BVI’s AML/CFT

1. BVI’s AML/CFT Mark McKenzie Director Policy Research & Statistics April 2006

2. Order of Presentation • Purpose • The FATF • Revised FATF 40 Recommendations • IMF’s AML/CFT Assessment • CFATF Mutual Evaluation • The Road Ahead

3. Purpose • To set out the FSC’s proposals to strengthen BVI’s anti-money laundering (AML) and anti-terrorist financing (ATF) framework.

4. FATF • FATF established by the G-7 Summit in 1989 to develop a co-ordinated international response to ML. • The FATF is the international standard setter in the area of AML and ATF

5. FATF • Produced the 40 Recommendations in 1990 • Revised in 2003 • Updated to ensure that they remain timely and relevant to the evolving threat of money laundering and terrorist financing. • They are a comprehensive blueprint for actions against money laundering and terrorist financing • The criminal justice system, • Law enforcement, • The financial system and its regulation, and • International co-operation.

6. Revised FATF 40 Recommendations • Introduce a number of key changes to a range of money laundering and terrorist financing measures, including: • The adoption of a stronger standard for money laundering predicate offences; • The extension of the customer due diligence process for financial institutions • “Enhanced” customer identification measures for high risk customers and transactions

7. Revised FATF 40 Recommendations • The coverage of designated non-financial businesses and professions (DNFBPs) • Accountants • Casinos (inc. Internet casinos) • Dealers of precious metals and stones • Lawyers; notaries and independent legal professionals • Real estate agents • Trust and company service providers(TCSPs)

8. IMF’s AML/CFT Assessment • Criminalisation of ML and TF • Rec1,4, 5 and SRII • PCCA, 1997 & DTOA, 1992 and 2 statutory instruments passed by the UK. • Not extensively used for prosecution in the territory • Support investigates and prosecutions overseas.

9. IMF’s AML/CFT Assessment • Criminalisation of ML and TF • Rec1,4, 5 and SRII • Need to increase prosecution locally where evidence exists to support domestic cases.

10. IMF’s AML/CFT Assessment • Confiscation of P.O.C. or property used for TF • Rec 7, 38 and SRIII • PCCA, 1997 & DTOA, 1992 , Criminal Code and the Drugs (Prevention of Misuse) Act • Recovery of monetary benefits derived from ML offences/activities.

11. IMF’s AML/CFT Assessment • Confiscation of P.O.C. or property used for TF • Rec 7, 38 and SRIII • No specific provision that allows for the forfeiture/confiscation of all property laundered, and • The proceeds from instrumentalities associated with a ML offence

12. IMF’s AML/CFT Assessment • Confiscation of P.O.C. or property used for TF • Rec 7, 38 and SRIII • IMF’s Rec. on No specific provision – challenged by the AG’s Chamber • Courts have inherent power to forfeit instrumentalities to the crown.

13. IMF’s AML/CFT Assessment • Confiscation of P.O.C. or property used for TF • Rec 7, 38 and SRIII • IMF asserts – legal provisions for freezing, seizure and confiscation are thus limited in reality/practice. • Additional provisions are needed to address property laundered or proceeds from instrumentalities used for ML and TF.

14. IMF’s AML/CFT Assessment • Confiscation of P.O.C. or property used to TF • Rec 7, 38 and SRIII • Confiscation authority and managing of confiscated assets has not been fully developed • Lack of statistics to support number of freezing, seizure and forfeiture/confiscation of assets.

15. IMF’s AML/CFT Assessment • FIA and processes for receiving, analysing and disseminating financial information and other intelligence at the domestic and international levels • Rec 14, 28 and 32 • Constitution of the FIA in 2003 • STR voluntary – should be made compulsory

16. IMF’s AML/CFT Assessment • Law Enforcement and prosecution authorities, powers and duties • Rec 37 • Concerns raised with regards to the structure of the FIA.

17. IMF’s AML/CFT Assessment • Legal and institutional framework for FIs • Rec 2 • Implementation of AML/CFT on-site inspection • Expand framework to cover money remitters and DBVI

18. IMF’s AML/CFT Assessment • Legal and institutional framework for FIs • Rec 2 • Concerned about eligible introducers • KYC and • Controls to ensure/monitor AML/CFT compliance • FSC verifies through on-site inspection • AMLCP requires eligible introducers to conduct CDD/KYC and maintain records on clients.

19. IMF’s AML/CFT Assessment • Legal and institutional framework for FIs • Rec 2 • External auditors (EA) to provide certifications on AML/CFT compliance to FSC • There should be direct communication between the FSC and the EA.

20. IMF’s AML/CFT Assessment • Customer Identification • Rec 10, 11 and SR VII • Expeditious implementation of AML/CFT on-site inspection • Enactment of money remitters legislation

21. IMF’s AML/CFT Assessment • Customer Identification • Rec 14, 21, 28 and SR VIII • AMLCP and GNs do not specifically require scrutiny for wire transfers that do not contain originator information • STR should be more stringent

22. IMF’s AML/CFT Assessment • Customer Identification • Rec 14, 21, 28 and SR VIII • The nature STR allow for regulated persons to withdraw from the transaction • Without additional scrutiny or filing of STR

23. IMF’s AML/CFT Assessment • Customer Identification • Rec 14, 21, 28 and SR VIII • Monitoring of ongoing accounts and transactions is minimally set forth • Legislation, and • Supervisory materials • If included would form stronger affirmative requirements for scrutiny of relationship

24. IMF’s AML/CFT Assessment • Record Keeping • Rec 12 • AMLCP requires FIs to maintain verification of identity and transaction records for at least five (5) years

25. IMF’s AML/CFT Assessment • STR • Rec 15, 16, 17 and 28 • Voluntary • AMLCP and AMLGNs require FIs to adopt and implement a policy to report STRs that have in fact been completed. • FIs need not file STRs in cases where a transaction is suspicious providing it is does not complete the transaction

26. IMF’s AML/CFT Assessment • STR • Rec 15, 16, 17 and 28 • Prohibits the opportunity for the authorities to detect suspicious or unusual transactions • No provision for the RA or other competent authorities to order blocking or freezing of transactions when a STR is filed.

27. IMF’s AML/CFT Assessment • STR • Rec 15, 16, 17 and 28 • Reporting of FT offences is mandatory under 2 statutory instruments passed by the UK • The Terrorism (UN Measures) (Overseas Territories) Order and • The Anti-Terrorism (Financial and Other Measure) (Overseas Territories) Order

28. IMF’s AML/CFT Assessment • STR • Rec 15, 16, 17 and 28 • STR should be mandatory • Need additional legal protection for FIs, directors and staff disclosing information through STRs. • Need provisions for the FIA or the FSC to freeze or block transactions or assets for brief period after STR has been filed.

29. IMF’s AML/CFT Assessment • Internal Controls Compliance and Audit • Rec 19 and 20 • AMLCP covers: • Internal control procedures • Suspicious transaction detection • STR • Training of relevant persons • No specifics provisions in AMLCP AMLGNs • For AML/CFT measure to be tested • Internal and external audits

30. IMF’s AML/CFT Assessment • Internal Controls Compliance and Audit • Rec 19 and 20 • FSC should prescribe audit procedures for internal or external auditors • To test compliance with AML/CFT procedures • Audit reports should be made available to the FSC

31. IMF’s AML/CFT Assessment • Internal Controls Compliance and Audit • Rec 19 and 20 • Implementation of on-site inspection • K-Review includes AML/CFT compliance testing • Finalization of the compliance officer regime • Approval process • Publish guidelines • Organize targeted training for CO

32. IMF’s AML/CFT Assessment • Internal Controls Compliance and Audit • Rec 19 and 20 • No enforceable legal instrument • Ensuring AML/CFT principles outlined in the AMLCP and the AMLGNs • Applied to overseas branches and subsidiaries of domestic FIs

33. IMF’s AML/CFT Assessment • Integrity Standards • Rec 29 • Adequate fit and proper assessment • Licensing stage and • On an on-going basis • MF Manager and Investment Advisors are excluded • Bearer shares immobilized • Fit and Proper test conducted during both on-site and off-site inspection.

34. IMF’s AML/CFT Assessment • Enforcement Powers and Sanctions • Provided in the FSC Act. • Legal and Enforcement Division adequately staffed

35. IMF’s AML/CFT Assessment • Cooperation between Supervisors and Competent Authorities • Rec 26 • Procedures for exchange of information on a supervisory basis not detailed in the FSC Act

36. IMF’s AML/CFT Assessment • Cooperation between Supervisors and Competent Authorities • Rec 26 • FSC to formalize specific procedures • Governing the scope of requests • Sufficiency of request received • The timing of responses • The specific controls governing the use of such request/information

37. IMF’s AML/CFT Assessment • Cooperation between Supervisors and Competent Authorities • Rec 26 • IMF Recommends that the FSC • Develops controls and procedures governing the gateway for disclosure of information • Who in the FSC may decide on request • The level of assistance to be provided • Specific procedures to ensure non-public information and confidential supervisory information can be exchanged • Subject to proper data security measures

38. CFATF’s Mutual Evaluation • Guidance Notes • CFATF recommends that the FSC • Establishes specific GNs for dealing with FT issues. • Brings AML and FT GNs within the law.

39. CFATF’s Mutual Evaluation • Role of JAMLACC • Should be more clearly defined and visible if existence is determined to be relevant • To be formally revived • Definition of ‘cash’ in Drug Trafficking Offences Act, 1992 • Should be expanded to include bearer negotiable instruments

40. CFATF’s Mutual Evaluation • Introducer Framework • CFATF recommends that the FSC • Require FIs to obtain identification documents from introducers prior to establishing business relationships

41. The Road Ahead • Implications of the FATF’s Revised 40 + 9 • Customer Due Diligence • AML for DNFBPs • Corporate transparency • International Co-operation

42. The Road Ahead • FATF’s 9 SR on TF • Ratification and implementation of the UN instruments • Criminalizing TF • Freezing and confiscating terrorist assets • STR related to terrorism • International Co-operation

43. The Road Ahead • FATF’s 9 SR on TF • Alternative remittance (registration, oversight) • Wire transfers (originator information, record keeping, due diligence) (SR 7) • NPO (Control on charities) (SR 8) • Cash couriers (SR 9)

44. The Road Ahead • Customer Due Diligence • Risk-based CDD- high-risk and low risk areas • Need to understand “ownership and control structure”

45. The Road Ahead • AML for DNFBPs • Accountants • Casinos (inc. Internet casinos) • Dealers of precious metals and stones • Lawyers; notaries and independent legal professionals • Real estate agents • Trust and company service providers (TCSPs)

46. The Road Ahead • Corporate transparency • Recording beneficial ownership • Private/public companies • Bearer shares • Trusts (settlor, trustee & beneficiaries) • Availability to FIs and authorities • International Cooperation • Need for FIUs/Egmont Group/reverse flow of information

47. The Road Ahead • Extra-territorial impact of US Laws • Impact correspondent banking accounts – can be closed, balances forfeited • OFAC blacklist – transactions can be stopped • USAPA prohibits transactions involving proceeds of any foreign crime that is covered by an extradition treaty • Persons outside the US can be prosecuted for laundering if they use US FIs for receipt and clearance of cheques.