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.