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Virgin Islands: AML Framework Vulnerabilities and ML Threats

The Virgin Islands has been identified as a jurisdiction with vulnerabilities in its anti-money laundering (AML) operational framework, which poses a significant threat to the territory’s financial system.

Domestic Money Laundering Threats

According to a recent report, the domestic money laundering threat stems primarily from:

  • Drug trafficking
  • Cash smuggling
  • Migrant smuggling
  • Corruption

International fraud, foreign corruption, and tax evasion are also identified as significant threats.

AML Framework Vulnerabilities

The report highlights several vulnerabilities in the AML framework, including:

  • Inadequate customer due diligence (CDD)
  • Insufficient risk assessments
  • Limited reporting of suspicious transactions
  • The use of Hawala-style systems, prevalent among certain communities

Financial Institutions Sector

The financial institutions sector in the Virgin Islands, although small, plays an integral part in the local economy. However, it is vulnerable to money laundering due to:

  • Inadequate CDD
  • Insufficient risk assessments
  • Limited reporting of suspicious transactions

Emerging Risks

The introduction of gaming and betting and medical cannabis production has elevated the ML risk, while the increasing use of decentralized finance (DeFi) instruments poses a significant threat due to their ability to facilitate:

  • The transfer of funds
  • Purchase and exchange of financial assets without traditional financial institutions

Measures Introduced by Authorities

To address these vulnerabilities, the Virgin Islands authorities have introduced measures such as:

  • A 7% transaction levy on all money services business (MSB) transactions
  • Intelligence suggests that individuals are resorting to using their bank accounts and mobile phone apps linked to debit/credit cards and bank accounts to transfer funds

Recommendations

The report concludes that the Virgin Islands must take immediate action to address these vulnerabilities and ensure its AML framework is robust and effective in preventing money laundering. Key recommendations include:

  • Enhance customer due diligence (CDD) procedures to ensure accurate identification of customers
  • Conduct regular risk assessments to identify potential vulnerabilities and take corrective action
  • Improve reporting of suspicious transactions to FinCEN and other relevant authorities
  • Introduce stricter AML/CTF regulations for MSBs and other financial institutions
  • Monitor the use of Hawala-style systems and DeFi instruments to prevent their misuse for money laundering purposes

Conclusion

By implementing these recommendations, the Virgin Islands can strengthen its AML framework and reduce the risk of money laundering in its financial system.