Virgin Islands’ Fight Against Money Laundering and Terrorist Financing Under Scrutiny

The Virgin Islands (British) has been assessed by the Caribbean Financial Action Task Force (CFATF) on its efforts to combat money laundering (ML) and terrorist financing (TF). The report highlights the challenges faced by the VI in addressing these threats, despite progress made in understanding ML/TF risks.

Challenges Faced by the Virgin Islands

The CFATF assessment notes that while the VI has made progress in understanding ML/TF risks, its authorities still face significant challenges in addressing these threats. Some of the vulnerabilities identified include:

• Limitations in transparency of beneficial ownership
• Inadequate definition of beneficial ownership
• Large-scale reliance on professional business introducers without adequate safeguards

Threats to the Financial Sector

The report also notes that the Virgin Islands’ corporate and financial services sector faces a high threat from foreign proceed-generating crimes, including:

• Corruption
• Fraud
• Tax evasion
• Money laundering

These risks are exacerbated by resource constraints, including those caused by external events such as hurricanes and the COVID-19 pandemic.

Authorities’ Understanding of ML/TF Risks

The assessment found that the authorities’ understanding of ML/TF risks is fair but narrow, with a focus on mitigation measures rather than addressing the root causes of the problem. Additionally, the report notes that the authorities have not demonstrated a sufficient appreciation of the vulnerabilities of legal persons and legal arrangements specific to the VI context.

Criticism of the Financial Services Commission

The CFATF assessment criticizes the Financial Services Commission (FSC) for its insufficient understanding of the inherent vulnerabilities of licensed trust and corporate service providers (TCSPs), including their ownership and control of clients and active VI entities. The report also notes that the FSC’s risk assessment did not fully address the risks associated with the misuse of VI legal persons and legal arrangements.

Recommendations

The CFATF assessment recommends that the Virgin Islands improve its anti-money laundering (AML) and countering the financing of terrorism (CFT) regime by:

• Strengthening beneficial ownership transparency
• Increasing understanding of ML/TF risks
• Implementing more effective measures to mitigate these threats
• Improving coordination and cooperation with other jurisdictions to combat ML/TF

Conclusion

While the Virgin Islands has made progress in improving its AML/CFT measures, it still faces significant challenges in combating ML/TF. It is essential for the authorities to address these vulnerabilities and implement more effective measures to protect the financial system and prevent money laundering and terrorist financing.