Virgin Islands Faces Money Laundering Threats from Domestic and International Sources
The Financial Services Commission (FSC) and the Financial Investigation Agency (FIA), in collaboration with other law enforcement agencies, have identified significant money laundering (ML) threats facing the Virgin Islands. The territory’s AML operational framework has vulnerabilities that need to be addressed to mitigate these risks.
Domestic Threats
Primary Domestic ML Threat
The primary domestic ML threat stems from the jurisdiction’s financial services sector, which is vulnerable to exploitation by criminals seeking to launder illicit funds.
- Factors Contributing to Risk: Lack of effective customer due diligence (CDD) and widespread use of cash-based transactions.
- FIA Identification: The FIA has identified a number of factors contributing to this risk, including the lack of effective CDD and the widespread use of cash-based transactions.
International Threats
High-Risk Jurisdictions
The Virgin Islands also faces ML threats from international sources, including the increasing use of decentralized finance (DeFi) instruments and the growth of online gaming and betting activities. The FIA has identified a number of high-risk jurisdictions that pose a threat to the territory’s financial stability:
- Dominican Republic: Known for its lax regulations and lack of effective AML/CFT controls.
- Guyana: Has a history of ML activity and lacks sufficient resources to effectively enforce AML/CFT regulations.
- St. Vincent: Has been identified as a high-risk jurisdiction due to its limited financial infrastructure and lack of transparency.
Sectoral Risks
Banking Sector
The banking sector in the Virgin Islands is at risk due to its small size and limited resources. While most customers are attained through face-to-face contact, the sector does provide services to non-resident persons, which increases the ML risk.
- Vulnerabilities: Inadequate CDD and insufficient monitoring of customer transactions.
- FIA Identification: The FIA has identified a number of vulnerabilities in the sector’s AML/CFT controls, including inadequate CDD and insufficient monitoring of customer transactions.
Recent Developments
Transaction Levy
The introduction of a 7% transaction levy on all money service business (MSB) transactions has led to a decline in the total value of transactions processed by MSBs. However, intelligence suggests that individuals are seeking alternative methods to circumvent this levy, including the use of bank accounts and mobile phone apps.
Conclusion
The Virgin Islands faces significant ML threats from both domestic and international sources. The territory’s AML operational framework has vulnerabilities that need to be addressed to mitigate these risks. It is essential that the FSC, FIA, and other law enforcement agencies work together to strengthen the sector’s AML/CFT controls and prevent the misuse of financial services for illicit purposes.
Recommendations
- Implement Effective CDD: The banking sector should implement effective customer due diligence (CDD) and monitoring of customer transactions.
- Stricter Regulations for MSBs: Money service businesses should be subject to stricter AML/CFT regulations.
- Close Monitoring of DeFi Instruments: The use of decentralized finance instruments should be closely monitored and regulated.
- Regular Risk Assessments and Audits: The jurisdiction’s financial services sector should be subject to regular risk assessments and audits.
By taking these steps, the Virgin Islands can reduce its ML risks and protect its financial stability.