. Additionally, the sectoral TF vulnerability was deemed to be either low or medium-low for most sectors, with the not-for-profit sector being assessed at a medium rating.

Mitigating Risks

To mitigate these risks, the Government has implemented extensive requirements for controls across various sectors. The private sector is also expected to implement measures to prevent ML and TF, with financial institutions (FIs) that have been subject to AML obligations and supervision for an extended period of time generally having greater awareness and understanding of AML matters.

Importance of Risk-Based Approach

The report emphasizes the importance of a risk-based approach to AML/ATF efforts. Intelligence and law enforcement should focus on financial crimes stemming from the financial services sector, while supervisors should focus on sectors and entities that have prominent vulnerabilities.

Government Commitment to Strengthening AML/ATF Framework

The Government of Bermuda has committed to continually improving its understanding of ML and TF risk in the country. The report highlights the importance of considering the unique context of the jurisdiction when analyzing these risks, as well as the need for competent and supervisory authorities to play a key role in assessing and mitigating these risks.

Industry Input

Industry has also played a crucial role in the assessment process, providing critical input into the analysis. Supervisory authorities have held information sessions with industry stakeholders and provided written documentation on the relevant threats and vulnerabilities.

Conclusion

The report is a step towards ensuring that FIs and other financial institutions are aware of the inherent vulnerabilities in their sectors and take necessary measures to prevent ML and TF. With continued cooperation between government, industry, and law enforcement, Bermuda can effectively combat these financial crimes and maintain its reputation as a stable and secure financial hub.

Recommendations

• Financial institutions should implement measures to prevent ML and TF
• Supervisory authorities should focus on sectors and entities that have prominent vulnerabilities
• Intelligence and law enforcement should focus on financial crimes stemming from the financial services sector
• The Government of Bermuda should continue to improve its understanding of ML and TF risk in the country