The Virgin Islands has been added to the European Union’s list of countries at “high risk” for financial crime.

The listing, which was decided in December and took effect last Thursday, was expected after the Paris-based Financial Action Task Force put the territory on its grey list last June, but experts told the Beacon that it nevertheless brings new reputational harm.

The European Commission — the EU’s executive arm — said it designated the VI high-risk because of “strategic deficiencies” in its regimes for countering money laundering and terrorism financing.

In practical terms, the action by the world’s biggest trading bloc means EU entities are now required to impose extra scrutiny on transactions involving the VI.

Tom Keatinge, director of the Centre for Finance and Security at the Royal United Services Institute think tank in London, said the move is damaging for the VI’s reputation.

“The addition of VI to the EU’s high-risk list was expected as this is inevitable once a jurisdiction has been grey-listed” by the FATF, Mr. Keatinge told the Beacon. “It does, of course, provide an uncomfortable reminder of the reality of the FATF grey-listing.”

Getting off the list

Government officials have said they are working on reforms designed to get the VI off the FATF list in about a year and a half, but Mr. Keatinge said leaving the EU list may be harder.

“Recent cases involving the United Arab Emirates and Gibraltar indicate that whilst addition to the list is automatic, removal in line with FATF decision-making is not,” he explained.

In response, Mr. Keatinge said, the territory should step up its diplomatic efforts with the EU.

“The VI will need to ensure that engagement with the European Commission and European Parliament — the ultimate decision maker — is part of its ongoing remediation plan,” he said.

Financial Services and Economic Development Junior Minister Lorna Smith told the Beacon that such diplomatic work is already under way.

“The EU’s decision reflects alignment with the FATF, so is not unexpected,” she said. “We have positively engaged with the European Commission and member states as we implement our National Action Plan.”

Ms. Smith added that talks are ongoing with the EU.

We will continue to take all measures to safeguard the integrity of our regulatory regime, reinforcing our position as a trusted international finance centre,” she said.

Others on the list

The EU decided to add the VI and Bolivia to the high-risk list on Dec. 4 — the same day it decided to remove countries including Burkina Faso, Mali, Mozambique, Nigeria, South Africa and Tanzania.

The only other Caribbean jurisdictions currently on the list are Haiti, Trinidad and Tobago, and Venezuela.

“This is important to protect the integrity of the EU financial system,” the European Commission said in a statement.

The move also puts the territory under a heightened international spotlight.

“As a founding member of the FATF, the European Commission is closely involved in monitoring the progress of the listed jurisdictions, helping them to fully implement their respective action plans agreed with the FATF,” the EU statement noted.

“Alignment with the FATF is important for upholding the EU’s commitment to promoting and implementing global standards.”

Practical impact

Peter Clegg, a professor at the University of the West of England who has studied the VI and the other British overseas territories for more than 20 years, said the impact of the EU move will likely be limited.

“Although the listing carries reputational implications, its practical impact is limited,” he said. “It does not impose sanctions or prohibitions on BVI entities. The main effect is that EU-based financial institutions must now apply enhanced due diligence, which may slow certain transactions and increase documentation requirements.”

Mr. Clegg said the biggest material consequence on the VI could be certain restrictions on the marketing of funds from jurisdictions that are on the EU list.

“Overall, while the EU listing creates some operational friction, it does not affect the BVI’s tax status, does not change its FATF position beyond the automatic EU alignment, and is expected to be temporary — likely no more than two years — given the BVI’s progress and commitment to addressing the remaining concerns,” he said.

Mr. Clegg echoed Mr. Keatinge’s contention that the EU move was unavoidable following the FATF grey-listing.

“The BVI’s addition to the EU list is mainly a technical, procedural outcome of its earlier FATF grey-listing, rather than a new or punitive action by the EU,” he said.

The EU decision followed the VI government insisting last November that “significant” headway had been made in addressing the technical deficiencies that contributed to the territory’s inclusion on the FATF’s grey list last June.

The claims came after the Second Enhanced Follow-Up Report by the Caribbean Financial Action Task Force — which works with FATF headquarters to evaluate jurisdictions in this region — followed up on a sharply critical Mutual Evaluation Report it released in February 2024.

The 2024 report raised serious concerns about the VI’s ability to deal with money laundering and other financial crime, and it helped trigger the FATF’s June decision to add the territory to its grey list of jurisdictions that require enhanced monitoring.

The CFATF has said that its next follow-up report on the VI will be released in November.

Premier Natalio “Sowande” Wheatley, who is also the minister of finance and financial services, did not respond to a request for comment by Beacon press time.