The Virgin Islands should take tougher action to mimimise the threat of terrorist financing, according to a recent review of its systems to prevent financial crime.
The mutual evaluation report by the Caribbean Financial Action Task Force, which was released on Feb. 26, found that various VI sectors have been taking divergent approaches to the threat and urged the territory to adopt an improved and better-coordinated strategy for the way forward.
On the day the report was released, the VI government said it had already started tackling the recommended reforms through an action plan that includes measures designed specifically to tackle terrorist financing.
Extensive work
This work will need to be extensive, according to the CFATF reviewers.
Their report questioned the ability of VI authorities to handle threats from terrorist financing and to properly implement targeted financial sanctions, which it identified with the acronyms TF and TFS, respectively.
“The VI is not effectively implementing TF/TFS [measures], nor has it been demonstrated that relevant authorities and stakeholders have sufficient readiness to implement [these measures] without delay,” the report stated.
Until recently, the review added, no competent authority in the VI had any formal mechanism for identifying people suspected of being involved in the funding of terrorism.
“Competent authorities and law enforcement do not appear to be acting proactively to ascertain whether designated persons or sanctioned assets may be located in the territory,” the reviewers found. “Although [sanctions for terrorist financing] have immediate legal effect in the VI, deficiencies in the frequency of screening and understanding of obligations by reporting entities are likely to undermine the effectiveness and timeliness of [sanction] implementation.”
‘Grey list’
The CFATF, an organisation of 24 states and territories in the region, evaluated the territory against anti-money laundering and anti-terrorism financing requirements and other standards set by the Paris-based Financial Action Task Force.
Despite the government’s assurances that it is on top of the situation, publication of the report last week raised concerns that the VI could be put on the FATF’s “grey list” of jurisdictions that require enhanced monitoring.
In the report, the CFATF also noted VI failures to properly address terrorist-financing
threats to the non-profit organisation sector.
“The VI has not identified the subset of NPOs that are vulnerable to [terrorist financing] abuse,” the report stated. “While the Financial Investigation Agency understands the general threat of [terrorist financing] posed to NPOs through internationally recognised typologies, it does not appear to have identified the specific TF risks faced by the VI’s NPO sector. The FIA has not yet developed a risk-based inspection plan for NPOs as it is awaiting the results of a [terrorist financing] risk assessment that is scheduled to be issued later this year.”
The body also called for the FIA to develop a new agenda to deal with the situation.
“The FIA cannot be said to be currently applying risk-focused and proportionate oversight measures to such NPOs,” the report stated.
Despite these shortcomings, the CFATF acknowledged that the FIA has been reaching out to the NPO sector on the topic and that NPOs themselves have also been taking needed action.
“NPOs also appear to be generally aware of [terrorist-financing] risks and are applying some TF-specific mitigation measures,” the report stated.
Businesses
Some businesses in the territory also received higher marks for their efforts in countering terrorist financing.
“All banks and some legal practitioners demonstrated a good understanding of their money-laundering risks and … combating the financing of terrorism obligations,” the report stated.
It added, however, that the approach by providers of trust and company services ranged widely.
“[Terrorist financing] risk understanding across the financial and [designated non-financial business and profession] sectors was largely confined to the low domestic TF threat, with limited attention being given to the foreign TF threat and especially the potential for misuse of British Virgin Islands business companies for [terrorist financing sanctions] evasion,” the report stated. “While all financial institutions and DNFBPs interviewed conducted an institutional risk assessment, the scope and depth of such assessments varied significantly, as did the application of corresponding risk mitigation measures.”
In many cases, the reviewers found that supervisors had a “limited understanding” of the risks of money laundering and terrorist financing — though they often understood former better than the latter.
Action plan
The VI government’s action plan features a wide range of planned initiatives for tackling the CFATF’s recommendations on terrorist financing.
They include revising the national policy for countering money laundering and terrorist financing, as well as an FIA plan to commence a terrorist financing risk assessment for NPOs.
Sanctions unit
Also on the list is a special sanctions unit within the Attorney General’s Chambers that government said will help “ensure greater efficiency in dealing with all sanctions-related matters.”
Additionally, specific training will be offered for the staff of relevant authorities, and the territory’s overall terrorist financing risk assessment will be updated, according to government.
The FIA did not respond to a request for comment.