In a move that could tarnish the Virgin Islands’ reputation and frustrate its financial sector, a global anti-money-laundering watchdog has added the territory to its list of 24 jurisdictions under increased monitoring.
The decision — announced June 13 by the Paris-based Financial Action Task Force — marks the first time the VI has appeared on the roll known widely as the FATF “grey list.”
It now joins Haiti as one of only two Caribbean jurisdictions currently included.
In its announcement, the FATF acknowledged that the VI has made recent progress on reforms, but it cited remaining shortcomings in efforts to combat money laundering and terrorism financing.
The same day, the VI government announced that it had committed to an action plan designed to address the deficiencies and remove the territory from the list within two years.
“We are confident in the robustness of our framework and the proactive steps we are taking to improve effectiveness in combatting financial crime,” Premier Natalio “Sowande” Wheatley said in a statement issued shortly after the FATF announcement on Friday.
“By continuously engaging with industry partners, modernising our laws, and bolstering law enforcement, we are well-positioned to address emerging threats and uphold our reputation as a trusted international finance centre.”
No pushback
Unlike their reaction to similar lists issued previously by the European Union and other entities, VI government officials did not contest the FATF’s decision.
Instead, they attributed the delays in meeting the required standards to external shocks, including the 2017 hurricanes and the Covid-19 pandemic.
Government officials also expressed confidence that the territory will complete the FATF’s recommended reforms and be removed from the list within two years.
And despite research showing that grey-listing by the FATF can cause serious economic and reputational harm, they said they do not expect significant negative impacts in the meantime.
But opposition member Marlon Penn offered a less optimistic perspective during a National Democratic Party Radio broadcast on Monday evening.
“This has implications for de-risking … of the banks,” Mr. Penn said. “It messes with investor confidence in BVI products. BVI will be under tremendous scrutiny now in terms of anything that is done with a BVI product.”
Longstanding threat
The grey-list threat had loomed since February 2024, when the FATF’s regional branch, the Caribbean Financial Action Task Force, released a critical report following its mutual evaluation of the VI.
At the time, experts warned that the VI was at high risk of being added to the FATF’s list.
Since then, VI leaders said, the government has been working hard to address the CFATF’s concerns by tackling an action plan that has included rushing more than 20 pieces of legislation through the House of Assembly in recent months.
But during last week’s FATF plenary in Strasbourg, France — where Financial Services and Economic Development Junior Minister Lorna Smith led a VI delegation — the watchdog said the territory had still fallen short despite making “significant progress” in several areas.
In the statement, the FATF cited outstanding deficiencies in areas including risk-based supervision; the investigation and prosecution of money-laundering offences; the confiscation of criminal proceeds; and the operationalisation of the territory’s new asset management framework.
During the same meeting on Friday, the FATF also added Bolivia to the grey list and removed Croatia, Mali and Tanzania.
Of the 24 jurisdictions now on the list, half are in Africa, including Nigeria, Kenya and South Africa. In the western hemisphere, only the VI, Haiti and Venezuela are included. The remaining jurisdictions are in Europe, Asia and the Middle East.
Consequences
Experts have long warned that FATF grey-listing can bring serious economic consequences.
A 2021 report by the International Monetary Fund found that capital inflows decline by an average of 7.6 percent of gross domestic product following grey-listing, according to the Switzerland-based Basel Institute on Governance, a non-profit organisation that works to combat financial crime.
“Financial institutions may also ‘de-risk’ completely — cutting off all business to avoid the extra compliance and risk management costs,” the institute stated in a recent explainer posted on its website. “Individuals and businesses may have challenges accessing financial services as a result, leading to lower financial inclusion. Other unintended consequences may include an increase in the use of less regulated channels to move money.”
Mr. Penn said Monday that such risks are very real for the VI, and he called on the government to speak candidly with the public about the potential fallout.
“The key thing for this for me is we have to be frank and have an open dialogue with the people in terms of what the implications are of grey-listing the BVI,” he said during the NDP broadcast.
He also called for the government to bring the matter to the House of Assembly for wider debate among lawmakers.
Government optimism
At a Monday press conference, however, government officials sought to downplay the potential fallout from the grey-listing.
Ms. Smith pointed to the example of the Cayman Islands, which remained on the FATF grey list from February 2021 to October 2023.
“Their economy continued to grow in 2021, 2022 and 2023 in spite of being on the grey list,” she said. “So I don’t expect that there will be any decline. But of course we have to keep an eye on it.”
Ms. Smith also said she does not believe the listing will cause the VI to lose business to rival jurisdictions.
Glenford Malone, deputy managing director for regulation at the Financial Services Commission, voiced a similar view.
“Many of the jurisdictions that are actually on the grey list are low-income or low-developed countries that actually require significant funding from places like the IMF, etcetera, and that’s where I think some of the issues crop up,” Mr. Malone said.
He added that the FSC is closely monitoring the situation.
“Our expectation is that if any issues come up, then we would have to take steps to make sure that they’re mitigated, but we’re not envisioning that there would be any significant issues at this point,” he said.
Mr. Malone also stressed that the FATF’s grey-listing is not a call for punitive action against the jurisdictions under increased monitoring.
BVI Finance CEO Elise Donovan echoed that point, quoting directly from the FATF’s official statement: “The FATF does not call for the application of enhanced due diligence measures to be applied to these jurisdictions. The FATF standards do not envisage de-risking, or cutting-off entire classes of customers, but call for the application of a risk-based approach.”
Private sector
VI lawyer Robert Briant, partner and head of VI corporate practice at Conyers, said he does not expect the FATF grey-listing to cause significant disruption — provided the VI stays the course on its action plan.
“The grey list is a list where the FATF has concerns regarding a jurisdiction, but the jurisdiction is cooperating with the FATF,” Mr. Briant told the Beacon. “Given this cooperation, we have not seen and do not expect to see any immediate negative consequences to the BVI with being on the grey list.”
He added that he expects the VI to be removed from the list once it meets the FATF requirements.
“While the grey list is a marker for the BVI to progress certain FATF matters, provided the BVI does so, the BVI will not suffer unduly from being on the grey list,” he stated.
The VI’s Recovery and Insolvency Specialists Association also backed the government’s position.
“RISA concur with the sentiments recently expressed by the BVI government and BVI Finance on the grey listing, in particular with regard to any potential impact on the [financial services] industry and the wider economy,” the organisation told the Beacon.
The group added that it will continue to monitor the situation.
“As far as RISA itself is concerned, we will continue to inform and update our members about macro and micro factors arising from international risk assessments, although we are of the view that our members, with their expertise, are uniquely qualified to assist any stakeholder who may be impacted,” it stated.
Transparent criteria
In contrast to their response to previous international sanctions, VI officials struck a markedly different tone regarding the FATF decision.
In the past, the government has criticised such actions as unfair or arbitrary — including a 2023 decision that placed the territory on the European Union’s blacklist of “non-cooperative jurisdictions for tax purposes” for eight months.
During Monday’s press briefing, government officials acknowledged the consistency and clarity of the FATF’s process.
“The FATF has very clear and transparent standards which all countries must adhere to, so there’s no deviation in terms of the process which a jurisdiction goes through,” Ms. Donovan said, adding, “This is the standard, and all jurisdictions must meet the standard.”
Because the FATF’s criteria are clear, Ms. Donovan and other officials said the grey-listing came as no surprise. However, they added that FATF protocols prohibited them from publicly speculating on the decision in advance.
Ultimately, the officials said the territory is well positioned to complete the reforms within a two-year period as planned.
“We don’t see any impediment for us to address those, and it’s expected that many of them we will achieve before the deadline,” Mr. Malone said. “So we’re full speed ahead with that.”
No comment
Several financial services industry groups did not immediately respond to Beacon requests for comment on the grey-listing.
They include the Association of Registered Agents, the Society of Trust and Estate Practitioners, the BVI Investment Funds Association, and the BVI Association of Compliance Officers.
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