Britain’s recent inquiry into the Virgin Islands’ law-enforcement agencies could tip the scales when global financial watchdogs consider whether to sanction the territory next month, according to a leading expert.
Peter Clegg, a professor at the University of the West of England who has studied the VI and other overseas territories for more than 20 years, said the territory’s standing could be damaged by findings released last month in the second volume of the law-enforcement review by His Majesty’s Inspectorate of Constabulary and Fire and Rescue Services.
The ‘grey list’
Tensions are rising ahead of a plenary session of the Paris-based Financial Action Task Force, which could censure the territory next month by putting it on a so called “grey list” of jurisdictions that require increased financial scrutiny.
VI leaders have downplayed the risk and touted the government’s efforts to comply with extensive recommendations in a scathing review issued in February 2024 by the FATF’s regional branch, the Caribbean Financial action Task Force.
But experts say a grey-listing would be sure to impact the territory’s reputation as an international financial centre.
Law-enforcement review
When the second volume of the law-enforcement review was released last month, it provoked uproar in the House of Assembly.
Members were particularly critical of recommendations that would expand the governor’s powers by giving him responsibilities previously devolved to the VI government.
Premier Natalio “Sowande” Wheatley called for HOA members to protest by writing Governor Daniel Pruce and the Foreign, Commonwealth and Development Office in London.
This week, Mr. Clegg told the Beacon, “The timing of the recent law enforcement review by HMICFRS is not helpful, as one of its main findings noted challenges with the capacity and capability of BVI agencies to combat illicit finance.”
The professor suggested the FATF decision will be finely balanced.
“The decision of the FATF could go two ways. First, and more positively, that the BVI has put a clear plan together; it has shown its intent. And the FATF may support the measures and assess grey list and that the UK economy could be damaged as a result. progress outside of grey listing,” he said. “On the other hand, and less positively, the FATF may consider that the BVI has not done enough over the last 12 months to avoid grey-listing.”
In the event of a grey-listing, he added, the VI could take the opportunity to further improve its financial regime.
“In the past, some countries have spent only a year on the grey list before being removed,” Mr. Clegg added.
Other factors will count in the VI’s favour next month, including a recently released anti-terrorism financing assessment and a new national action plan to combat money crime, according to the professor.
“The government is trying to put the recently announced changes in the best possible light and recognising there is work to do: saying, for example, the review was ‘initiated proactively by the government’ and that movement of terrorist funds through BVI entities is a ‘medium risk,’” Mr. Clegg explained. “The associated action plan is extensive, and many of the actions are already green in the traffic-light rating.”
However, he added that time and resources will be needed for the required reforms to take effect.
Blunt warning
The second volume of the HMICFRS report bluntly warned that the VI is likely heading to the VI is likely heading to the grey list and that the UK economy could be damaged as a result.
“We found problems with BVI agencies’ capacity and capability to tackle illicit finance,” the inspectorate stated, adding that the CFATF published its report during the law-enforcement review.
“The [CFATF] report high lighted significant shortcomings in these measures and gave the BVI until February 2025 to make progress. If it fails to do this, the FATF will place the BVI on the ‘grey list’ of jurisdictions under in creased monitoring. This would have a negative effect on the BVI economy and potentially affect the UK economy.”
However, Financial Services and Economic Development Junior Minister Lorna Smith disputed this claim last week during the government’s Virgin Islands Voice broadcast.
“I don’t know that we will be grey-listed, but other jurisdictions … have been grey-listed and no harm came to the United Kingdom’s economy,” Ms. Smith said on the April 30 show.
‘Very, very careful’
The Cayman Islands, she added, is among the jurisdictions that have been grey-listed without damaging the UK.
“We have to be very, very careful what we say and the impact that it has not only on the territory but on our business,” the junior minister said.
