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Global Concerns: Virtual Assets Fuel Money Laundering, Compliance Deficiencies Increase Risk
A recent assessment by the Financial Services Commission (FSC) of the Virgin Islands has revealed that virtual assets are being increasingly used to pay for contraband and illicit services, as well as to disguise the origin of illicit proceeds in the layering stage of money laundering.
Assessment Findings
The assessment, which covered the period from 2015 to 2019, found that the use of virtual assets has led to a medium-high risk of money laundering (ML) in the territory. The FSC’s AML Unit, along with other stakeholders, conducted the assessment to identify vulnerabilities and assess the ML risks posed by various sectors.
Compliance Deficiencies
The report highlights compliance deficiencies within financial institutions (FIs), which can allow suspicious transactions to occur without adequate screening or reporting. However, the sectors assessed have been able to mitigate this risk to a large extent due to strong adherence to customer due diligence (CDD), beneficial ownership (BO) and transaction recordkeeping and reporting requirements.
Risk Assessment
The assessment also found that the overall ML risk in the Virgin Islands is medium-high, taking into account both domestic and foreign criminality. The FIA’s ML risk assessment of designated non-financial businesses and professions (DNFBPs) and non-profit organizations (NPOs was also factored into this rating.
Comparative Analysis
The report provides a comparative analysis of the initial National Risk Assessment (NRA) conducted in 2016 with the current sectoral assessment. While the methodologies and rating systems used differed, the overall data used were generally the same. The quality of the data was improved in this sectoral assessment, leading to better and more critical analysis.
Chart: Comparison of Results between 2016 and 2020 Assessments
| Sector | 2016 Risk Rating | 2020 Risk Rating |
|---|---|---|
| Banking | Medium | Medium-High |
| Money Services | High | High |
| Insurance | Low | Med-Low |
| Trust and Investment | Medium | Med-High |
| Insolvency | Low | Med-Low |
| Financing | High | High |
| Legal | Med-High | High |
| Emerging | Med-High | Med- High |
Jurisdictional Profile
The Virgin Islands is an Overseas Territory of the United Kingdom, located in the Caribbean. The territory has a population of approximately 32,000 and is home to residents from over 110 different countries and territories who make up approximately 70% of the local labor force.
Conclusion
The assessment highlights the increasing use of virtual assets in money laundering and the need for FIs to improve their compliance with AML/ CFT regulations. The findings also emphasize the importance of strong adherence to CDD, BO and transaction recordkeeping and reporting requirements to mitigate ML risk.
Recommendations
The report’s recommendations aim to strengthen the territory’s AML/CFT framework and reduce the medium-high ML risk identified in the assessment.