Financial Crime World

Institutional ML/TF Risk: A Mixed Bag in the Virgin Islands

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The Financial Intelligence Agency (FIA) has made significant progress in addressing institutional risk related to money laundering and terrorist financing (ML/TF) through remedial action plans (RAPs). However, this success is not mirrored in the investment business sector.

Insufficient Penalties

Penalties imposed by the Financial Services Commission (FSC) are often deemed ineffective, disproportionate, and insufficient. In contrast, the FIA has not imposed any monetary penalties.

  • The lack of effective penalties can undermine the deterrent effect of anti-money laundering (AML) laws.
  • This issue highlights the need for more robust enforcement mechanisms to address ML/TF risks.

Inadequate Market Entry Controls

Market entry controls do not effectively prevent criminals from owning or controlling licensed entities in either sector. The potential criminal history of relevant foreign persons is also not systematically verified.

  • Weak market entry controls can allow criminals to infiltrate the financial system.
  • This increases the risk of ML/TF activities and undermines confidence in the financial system.

Weak Beneficial Ownership Regime

The system for holding basic and beneficial ownership information is dependent on data collected by Trust Company Service Providers (TCSPs), which can be impacted by shortcomings in the implementation of customer due diligence (CDD) measures. The Registrar of Companies holds basic information, but this is only accessible to the public upon request at a fee, and not directly available to all competent authorities.

  • A weak beneficial ownership regime can make it difficult to identify the true owners of companies and trusts.
  • This increases the risk of ML/TF activities and undermines efforts to combat financial crime.

Limited International Cooperation

The Virgin Islands (VI) generally provides mutual legal assistance (MLA) within a reasonable timeframe, with good quality information provided. However, outgoing requests for MLA and other forms of international cooperation regarding ML/TF cases are inconsistent with the country’s medium-high ML risk profile.

  • Limited international cooperation can hinder efforts to combat ML/TF activities.
  • This is particularly concerning given the VI’s high-risk profile.

Challenges Facing Authorities

Resource constraints, including those caused by external events like hurricanes and pandemics, significantly impact the effectiveness of law enforcement and supervision. The authorities have not demonstrated a sufficient appreciation of the vulnerabilities specific to the VI context, which has negatively impacted possible mitigation measures.

  • Resource constraints can undermine efforts to combat ML/TF activities.
  • A lack of understanding about the unique challenges facing the VI can hinder effective mitigation strategies.

Conclusion

The Virgin Islands faces significant challenges in addressing institutional ML/TF risk. While progress has been made through RAPs, more needs to be done to address the root causes of these risks. Strengthening beneficial ownership regimes, improving international cooperation, and enhancing market entry controls are essential steps towards mitigating these risks.

  • Addressing institutional ML/TF risk requires a comprehensive approach that addresses the root causes of these risks.
  • The VI must prioritize strengthening its AML/CFT framework to reduce the risk of financial crime.