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Puerto Rico Removes Financial Entities from Money Laundering Watchlist
The United States Department of the Treasury has removed Puerto Rico’s International Banking Entities (IBEs), International Financial Entities (IFEs) and credit unions from its list of most significant vulnerabilities and risks in its Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) policy, announced the Puerto Rico Office of the Commissioner of Financial Institutions.
Treasury’s National Money Laundering Risk Assessment 2024 Report
The update is reflected in the Treasury’s National Money Laundering Risk Assessment 2024 report issued this month. The report no longer includes those Puerto Rican financial entities in the section dedicated to Entities not Subject to Comprehensive AML/CFT Requirements, confirmed the OCIF.
Commissioner’s Statement
“This is impossible to overstate the importance of this positive change in US Treasury’s assessment of these Puerto Rican financial entities and, by extension, the island’s entire banking and financial system,” said Puerto Rico Financial Institutions Commissioner Natalia Zequeira. “To have been included in Treasury’s list of most significant ‘vulnerabilities and risks’ related to the fight against money-laundering and the financing of terrorism-related crimes was a scar that affected all of us, even law-abiding banks and financial institutions, because of the bad reputation it generated.”
Improved Oversight
The change in Treasury’s position on the matter reflects a recognition of the improved oversight conducted by Puerto Rico over the last three years to demand strict compliance with applicable laws and regulations from all financial entities operating in the island.
History of the Issue
In its February 2022 report, Treasury had highlighted the risks represented by IBEs, IFEs and cooperatives from Puerto Rico in a section titled “Special Focus: Non-federally Chartered Puerto Rican Financial Entities,” noting they were not subject to federal regulation that requires federally chartered financial institutions to establish and maintain an anti-money laundering program.
However, a rule by Treasury’s Financial Crimes Enforcement Network made the requirement equally applicable to such Puerto Rican financial entities, effective March 15, 2021. “Those Puerto Rican financial entities are now required to implement AML compliance programs and are subject to criminal and civil penalties if they fail to do so,” it stated.
Recent Developments
Recently, Governor Pedro Pierluisi signed House bills 1699 and 1700 into law to strengthen the regulation and oversight of IBEs and IFEs in Puerto Rico. The laws amend the International Banking Center Act (Act 52 of 1989) and the International Financial Center Act (Act 273 of 2012) “to modernize and strengthen both, make them stronger, more efficient, more resilient and better prepared to face changes in the markets and ensure that the international banking and financial entities in them are solvent and solid, operate competitively and responsibly and contribute to the island’s economic growth for the benefit of everyone in Puerto Rico.”
Key Provisions of the New Laws
The new laws seek to demand an even higher level of compliance with applicable anti-money laundering laws and grant the OCIF greater discretion in permit or license issuance based on the financial responsibility, experience, character and aptitude of applicants. The laws introduce:
- Increased capitalization requirements
- Application fees
- Broadened scope of investigation to include economic capacity of shareholders and owners
- Increased bail requirements
- Minimum number of employees required
- License fees
They also include insolvency as a cause to deny the renovation of a license and broaden the commissioner’s authority to deny applications if a shareholder, director or proponent has been convicted of a felony, fraud, money-laundering, moral depravity or tax evasion, among other measures.