Compared with at least two overseas territories that operate rival financial industries, the Virgin Islands still has a “mountain to climb” when it comes to proving its effectiveness in combating financial crime, an expert warned.

The latest review of the territory by the Caribbean Financial Action Task Force showed the VI lagging behind Bermuda and the Cayman Islands in key measures for dealing with wrongdoing, according to Tom Keatinge of the London-based think tank the Royal United Services Institute. Mr. Keatinge made the comments in the wake of the Feb. 26 release of a CFATF mutual evaluation that reviewed the VI’s compliance with standards set by the Paris-based Financial Action Task Force for tackling money laundering and terrorism financing.

After assessing 11 key areas known as “Immediate Outcomes,” the reviewers rated the VI as having low “effectiveness” in seven of them.

Bermuda rating

By contrast, Bermuda’s most recent review, in 2020, gave a “low” rating for just one of the 11 areas. And Cayman’s most recent report, in April 2019, gave a “low” rating for five categories — two fewer than the VI.

“The key measure used by the CFATF is effectiveness, and judging by that measure — with seven of the 11 being low compared to five for the Cayman Islands and one for Bermuda — the size of the mountain the BVI has to climb is clear,” said Mr. Keatinge, who is the director of the Centre for Financial Crime and Security Studies at RUSI.

Mr. Keatinge added that the rankings show that the VI scored “materially below” Bermuda and Cayman.

“They are tests of how effectively a country is using its legislation, law enforcement, etcetera, to combat financial crime,” he said.

Cayman ‘grey-listing’

Cayman’s recent history may hold a warning for the VI.

In the years after its 2019 review, Cayman worked to strengthen its financial crime-fighting regime, but in February 2021 it was nevertheless added to the FATF’s list of jurisdictions that require enhanced monitoring, often known as the “grey list.”

It remained on the list until last October, when it was found to have complied with 63 recommendations from the watchdog body.

VI’s planned reforms

The VI could be headed toward the FATF grey list as well if the government doesn’t keep its pledge to carry out an extensive list of reforms recommended by the CFATF report in the coming months.

The CFATF uses four ranking to rate effectiveness in dealing with financial crime: high effectiveness, substantial effectiveness, moderate effectiveness and low effectiveness.

The VI received a “low effectiveness” score in seven fields: supervision of financial arrangements; preventative measures; financial intelligence; money laundering investigation and prosecutions; confiscations from money laundering and terrorism financing activities; sanctions regarding terrorism financing; and proliferation financing sanctions.

The territory was judged to have achieved “moderate effectiveness” in four other areas: the
identification and understanding of risks; international cooperation and operational structures; prosecutions of terrorism financing; and legal persons and arrangements.

“The most significant threats identified were coming from foreign criminal activities — such as tax evasion, corruption, and fraud — through the misuse of VI entities,” the report stated.

It also expressed concern about the threat level to the VI from financial crime abroad.

“The VI’s significant corporate and financial services sector faces a high threat from foreign proceed-generating crimes, including corruption, fraud, tax evasion, and money laundering,” the report stated. “Domestic terrorism financing and proliferation financing risks are broadly low; however, these threats are considered elevated at the international level, particularly through the misuse of VI entities.”

VI action plan

On the day the CFATF report was released, the VI government insisted it was ahead of the curve as it announced an action plan to deal with the situations highlighted.
Premier Dr. Natalio “Sowande” Wheatley said he was committed to “rigorously” implementing CFATF recommendations.

“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,” he said.

The CFATF is an organisation of 24 countries and territories in the region.

No comment

The Financial Investigation Agency, the Financial Services Commission, the Royal Virgin Islands Police Force, BVI Finance and the government did not respond to requests for comment.

Mr. Connolly reported this story from London.