A major international report released Monday raises serious concerns about the territory’s ability to deal with money laundering and other financial crime, leading one expert to warn that “red lights” should be flashing for the future of the territory’s economy.
The long-awaited mutual evaluation report by the Caribbean Financial Action Task Force found serious deficiencies in the way anti-corruption agencies operate in the Virgin Islands and recommended extensive reforms.
“A light is being shone on the anti-financial-crime system in the BVI, and it is not as robust as boosters for the BVI have been arguing for many years,” Tom Keatinge, of the London-based think tank Royal United Services Institute, told the Beacon.
Premier Dr. Natalio “Sowande” Wheatley, however, welcomed the findings and said Monday that the territory is committed to “rigorously implementing” the CFATF recommendations via an action plan the government published the same day.
“The government has prioritised resources to support the work outlined in the action plan, and I am confident that our public and private sectors will work together to ensure that we progress successfully,” Dr. Wheatley said.
This effort will be critical to safeguarding the reputation of the VI’s financial services industry.
The CFATF, an organisation of 24 states and territories in region, evaluated the territory against anti-money laundering requirements and other standards set by the Paris-based Financial Action Task Force.
Failure to follow the report’s recommendations could lead the CFATF to put the territory on its list of jurisdictions facing enhanced monitoring, known widely as its “grey list.”
“The BVI could be put on the grey list this time next year,” Mr. Keatinge warned.
He added that this designation could have major implications.
“International Monetary Fund data suggests that grey-listed country economies suffer,” he said. “Given the extent to which the BVI relies on financial services, there’s no escaping the fact that there should be a good many red lights flashing on the BVI’s dashboard.”
VI officials, however, suggested that the territory is already well ahead of the game on the needed reforms.
“The report made a number of recommendations, and I can verify that a number of these actions are already under way,” said Deputy Premier Lorna Smith, the minister of financial services, labour and trade.
These ongoing measures, she said Monday, include legislative reforms, training for law enforcers, steps to ensure better collaboration between agencies, assessments of non-profit organisations, and a regulatory framework for virtual assets service providers, among others.
The review — officially known as the CFATF’s Fourth Round Mutual Evaluation — was led by a team from the International Monetary Fund on the CFATF’s behalf, and it included an extensive probe of financial systems in the territory’s public and private sectors.
Besides reviewing information provided by the government and other entities, evaluators visited the territory last March.
A draft report was tabled at a November CFATF plenary in Aruba, which Ms. Smith attended. Since then, VI officials have had a chance to review the draft and provide input on the final.
Criticisms
Though the report finds the VI to be compliant in many areas, it also includes criticisms that raise fundamental questions about the territory’s ability to respond adequately to financial crimes.
The probe, for instance, found shortfalls in law-enforcement agencies including the Financial Investigation Agency, the Royal Virgin Islands Police Force, and others.
“There are shortcomings with respect to sharing information or intelligence among law enforcement agencies, owing to governance vulnerabilities,” the report states.
The reviewers, for instance, found that the quality of intelligence provided by the FIA affected the RVIPF Financial Crime Unit’s ability to progress money laundering and terrorism-financing investigations.
“Overall, the number of investigations, prosecutions, and convictions for money laundering is low for a significant corporate and financial centre such as the VI,” the report stated.
In fact, it added, most money-laundering cases in the territory are “simple cases” involving cash proceeds from drug trafficking.
“This limited outcome is due to the lack of comprehensive financial investigations aiming at identifying, locating, and seizing the proceeds of [money laundering] and predicate offences,” the reviewers stated. “This is due in part to the insufficient staff resources available to the FCU until recently; the perceived weaknesses in FIA disseminations; and differences in views as regards the required legal nexus between the illicit activities of British Virgin Islands business companies allegedly committed abroad and maintaining related investigations and prosecutions within the VI.”
Reviewers also noted that the territory did not establish a counter-terrorism strategy between 2018 and 2022.
They raised another red flag about the level of beneficial ownership information available in the territory.
“Limitations in the transparency of beneficial ownership constituted a significant vulnerability during the period under review, and important deficiencies in the definition of beneficial ownership were only fully addressed during the on-site visit,” the report states.
The report also briefly mentions the April 2022 Miami arrests of then-premier Andrew Fahie and then-BVI Ports Authority Managing Director Oleanvine Maynard on charges of conspiring to traffic cocaine and launder money.
The reviewers described the arrests as a potential indication of a growing threat of domestic corruption since 2020. As premier, Mr. Fahie was chairman of the territory’s National Anti-Money Laundering Coordinating Council at the time of his arrest.
‘In the crosshairs’
Mr. Keatinge, who directs the Centre for Financial Crime and Security Studies at RUSI, said the criticisms in the report were not surprising for many observers.
“The BVI has been in the crosshairs of the international anti-financial crime community for a great many years, and the outcome will vindicate the view of politicians in London, civil society and others in their view that, despite what the BVI says, it remains a material vulnerability in the international system,” he stated.
“The reality is the BVI has developed a very successful corporate registration business but has not developed the necessary capabilities or been supported by the UK to deal with that responsibility. The BVI hasn’t been able to rise to the challenge of that.”
Mr. Keatinge urged the VI and UK to work together to address the issues outlined in the report.
“I think there is a question mark about what the UK is going to do,” he said. “It’s time for Road Town and Whitehall to realise this is an issue and act. It’s not just about transparent corporate registries: It’s about having the tools and capacity to be a key global node in international finance.”
COI reforms
Besides its more scathing findings, the report also praises recent reforms in the territory.
It states, for instance, that the Commission of Inquiry has had a positive impact.
“The recent increase of investigative staff, as well as the consequences of the Commission of Inquiry report on corruption, are commendable and have prompted authorities to take a more forceful approach to money laundering,” the report notes.
Also praised was the territory’s work providing information to foreign authorities.
“The VI generally provides mutual legal assistance (MLA) within a reasonable timeframe and its quality is generally good,” the report states. “Additionally, competent authorities seek and provide other forms of international cooperation promptly to foreign counterparts, and some demonstrated the good quality of the information provided.”
The report also acknowledges the impact of the Covid-19 pandemic and natural disasters in the territory.
“The resources and capabilities of the VI’s authorities in the fight against [money laundering and terrorist financing] have been severely impacted over the past five years due to hurricanes Irma and Maria, which in 2017 caused near total devastation of the country, subsequently followed by the impact of the Covid-19 pandemic,” the report states.
Recommendations
The report recommends several steps for the way forward, including reforming laws, implementing stricter oversight, launching training programmes, boosting staffing resources, and enhancing monitoring systems, among others.
“There should be enhanced operational cooperation and information sharing between all competent authorities to build trust, as this is critical to investigating [money laundering] and [terrorist financing] and their associated predicate offences,” the reviewers advised. “This can be achieved, for example, by establishing task forces and joint investigations.”
Such efforts should be complemented by legislative amendments, according to the reviewers.
“The law should be amended to provide for the full range of powers to carry out financial and complex investigations, including powers to obtain information directly from public bodies and reporting entities, as well as effective, proportionate, and dissuasive sanctions for [money laundering], whether such [money laundering] relates to drug offences or other crimes,” the report states.
The action plan the government unveiled Monday lists a step-by-step plan for addressing the report’s recommendations.
Most planned actions are scheduled to be completed this year, but a few are scheduled for 2025.
Attorney General Dawn Smith expressed optimism about the way forward.
“We have a strong legislative framework in place, and I believe this, together with the robust partnership between the public and private sectors, means that we will be able to safeguard the integrity of our business and financial services sector and implement the CFATF recommendations in good time and to its satisfaction,” Ms. Smith said in the Monday statement.
The FIA and RVIPF did not respond to requests for comment.
Mr. Connolly reported this story from London.