BVI’s AML/CFT Mark McKenzie Director Policy Research & Statistics

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

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

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

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

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.

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

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)

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.

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.

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.

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

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.

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.

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.

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

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.

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

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.

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.

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

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

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

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

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

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

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.

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

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.

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

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

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

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

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.

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

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

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

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

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.

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

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

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

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

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)

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

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)

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

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.