Schedule 2 of the Anti-money Laundering and Terrorist Financing Code of Practice 2008 sets out a list of jurisdictions (the 'recognised jurisdictions') with laws and regulations similar to those of the British Virgin Islands. The principal advantage of relying on Schedule 2 is that business coming from recognised jurisdictions will generally attract the application of reduced client due diligence measures. To date, 56 jurisdictions are listed in Schedule 2.(1)
Persons who conduct business in various BVI financial services sectors and who are considered as 'relevant persons' under the Anti-money Laundering Regulations 2008 should pay special attention to a business relationship or transaction that relates to a person from a jurisdiction which the Financial Services Commission (FSC) considers does not apply, or applies insufficiently, the Financial Action Task Force (FATF) recommendations with respect to matters regarding anti-money laundering and counter-terrorist financing.
The jurisdictions listed in Schedule 2 are those which the FSC considers apply the FATF recommendations sufficiently and whose anti-money laundering and counter-terrorist financing laws are equivalent to the Anti-money Laundering Regulations.
As well as considering the Schedule 2 list, it is good practice for relevant persons to give due consideration to:
- the particular circumstances of the business relationship concerned;
- the prevailing political and economic circumstances in a listed jurisdiction; and
- the changing commercial environment prevailing at the relevant time.
These and other relevant factors may call for increased vigilance and re-assessment on the part of the entities and professionals before relying fully on business coming from, or relating to, a listed jurisdiction. All relevant persons should therefore keep attuned to developing global events, especially those that may relate to or adversely affect listed jurisdictions, even if the FSC has not issued an advisory warning (even if this is pursuant to the exercise of the FSC's powers under the Financial Services Commission Act 2001 or the code of practice).
If a listed jurisdiction is removed from the list in Schedule 2, the FSC will usually publish this in the BVI Gazette and on its website. Relevant persons who previously applied lower standards of client due diligence on the basis that a client was from a jurisdiction on the Schedule 2 list will need to undertake the required client due diligence as detailed under the code of practice from the date when the jurisdiction is de-listed. Failure to do so will contravene the requirements of Section 52 of the code of practice.
In deciding whether to recognise a foreign jurisdiction as having a regime equivalent to that of the British Virgin Islands, the FSC considers whether the jurisdiction has laws, regulations or other enforceable means to combat anti-money laundering and counter-terrorist financing effectively. The FSC is guided by the following factors:
- whether the jurisdiction is a member of the FATF, the Caribbean FATF or other regional FATF-style body which has been assessed to have a good compliance rating with respect to the FATF recommendations;
- whether the jurisdiction has undergone an independent assessment of its anti-money laundering and counter-terrorist financing framework by the International Monetary Fund or other independent body;
- the enactments in the jurisdiction and other regulatory and enforcement regimes which combat anti-money laundering and counter-terrorist financing; and
- other publicly available information relating to the effectiveness of the jurisdictions' legal, regulatory and enforcement regimes.
In determining whether a recognised jurisdiction should cease to be recognised and therefore removed from Schedule 2, the FSC considers whether the jurisdiction continues to maintain the factors that justified its inclusion in Schedule 2. The FSC will consider whether to continue to recognise a jurisdiction and act accordingly if any of the following apply:
- the jurisdiction alters its anti-money laundering and counter-terrorist financing enactments in order to reduce the level of effectiveness of the legal framework for compliance;
- a subsequent assessment poorly rates the jurisdiction's anti-money laundering and counter-terrorist financing compliance level; or
- other publicly available information demonstrates the ineffectiveness of the jurisdiction's anti-money laundering and counter-terrorist financing framework.
Where a relevant person considers that the FSC should recognise a jurisdiction not listed in Schedule 2, he or she may recommend this to the FSC in writing. The relevant person would be expected to have carried out research into the proposed jurisdiction's anti-money laundering and counter-terrorist financing framework using the factors outlined above and provide necessary evidence. The basis of any conclusion must properly and adequately demonstrate that the proposed jurisdiction has laws, regulations and other enforceable means that meet the standards established by the FATF recommendations. The FSC would likely also consider representations from any relevant authority in foreign jurisdictions that seek to have that jurisdiction recognised by the FSC under Section 52 of the code of practice.
An entity with no employees in the British Virgin Islands or which is not managed or administered in the British Virgin Islands would still be considered and accepted by the Financial Investigation Agency and the FSC as compliant with the code of practice if it is regulated in a jurisdiction that is recognised under Section 52. For example, a mutual fund that is recognised or registered under the Securities and Investment Business Act 2010, but whose manager or administrator is not resident in the British Virgin Islands, will comply with the requirements of the code of practice if the following conditions are satisfied:
- there is a written contractual agreement between the fund and the administrator or the fund and the manager for the latter to undertake to conduct the requisite client due diligence requirements; and
- the fund complies with the anti-money laundering and counter-terrorist financing of a jurisdiction that is a recognised jurisdiction under Section 52 and Schedule 2 of the code of practice.
The Securities and Investment Business Act has its own list of recognised jurisdictions that are distinct from the Schedule 2 countries;(2) the two sets of recognised jurisdictions should not be confused. The Securities and Investment Business Act-recognised jurisdictions were created under the Securities and Investment Business (Recognised Jurisdictions) Notice 2010 which came into force on May 17 2010, when the act itself came into force. The FSC may, subject to the act, recognise and accept any functionary of a fund that is established and located in a jurisdiction that is a Securities and Investment Business Act-recognised jurisdiction.
Where a functionary of a fund is not established and located in a jurisdiction listed in the Securities and Investment Business Act-recognised jurisdictions, the FSC may recognise and accept the functionary, if satisfied, upon application, that the functionary's jurisdictions of establishment and location has a system for the effective regulation of investment business, including funds.
The lists are not closed; where good cause can be shown to the relevant BVI competent authorities as to why a new jurisdiction should be added, the lists may be amended. Equally, recognised jurisdictions may be removed.
For further information on this topic please contact Mirza Manraj at Harney Westwood & Riegels by telephone (+1 284 494 2233) or email (firstname.lastname@example.org). The Harney Westwood & Riegels website can be accessed at www.harneys.com.
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(1) The Schedule 2 countries are Andorra, Argentina, Aruba, Australia, the Bahamas, Barbados, Bermuda, Belgium, Brazil, Bulgaria, Canada, Cayman Islands, Chile, China, Curacao, Cyprus, Denmark, Dubai, Estonia, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hong Kong, Hungary, Iceland, Ireland, the Isle of Man, Italy, Japan, Jersey, Latvia, Liechtenstein, Luxembourg, Malta, Mauritius, Mexico, Monaco, the Netherlands, New Zealand, Norway, Panama, Portugal, Russia, Singapore, Slovenia, Spain, South Africa, St Lucia, Sweden, Switzerland, the United Kingdom, the United States and Uruguay.
(2) The Securities and Investment Business Act countries are Argentina, Australia, the Bahamas, Bermuda, Belgium, Brazil, Canada, the Cayman Islands, Chile, China, Curacao, Denmark, Finland, Germany, Gibraltar, Greece, Guernsey, Hong Kong, Ireland, the Isle of Man, Italy, Japan, Jersey, Luxembourg, Malta, Mexico, Netherlands, New Zealand, Norway, Panama, Portugal, Singapore, Spain, South Africa, Sweden, Switzerland, the United Kingdom and the United States.