Criminals Using Illicit Gains to Distance Themselves from Authorities
The Virgin Islands Financial Services Commission (FSC) has identified several vulnerabilities in the territory’s financial system, allowing criminals to distance themselves from their illicit gains.
Complex Structures and Lack of Registration Requirements
A recent risk assessment report found that complex structures, such as trusts and legal arrangements, can be used by high-risk customers, including foreign Politically Exposed Persons (PEPs), to conceal the source of assets and identify of Beneficial Owners (BOs). The lack of registration requirements for these structures makes it difficult to identify existing trustees and beneficiaries.
Suspicious Activity Report Filings
The report also highlighted that these structures are not typically subject to Suspicious Activity Report (SAR) filings with the Financial Intelligence Authority (FIA). In fact, the FIA did not receive any SARs filed by trustees or where the subject of the SAR was a trust or trustee. The assessment found that this lack of filing raises concerns about whether legal arrangements are sufficiently aware of the requirements or simply choose not to file.
Gaming and Betting
The report also looked at the gaming and betting sector, which is currently prohibited in the Virgin Islands. However, foreign lottery tickets are commonly sold in the territory, and there has been an increase in USVI lottery ticket sales. Other forms of gambling, such as illegal car races and cock fights, card games, sports betting, and betting on lottery numbers from various US states, have also been identified.
- Intelligence suggests that activities related to “keeping numbers” are being used as a form of money laundering.
- The gaming and betting sector is not regulated in the Virgin Islands, making it difficult to track and prevent illegal activities.
Medicinal Marijuana
The report also examined the medicinal marijuana sector, which was legalized in 2020 through the Cannabis Licensing Act (CLA). However, there is a need to ensure that the CLA is fully compliant with international regulations, such as the 1961 Single Convention on Narcotic Drugs, to ensure compliance with international obligations.
Decentralized Financial Products (DeFi)
The report highlighted the rise of DeFi products, which facilitate the transfer of funds and purchase and exchange of financial assets. However, these activities are often carried out in an unregulated space, making it difficult to identify and prevent money laundering.
Expectations for Regulated Sectors
In response to the findings, the FSC has issued expectations for all regulated sectors:
- Review and adjust policies, procedures, and internal controls to address identified risks.
- Enhance monitoring of clients based on risk.
- Demonstrate understanding of client behavior and ability to identify potential areas of concern.
- Ability to demonstrate adjustments to client monitoring based on changes in activity.
- Implement institutional risk assessment frameworks.
The full report can be accessed at bvifsc.vg/risk-assessments.