Kenneth Baker's Presentation on Risk-Based Approach in Financial Services

In autumn 2007, Deputy Managing Director Mr. Kenneth Baker's speaking was discussed twice. It was described that on October 16, the BVI Financial Services Commission published 2 presentations of Kenneth Baker that regarded the amendments to the BVI corporate legislation and on the Private Trust Companies Regulations.

Recently, another interesting presentation of Deputy Managing Director Mr. Kenneth Baker was published on BVI FSC site. The presentation is entitled Emerging International framework for Financial Services - Risk-Based Approach.

In his presentation, Mr. Baker disclosed the main purposes of risk-based approach and its benefits and challenges as well as described the Risk-Based Approach itself.

What seemed the most interesting to me was the descriptive part where Deputy Managing Director has structured and described in simple words the Customer Due Diligence procedures.

What does the BVI Financial Services Commission expect from Licensee?
1) Licensee must develop procedures to identify and verify identity of each customer and beneficial owner, as well as obtain appropriate information to understand customers business and transactions.
2) Licensee should apply differentiated approach based on predetermined risk levels. There are 3 recommended levels of Due Diligence requirements:
a) Increased Due Diligence for determined Higher Risk customers (correspondent banking, politically exposed persons, specific geographic location);
b) Reduced Due Diligence for Lower Risk cases (publicly listed companies and regulated financial institutions, individual where main source of funds comes from salary, transactions involving de minimis amounts);
c) Standard Due Diligence to Rest of customers.

Mr. Kenneth Baker emphasized that suspicious transaction reporting is critical for the BVI to combat money laundering, terrorist financing and other financial crimes and that reporting a suspicious transaction or activity to the BVI FIA is mandatory, but he also pointed out that, to make the system, there should be thresholds below which an activity will not be reviewed.

It should be also noted that a substantial part of the presentation was dedicated Training and Awareness as well as Internal Controls Framework.

BVI FSC publishes FATF recommendations

On Deceber 14, 2007, two important documents were published by the BVI Financial Services Commission. These documents are nothing new in the world of anti-money laundering, however, publishing them signifies the commitment of the British Virgin Islands to this world-scale problem.

The documents are the Financial Action Task Force on Money Laundering (FATF) recommendations that are often treated as number-one anti-money laundering guidelines by many respectable sources and bodies.

The 1st document is the FATF 40 Recommendations, it was worked out by the FATF as a complete set of anti-money laundering measures in 2003. The recommendations cover the financial system and its regulation, the criminal justice system and law enforcement, as well as international co-operation as regards money laundering.

The 2nd document is published by the BVI FSC is the FATF Special 9 Recommendations, which includes additional special recommendations on terrorist financing added by the Commission in 2004.

It is worth noting that the FATF recommendations were published just days after the Seminar on Anti-Money Laundering/Countering the Financing of Terrorism was postponed by the BVI FSC.

Digicel gets mobile license in BVI

On December 17, Digicel announced that it has been granted a license to operate in the British Virgin Islands. Soon, the fastest growing mobile operator in the Caribbean and new entrant to Central America will be able to operate a GSM network in the BVI.

The liberalization process that preceded the license was initiated by the BVI Government in the beginning of 2005. With the licence, Digicell becomes the 3rd entrant into the BVI mobile market, so, it should create good competition and move mobile telecommunications development further – and bring enormous benefits including competitive pricing, better choice and technology innovation to mobile customers in the British Virgin Islands.

The BVI is to become the company's 24th market. It should be reminded that entering a number of Caribbean markets was not an easy task for Digicel. Previouslly, Digicel had filed legal action against the BVI Telecommunications Regulatory Commission, and won it, and then it filed an application against the rival operator Cable & Wireless that, as Digicel claimed, used illegal practices to delay the entry of Digicel into a number of Caribbean markets.

Digicel is planning to spend USD 15 million as its initial investment. This is needed to build a network that would offer close to 100% population coverage. The company will directly have 20 employees in BVI as well as create hundreds of indirect jobs.

Digicel’s goal announced by Colm Delves, Digicel Group CEO, is becoming the number one operator in the BVI.

BVI - the top outward direct investment destination and the 2nd largest inward direct investment source in Hong Kong economy for 2006

Yesterday, the Census and Statistics Department of the Hong Kong Special Administrative Region (HKSAR) government provided the following information regarding investments in the jurisdiction:

According to official figures released on December 13, 2007, at the end of 2006, the stock of Hong Kong's inward direct investment (DI) rose significantly by 42.3% from a year earlier to $740.9 billion at market value.

The Census and Statistics Department indicated that the substantial increase can to a great extent be explained by the large gain in market values of some listed prominent Hong Kong resident companies upon the surge in their share prices as well as an increase of direct investment inflow to these Hong Kong affiliates.

In accordance with the analysis of immediate source of investment, the 2nd largest investor territory at end-2006 was the British Virgin Islands, which took up 33.8% of the total stock of inward DI. So, one of the most popular offshore jurisdictions was 2nd only to China, which stood at 35.1% and reflected the importance of its investment in Hong Kong.

The BVI was followed by the Netherlands, Bermuda and the US accounting for 6.8%, 6.1% and 4.8% of the total stock of inward direct investment at end-2006 respectively.

Stock and Flow of Inward Direct Investment (DI) of Hong Kong at Market Value by Major Investor Country/Territory, 2005 - 2006

HK$ billion

Major investor country/territory	Stock of Inward DI	at end of year	DI Inflow	during the year
	2005	2006	2005	2006
Mainland of China	1,271.9	2,024.3	72.9	108.7
British Virgin Islands	1,270.7	1,950.6	47.0	78.8
Netherlands	327.1	390.9	17.0	28.1
Bermuda	271.5	350.1	36.0	23.8
USA	205.8	277.9	-29.7	51.3
Japan	131.7	151.4	14.1	18.0
United Kingdom	88.5	105.6	13.7	15.4
Cayman Islands	66.7	101.3	12.0	18.4
Singapore	84.3	85.2	11.0	8.1
Taiwan	30.0	33.7	3.5	8.7
Others	308.0	300.9	64.0	-9.4
Total	4,056.3	5,771.9	261.5	350.0

As regards outward direct investments, the Census and Statistics Department of the HKSAR said that, at the end of 2006, the stock of the country's outward DI increased by 44.1% from a year earlier to $675.8 billion at market value.

According to the analysis of immediate destination of investment, the British Virgin Islands remained the most popular tax haven economy for indirect channeling of DI funds as at end-2006 it accounted for 46.9% of the total stock of outward DI of Hong Kong.

Stock and Flow of Outward Direct Investment (DI) of Hong Kong at Market Value by Major Recipient Country or Territory, 2005-2006

HK$ billion

Major investor country/territory	Stock of outward DI	at end of year	DI outflow	during the year
	2005	2006	2005	2006
British Virgin Islands	1,609.3	2,467.6	18.1	78.0
Mainland of China	1,477.4	2,117.2	130.3	166.6
Bermuda	126.1	137.8	12.5	-5.0
United Kingdom	59.6	62.1	4.9	-0.2
Japan	29.7	60.8	-9.2	34.7
Cayman Islands	25.1	41.1	14.8	7.9
India	6.7	37.1	0.8	28.9
Thailand	23.0	34.7	2.6	6.4
Singapore	40.0	33.1	6.0	2.1
USA	26.3	29.1	0.9	3.1
Others	230.7	243.8	29.8	26.8
Total	3,653.9	5,264.5	211.5	349.4

BVI FSC Postpones the Seminar on Anti-Money Laundering

The BVI Financial Services Commission has announced that its Seminar for the non-regulated sector of the Territory's economy on the BVI obligations and responsibilities in the areas of money laundering and terrorist financing has been postponed. The one day Seminar which was initially planned to be held today (Tuesday, 11 December 2007), now is re-scheduled to the beginning of 2008.

The Seminar on Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) is to bring together money transmitters, dealers in precious metals and stones (including those engaged in the sale of jewellery), real estate agents, dealers in other high valued goods such as yachts, cars and heavy duty vehicles.

Delegation of BVI Officials at OCTA Meetings in Brussels

The BVI delegation, headed by Minister of Communications and Works of the British Virgin Islands Honourable Julian Fraser, took part in the annual OCTA (Overseas Countries and Territories Association) Ministerial Conference and the OCTA-EU forum, whicih took place in Brussels, Belgium from November 26-28. The delegation was comprised of Financial Secretary Neil Smith, Deputy Permanent Secretary in the Premier's Office Petrona Smith, Deputy Director of the International Affairs Secretariat Elise Donovan, director of the BVI London Office Dawn Smith, political and accounts officer of the London Office Sandra Besson, private secretary Gloria Mactavious, and consultant Ben Coleman.

Having in mind that EU is reviewing its relationship with the Overseas Countries and Territories and has proposed a “privileged partnership” based on “Europeanicity”, Minister emphasised that the BVI needed to explore the meaning of these terms and potential effect on BVI-UK relationship.

The BVI delegation actively participated in the discussions focused on financial services, economic and trade co-operation, environment problems and other issues. Speaking after the Forum, Minister Fraser said: “The BVI must ensure that our relationship with Europe continues to deliver benefits for our people. We are going to have to do some serious thinking about the results we want and the best way of getting them.”

During the meetings, Fraser stressed BVI's commitment to work with the Overseas Countries and Territories Association and the EU. He had bilateral discussions with the heads of delegations from other overseas territories from the Caribbean region and around the world.

Being the chair of OCTA's Partnership Working Party in Financial Services, in May 2007 BVI hosted the financial conference of the Overseas Countries and Territories Association. In Brussels, the British Virgin Islands presented a review of the year's activities in the sphere of financial services.