The Virgin Islands received a harsh wake-up call last month.

The latest mutual evaluation by the Caribbean Financial Action Task Force highlighted glaring deficiencies in the territory’s systems for combatting money laundering and terrorist financing.

Quick action is urgently needed to mitigate further reputational damage to the financial services industry and to keep the territory off the “grey list” of jurisdictions that require increased monitoring by the Paris-based Financial Action Task Force.

To that end, the government got off to a good start by quickly agreeing to wide-ranging CFATF recommendations and publishing an action plan  on the day of the report’s release.

But that plan will not be easy to implement, and the entire territory will need to work together to ensure that it is completed on time.

The CFATF, the regional body that recommends policies for anti-money laundering and for combatting terrorist financing, reported many findings related to highly technical issues. But other troubling problems are apparent even to the non-specialist.

For example, the CFATF criticised the “quality of the intelligence” provided by the Financial Investigation Agency, arguing that this shortcoming impacted the Royal Virgin Islands Police Force’s ability to investigate financial crime.

Additionally, the reviewers noted that the number of investigations, prosecutions and convictions remains “low for a significant corporate and financial centre such as the VI.” And most of the cases that are taken on were found to be “simple” matters resulting from cash seizures linked to drug trafficking.

The report also highlighted that VI investigators haven’t launched any “large-scale” or cross-border investigations. And the low level of requests for mutual legal assistance that the VI makes of other jurisdictions is “not consistent with the overall medium-high money-laundering risk” of the territory, the evaluators found.

To the VI’s credit, the report acknowledged that a resource shortage and disruptions caused by the 2017 hurricanes and the Covid-19 pandemic are at least partly to blame for some of the negative findings. The reviewers also noted improvements linked to reforms carried out pursuant to the 2022 Commission of Inquiry report.

But the CFATF’s findings are nevertheless a major blow to the territory’s longstanding efforts to project a reputation as a well-regulated financial services jurisdiction working hard to keep up with constantly shifting demands.

It’s not the first such blow in recent months either.

As referenced by the evaluation, the VI’s image took a sharp hit with the 2022 arrest and recent conviction of former premier Andrew Fahie on drug-trafficking and money-laundering conspiracy charges in the United States. While those allegations didn’t explicitly involve the territory’s financial services sector, readers of related headlines may not draw that distinction.

Many of the COI’s findings were similarly damaging even though they mostly weren’t focused on financial services, per se.

Such incidents give ammunition to critics who have long derided the VI as a “tax haven” that sidesteps best practices.

In the coming months, the VI must prove them wrong. This means collaborating across the public and private sectors to carry out the government’s action plan by the required deadlines.

The United Kingdom must provide support, especially in areas where resources are lacking.

The VI is no stranger to such work. In fact, the premier announced last month that France has removed the territory from its blacklist of non-cooperative tax jurisdictions after legislative and regulatory reforms here that included strengthening the framework for tax information exchange.

Moving forward, the territory must build on this good work by ensuring that implementation of the CFATF recommendations is swift and enduring. The consequences of foot-dragging would be severe.