Banking 

BVI revises anti-money laundering rules 

Guy Eldridge, Conyers Dill & Pearman, outlines the key changes to the AML regime

The British Virgin Islands (BVI) has introduced an update to the Anti-Money Laundering
and Terrorist Financing Code of Practice, 2008 from February 5, 2009 with the intent of
modernising and streamlining the jurisdiction’s Anti-Money Laundering/Countering
Financing of Terrorism (AML) requirements.  The amendments will impact all BVI entities
and professionals, including mutual funds, fund managers and administrators.  Of
particular relevance to funds is the practical recognition of industry practice with regard
to who performs AML compliance functions and where such functions are carried out.  

The Code of Practice was originally issued in February 2008 by the BVI Financial Services Commission (FSC), the regulatory authority for all financial services business operating in and from within the BVI.  The Code of Practice replaced the Guidance Notes for the Prevention of Money Laundering, issued in 1999, and required that relevant businesses and professionals take particular measures to prevent, deter and tackle money laundering and terrorist financing.  There are 8 parts to the Code of Practice:

   1. Part I outlines the duties of the FSC and the Financial Investigation Agency in relation to the Code’s application and administration;
   2. Part II focuses on the requirements for relevant businesses to establish internal controls combating money laundering and terrorist financing;
   3. Part III addresses customer due diligence (including enhanced customer due diligence) measures to be taken by relevant businesses;
   4. Part IV prohibits the use of shell banks and opening anonymous accounts or accounts with fictitious names in the BVI;
   5. Part V outlines the steps to be taken when administering wire transfers;
   6. Part VI addresses record-keeping obligations;
   7. Part VII outlines the requirements for relevant businesses to provide employee training which improves the compliance culture of businesses; and
   8. Part VIII addresses miscellaneous matters such as dealing with new regimes of information exchange between public and private sectors.

The Code of Practice was issued by the FSC under the authority of Section 27 of the
Proceeds of Criminal Conduct Act, 1997 (as amended), the central legislation in BVI
relating to AML matters.  It complements the BVI’s legislative arsenal of protection
against financial crime, which includes the Drug Trafficking Offenses Act, 1992 and Anti-
Money Laundering regulations, 2008.

The 2009 amendment   

After extensive consultation with industry practitioners and the completion of a mutual
evaluation report for the BVI by the Caribbean Financial Action Task Force (CFATF), the
FSC has issued an amendment to the Code in the form of the Anti-Money Laundering
and Terrorist Financing (Amendment) Code of Practice, 2009. 

The amendment illustrates the jurisdiction’s determination to comply with best industry standards while facilitating and encouraging legitimate business transactions. Some of the more
significant amendments are set out below:

1. A BVI entity may outsource AML functions    

A new Section 46 permits an entity or a professional to outsource functions under
the Code. The FSC notes that legitimate reasons may arise for outsourcing the
performance of a function, for instance, where an entity may not have the
relevant expertise to carry out a necessary function, where the entity is part of a
group or body corporate that is subject to and supervised for AML compliance to
the standards of the FATF Recommendations or where the nature, resources
and/or volume of business of the entity justifies outsourcing as a better viable
mechanism.  Outsourcing is permitted subject to conditions, in particular a
requirement for a written agreement setting out how AML compliance is to be achieved.

The formal requirement that the reporting officer must be from within the entity
has been removed and the amendment expressly recognizes that an entity may
not have employees in the BVI.  The explanatory notes also concede that since
mutual funds and mutual funds administrators bear the same obligations in relation to their relevant financial business, their obligations may be met in ways other than through the direct appointment of a reporting officer for a fund. 

In circumstances where the fund does not have any staff employed in the British Virgin Islands and the issuance or administration of subscriptions and redemptions is
performed by a person who is regulated in a recognised jurisdiction, compliance by such person with the AML requirements of the recognised jurisdiction will be construed and accepted as compliance with the obligations set out in the Anti-Money Laundering Regulations and the Code.

2. Non-face to face business is no longer presumed to require enhanced customer due diligence

Formerly, the Code required that full verification procedures be applied to non-face to face business.  The amendment provides that such enhanced due diligence is not required where a regulated entity assesses an applicant for business or a customer to present a low risk pursuant.

3. Wire transfer test

Section 26 of the Code now permits wire transfer information to be used for verification of identity of low risk applicants for business where a subscription or redemption payment is effected through a wire transfer from a specific account in a financial institution that is regulated in a recognised jurisdiction.

4. Recognised jurisdictions                 

The amendment includes a schedule of jurisdictions recognised as jurisdictions:

• (a) which apply the FATF recommendations and
• (b) whose anti-money laundering and terrorist financing laws are equivalent with the provisions of the Anti-Money Laundering Regulations, 2008 and the Code.  These jurisdictions include not only major onshore jurisdictions such as China, the United Kingdom and the United States but also well regulated offshore jurisdictions such as Bermuda and the Cayman Islands. 
• The main advantage of the list of recognised jurisdictions is that business relationships emanating from listed jurisdictions would attract reduced customer due diligence measures, while business from other jurisdictions is not precluded but would attract more onerous customer due diligence.  The list will be reviewed on a regular basis and is available at the FSC’s website at www.bvifsc.vg

5. Independent audit        

Finally, in addition to stressing the need for staff training generally, the amendment now includes a requirement that regulated entities establish and maintain an independent audit function that is adequately resourced to test compliance, including sample testing, with its or his written system of internal controls and the other provisions of the Anti-Money Laundering Regulations, 2008
and the Code.

In conclusion, the amendment gives greater flexibility to regulated persons in how they meet their AML obligations while ensuring compliance with the highest international standards. The amendments and other ongoing initiatives should cement the BVI’s reputation as a leading offshore financial centre.