BVI-CFATF-MER-2024 Mutual Evaluation Report PDF

Anti-money laundering and counter-terrorist financing measures Virgin Islands (British) Mutual Evaluation Report February 2024  2 The Caribbean Financial Action Task Force (CFATF) is an in...

Anti-money laundering and counter-terrorist financing measures Virgin Islands (British) Mutual Evaluation Report February 2024  2 The Caribbean Financial Action Task Force (CFATF) is an inter-governmental body consisting of twenty- four member states and territories of the Caribbean Basin, Central and South America which have agreed to implement common countermeasures to address money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. For more information about the CFATF, please visit the website: www.cfatf.org This report was adopted by the Caribbean Financial Action Task Force (CFATF) at its November 2023 Plenary held in Noord, Aruba. Citing reference: CFATF (2023). Anti-Money Laundering and Counter-Terrorist Financing Measures – Virgin Islands (British), Mutual Evaluation Report, https://www.cfatf-gafic.org/documents/4th-round-meval-reports © 2023 CFATF. All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Requests for permission to further disseminate reproduce or translate all or part of this publication should be obtained from the CFATF Secretariat at [email protected] Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  3 Table of Contents EXECUTIVE SUMMARY 7 Key Findings 7 Risks and General Situation 10 Overall Level of Compliance and Effectiveness 10 Assessment of risk, coordination and policy setting (Chapter 2; IO.1, R.1, 2, 33 & 34) 10 Financial intelligence, ML investigations, prosecutions and confiscation (Chapter 3; IO.6, 7, 8; R.1, 3, 4, 29– 32) 11 Terrorist and proliferation financing (Chapter 4; IO.9, 10, 11; R. 1, 4, 5–8, 30, 31 & 39.) 12 Preventive measures (Chapter 5; IO.4; R.9–23) 14 Supervision (Chapter 6; IO.3; R.14, R.26–28, 34, 35) 14 Transparency and beneficial ownership (Chapter 7; IO.5; R.24, 25) 16 International cooperation (Chapter 8; IO.2; R.36–40) 17 Priority Actions 17 Effectiveness & Technical Compliance Ratings 19 Table 1. Effectiveness Ratings 19 Table 2. Technical Compliance Ratings 20 MUTUAL EVALUATION REPORT 21 Preface 21 CHAPTER 1. ML/TF RISKS AND CONTEXT 22 1.1. ML/TF Risks and Scoping of Higher-Risk Issues 23 1.1.1. Overview of ML/TF Risks 23 1.1.2. Country’s Risk Assessment & Scoping of Higher Risk Issues 24 1.2. Materiality 26 1.3. Structural Elements 26 1.4. Background and Other Contextual Factors 26 1.4.1 AML/CFT strategy 27 1.4.2. Legal & institutional framework 27 Policy Co-Ordination Bodies 27 1.4.3 Financial sector, DNFBPs, NPOs and VASPs 30 1.4.4. Preventive measures 36 1.4.5 Legal persons and arrangements 37 1.4.6. Supervisory arrangements 39 1.4.7. International cooperation 39 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION 41 2.1. Key Findings and Recommended Actions 41 KEY FINDINGS 41 RECOMMENDED ACTIONS 41 2.2. Immediate Outcome 1 (Risk, Policy, and Coordination) 42 2.2.1. Country’s understanding of its ML/TF risks 42 2.2.2. National policies to address identified ML/TF risks 47 2.2.3. Exemptions, enhanced and simplified measures 48 2.2.4. Objectives and activities of competent authorities 48 2.2.5. National coordination and cooperation 49 2.2.6. Private sector’s awareness of risks 50 CHAPTER 3. LEGAL SYSTEM AND OPERATIONAL ISSUES 52 3.1 Key Findings and Recommended Actions 52 RECOMMENDED ACTIONS 54 3.2 Immediate Outcome 6 (Financial Intelligence ML/TF) 56 FIA Overview 56 3.2.1. Use of financial intelligence and other information 57 3.2.2. Reports (STRs etc.) received and requested by competent authorities 59 3.2.3. Operational needs supported by FIU analysis and dissemination 63 Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  4 3.2.4. Cooperation and exchange of information/financial intelligence 66 OVERALL CONCLUSIONS ON IO.6 68 3.3 Immediate Outcome 7 (ML investigation and prosecution) 68 General overview 68 3.3.1. ML identification and investigation 70 3.3.2. Consistency of ML investigations and prosecutions with threats and risk profile, and national AML policies 73 3.3.3. Types of ML cases pursued 75 3.3.4. Effectiveness, proportionality, and dissuasiveness of sanctions 76 3.3.5. Use of alternative measures 77 3.4. Immediate Outcome 8 (Confiscation) 78 Background 78 3.4.1. Confiscation of proceeds, instrumentalities, and property of equivalent value as a policy objective 78 3.4.2. Confiscation of proceeds from foreign and domestic predicates, and proceeds located abroad 79 3.4.3. Confiscation of falsely or undeclared cross-border transaction of currency/BNI 82 3.4.4. Consistency of confiscation results with ML/TF risks and national AML/CFT policies and priorities 83 OVERALL CONCLUSIONS ON IO.8 84 CHAPTER 4. TERRORIST FINANCING AND FINANCING OF PROLIFERATION 85 4.1. Key Findings and Recommended Actions 85 KEY FINDINGS 85 IMMEDIATE OUTCOME 9 85 IMMEDIATE OUTCOME 10 85 RECOMMENDED ACTIONS 86 IMMEDIATE OUTCOME 9 86 Immediate Outcome 9 (TF investigation and prosecution) 87 4.2.1. Prosecution/conviction of types of TF activity consistent with the country’s risk-profile 87 4.2.2. TF identification and investigation 88 4.2.3. TF investigation integrated with—and supportive of—national strategies 90 4.2.4. Effectiveness, proportionality and dissuasiveness of sanctions 90 OVERALL CONCLUSIONS ON IO.9 90 Immediate Outcome 10 (TF preventive measures and financial sanctions) 91 4.3.1. Implementation of targeted financial sanctions for TF without delay 91 4.3.2. Targeted approach, outreach and oversight of at-risk non-profit organizations 93 4.3.3. Deprivation of TF assets and instrumentalities 94 4.3.4. Consistency of measures with overall TF risk profile 95 OVERALL CONCLUSIONS ON IO.10 95 4.4. Immediate Outcome 11 (PF financial sanctions) 95 4.4.1. Implementation of targeted financial sanctions related to proliferation financing without delay 95 4.4.2. Identification of assets and funds held by designated persons/entities and prohibitions 96 OVERALL CONCLUSIONS ON IO.11 99 CHAPTER 5. PREVENTIVE MEASURES 100 5.1. Key Findings and Recommended Actions 100 5.2. Immediate Outcome 4 (Preventive Measures) 101 5.2.1. Understanding of ML/TF risks and AML/CFT obligations 102 5.2.2. Application of risk mitigating measures 105 5.2.3. Application of CDD and record-keeping requirements 106 5.2.4 Application of EDD measures 108 5.2.5. Reporting obligations and tipping off 110 5.2.6. Internal controls and legal/regulatory requirements impending implementation 113 OVERALL CONCLUSIONS ON IO.4 113 CHAPTER 6. SUPERVISION 114 6.1. Key Findings and Recommended Actions 114 KEY FINDINGS 114 Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  5 RECOMMENDED ACTIONS 115 6.2. Immediate Outcome 3 (Supervision) 116 6.2.1. Licensing, registration and controls preventing criminals and associates from entering the market 117 6.2.2. Supervisors’ understanding and identification of ML/TF risks 121 6.2.3. Risk-based supervision of compliance with AML/CFT requirements 127 6.2.4. Remedial actions and effective, proportionate, and dissuasive sanctions 133 6.2.5. Impact of supervisory actions on compliance 136 6.2.6. Promoting a clear understanding of AML/CFT obligations and ML/TF risks 136 OVERALL CONCLUSIONS ON IO.3 137 CHAPTER 7. LEGAL PERSONS AND ARRANGEMENTS 139 7.1. Key Findings and Recommended Actions 139 KEY FINDINGS 139 RECOMMENDED ACTIONS 140 7.2. Immediate Outcome 5 (Legal Persons and Arrangements) 141 7.2.2. Public availability of information on the creation and types of legal persons and arrangements 142 7.2.3. Identification, assessment and understanding of ML/TF risks and vulnerabilities of legal entities 142 7.2.4. Mitigating measures to prevent the misuse of legal persons and arrangements 144 7.2.5. Timely access to adequate, accurate and current basic and beneficial ownership information on legal persons 146 7.2.6. Timely access to adequate, accurate and current basic and beneficial ownership information on legal arrangements 150 7.2.7. Effectiveness, proportionality, and dissuasiveness of sanctions 151 OVERALL CONCLUSIONS ON IO.5 153 CHAPTER 8. INTERNATIONAL COOPERATION 154 8.1. Key Findings and Recommended Actions 154 KEY FINDINGS 154 RECOMMENDED ACTIONS 155 8.2. Immediate Outcome 2 (International Cooperation) 155 8.2.1. Providing constructive and timely MLA and extradition 155 8.2.2. Seeking timely legal assistance to pursue domestic ML, associated predicates, and TF cases with transnational elements 159 8.2.3. Seeking other forms of international cooperation for AML/CFT purposes 160 8.2.4. Providing other forms international cooperation for AML/CFT purposes 162 8.2.5. International exchange of basic and beneficial ownership information of legal persons and arrangements 165 OVERALL CONCLUSIONS ON IO.2 170 Technical Compliance Annex 172 Recommendation 1 Assessing Risks and Applying a Risk-Based Approach 172 Recommendation 2 National Co-operation and Co-ordination 174 Recommendation 3 Money laundering offence 175 Recommendation 4 Confiscation and Provisional Measures 178 Recommendation 5 Terrorist Financing Offence 181 Recommendation 6 Targeted Financial Sanctions related to Terrorism and Terrorist Financing 183 Recommendation 7 Targeted Financial Sanctions related to Proliferation 188 Recommendation 8 Non-profit organisations (NPOs) 191 Recommendation 9 Financial Institution Secrecy Laws 195 Recommendation 10 Customer due diligence (CDD) 195 Recommendation 11 Record Keeping 199 Recommendation 12 Politically Exposed Persons (PEPs) 200 Recommendation 13 Correspondent banking 201 Recommendation 14 Money or Value Transfer Services (MVTS) 202 Recommendation 15 New Technologies 203 Recommendation 16 Wire transfers 206 Recommendation 17 Reliance on Third Parties 209 Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  6 Recommendation 18 Internal Controls and Foreign Branches and Subsidiaries 210 Recommendation 19 Higher Risk Countries 212 Recommendation 20 Reporting of Suspicious Transactions 213 Recommendation 21 Tipping-off and Confidentiality 213 Recommendation 22 Designated Non-Financial Businesses and Professions (DNFBPs): Customer Due Diligence 214 Recommendation 23 DNFBPs: Other Measures 215 Recommendation 24 Transparency and Beneficial Ownership of Legal Persons 215 Recommendation 25 Transparency and Beneficial Ownership of Legal Arrangements 221 Recommendation 26 Regulation and Supervision of Financial Institutions 222 Recommendation 27 Powers of Supervisors 225 Recommendation 28 Regulation and Supervision of DNFBPs 226 Recommendation 29 Financial Intelligence Units (FIU) 229 Recommendation 30 Responsibilities of Law Enforcement and Investigative Authorities 231 Recommendation 31 Powers of Law Enforcement and Investigative Authorities 232 Recommendation 32 Cash Couriers 234 Recommendation 33 Statistics 235 Recommendation 34 Guidance and Feedback 236 Recommendation 35 Sanctions 237 Recommendation 36 International Instruments 238 Recommendation 37 Mutual Legal Assistance 239 Recommendation 38 Mutual Legal Assistance: Freezing and Confiscation 242 Recommendation 39 Extradition 243 Recommendation 40 Other Forms of International Co-operation 244 SUMMARY OF TECHNICAL COMPLIANCE – KEY DEFICIENCIES 250 Annex Table 2. Compliance with FATF Recommendations 250 Annex C. Glossary of Acronyms 253 Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  7 EXECUTIVE SUMMARY 1. This report summarizes the anti-money laundering/combating the financing of terrorism (AML/CFT) measures in place in the Virgin Islands (VI) as at the date of the onsite visit of March 15–30, 2023. It analyses the level of compliance with the Financial Action Task Force (FATF) 40 Recommendations and the level of effectiveness of VI’s AML/CFT system and provides recommendations on how the system could be strengthened. Key Findings a. The overall understanding of money laundering (ML) and terrorist financing (TF) risks in the VI is fair and narrow, particularly with respect to the design of VI legal persons and legal arrangements, and their misuse abroad. The relevant authorities and key reporting institutions broadly view the illicit activities of the foreign beneficial owners as having an insufficient nexus with the territory and do not consider that VI entities are directly involved in such activities. This understanding of the risks that VI entities play in the layering and integrating phase of ML and TF activities abroad has cascading negative effects on the overall effectiveness of the AML/CFT system. b. Financial intelligence is used by several competent authorities and other public sector agencies in their operations. However, regarding competent authorities such as the Financial Services Commission (FSC), Financial Investigation Agency (FIA)-Supervisory and Enforcement Unit (SEU), and other authorities such as the Ministry of Natural Resources, Labour and Immigration (MNRLI), this use is mainly for the purpose of conducting background checks, regulatory due diligence, and compliance instead of the investigation of ML/FT cases. c. There have been challenges regarding the quality of the FIA’s Analysis and Investigations Unit’s (FIA-AIU) intelligence, which impacted the Royal Virgin Island’s Police Force’s (RVIPF) Financial Crime Unit’s (FCU) use of the FIA-AIU’s disseminations to progress ML and TF investigations. The FCU and FIA lately have sought to work collaboratively to address these issues, resulting in eight investigations which have recently commenced exploiting financial intelligence from the FIA. d. Overall, the number of investigations, prosecutions, and convictions for ML is low for a significant corporate and financial center such as the VI. Most ML cases comprise simple cases of possession of cash proceeds derived for drug trafficking. This limited outcome is due to the lack of comprehensive financial investigations aiming at identifying, locating, and seizing the proceeds of ML and predicate offences. 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 Island Business Companies (BVIBCs) allegedly committed abroad and maintaining related investigations and prosecutions within the VI. The authorities have not initiated any (i) large-scale ML investigations, (ii) cross-border investigations, (iii) investigations with respect to the potential criminal activities of BVIBCs reportedly involved in foreign predicates, or (iv) investigations relating to third-party laundering. The recent increase of investigative staff, as well as the consequences of the Commission of Inquiry (CoI) report on corruption are commendable and have prompted authorities to take a more forceful approach to ML. e. Significant amounts of cash were seized and forfeited during the period under review,1 mainly derived from drug trafficking. However, confiscation is not treated as a policy objective, and there 1 Based on the available data, the team has focused on the outcomes achieved over approximately the past five years. This is referred to in this report as the “period under review.” Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  8 were no investigations aiming at identifying and locating criminal assets in the jurisdiction and abroad. Forfeiture is largely limited to cash seized on arrested persons, and criminal confiscation procedures have not been used so far. In addition, the regime for asset management is only nascent. f. The VI identified and investigated a small number of TF cases and did not prosecute or convict TF activities over the assessed period, which is broadly consistent with the low TF-risk profile of the territory. On the other hand, the FCU demonstrated some preparedness to identify, prioritize, and investigate TF cases, although there is a need to improve financial investigations capacity. g. United Nations Security Resolutions (UNSCRs) have immediate legal effect in the VI, and a framework is in place to implement targeted financial sanctions (TFS) for TF and proliferation financing (PF) without delay. However, variances in the frequency of screening by reporting entities, the lack of sufficient mechanisms for the identification of potential targets for designation and sanctioned assets, and inconsistent understanding among reporting entities of legal obligations undermine effective implementation of TFS. Additionally, supervisory activities are not sufficiently rigorous to ensure that effective implementation of TFS is taking place. h. While TF risk is recognized as being low, the authorities have not identified the subset of nonprofit organizations (NPOs) that are vulnerable to TF abuse nor the specific TF threats facing the NPO sector in VI, spreading limited resources over a large number of NPOs, most of which are unlikely to pose a TF risk. The FIA’s supervisory approach does not appear to be sufficiently robust, risk- based, and aimed at potentially mitigating the specific risk of TF. i. All banks and some legal practitioners demonstrated a good understanding of their ML risks and AML/CFT obligations. Such understanding is, however, very heterogenous in the trust and company service providers (TCSP) sector and insufficient in certain segments of the investment business sector, which constitute the most important sectors in the VI in terms of materiality and are most exposed to ML/TF risks. In addition to observed weaknesses in the ML risk understanding and mitigating controls implemented by other financial institutions (FIs) and designated non- financial businesses and professions (DNFBPs), the measures employed by the entities continue to be rather rule-based and not sufficiently aligned with ML/TF risks. j. While improvements in the implementation of customer due diligence (CDD) measures by the FSC-supervised entities are positive, there are remaining obstacles that undermine effective implementation of CDD and enhanced due diligence (EDD) measures in both the financial and non-financial sectors. The application of the recently amended beneficial ownership requirements by all sectors, including the TCSP and investment business sectors, is itself an improvement, but generally remains too focused on determining ownership. Accordingly, a fully adequate understanding of the concept of control over a legal person and arrangement is yet to be demonstrated. Considering VI’s profile as an international business incorporation and financial center, serious deficiencies in the implementation of CDD requirements, including beneficial ownership requirements and EDD measures by VI’s TCSP and investment business sectors, have a major negative impact on VI’s overall level of compliance with preventive measures. Furthermore, important deficiencies in suspicious activity reports (SARs) also continue to exist. k. Reliance on professional business introducers (both intra-group and third parties) for CDD and record-keeping purposes is a widely used practice in VI’s TCSP sector. While such reliance is permitted under the FATF Standards, the sector insufficiently demonstrated that associated ML/TF risks are adequately identified, fully understood, mitigated, and monitored. The very recent introduction of a supervisory regime for virtual asset service providers (VASPs) is a positive step, but, at the time of the assessment, there was no evidence yet, that preventive measures are already being implemented by the VASPs that are operating in and from the VI. Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  9 l. A supervisory framework is in place at both supervisory agencies with the FSC’s being most developed. However, effective risk-based supervision could only be demonstrated to a limited extent. While the FSC collects a broad range of data for risk identification, its risk model is not effectively supporting the assessment of the most important ML/TF risks, nor prioritization of its supervisory activities targeting those higher risk licensees. The FSC carries out the most onsite inspections in the TCSP sector, as the sector with the highest ML/TF risk. However, the number of inspections is still very low for TCSPs, extremely low for investment businesses, and low for banks. The inspections do not ensure that (residual) risks from ownership and control structures of clients and active companies are effectively covered by licensees, nor concerning business introductions. The FIA’s institutional risk assessments are developing but are not systematically and consistently conducted and lead to only a basic understanding of institutional ML/TF risk. Remediation of identified deficiencies is effectively achieved through remedial action plans (RAP) in the TCSP sector but to a lesser extent in the investment business sector. The FIA increasingly applies this instrument including in response to identified deficiencies in AML/CFT controls. Where penalties are imposed by the FSC, those cannot be considered effective, proportionate, and dissuasive in most cases, and no monetary penalties have been imposed by the FIA. Market entry controls do not effectively prevent criminals and associates from owning, controlling, and/or managing (applicant) licensees in any sector, nor is the potential criminal history of relevant foreign persons systematically verified. m. The VI’s system for holding adequate, accurate, and up-to-date basic and beneficial ownership information for legal persons and arrangements is dependent on information collected by TCSPs, providing registered agent services. Therefore, the overall effectiveness of this system is impacted by shortcomings in the effective implementation of CDD and other preventive measures taken by the registered agents, and the ability of supervisors to effectively supervise TCSPs and other gatekeepers. Basic information is held by the Registrar of Companies, in the Virtual Integrated Registry and Regulatory General Information Network (VIRRGIN) platform, but this information is only accessible to the public based on search requests submitted via email, at a fee, and is not directly accessible to all competent authorities (domestic and international). Information on directors may not be available to the registry for several months and was not publicly available until January 2023. TCSPs can be licensed to provide nominee shareholder services and director services, but authorities have not sufficiently implemented measures to mitigate the possible misuse of such arrangements. Bearer shares have been immobilized and most recently prohibited, which is a positive development. Recent amendments to the legal framework are equally commendable and can support efforts to ensure the availability of up-to-date beneficial ownership information in the VI, going forward. n. The VI generally provides mutual legal assistance (MLA) within a reasonable timeframe and its quality is generally good. However, the scarce outgoing requests for MLA and other forms of international cooperation concerning ML is not consistent with the overall medium-high ML risk of the country, particularly with respect to the risks posed by international activity carried out by the VI’s corporate and financial sector. 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. Despite this, staffing issues and case management capabilities may occasionally impact the timeliness of the cooperation provided by the Attorney General’s Chambers (AGC) and the RVIPF. With respect to the provision of basic and beneficial ownership information of legal persons and arrangements, while the VI demonstrated a willingness to assist in this regard, limitations in the effectiveness of the beneficial ownership regime have the potential to impact the quality and usefulness of the information available for exchange. Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  10 As a contextual factor, the resources and capabilities of the VIs’ authorities in the fight against ML and TF 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. Risks and General Situation 2. The VI is a very small jurisdiction with a low level of domestic predicate crimes. The main domestic proceeds-generating crimes are drug trafficking, smuggling, and domestic corruption. The VI’s significant corporate and financial services sector faces a high-threat from foreign proceed-generating crimes, including corruption, fraud, tax evasion, and ML. Domestic TF and PF risks are broadly low; however, these threats are considered elevated at the international level, particularly, through the misuse of VI entities. 3. The TCSP sector and the services offered to establish legal persons and legal arrangements to foreign customers present the greatest ML/TF risks. 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 onsite visit. Large-scale reliance on professional business introducers without implementing adequate safeguards to protect against ML/TF risks is also a vulnerability. Resource constraints, including caused by external events such as the hurricanes and the pandemic, are a significant vulnerability and impacts effectiveness of law enforcement and supervision. Virtual assets (VAs) and VASPs are identified as emerging and high risks, which mostly relate to entities established in the VI and conducting virtual activities outside the country. Overall Level of Compliance and Effectiveness Assessment of risk, coordination and policy setting (Chapter 2; IO.1, R.1, 2, 33 & 34) 4. The overall understanding of ML/TF risks among competent authorities, as demonstrated during the assessment, is fair and narrow, notably with respect to mitigation. The authorities have conducted several written risk assessments (the most recent one being the 2022 ML Risk Assessment (MLRA)). The most significant threats identified were coming from foreign criminal activities (such as tax evasion, corruption, and fraud) through the misuse of VI entities. However, the authorities view that the illicit activities committed abroad by foreign beneficial owners do not have a sufficient nexus with the country, and VI entities are not directly involved in the foreign predicate offenses. The authorities have not demonstrated a sufficient appreciation of the vulnerabilities of such legal persons and legal arrangements specific to the VI context, and their risk potential for contributing to the concealment of foreign criminal proceeds and their ownership outside the country (e.g., forming part of complex corporate structures), which has negatively impacted possible mitigation measures. The FSC has an insufficient understanding of the inherent vulnerabilities of licensed TCSPs when it comes to ownership and control of their clients and active VI entities, including the complexity of the VI’s corporate formation practices and the role played by TCSPs and other gatekeepers. During the onsite visit, the assessors were provided with the most recent 2022 MLRA (which was a more streamlined version of the previous 2016 National Risk Assessment (NRA)), and assessors are encouraged by the authorities’ commitment as evidenced by the publishing of the results of the 2022 risk assessment in June 2023. 5. The activities of the competent authorities are narrowly focused and do not fully respond to and mitigate the identified risks in the country, especially the associated risks from the misuse of VI legal persons and legal arrangements, in light of the VI’s profile as a corporate and financial center. Threats from foreign crimes that misuse VI legal persons and legal arrangements are not effectively addressed since law enforcement efforts are largely directed at investigating domestic drug trafficking threats and associated crimes. Efforts to investigate and detect proceeds from foreign predicate offenses and those facilitated by Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  11 legal persons and legal arrangements created in the VI (including TCSPs responsible for establishing them) are not reflective of the heightened threat level. There have been no ML convictions arising from financial intelligence received from the FIA-AIU. The supervisory authorities (FSC and FIA-SEU) were not able to demonstrate that their activities are consistent with the identified risks. The assessment team viewed the FSC’s supervisory activities and resources as being insufficient to cover the elevated risks assessed from the TCSP sector. 6. The 2021 National AML/CFT Policy and Strategy responds broadly to the ML/TF risks in the 2016 NRA. However, it needs to be updated in light of the new risk assessment and targeted towards the mitigation of the significant risks from the misuse of legal persons and legal arrangements. Through the AML/CFT Implementation Unit (IU), the authorities are monitoring and reporting on progress made to address vulnerabilities in the 2016 NRA. Once the AML/CFT Policy and Strategy is updated and aligned after the dissemination of the 2022 MLRA (which was made publicly available after the onsite visit), the authorities are encouraged to continue this practice of monitoring progress on the action items moving forward. Various competent authorities such as the FSC, RVIPF-FCU, and ODPP have operational policies and guidelines that make reference to addressing the domestic risks, but their implementation is not yielding adequate results in substantially mitigating them. 7. The VI has several coordinating bodies, which provide a good basis for domestic AML/CFT policymaking, but coordination at the operational level is limited. The coordinating bodies include high- level public officials and have overlapping membership with key AML/CFT agencies (such as the FSC, FIA, and the RVIPF), which is a positive element in terms of facilitating cooperation and information sharing. The Joint Anti-Money Laundering and Terrorist Financing Advisory Committee (JALTFAC) includes private sector representatives, which facilitates awareness-raising as to risks. There are shortcomings with respect to sharing information or intelligence among law enforcement agencies (LEAs), owing to governance vulnerabilities. The authorities have exerted good efforts to disseminate results of the risk assessment (including the published 2022 MLRA) but overall understanding of risks among the private sector is heterogenous. The authorities published and made accessible the risk assessment. The authorities engage in awareness-raising activities with the private sector through emails, seminars, outreach events, and videos. The private sector, however, had a more limited engagement in the conduct of the 2022 MLRA as compared to the 2016 NRA, but the authorities intend to conduct similar awareness-raising activities. Nevertheless, the assessment team notes the shortcomings on integrating risks identified in the NRA in the institutional risk assessments of the private sector, especially in light of the vulnerabilities from heavy reliance on professional business introducers, and accuracy of foreign beneficial ownership information of VI legal persons and legal arrangements. Financial intelligence, ML investigations, prosecutions and confiscation (Chapter 3; IO.6, 7, 8; R.1, 3, 4, 29–32) 8. Financial intelligence is being requested and used by some VI competent authorities in their operations. The FIA-AIU is well equipped with human resources, relevant equipment, and software to conduct its functions of receiving, requesting, analyzing, storing, and disseminating intelligence. The primary user of the FIA’s intelligence is the FSC, which uses intelligence mostly in conducting its regulatory compliance functions. Financial intelligence is disseminated by the FIA to the FCU (police), however, it is ultimately not being used to prosecute ML and TF. There has been a recent effort by the FCU to incorporate financial intelligence into its investigations resulting in the referral of four cases to the ODPP, which, if continued, should have a long-term positive impact on effectiveness, but not yet. The use of financial intelligence from the FIA by the FCU during the review period has been limited. Challenges identified by the FCU regarding the quality of the FIA’s intelligence disseminations are being addressed in the form of monthly meetings between the FCU and the FIA. 9. The FIA is not receiving SARs (suspicious activity reports) consistent with the VI-assessed ML/TF risk. While there have been SARs received from some higher risk sectors such as VASPs, the majority of Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  12 these SARs would have been reported by one entity. This phenomenon is further described in Chapter 5, Immediate Outcome (IO.) 4. 10. ML investigations are limited to a few cases per year of possession of proceeds of criminal conduct (PCC), mainly in the form of cash found during routine operations or when suspects were apprehended. Subsequent investigations were very limited in scope and did not seek to identify the source of the cash seized or the nature of the predicate offence. The RVIPF is working to be more expansive in their investigations. The RVIPF makes limited use of financial intelligence. During the period under review, no investigation was carried out regarding the misuse of VI business companies involved in international ML schemes, and no complex, third-party, or cross-border ML case was investigated. 11. The limited investigatory actions of the FCU have been affected by constrained resources, insufficient investigative powers, limitations in financial intelligence, conflicting domestic views as to the basis to prosecute BVIBCs, their beneficial owners and related registered agents with respect to overseas illicit activities, and weak domestic co-ordination and intelligence gathering, among others. 12. Prosecution of PCC offences is usually carried out before the Magistrate’s Court. That court is subject to limitations in the sentences and thresholds in confiscation that this court may order. Between 2017 and 2022, 24 cases were prosecuted, including 19 cases for PCC and 5 other cases labelled as ML because cash was seized and forfeited. The cases were mainly related to drug trafficking, although the predicate offence investigations were very limited. No prosecution involved legal persons, legal arrangements, financial institutions (FIs), or designated non-financial businesses and professions (DNFBPs). Positively, there were convictions in all but one of the cases prosecuted. At the same time, the level of penalties proved to be very low, both in terms of imprisonment and fines. In this context, PCC cases brought to court are not consistent with the risk profile of the jurisdiction, in particular as it relates to foreign offences and domestic corruption or the misuse of legal persons or arrangements, except with regard to drug trafficking. 13. Significant seizures and forfeiture of cash were achieved during the period under review, for a total amount of US$5.7 million seized and US$4.4 million forfeited. The biggest seizures concern the interception of speed boats between the United States Virgin Islands (USVI) and the VI coasts. During the period under review, no other asset or instrumentality was forfeited, except for two boats and one car. The same factors that affect the RVIPF’s limited investigations also affect the jurisdiction’s confiscation activities. There has been no attempt to identify and locate the proceeds of predicate offences committed abroad. Until recently, no investigation was carried out to locate proceeds located abroad, and no MLA request was made to foreign authorities to this effect. Mechanisms for confiscation of property of an equivalent value have not been used so far, but six recent case files for confiscation were filed with the ODPP recently. While commendable, the existence of cash forfeiture cases only is not consistent with the risk profile of the jurisdiction, as they mainly relate to drug trafficking cases. No forfeiture was ordered for the proceeds of corruption or in ML cases involving VI legal persons. Terrorist and proliferation financing (Chapter 4; IO.9, 10, 11; R. 1, 4, 5–8, 30, 31 & 39.) 14. The VI complies with the requirements of Recommendation (R.) 5; on the other hand, LEAs responsible for the investigation of TF cases face challenges in connection with resources, powers, and the capacity to conduct financial investigations, inter agency co-ordination issues, and differences in views with respect to the nexus between the activities of BVIBCs and domestic investigations and prosecutions. 15. Considering the context of the country, the VI assessed the exposure of several FI and DNFBP sectors to the risk of supporting foreign terrorist activity as medium-low, while the domestic TF risk for all sectors was considered low, which is a reasonable conclusion, in the view of the assessment team. 16. Consistent with its TF risk profile, the VI identified and investigated a small number of TF cases between 2018 and 2022. Whereas the FIA-AIU and the RVIPF-FCU regard TF cases as a high priority, there is still value in continuing to train their staff in the identification of TF cases and increasing Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  13 investigative capacity in line with the findings related to IOs.6 and 7. The country did not prosecute or convict TF cases over the period under review. The ODPP and the Magistrate’s Courts are not specifically trained on TF. The VI did not establish a counter-terrorism strategy between 2018 and 2022. Moreover, the legal framework of the VI sets out potential alternative measures applicable where a TF conviction is not possible, but its effectiveness could not be assessed. 17. The VI is not effectively implementing TFS for TF or PF, despite an overall legal framework that meets many of the required elements. No assets have been identified or frozen under UNSCRs 1267, 1988, 1713, or 2231 and relevant successor resolutions. Until recently, no competent authority had any formal mechanism for identifying persons meeting designation criteria and some agencies were lacking effective systems for detection of persons or assets subject to sanctions. Law enforcement and other competent authorities do not proactively ascertain whether designated persons or sanctioned assets may be located in the territory, not even in instances in which a BVIBC has been implicated in a sanctions evasion scheme. Almost all leads on sanctions are generated abroad (e.g., press reports and foreign intelligence) and no domestic investigations have been opened despite 67 international SARs on TF, 8 inquiries from the UN Panel of Experts on North Korea, and several criminal proceedings in another jurisdiction involving foreign owners of BVIBCs. These leads have also not led to any designation or freezing activity. 18. While UNSCRs legally take immediate effect in the VI, due to the jurisdiction’s main reliance on the U.K. system in practice for the communication of these designations, TFS for TF and PF are not implemented in practice within the territory without delay. Throughout the review period, the authorities received notifications of new UN designations through the U.K. Foreign Commonwealth Office (FCO). As a result, up to or more than 24 hours would have passed before the competent authorities were made aware of and able to communicate on new designations. While not a legal requirement, in practice, most reporting entities rely on updates from competent authorities and the U.K. list for running sanctions screenings. Notably, after the assessment, competent authorities have taken steps to rely directly on the UNSC communications and less on the United Kingdom, which should have a positive impact in the longer term. 19. Finally, limited monitoring activities by supervisory authorities are not sufficient to provide assurance that reporting entities are effectively implementing TFS for TF and PF. FIs demonstrate a stronger appreciation of TFS than DNFBPs and generally have commercial screening systems in place. Ambiguities and inconsistencies between the domestic and United Kingdom frameworks (e.g., in reporting channels and the scope and timing of the freeze obligation) can potentially create confusion as to the applicable procedures. Supervisors vary in the extent to which they monitor compliance with TFS obligations. 20. The VI has not identified the subset of NPOs that are vulnerable to TF abuse. While the FIA understands the general threat of TF posed to NPOs through internationally recognized typologies, it does not appear to have identified the specific risks faced by VI’s NPO sector. The primary characteristic identified by the FIA as being potentially risky from a TF perspective, is the collection and transmission of money outside of the territory. The only risk assessment in the NPO sector that has been conducted by the FIA is the institutional risk assessment exercise that is intended to guide the FIA in its supervisory approach. Further, the FIA has not yet developed a risk-based inspection plan for NPOs as it is awaiting the results of a TF Risk Assessment that is scheduled to be issued later this year. As such, the FIA cannot be said to be currently applying risk-focused and proportionate oversight measures to the body of NPOs relevant for the assessment of IO.10. 21. While the authorities have carried out outreach to NPOs and issued guidance and training, this support has not been focused on TF. However, NPOs report good engagement with the FIA, and those interviewed also appear to be relatively cognizant of general TF risks that their sector could face and had compliance systems in place to identify high-risk donors. In other cases, NPOs interviewed also had measures to mitigate risks (related both to TF and other types of criminal activity) posed by the potential recipients of their charitable work. Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  14 Preventive measures (Chapter 5; IO.4; R.9–23) 22. All banks and some legal practitioners demonstrated a good understanding of their ML risks and AML/CFT obligations. Such understanding is very heterogenous in VI’s TCSP sector and insufficient for many investment businesses, which is not aligned with these sectors’ overall ML risk profiles set out in VI's risk assessments. TF risk understanding across the financial and DNFBP 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 BVIBCs for TFS evasion. While all FIs 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 addition, the results of these assessments were insufficiently used to drive the application of a risk-based approach (RBA). 23. No difficulties were observed in the implementation of record-keeping requirements by FIs and DNFBPs. While improvements in the implementation of CDD and EDD measures by FSC-supervised entities are positive, there are several remaining obstacles to effective implementation. One of these obstacles lies in TCSPs’ frequent reliance on professional business introducers for CDD and record-keeping purposes without sufficient evidence of safeguards to protect against associated ML/TF risks. In addition, while all banks, a minority of investment businesses and some legal practitioners, and a few of the larger TCSPs implement identification and verification requirements that are tailored to the customer’s risk profile, implementation of CDD and EDD requirements by other FIs and DNFBPs often remains rather rule-based without adequately taking into account ML/TF risks. There are also remaining deficiencies in the application of the recently amended beneficial ownership requirements by all types of FIs and DNFBPs because the focus is too often on determining ownership thresholds with insufficient attention being given to establishing the person(s) who may ultimately own or control the customer. 24. As a result of information sharing by the FSC and the FIA, all FIs and DNFBPs were familiar with the FATF’s lists of jurisdictions subject to a call for action (i.e., blacklist) and of jurisdictions with strategic deficiencies in their AML/CFT regimes (i.e., grey list). FIs have tools in place enabling them to ensure that wire transfers are accompanied by required information on the originator and the beneficiary. TF-related freezing and prohibition obligations are implemented to varying degrees by FIs and DNFBPs, and implementation does not appear to be effective and timely in all cases. 25. Reporting of suspicious activities is driven by a limited number of TCSPs and one bank who filed an overwhelming majority of reports. The absence of reporting by nearly 50 percent of licensed TCSPs and the entire investment business sector is inconsistent with these sectors’ risk profile. While the quality of SARs has been gradually improving, they only partially correspond to the main ML/TF threats to the VI. All FIs have programs against ML/TF in place and established relevant internal policies and procedures, but these were often not yet up to date nor implemented on a risk-sensitive basis. There is no evidence that the recently regulated VASP sector implements any of the preventive measures. Supervision (Chapter 6; IO.3; R.14, R.26–28, 34, 35) 26. While fit and proper requirements are in place for all sectors, they are not effectively applied to beneficial owners of (applicant) licensees due to the application by the authorities of a limited concept of beneficial ownership. Legislation was recently amended to reflect a broader concept in line with the standards, but effective implementation needs to follow. Furthermore, supervisors did not demonstrate that they apply effective mechanisms to validate information on the criminal history (and absence thereof) by applicants. Identification of unauthorized financial services businesses is undertaken with a principal focus on reducing reputational damage due to persons and entities purporting to act as FSC-licensed entities or BVIBCs for fraudulent purposes. Limited measures are taken to ensure that unregulated VA-related services are actively identified by the FSC to ensure proper registration and supervision. Following the introduction of the registration requirement on DNFBPs in 2022, the FIA is in the process of registering DNFBPs. Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  15 27. Supervisors demonstrated a limited understanding of ML/TF risk in their sectors and of individual regulated entities, with the FIA being more basic in its risk understanding. The FSC’s sectoral risk understanding reflects to some extent the high threat level of foreign proceeds of crime being laundered through BVIBCs, and the inherent vulnerabilities of the TCSP and investment business sectors. However, there seems to be a limited appreciation that illicit activities and the layering and integration of proceeds of crime by foreign beneficial owners of VI-established legal persons and arrangements are taking place abroad, and this is the source of a nexus in the VI, thus not generating adequate supervisory attention. The understanding of TF risk is lagging behind supervisors’ ML risk understanding. 28. The FSC gathers a wide range of data from the TCSP and investment business sectors to support its identification, analysis, and understanding of ML/TF risk at entity level of those sectors. However, this does not provide the FSC with sufficient information on beneficial ownership and business introductions. The information collected from the banking sector is less robust on ML/TF inherent vulnerabilities. The risk matrix the FSC applies for the purpose of calibrating the residual risks of every entity includes an assessment of both inherent risks and vulnerabilities and quality of internal controls. However, it only provides for an adequate institutional risk profile to a limited extent, since it does not sufficiently support the analysis and understanding of the risks associated with beneficial ownership and business introduction, which is considered an important vulnerability from a sectoral perspective. Overall, the risk matrix does not adequately mirror the data collected. 29. Additionally, the assessment of AML/CFT controls of individual entities under the model does not consider the specific sectoral vulnerabilities of legal persons and arrangements being misused in (international) schemes either, where it is not sufficiently targeted to provide for an adequate identification of appropriate mitigants in place. Therefore, the collection of such data depends on other sources such as inspections, which are limited in number and do not adequately address relevant risks. In addition, because the model’s overall risk rating includes a broad range of risks beyond ML/TF risks, an isolated use of the AML/CFT segment is insufficient, while the limited attribution of weight to this risk segment further limits the FSC’s institutional ML/TF risk understanding. The FIA’s risk matrix is (i) limited in its set up—it includes a limited set of inherent risk factors—and (ii) does not reflect a risk calibration on periodically collected data points on inherent vulnerabilities and implemented controls. 30. Neither the FSC nor the FIA could adequately demonstrate effective risk-based supervision. Their supervisory engagements with individual entities since 2018 are not prioritized or driven on the basis of ML/TF risk, which may be impacted also by the aforementioned deficiencies concerning an adequate identification and understanding of ML/TF risks. The FSC’s onsite supervisory engagements are mostly directed at the high-risk TCSP sector, but not necessarily at the highest-risk licensees within that sector. The most intensive supervisory tools—the full and thematic onsite compliance inspections—are not typically used to target the highest risk licensees, in the TCSP and investment business sectors. The supervisory coverage of inspections and desk-based reviews focus on a broad set of internal controls and preventive measures, but do not target (residual) risks from ownership and control structures of clients and introduced business. The FSC’s offsite engagements do provide the licensee with feedback where needed allowing it to address identified deficiencies. 31. The FSC effectively uses RAPs to ensure compliance following inspections at TCSPs, but to a lesser extent regarding the investment business and banking sector. The FSC has a wide range of enforcement actions available for breaches of any financial services legislation, it uses them to a limited extent, and, while an increased use is demonstrated in recent years, the penalties imposed are not considered effective, proportionate, and dissuasive. The FIA increasingly applies remedial actions, including in response to identified deficiencies in AML/CFT controls. 32. The FSC’s supervisory actions have had some demonstrated effect on its higher risk sectors’ compliance with the AML/CFT requirements. An increased level of compliance amongst TCSPs demonstrates that, particularly through FSC’s engagements and its continuous and open relationship with Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  16 the sectors, it has contributed to the improvement of licensees’ compliance with basic due diligence measures. The extent to which the FSC’s supervisory activities lead to improvements in important aspects of internal controls, the risk-based character of controls and measures was not demonstrated. The FIA was able to demonstrate its actions have a positive effect on DNFBPs seeking to register and apply for approval for their directors and senior officers, but not on entities’ compliance with their wider AML/CFT obligations. 33. The supervisory authorities provide general guidance on compliance with AML/CFT obligations to the different financial and DNFBP sectors. However, the issued guidance is not particularly tailored at VI’s higher risk sectors, their specific product and service offerings, and related vulnerabilities in an international context. The TCSP, VASP, and investment business sectors—who are in need of clear and adequate support to improve their understanding of the AML/CFT regime in the VI, given their ML/TF risks and context— are not specifically targeted by the FSC for these purposes. The supervisors’ activities regarding the publications of the previous sectorial risk assessments (SRAs) of 2020/2021 clearly supported the different sectors in their understanding of the outcomes of those risk assessments. Transparency and beneficial ownership (Chapter 7; IO.5; R.24, 25) 34. While the VI has taken steps towards assessing the risk of misuse of legal persons and arrangements, including through the 2020 SRA and recently published 2022 MLRA, there is a narrower understanding of risks posed by VI-created legal entities. Limitations in risk understanding, including in relation to the nexus between the VI-created legal entity and its foreign beneficial owners for enforcement, the understanding of complex legal structures and their impacts, and the inherent risks arising from the frequent reliance on professional business introducers to collect and verify beneficial ownership information without the proper mitigation measures, have an overall impact on the ability of competent authorities and the private sector to effectively mitigate against the misuse of these entities. 35. Basic information is held by the Registrar of Corporate Affairs through the VIRRGIN platform. This information is available to some competent authorities but is not easily accessible to the public who can only access it through submission of a search request via email to the Registrar and payment of a fee. In addition, director information was only required to be publicly available at the beginning of 2023 and is not collected during incorporation and may not be available to the Registry for several months. 36. The VI’s system for holding adequate, accurate, and up-to-date basic and beneficial ownership information of legal persons and arrangements is primarily dependent on information collected and held by TCSPs, providing registered agent services. Therefore, the overall effectiveness of this system is impacted by shortcomings in the effective implementation of CDD and other measures taken by the registered agents (including reliance on thresholds and risk-based nature of updating information), and the ability of supervisors to effectively supervise TCSPs and other gatekeepers. Recent amendments to the legal framework can support efforts to ensure the availability of up-to-date beneficial ownership information in the VI. 37. Legal arrangements (express trusts, trusts established under the VI Special Trusts Act (VISTA)) are not required to be registered, but some information is collected from TCSPs offering professional trustee services through annual returns. Notwithstanding, challenges remain in ensuring adequate, accurate, and up-to-date information is held on trusts and their beneficial owners, and it is not clear to what extent the information collected on trusts is being factored into the authorities’ risk-based supervision of TCSPs. 38. TCSPs can be licensed to provide nominee shareholder services and director services but it is unclear to what extent authorities are able to effectively mitigate against the risks of such services being offered by TCSPs for illicit purposes. In a positive development, bearer shares were immobilized and have now been prohibited. Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  17 39. While limited administrative fines have been issued, authorities have not imposed effective, proportionate, or dissuasive sanctions against registered agents to date. 40. While competent authorities were able to demonstrate their ability to furnish basic and beneficial ownership information in a timely manner in the context of international cooperation requests (subject, however, to other limitations highlighted in relation to IOs.3 and 5), they do not proactively seek international cooperation, and the VI has not investigated or prosecuted any cases of misuse of legal persons and arrangements. International cooperation (Chapter 8; IO.2; R.36–40) 41. Minor deficiencies in the implementation of the TF and Merida Conventions need to be addressed. Legislation to respond to MLA and extradition requests meets most requirements, but revisions are needed for timely asset freezing and sharing agreements. Some agencies have good legal frameworks for international cooperation, while others have a limited legal basis for cooperation. 42. The VI received a number of MLA requests over the period under review. Most of these focused on ML, which is consistent with its corporate and financial center profile, and its vulnerability to ML through the activities carried out by legal persons and legal arrangements and the potential inflows of proceeds of crime generated abroad. 43. The two outgoing MLA requests over the period under review and their nature were not consistent with the overall medium-high ML risk of the VI. The VI did not submit MLA requests or engage in other forms of international cooperation in relation to TF over the period under review, which is broadly consistent with the overall low TF risk profile of the country. In addition, the VI received only one extradition request, did not request any, and did not engage in the sharing or repatriation of assets. 44. The VI generally provided MLA within a reasonable timeframe, but staffing issues and the use of a predominantly manual system to manage requests occasionally impacts the timeliness of the execution of requests. While the assessment team could not confirm the quality of the MLA provided due to information gaps, it assessed that VI’s assistance contributed to exchanging useful information over the period under review. 45. Competent authorities sought and provided other forms of international cooperation in a timely manner to varying extents, and the quality of the assistance provided by some but not all agencies was duly demonstrated. Notably, some agencies face resource limitations in terms of staff and technological tools which impact the management of requests for assistance. 46. Several competent authorities engage in the exchange of basic and beneficial ownership information of legal persons and arrangements. In some instances, these authorities provide this information based on agreements or on an ad hoc basis. Although the VI demonstrates a willingness to assist in this regard, technical and operational limitations related to maintaining accurate and up-to-date beneficial ownership information impact the quality and the usefulness of the basic and beneficial ownership information available to competent authorities for exchange with international counterparts. Priority Actions a. The authorities should deepen their overall understanding of risks, particularly with respect to VI legal persons and legal arrangements, through a comprehensive analysis of their potential for misuse, especially abroad. This should include conducting typologies and country risk assessments of professional business introducers relied upon by TCSPs, and designing mitigating measures appropriate to its profile as a corporate and financial center. b. The FCU and FIA should coordinate and cooperate to determine how the FIA’s intelligence analysis can be improved and better used to support the FCU’s investigations of ML and TF to Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  18 ultimately achieve an effective use of the FIA’s analysis products in FCU investigations. These two authorities should also work together to ensure intelligence disseminated is in line with the VI’s assessed risks. c. There should be enhanced operational cooperation and information sharing between all competent authorities to build trust, as this is critical to investigating ML and TF and their associated predicate offences. This can be achieved, for example, by establishing task forces and joint investigations. d. The necessary resources should be made available to investigative and prosecutorial authorities to deal with large-scale and cross-border cases of ML and predicate offences related to serious crime (such as corruption) as well as those committed by BVIBCs and those involving VAs. e. 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 ML, whether such ML relates to drug offences or other crimes. f. Operational LEA co-ordination can be improved by enhancing intelligence collection and establishing task forces and joint investigatory teams. g. Confiscation should be a fundamental objective of serious and organized crime policies, and action should be taken to identify and locate criminal proceeds laundered in the jurisdiction (including non-cash assets) as well as assets located abroad. The necessary legal powers should be granted to investigators and prosecutors to achieve effective and speedy confiscation of proceeds, either located in the jurisdiction or abroad. h. The VI should promote collaboration between LEAs and the FIA to improve the analytical processing of TF cases and increase the chances that the dissemination of cases to the RVIPF-FCU results in TF criminal investigations. i. The VI should improve the effectiveness of TFS, including by increasing awareness and understanding of reporting entities of specific TFS obligations under various laws and overseas orders and expanding the coverage of this issue in supervisory programs. Authorities should, as a policy, proactively follow up on lead information, including from overseas and from public sources, that may prompt a domestic designation of persons or entities that meet the designation criteria for TF and TF TFS. j. The VI should conduct a risk assessment of the NPO sector specifically aimed at identifying the subset or types of NPOs within its broader NPO sector that are at risk of TF abuse and identify the specific TF threats faced by the NPOs registered in the VI. k. While the VI is a very small jurisdiction, the size of the TCSP sector (and related services) is large, even on a global scale. The resources of competent authorities that are dealing with the TCSP sector (e.g., supervisors) and related services (e.g., company registry), or with the ML vulnerabilities of the sector (e.g., law enforcement), should be proportional to the size and complexity of the sector. l. The VI should ensure that FIs and DNFBPs, especially the high(er) risk TCSP and investment businesses, take targeted measures to strengthen their ML/TF risk understanding and implement an adequate risk classification of their customers to drive the application of CDD and EDD measures, and effectively implement sufficient safeguards to protect against ML/TF risks associated to their reliance on professional business introducers for CDD and record-keeping purposes. m. The VI should take relevant supervisory actions (issuing guidance, delivering training, conducting inspections, and, where necessary, imposing proportionate and dissuasive sanctions) to ensure that all FIs and DNFBPs, especially the high(er) risk TCSP and investment business sectors, understand the concept of control over a legal person or arrangement and adequately implement beneficial ownership requirements in line with the 2023 amendments to the AMLTFCOP. Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  19 n. The VI should take targeted supervisory action to ensure that all categories of FIs and DNFBPs strengthen their customer and transaction monitoring systems to allow for the proactive identification and timely submission of SARs commensurate with the ML/TF threats to the VI. o. The FSC should continue to raise awareness of VASPs operating in or from the VI about their ML/TF risks and AML/CFT obligations and ensure that VASPs implement preventive measures. p. The supervisors should enhance their market entry controls ensuring the beneficial owners of (applicant) licensees are subjected to fit and proper tests and adopting more robust and comprehensive measures to verify that directors, senior officers, and beneficial owners are not criminals or their associates, at licensing/registration stage and on an ongoing basis. q. The FSC’s risk-based supervisory framework should be enhanced by ensuring that: (i) it enables an adequate understanding of licensees’ vulnerabilities from beneficial ownership issues, and (ii) institutional ML/TF risk profiles are developed sufficiently independently of prudential risks allowing for prioritization of AML/CFT supervisory engagements based on an adequate ML/TF risk understanding. r. Supervisors should increase the number of onsite inspections and better prioritize them on the basis of institutional ML/TF risks, while applying a better focus on the effectiveness of controls implementing the obligations to obtain and hold accurate and up-to-date information on beneficial owners, given the risk context of the licensee. Based on the outcomes of those inspections, the full set of remedial actions including dissuasive and proportionate monetary sanctions should be applied by both supervisors in case of AML/CFT breaches. s. The VI should take steps to ensure that competent authorities can obtain adequate, accurate, and current basic and beneficial ownership information, in a timely manner. This includes steps to improve the accessibility to basic information held by VIRRGIN, (for example, by making this information available online) and putting in place a beneficial ownership register of persons of significant control (as provided for in BVIBC Act (BVIBCA)), with a designated public authority responsible for receiving, holding, and verifying information to ensure that it is adequate, accurate, and up to date, with appropriate sanctioning powers. t. The VI should actively seek AML international cooperation from other jurisdictions in keeping with the VI’s risk profile and to support investigations into cross-border ML and TF that may involve BVIBCs, and ensuring that relevant competent authorities, such as the AGC and the RVIPF receive appropriate resources to process requests. Effectiveness & Technical Compliance Ratings Table 1. Effectiveness Ratings IO.1 IO.2 IO.3 IO.4 IO.5 IO.6 IO.7 IO.8 IO.9 IO.10 IO.11 ME ME LE LE ME LE LE LE ME LE LE Note: Effectiveness ratings can be either a High—HE, Substantial—SE, Moderate—ME, or Low—LE, level of effectiveness. Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  20 Table 2. Technical Compliance Ratings R.1 R.2 R.3 R.4 R.5 R.6 R.7 R.8 R.9 R.10 LC C LC LC C LC LC NC C LC R.11 R.12 R.13 R.14 R.15 R.16 R.17 R.18 R.19 R.20 LC LC C LC LC LC LC LC LC C R.21 R.22 R.23 R.24 R.25 R.26 R.27 R.28 R.29 R.30 C LC LC PC LC PC C PC C C R.31 R.32 R.33 R.34 R.35 R.36 R.37 R.38 R.39 R.40 LC LC C LC LC LC LC LC C LC Note: Technical compliance ratings can be either a C— compliant, LC— largely compliant, PC— partially compliant or NC—non-compliant. Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  21 MUTUAL EVALUATION REPORT Preface This report summarizes the AML/CFT measures in place as of the onsite visit. It analyzes the level of compliance with the FATF 40 Recommendations and the level of effectiveness of the AML/CFT system and recommends how the system could be strengthened. This evaluation was based on the 2012 FATF Recommendations and was prepared using the 2013 Methodology. The evaluation was based on information provided by the country, and information obtained by the evaluation team during its onsite visit to the country from March 15–20, 2023. The evaluation was conducted by an assessment team consisting of: Carolina Claver, Senior Financial Sector Expert, IMF (team leader); Robin Sykes, Senior Counsel, IMF (deputy team leader); Dwayne Baker, Director, Turks and Caicos Islands Financial Intelligence Agency (law enforcement expert); Francisca Fernando, Counsel, IMF (legal expert); Kathleen Kao, Senior Counsel, IMF (legal expert); Jonathan Pampolina, Senior Counsel, IMF (legal expert); Marijn Ridderikhof, Consultant (financial sector expert); Hector Sevilla, Deputy Executive Director, CFATF (legal expert); Jean-François Thony, Consultant (law enforcement expert); and Lia Umans, Consultant (financial sector expert). Ian Carrington (IMF Regional Technical Assistance (TA) Advisor) participated in the onsite mission, with Luisa Malcherek (IMF Financial Sector Expert) providing research support and Rafaela Calomeni, Rosemary Fielden, and Grant Riekenberg (all IMF) extending administrative support. The report was reviewed by Aseem Dalal, Deputy Commissioner, Ministry of Finance, Government of India; Nathalie Dusauzay, Director, Financial Sector Supervision Unit, Ministry of Finance, Saint Lucia; David Shannon, Director, Mutual Evaluations Quality & Consistency, Asia-Pacific Group; Maurene Simms, Deputy Governor, Banks and Financial Institutions, Bank of Jamaica; and the FATF Secretariat. The VI previously underwent a FATF Mutual Evaluation in 2008, conducted according to the 2004 FATF Methodology. The 2008 evaluation and 2010 Second Follow-Up Report, 2011 Third Follow-Up Report and 2012 First Biennial Report have been published on the Caribbean FATF (CFATF) website and are available at https://www.cfatf-gafic.org/cfatf-documents/follow-up-reports-2/virgin-islands. The 2008 Mutual Evaluation concluded that the country was compliant with 14 of the 40 Recommendations, largely compliant with 12, and partially compliant with 14. Out of the nine Special Recommendations, the VI was compliant with four Recommendations, largely compliant with three, partially compliant with one, and non-compliant with one. The VI was rated compliant on 7, largely compliant on 7, and partially compliant on 2 of the 16 Core and Key Recommendations. In its 2011 Third Follow-Up Report, the VI had achieved a rating of C or LC on all Core and Key Recommendations, thereby moving from regular follow-up to biennial updates. The assessment team is immensely grateful to the authorities of the Virgin Islands, for their continuous support and well-organized onsite visit. To undergo a mutual evaluation is challenging for any country, but especially so for small jurisdictions with relatively limited resources and which have been impacted by multiple catastrophes, such as the Virgin Islands. The assessment team recognizes the commitment and exemplary support provided by the authorities throughout the process. Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  22 Chapter 1. ML/TF RISKS AND CONTEXT 47. The Territory of the Virgin Islands (subsequently “Virgin Islands”) (VI) is one of the Overseas Territories (OT) of the United Kingdom. It is located within the VIs’ archipelago a few miles east of the United States Virgin Islands (USVI), some 60 miles east of Puerto Rico (United States), and approximately 110 miles west of Sint Maarten (Dutch Antilles). It consists of approximately 60 islands, islets, and cays, 20 of which are inhabited. The main islands are Tortola, Virgin Gorda, Anegada, and Jost Van Dyke. The capital, Road Town, is on Tortola, which houses the majority of the VIs’ population of approximately 32,000. The VI is home to residents from over 110 different countries and territories who make up approximately 70 percent of the local labor force. Virgin Islanders are British OT citizens and, since 2002, also British citizens. 48. The VI is internally self-governing and operates under the Westminster system with a Cabinet-style government. The United Kingdom maintains responsibility for external affairs and security and retains associated reserve powers in these areas. The Governor is appointed by the U.K. Government. The Premier is appointed by the Governor after general elections, as head of the political party receiving the majority of votes. The Ministers of Cabinet are appointed from among the members of the legislature and are not independently elected to executive office. They are accountable to the House of Assembly (i.e., the VI’s Parliament). The House of Assembly consists of 13 elected members, the Attorney General, and a non- elected Speaker selected by the elected members of the House. 49. The VI is a common law jurisdiction. U.K. laws are extended to the VI by way of Orders in Council, which exist in conjunction with domestic statutes, orders, and civil procedure rules. VI law provides that, in the absence of a relevant local provision or where there is a legislative conflict, English law or procedure shall apply. The judicial framework of the VI is similar to that of most English-speaking Caribbean countries and comprises four levels of Courts—the Magistrate’s Court, the High Court and the Court of Appeal, which are both part of the Eastern Caribbean Supreme Court (ECSC), and the Judicial Committee of the Privy Council which sits in London (see Immediate Outcome (IO.)7). 50. After the introduction of the corporate and financial services industry in the late 1970s, the VI today is one of the world’s leading corporate and financial centers with the U.S. dollar as the official currency. The primary sectors of the economy are tourism and corporate and financial services, with the latter sector contributing approximately 32.6 percent of the VIs’ gross domestic product (GDP), as of 2022. The VI is classified by the World Bank as a high-income country. Its GDP grew from US$1.30 billion in 2019 to US$1.39 billion in 2022. 51. During the period under review, the VI has faced external challenges beyond their control that have negatively impacted the country’s ability to effectively implement the Financial Action Task Force (FATF) standards. In September 2017, the VI was struck consecutively by the two category 5 hurricanes Irma and Maria, causing extreme flooding and extensive destruction of properties and infrastructure. Total damages to the VI were assessed at US$2.3 billion, significantly exceeding the VI’s 2017 GDP of US$1.3 billion. Tortola suffered the most significant damage with 85 percent of buildings destroyed and infrastructure severely damaged. The VI government imposed a state of emergency and three-month long civilian curfew. Land- and sea-based infrastructure of the tourism sector suffered severe destruction with the total cost estimated at US$1.1 billion. While some financial service providers had to temporarily relocate to other jurisdictions, the financial sector overall proved resilient and only saw a six percent decrease in active companies registered at the end of 2017. 52. The VI’s economy has been further impacted by the COVID-19 pandemic when the VI closed its borders in March 2020 and implemented a month-long 24-hour lockdown, domestic curfews, and business and tourism restrictions. Airline passengers were allowed entry in December 2020 while seaport travel reopened in January 2021. These restrictions and those of other countries significantly hampered the tourism sector’s recovery after the 2017 hurricanes. Tourism had declined by 72 percent in December 2020 Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  23 and has still not reached pre-pandemic levels. The restrictions also impacted the financial sector, which has seen an overall decrease in incorporations and revenue. The authorities’ activities over this period of time should therefore be viewed in the context of extreme challenges in maintaining government services, severely competing financial priorities and devastated infrastructure, which impacted both the legislative agenda as well as the effectiveness of governmental authorities under all 11 Immediate Outcomes. 1.1. ML/TF Risks and Scoping of Higher-Risk Issues 1.1.1. Overview of ML/TF Risks ML/TF Threats 53. Domestically, the main predicate crimes posing a higher ML threat to the VI are drug trafficking and associated cash smuggling, migrant smuggling, and corruption. Illicit trafficking in drugs in the territorial waters between the VI and the USVI, including the associated illegal movement of cash, poses a significant threat. Real estate agents, legal practitioners, and accountants can be used to conceal the proceeds from such activity. VI law enforcement agencies (LEAs) have noted an increase in the number of incidents and the quantity of drugs seized at ports of entry and at sea over the past years. Most cases of human smuggling to and through the VI originate from Haiti, Dominican Republic, Cuba, and Venezuela and are mostly destined for the USVI. 54. Since the 2020 sectoral risk assessments (SRAs) were conducted, the threat of domestic corruption, in particular, has intensified. Governance vulnerabilities among law enforcement institutions and possible negative consequences of corruption involving government officials have been noted in the 2016 national risk assessment (NRA) and 2022 Money Laundering Risk Assessment (MLRA). A Commission of Inquiry (CoI) established under the Commission of Inquiry Act (Cap. 139) in 2021 also examined the governance arrangements and corruption vulnerabilities of the public sector. Corruption cases involving LEAs and high-profile cases like the April 2022 arrest of the former Premier and the Managing Director of the VI Ports Authority on drug trafficking and money laundering (ML) charges have emphasized the issue. 55. The VI’s corporate and financial services sector and the companies incorporated in the VI face a high threat from proceeds-generating predicate offences committed overseas, involving the use of British Virgin Islands Business Companies (BVIBCs). VI legal persons and arrangements, including corporate vehicles and professional facilitators, are exposed to misuse from abroad (e.g., the laundering of proceeds of foreign predicates, using VI companies). Potential abuse can arise from criminal activity such as foreign corruption, international fraud, tax evasion, and ML. The illicit use of virtual assets (VAs) for criminal activities presents an emerging but high ML/terrorist financing (TF) threat in the VI through transactions involving unregulated BVIBCs operating as VA service providers (VASPs) and financial institutions (FIs) conducting VA-related business but not being registered as a VASP. 56. The VI faces a low TF/proliferation financing (PF) threat from domestic sources, whereas the possible cross-border TF threat is considered higher. There are no known terrorist groups, organizations, or individuals operating in or targeting the VI, or available data suggesting potential funding of overseas terrorist organizations by VI residents. As per the authorities’ own risk assessment, the VI is potentially exposed to a high foreign TF/PF threat through the possible misuse of corporate vehicles for the facilitation of cross-border trading activities and transactions, including those involving VASPs or VA products. ML/TF Vulnerabilities 57. Geographically, the VI is a transit point for illicit drugs, human trafficking, and cash smuggling into the United States. Porous borders, heavily trafficked waters, and proximity to the USVI and Latin America expose the VI to illicit activities, which are not matched with current intelligence, investigatory, and prosecutorial capacities. Information provided by the authorities indicates that the extent of the influence Anti-money laundering and counter-terrorist financing measures in Virgin Islands (British) – © 2024 | CFATF  24 of organized crime gangs is currently unknown, even though recent investigations have identified significant cases of firearms trafficking and seized significant quantities of drugs between the VI and the USVI. 58. The VI’s corporate services sector is vulnerable to exposure to illicit transactions, particularly involving trust and company service providers (TCSPs)2 and the companies they administer, as these entities and their ownership structures can be used to facilitate the conduct of ML/TF and foreign illicit activities. 59. Shortcomings in anti-money laundering/combating the financing of terrorism (AML/CFT) supervision and regulation of FIs and designated non-financial businesses and professions (DNFBPs) and a lack of law enforcement resources represent a significant ML/TF vulnerability. In view of the international dimension of crimes affecting the VI, the authorities have initiated measures to improve data collection and analytical systems to support the systematic identification of ML threats, and the detection and investigation of domestic and foreign predicate crimes. However, there have not been significant results that reflect these efforts. 60. Public sector corruption presents an acute vulnerability in the VI due to the identified institutional shortcomings and ineffective implementation of prevention measures. Successful investigation and prosecution are hindered by a lack of resources and inefficient data collection.3 The 2021 CoI report points to possible corruption and abuse of office by elected public officials and law enforcement officers, a lack of good governance standards, and insufficient capability to deter, investigate, and prosecute corruption offences. Highly vulnerable institutions include His Majesty’s Customs (HMC), RVIPF, the Department of Immigration (DOI), and the VI Ports Authority. Specific reports of alleged corruption and bribery relate to officials’ implication in human and drug trafficking operations and awards of high-value public contracts.4 1.1.2. Country’s Risk Assessment & Scoping of Higher Risk Issues 61. The VI completed its first NRA