## Assessment of the Supervision and Regulation of the Financial Sector

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---

### Preface and mission
- The mission was an MFD-led Module 2 offshore financial center assessment conducted at the request of the authorities; the mission visited Anguilla from October 21 to November 1, 2002 (mission led by Mr. Manuel Vasquez (MFD) with Ms. Margaret Cotter (LEG), Mr. Anthony Maxwell, Mr. Timothy Sullivan, Ms. Candice Huggins, and Mr. Pierre Lapaque (OAS-CICAD)).
- The mission assessed regulatory and supervisory arrangements for the offshore financial sector, focusing on the banking sector, corporate and trust services sector (CSP), and AML/CFT measures using the October 11 version of the AML/CFT Methodology endorsed by the Financial Action Task Force (FATF).
- The report comprises two volumes: Volume I (overview and AML/CFT framework and summary assessments) and Volume II (detailed assessments against the Basel Core Principles, draft OGBS Statement of Best Practices for Trust and Companies Service Providers, and detailed AML/CFT assessment).

### Executive summary: structure and strategic direction
- Offshore sector composition and drivers:
  - Offshore sector mainly based on company and trust services (CSP) and to a lesser extent offshore banking.
  - Attracting factors: zero-tax status, absence of foreign exchange controls, common law legal system, tourist sector.
  - Strategy includes development of the CSP sector via Anguilla’s Commercial Online Registration Network (ACORN).
- Banking and licensing:
  - Offshore banking historically limited; until recently most offshore-type services were conducted by domestic banks under domestic licenses.
  - Two offshore banking licenses issued to recently established subsidiaries of domestic banks planning to transfer offshore business when operational in 2003.
- Regulatory institutional development:
  - Anguilla in process of creating an operationally independent Financial Services Commission (FSC); intended establishment originally end-December 2002 extended to the end of September 2003 (and later referenced for end of 2003 enactment).
  - Under the draft FSC law, the Commission will assume most regulatory and supervisory powers currently vested with the Governor and the Financial Services Department (FSD), with broad supervisory powers for enforcement and sanctions.
- Regional supervisory cooperation:
  - Anguilla entered into a Memorandum of Understanding (MOU) with the Eastern Caribbean Central Bank (ECCB) for consolidated supervision of offshore subsidiaries of domestic banks; the MOU was signed in September 2002.
  - Onsite supervision of offshore banks to be led by the ECCB; FSD plans to implement onsite inspections for CSPs.
- Resourcing and supervisory capacity:
  - Major challenge: ensuring adequate resourcing of the FSC to supervise a rapidly expanding CSP sector, the insurance industry, and any planned mutual funds and captive insurance activity.
  - Historical emphasis on offsite surveillance; need to develop and implement onsite programs.
  - Strengthening staffing resources identified as a primary objective.

### Key findings on CSPs, licensing, and supervision
- Legislative and licensing framework:
  - Legislation for CSPs first introduced in 1995 and amended in December 2000; Regulations impose relatively comprehensive and rigorous licensing requirements.
  - Forty licensees have been issued to date.
- Operational characteristics and supervisory implications:
  - Twelve licensees do not have a physical presence and business is introduced by overseas agents.
  - Eight of the 12 non–physically present licensees are reported affiliates of foreign CSPs supervised in other jurisdictions under broadly similar requirements.
  - Absence of physical presence poses challenges to onsite inspections and verification of customer due diligence and AML requirements.
- Codes and guidance:
  - FSD drafting a regulatory Code of Practice for CSPs; Anguilla Financial Services Association (AFSA) issued its own Code in October 2002.
  - Codes intended to lay groundwork for practical implementation of legislation and best practices (including draft OGBS recommendations).

### AML/CFT framework: legal and implementation status
- Legal and regulatory framework:
  - Primary money laundering legislation criminalizes ML, provides for freezing and confiscation of proceeds, and includes international cooperation mechanisms.
  - AML Regulations impose obligations on financial institutions for customer identification, record-keeping, monitoring and reporting of suspicious transactions, and staff training.
  - AML Guidance Notes issued under the Money Laundering Reporting Act give practical directions; Guidance Notes represent good industry practice and are not mandatory but can be taken into account by courts.
- Implementation gaps and priorities:
  - Progress in legislation and regulation achieved, but intensified efforts required for effective implementation.
  - Priority actions include:
    - Improving the system for suspicious transaction reports (STRs).
    - Enhancing customer due diligence requirements for introduced business.
    - Conducting onsite inspections of CSPs to ascertain implementation of customer due diligence requirements.
  - Reasons for low incidence of STRs should be reviewed.
  - As implementation improves, STRs expected to increase, requiring enhanced staffing for the Money Laundering Reporting Authority (Anguilla’s FIU).
- Recommended legislative/regulatory improvements:
  - Improvements in extradition arrangements.
  - Introduction of affirmative requirements for financial institutions to file STRs.
  - Streamlining of Regulations and Guidance Notes.
  - Implement periodic compliance inspections by FSD/FSC, particularly for CSPs.
  - Enhanced awareness and training in regulated sectors and improvements in FSD/FSC staffing capacity.

### Observance of prudential standards (Basel Core Principles) and supervisory preparedness
- Baseline and timing:
  - Although two offshore banks have been licensed recently, Anguilla has yet to put in place mechanisms to comply with many Basel Core Principles.
  - Most identified weaknesses relate to absence of prudential risk management requirements or guidelines.
- Capacity-building and recommendations:
  - Proposed FSC should improve capacity to address shortcomings.
  - FSC should formally adopt prudential regulations/guidelines broadly similar to those issued by the ECCB for domestic banks and introduce new ones as necessary to facilitate consolidated supervision.
  - Once offshore banks operational, the MOU with the ECCB should be fully implemented, particularly regarding onsite inspections.
  - A fuller assessment of compliance with the Basel Core Principles and ECCB supervisory processes will be possible after MOU implementation and the regional ECCB FSAP scheduled for September–October, 2003.

### Financial and economic snapshot (selected statistics)
- Geographic and demographic:
  - Area: 90 square kilometers (35 square miles).
  - Estimated population: 11,560.
- Economic indicators:
  - GDP per capita: about EC$20,500 (2001—at market prices).
  - Unemployment rate: 7.8 percent (2002).
- Currency and exchange rate:
  - Official currency: Eastern Caribbean Dollar.
  - Exchange rate: US$1.00 = EC$2.68 (fixed).
- Banking sector deposits:
  - Bank deposits in the domestic sector at end-December 2002: EC$783 million (of which $613 million were foreign currency deposits).
  - Increase from EC$488 million in June 1999 to EC$783,591 (as at December 2002).
  - Foreign currency deposits: 362,432 (1999 June), 471,600 (2000), 428,116 (2001), 613,377 (2002) — figures in EC$’000 as per table.
  - Nonresident depositors: 97,350 (1999 June), 131,795 (2000), 127,995 (2001), 151,393 (2002) — figures in EC$’000 as per table.
- Sectoral shares of GDP:
  - Hotel and restaurant industry: some 30 percent of GDP.
  - Finance sector: about 16 percent of GDP.
  - Construction: 12 percent of GDP.
  - Agriculture, mining and manufacturing together: about 7 percent of GDP.
- Companies, trusts, and registrations (as at August/October 2002):
  - International business companies: 3,041.
  - Ordinary companies: 1,466.
  - Limited liability companies: 128.
  - Limited partnerships: 7.
  - Total: 4,642.
  - Number of trusts reported to authorities: 78 (no requirement to register trusts).
  - Number of licensed company managers as at October 2002: 29.
  - Number of licensed trust companies as at October 2002: 12.

### Principal recommended programmatic actions (summary)
- Institutional and supervisory:
  - Establish the FSC with adequate staffing and operational independence by the end of September 2003 as proposed; provide resources to support ongoing supervision of CSPs, insurance, and any new mutual funds and captive insurance activity.
  - Implement the MOU with the ECCB for consolidated supervision of offshore bank subsidiaries, including coordinated onsite inspections.
  - Adopt prudential regulations/guidelines for offshore banks aligned, as appropriate, with ECCB standards.
- Supervision and onsite work:
  - Implement a program of periodic onsite inspections of CSPs, including those without a physical presence where feasible, and of the insurance and new business sectors if introduced.
  - Strengthen offsite surveillance with increased supervisory staffing and technical guidance.
- AML/CFT implementation and capacity:
  - Improve the STR reporting system and introduce affirmative STR filing requirements for covered institutions.
  - Enhance customer due diligence requirements, especially for introduced business, and ensure implementation via onsite inspections.
  - Streamline AML Regulations and Guidance Notes for clarity and enforceability.
  - Enhance training and awareness across regulated sectors and increase staffing for the Money Laundering Reporting Authority to handle anticipated increases in STRs.
- Legal and international cooperation:
  - Address identified gaps in extradition and mutual legal assistance frameworks to strengthen criminal justice measures and international cooperation.

### Assessment of preparations for supervision of Anguilla’s offshore banks
- Market structure and scope:
  - Two banks recently licensed to carry on offshore banking business but not yet operational; licenses granted to subsidiaries of Anguillian domestic banks planning to commence operations in 2003.
  - Parent banks estimate that between 25–30 percent of their current business will be transferred to their offshore subsidiaries, amounting to approximately 17 percent of the total deposits in the domestic banking sector.
- Preconditions and institution-building:
  - Legal framework appropriate; main drawback is absence of an independent regulatory authority until FSC establishment (targeted enactment end of 2003).
  - ECCB participation in consolidated supervision of the two offshore bank subsidiaries expected to strengthen supervision.
- Main Basel Core Principles findings (highlights):
  - Anguilla is either compliant or largely compliant with many Basel Core Principles; legal framework relatively strong for licensing, information sharing, and monitoring bank ownership/control.
  - Deficiencies include absence of formal prudential regulations/guidelines for credit, investment, market and operational risks (except CP 15).
  - Need to adopt regulations/guidelines broadly similar to ECCB’s and to make the MOU fully operational once offshore banks commence operations.
  - CP 15 (Money laundering): ECCB commenced onsite AML/CFT inspections including parent institutions; training on AML identification and reporting needs enhancement.
- Recommended action plan (selected mapped to Core Principles):
  - Enact the Financial Services Commission Bill largely in its present form and establish the FSC by September 2003 as an operationally independent supervisory agency (CP 1).
  - Grant the supervisor legal authority to take prompt remedial action and impose a range of sanctions (CP 1(4), CP 22).
  - Augment licensing criteria to cover corporate governance and define investment/acquisition approval thresholds (CP 3, CP 5).
  - Formally adopt prudential regulations/guidelines broadly similar and compatible with ECCB-issued rules for domestic banks covering capital adequacy, connected lending, market risk, credit policies, loan evaluation and provisioning, large exposures, internal control and audit, country risk, operational risk (CPs 6–14).
  - Continue AML/CFT training and ECCB-facilitated supervisory meetings and onsite inspections (CP 15, CP 17).

### AML/CFT assessment and institutional issues
- Legal framework and criminalization:
  - AML/CFT framework relatively comprehensive; includes criminalization of ML and FT, confiscation, international cooperation provisions, and law enforcement/prosecution powers.
  - Anguilla has implemented the Vienna Convention and the Convention for the Suppression of the Financing of Terrorism; the Palermo Convention not extended because the UK has not ratified it.
  - Identified gap: Anguillian law does not allow extradition of individuals for FT and ML offences.
  - Authorities considering adoption of provisions from the new UK Proceeds of Crime Act to strengthen AML/CFT regime.
- Confiscation and seizure:
  - Law enforcement can freeze property but generally only after criminal proceedings initiated for ML; ex parte restraint orders possible for FT once investigation commenced.
  - Counter-terrorism laws include comprehensive seizure and confiscation provisions, including seizure of cash under civil proceedings.
- Law enforcement capacity and recommendations:
  - No seizures or confiscations have arisen from ML and FT cases to date; a few suspicious transaction reports filed but no seizures.
  - Police received basic ML training; more advanced training required; prosecution staff has received training.
  - Recommended actions include developing local intelligence and investigative capacity (multi-agency task force), creating a structured multi-agency financial investigation unit, enhancing training on typologies and trends, and retaining trained AML/CFT officers for at least five years.
- FIU / Reporting Authority (RA) and processes:
  - Money Laundering Reporting Authority designated as FIU under the Money Laundering Reporting Authority Act.
  - Law does not specify responsibility for the RA to analyze SARs; in practice the RA has not fully developed an analytical role.
  - Reports of suspected terrorism financing are not filed with the RA but provided to police or the Governor.
  - The RA comprises Commissioner of Police, a senior police officer, the Comptroller of Customs and the Director of Financial Services and does not have an independent budget.
  - Processing of SARs not systematic due to resource constraints; there have been a few cases of suspicious activity reported to the RA: "5".
  - No requests for assistance made to or received from foreign FIUs.
  - Recommended actions: develop a centralized reporting mechanism, keep statistics on SARs and requests for assistance, assign responsibility for supervising CFT compliance (e.g., to the FSC), and provide analytical capacity and independent resourcing for the RA.
- Preventive measures and customer due diligence:
  - All covered financial institutions must have procedures requiring evidence of customer identity; Guidance Notes determine what constitutes satisfactory evidence.
  - No legal requirement to periodically review customer identification and due diligence documentation, though Guidance Notes provide situations where further evidence should be obtained.
  - Records of customer identification and transactions must be retained for at least "six years".
  - Recommended legal/institutional improvements:
    - Introduce core customer identification requirements in the ML Regulations.
    - Require reverification under certain circumstances and immediate availability of introduced business due diligence information.
    - Require CSPs to ascertain adequacy of AML/CFT systems of eligible introducers.
    - Require monitoring for unusual complex transactions and unusual patterns of transactions.
    - Require compliance with the Directive on information for funds transfers to meet FATF 8 Special Recommendations on terrorist financing.
- Suspicious activity reporting (SARs) gaps:
  - Need an explicit SAR requirement supported by an effective sanctioning system; failure to file an SAR should be an offence.
  - Need explicit requirement for internal review and recording of unusual complex transactions and patterns.
  - For FT, additional guidance and training needed.
  - Authorities should investigate reasons for the small number of SARs filed to date.
- Non-prudentially regulated sector (CSPs) risks and supervisory recommendations:
  - CSPs are fastest growth area; many licensed CSPs lack physical presence.
  - Onsite inspections challenging for CSPs without physical presence; FSC should conduct periodic onsite examinations focused on AML/CFT compliance, including reviewing reliance on overseas introducers/sub-agents.
  - CSPs should be required to ensure that AML/CFT systems of overseas agents are at least as rigorous as Anguillian requirements.
- Medium-term challenges:
  - Establish a well-resourced and functioning FSC as lead agency for supervising AML/CFT implementation.
  - Attract and retain qualified staff for the FSC.
  - Implement the MOU with the ECCB for supervision of offshore banks.
  - Review and enforce compliance by CSPs without a physical presence.
- Summary assessment against FATF 40+8:
  - Overall compliance: Anguilla complies well with the FATF 40+8 Recommendations; legal framework relatively strong.
  - Key recommended improvements include extradition provisions, adoption of selected provisions of the new UK Proceeds of Crime Act, more comprehensive monitoring for compliance, and heightened awareness and guidance for the financial sector including measures to combat FT.
  - Selected FATF-aligned recommended actions include:
    - Consider amending Drugs Trafficking Offences Act to permit disclosures to the RA without breaching disclosure restrictions (FATF 1–3).
    - In conjunction with the United Kingdom, introduce legislative mechanisms to allow extradition for ML and FT (FATF 33–35; 8 Special Recommendations V).
    - List mutual funds/mutual fund administrators and insurance agents as covered persons under the AML Regulations (FATF 8–9).
    - Establish core customer identification and recordkeeping requirements in regulations (FATF 10–13).
    - Impose an affirmative obligation to report suspicion of ML/FT promptly to the Reporting Authority and make failure to report an explicit offence (FATF 14–19).
    - Make the Directive on wire transfers legally binding and issue industry guidelines (8 Special Recommendations VII).
    - Expedite immobilization of bearer shares (FATF 22–25).
    - Enhance supervision of insurance and company and trust services providers for AML/CFT (FATF 26–29).

*Source: International Monetary Fund, Review of Financial Sector Regulation and Supervision—Anguilla, October 2003 (IMF staff report).*

### 2003. The views expressed in these documents are those of the staff team and do not necessarily reflect

### ASSESSMENT OF THE SUPERVISION AND REGULATION OF THE FINANCIAL SECTOR

### Preface and mission
- The mission was an MFD-led Module 2 offshore financial center assessment conducted at the request of the authorities; the mission visited Anguilla from October 21 to November 1, 2002.
- The mission assessed regulatory and supervisory arrangements for the offshore financial sector, focusing on the banking sector, corporate and trust services sector (CSP), and AML/CFT measures using the October 11 version of the AML/CFT Methodology endorsed by the Financial Action Task Force (FATF).
- The mission was led by Mr. Manuel Vasquez (MFD) and included Ms. Margaret Cotter (LEG), Mr. Anthony Maxwell (Banking Advisor), Mr. Timothy Sullivan (Banking Advisor), Ms. Candice Huggins (AML/CFT Advisor), and law enforcement expert Mr. Pierre Lapaque (OAS-CICAD).
- The report consists of two volumes: Volume I (overview and AML/CFT framework and summary assessments) and Volume II (detailed assessments against the Basel Core Principles, draft OGBS Statement of Best Practices for Trust and Companies Service Providers, and detailed AML/CFT assessment).

### Executive summary: structure and strategic direction
- Offshore sector composition and drivers:
  - Offshore sector mainly based on company and trust services (CSP) and to a lesser extent offshore banking.
  - Attracting factors: zero-tax status, absence of foreign exchange controls, common law legal system, tourist sector.
  - Strategy includes development of the CSP sector via Anguilla’s Commercial Online Registration Network (ACORN).
- Banking and new licenses:
  - Offshore banking has not developed significantly historically; until recently most offshore-type services were conducted by domestic banks under domestic licenses.
  - Two offshore banking licenses have been issued to recently established subsidiaries of domestic banks that plan to transfer their offshore business to these subsidiaries when they become operational in 2003.
- Regulatory institutional development:
  - Anguilla is in the process of creating an operationally independent Financial Services Commission (FSC).
  - Intended establishment of the FSC was end-December 2002 but the timeframe was extended to the end of September 2003.
  - Under the draft FSC law, the Commission will assume most regulatory and supervisory powers currently vested with the Governor and the Financial Services Department (FSD), with broad supervisory powers for enforcement and sanctions.
- Regional supervisory cooperation:
  - Anguilla entered into a Memorandum of Understanding (MOU) with the Eastern Caribbean Central Bank (ECCB) to conduct consolidated supervision of offshore subsidiaries of domestic banks; the MOU was signed in September 2002.
  - Onsite supervision of offshore banks will be led by the ECCB; the FSD plans to implement onsite inspections for CSPs.
- Resourcing and supervisory capacity:
  - A major challenge for the FSC is adequate resourcing to undertake effective ongoing supervision of a rapidly expanding CSP sector and the insurance industry, and to cover any planned mutual funds and captive insurance activity.
  - Financial sector supervision has historically emphasized offsite surveillance; onsite programs need to be developed and implemented.
  - The FSD/FSC indicated strengthening staffing resources will be a primary objective.

### Key findings on CSPs, licensing, and supervision
- CSP legislative and licensing framework:
  - Legislation for CSPs was first introduced in 1995 and amended in December 2000.
  - Regulations impose relatively comprehensive and rigorous licensing requirements for applicants.
  - Forty licensees have been issued to date.
- Operational characteristics and supervisory implications:
  - The CSP industry structure includes licensees that do not have a physical presence: 12 licensees do not have a physical presence and business is introduced by overseas agents.
  - Eight of the 12 non–physically present licensees are reported to be affiliates of foreign CSPs that are supervised in other jurisdictions under broadly similar requirements.
  - The absence of a physical presence for many licensees poses challenges to onsite inspections and to verification of implementation of customer due diligence and AML requirements.
- Codes and guidance:
  - The FSD is drafting a regulatory Code of Practice for the CSP sector; the Anguilla Financial Services Association (AFSA) issued its own Code in October 2002.
  - Codes of Practice are intended to lay the groundwork for practical implementation of legislation and best practices (including draft OGBS recommendations).

### AML/CFT framework: legal and implementation status
- Legal and regulatory framework:
  - Anguilla has primary money laundering legislation providing criminalization of ML, freezing and confiscation of proceeds, and international cooperation mechanisms.
  - AML Regulations impose legal obligations on financial institutions for customer identification, record-keeping, monitoring and reporting of suspicious transactions, and staff training.
  - AML Guidance Notes have been issued under the Money Laundering Reporting Act to give practical directions to covered institutions; Guidance Notes represent good industry practice and are not mandatory but can be taken into account by courts in determining compliance.
- Implementation gaps and priorities:
  - Progress has been made in legislation and regulation, but intensified efforts are required to implement the legislation effectively.
  - Priority actions include:
    - Improving the system for suspicious transaction reports (STRs).
    - Enhancing customer due diligence requirements for introduced business.
    - Conducting onsite inspections of CSPs to ascertain implementation of customer due diligence requirements.
  - The reasons for the low incidence of STRs in the financial sector should be reviewed.
  - As implementation improves, the number of STRs is expected to increase, requiring enhanced staffing for the Money Laundering Reporting Authority (Anguilla’s financial intelligence unit).
- Recommended legislative/regulatory improvements noted:
  - Improvements suggested in extradition arrangements.
  - Introduction of affirmative requirements for financial institutions to file STRs.
  - Streamlining of Regulations and Guidance Notes.
  - Implementation of a program of periodic compliance inspections by the FSD/FSC, particularly for the CSP sector.
  - Enhanced awareness and training in regulated sectors and improvements in FSD/FSC staffing capacity.

### Observance of prudential standards (Basel Core Principles) and supervisory preparedness
- Baseline and timing:
  - Although two offshore banks have been licensed recently, Anguilla has yet to put in place mechanisms for compliance with many Basel Core Principles.
  - Most identified weaknesses relate to absence of prudential risk management requirements or guidelines.
- Capacity-building and forward-looking recommendations:
  - The proposed FSC should significantly improve capacity to address shortcomings.
  - The FSC should formally adopt prudential regulations/guidelines broadly similar to those issued by the ECCB for domestic banks, and introduce new ones as necessary to facilitate consolidated supervision.
  - Once offshore banks become operational, the MOU with the ECCB should be fully implemented, particularly regarding onsite inspections.
  - A fuller assessment of compliance with the Basel Core Principles and ECCB supervisory processes will be possible after MOU implementation and the regional ECCB FSAP scheduled for September–October, 2003.

### Financial and economic snapshot (selected statistics preserved)
- Geographic and demographic:
  - Area: 90 square kilometers (35 square miles).
  - Estimated population: 11,560.
- Economic indicators:
  - GDP per capita: about EC$20,500 (2001—at market prices).
  - Unemployment rate: 7.8 percent (2002).
- Currency and exchange rate:
  - Official currency: Eastern Caribbean Dollar.
  - Exchange rate: US$1.00 = EC$2.68 (fixed).
- Publication and distribution:
  - Copies of the report are available from International Monetary Fund ● Publication Services; Price: $15.00 a copy.

### Principal recommended programmatic actions (summary)
- Institutional and supervisory:
  - Establish the FSC with adequate staffing and operational independence by the end of September 2003 as proposed; provide resources to support ongoing supervision of CSPs, insurance, and any new mutual funds and captive insurance activity.
  - Implement the MOU with the ECCB for consolidated supervision of offshore bank subsidiaries, including coordinated onsite inspections.
  - Adopt prudential regulations/guidelines for offshore banks aligned, as appropriate, with ECCB standards.
- Supervision and on-site work:
  - Implement a program of periodic onsite inspections of CSPs, including those without a physical presence where feasible, and of the insurance and new business sectors if introduced.
  - Strengthen offsite surveillance with increased supervisory staffing and technical guidance.
- AML/CFT implementation and capacity:
  - Improve the STR reporting system and introduce affirmative STR filing requirements for covered institutions.
  - Enhance customer due diligence requirements, especially for introduced business, and ensure implementation via onsite inspections.
  - Streamline AML Regulations and Guidance Notes for clarity and enforceability.
  - Enhance training and awareness across regulated sectors and increase staffing for the Money Laundering Reporting Authority to handle anticipated increases in STRs.
- Legal and international cooperation:
  - Address identified gaps in extradition and mutual legal assistance frameworks to strengthen criminal justice measures and international cooperation.

*Source: International Monetary Fund, Review of Financial Sector Regulation and Supervision—Anguilla, October 2003 (IMF staff report).*

### 6.      With the exception of 2000, the table below shows that over the last five years

### cr03370 - 6.      With the exception of 2000, the table below shows that over the last five years

### Economic performance (1997–2001)
- Real Gross Domestic Product (GDP) grew at an average of about five percent over the period 1997 to 2001.
- Nominal GDP grew on average about 6.5 percent during the same period.
- 2000: real GDP showed a -0.3 percent decline; nominal GDP growth was 0.2 percent.

- Table 1. Estimated Gross Domestic Product: 1997 to 2001 (In EC$ millions)
  - 1997: Real GDP at factor cost 162.1; Percent change 9.2; Nominal GDP at factor cost 194.2; Percent change 10.5
  - 1998: Real GDP at factor cost 170.5; Percent change 5.2; Nominal GDP at factor cost 209.2; Percent change 7.7
  - 1999: Real GDP at factor cost 185.2; Percent change 8.6; Nominal GDP at factor cost 233.0; Percent change 11.4
  - 2000: Real GDP at factor cost 184.6; Percent change (0.3); Nominal GDP at factor cost 233.4; Percent change 0.2
  - 2001: Real GDP at factor cost 188.3; Percent change 2.0; Nominal GDP at factor cost 239.9; Percent change 2.8

- Source attribution in table: Anguilla Planning Unit and ECCB

### Sectoral composition of the economy
- Hotel and restaurant industry: some 30 percent of GDP.
- Finance sector: about 16 percent of GDP; contribution has been growing steadily over the last five years and was the only sector that recorded significant growth in 2000 and 2001.
- Construction: 12 percent of GDP.
- Agriculture, mining and manufacturing together: about 7 percent of GDP.

### Labor market and employment (September/July 2002)
- Majority of workforce employed in hotels and restaurants, reflecting concentration in tourism.
- Government is the second largest employer.
- Finance, real estate and business services account for less than 7 percent of those employed.
- Unemployment rate as at July 2002: 7.8 percent.

- Table 2. Number of Persons Employed September 2002
  - Agriculture, fishing & manufacturing: 344
  - Utilities & construction: 988
  - Trade, hotels & restaurants: 1,970
  - Transport & communications: 363
  - Finance, real estate and business services: 376
  - Government, community and social services: 1,454
  - Total Employed: 5,495
  - Total Labor Force: 5,962
  - Total Unemployed (7.8 percent): 467

- Source attribution in table: Anguilla Government Labor Survey, July 2002

### Financial institutions and markets: overview
- Most financial assets concentrated in the domestic banking sector; a significant proportion of financial assets held by nonresidents are in process of being transferred to offshore banking subsidiaries.
- None of the offshore banks was operational at the time of the mission.
- Company service provider (CSP) sector has been reporting a high rate of growth but remains relatively small.

### Banking sector deposits (1999–2002)
- Four domestic banks licensed; until recently two offshore banks.
- Bank deposits in the domestic sector at end-December 2002: EC$783 million (of which $613 million were foreign currency deposits).
- Increase from EC$488 million in June 1999 to EC$783,591 (as at December 2002).
- Large proportion of foreign currency (78 percent) and nonresident deposits led some banks to establish offshore subsidiaries to which some deposits are being transferred; intention is that only foreign currency deposits held by nonresidents will be transferred to offshore banks.

- Table 3. Bank Deposits 1998 to 2002 (EC$’000)
  - 1999 (June): Foreign Currency Deposits 362,432; Nonresident Depositors 97,350; Total Deposits 488,037
  - 2000: Foreign Currency Deposits 471,600; Nonresident Depositors 131,795; Total Deposits 621,980
  - 2001: Foreign Currency Deposits 428,116; Nonresident Depositors 127,995; Total Deposits 683,378
  - 2002: Foreign Currency Deposits 613,377; Nonresident Depositors 151,393; Total Deposits 783,591

- Source attribution in table: Anguilla Government Statistics

### Insurance sector
- Relatively small: 20 registered insurers including two domestic companies with local shareholding; others are foreign-based and under home country regulation.
- Most entities engaged in property and casualty; only five carry on life business only.

- Table 4. Gross Premiums Written for 2000 (In EC$’000)
  - Motor vehicles: 3,774
  - Life and health: 6,795
  - Property and casualty: 4,000
  - Other: 1,449
  - Total: 16,018

- Source attribution in table: Financial Services Department, Ministry of Finance

### Companies, trusts, and company services
- Company services sector is the fastest growth area of Anguilla’s offshore industry; attraction due to tax neutral status and ease/flexibility of incorporation.
- Number of licensed company managers as at October 2002: 29.
- Number of licensed trust companies as at October 2002: 12.

- As at August 2002, registrations:
  - International business companies: 3,041
  - Ordinary companies: 1,466
  - Limited liability companies: 128
  - Limited partnerships: 7
  - Total: 4,642

- Number of trusts reported to authorities: 78 (no requirement to register trusts; precise level may be unknown).

- ACORN (Anguilla’s Commercial Online Registration Network) enables instant electronic incorporation and registration 24 hours a day, 365 days a year; developed with assistance from Companies House UK and the UK Government.
- FSD conducts due diligence on all overseas intermediary clients (“introducers”) for fit and proper purposes.
- Only one entity engaged in securities business and one unit trust operating under a trust license.

### Regulatory framework, oversight, and institutional arrangements
- Under the Constitution, the Governor has responsibility for international financial services; regulation delegated to Inspectors (the Director of the Financial Services Department—FSD) which forms part of the Ministry of Finance.
- Supervision of domestic banks is undertaken by the ECCB.
- Main functions of the FSD:
  - Licensing recommendations made to the Governor
  - Compliance and inspections
  - International supervisory initiatives
  - Legislative initiatives
- FSD staffing: Director, Deputy Director, Assistant Director, Senior Executive Officer, Administrative Assistant; Registry of Commercial Activities includes a Registrar, Deputy Registrar, and administrative staff of four.

### Financial Services Commission (FSC) reform plans
- Draft legislation under consideration to transform the FSD into an operationally independent Financial Services Commission (FSC); original intention for establishment by end of 2002 postponed to the end of September 2003.
- Mission encouraged authorities to establish the FSC and to implement plans for adequately funding and resourcing operations.
- The FSC Act will transfer to the FSC all statutory functions, powers and duties currently vested with the Inspectors under offshore banking, company, trust and insurance laws; Governor retains constitutional responsibility including power to make regulations.

- Principal expected FSC functions include:
  - to supervise all licensees in accordance with the Act, the financial services laws and the Regulatory Code to be issued by the FSC;
  - to consider and decide on the issue of licenses;
  - to monitor compliance with the Anti-Money Laundering Regulations, 2000 and such other enactments or Guidelines relating to money laundering;
  - to monitor activity in the financial services sector and to take enforcement action against persons carrying on unauthorized activities;
  - to make recommendations to the Governor on new laws or legislative amendments;
  - to maintain contact and forge relations with foreign regulatory authorities and to provide assistance to such authorities; and
  - to provide such information and advice to the public concerning financial services.

- Governance and accountability provisions for the FSC:
  - Operational independence intended; funding mainly from industry fees.
  - Governor will approve annual budget; any modifications must be agreed with the FSC in writing.
  - Board of Directors: FSC’s Director as ex officio member and not less than four or more than five other individuals appointed by the Governor; no more than one member may be a public officer; Governor appoints Chair and Deputy Chair.
  - Disqualifications for Board members: member of the House of Assembly, undischarged bankrupt, or convicted of an offence involving dishonesty.
  - Appointments to be published in the Government Gazette.
  - FSC to prepare an Annual Report with audited accounts within six months of financial year end; audited accounts completed within three months; Governor to table Annual Report and audited accounts before the House of Assembly within two months and publish them in the Gazette.

- Enforcement and AML/CFT emphasis:
  - FSC expected to vet new applicants, obtain information, cooperate with overseas regulators, approve appointment of compliance officers, conduct compliance inspections, and take enforcement and disciplinary action.
  - Major focus on reviewing compliance with AML/CFT requirements, particularly in company and trust services sector.

### Legislation and supervisory responsibilities
- Banking legislation:
  - Offshore banking: Trust Companies and Offshore Banking Act, 2000 and Regulations.
  - Domestic banks: Banking Act, Regulations, guidelines and the Eastern Caribbean Central Bank Agreement Act.
  - ECCB supervises domestic banks; an MOU between the Governor and the ECCB has the ECCB accepting responsibility for supervising Anguilla’s two recently licensed offshore banks while the Governor retains responsibility for making regulations.

- Company management legislation:
  - Company Management Act, 2000, and Regulations.
  - Company Registry administratively under FSD; legal responsibility lies with the Registrar.
  - Twenty nine company managers licensed; 12 do not have physical presence (cubicle agents).
  - Authorized sub-agents: currently 62 authorized sub-agents classified as approved introducers for Anti-Money Laundering Regulations and Guidance Notes.
  - Other company laws: Companies Act, 2000 and Regulations; International Business Companies Act, 2000 and Regulations; Limited Liability Companies Act, 2000 and Regulations; Limited Partnership Act, 2000 and Rules.
  - International Business Companies Act allows for bearer shares; plans underway to amend law to immobilize bearer shares.

- Trust companies legislation:
  - Trust Companies and Offshore Banking Act, 2000 and Regulations; Trust Ordinance, 1994.
  - Trust companies authorized to carry on company management business and are supervised by the FSD.

- Insurance legislation:
  - Insurance Act and Regulations applicable.
  - FSC preparing a new Insurance Act to include provisions for captive insurance business and supervision of insurance intermediaries.
  - FSD currently responsible for supervision of insurance companies.

- Securities and funds:
  - Eastern Caribbean Securities Exchange (ECSE) established by the ECCB; ECCB member countries introduced a Securities Act and ten subsidiary Regulations.
  - Authorities plan to introduce mutual funds legislation to diversify the offshore sector.

- Anti-Money Laundering legislation:
  - Principal legislation: Proceeds of Criminal Conduct Act; Money Laundering Reporting Authority Act; Drug Trafficking Offences Act; Criminal Justice (International Cooperation) (Anguilla) Act; Regulations; and the Anti-Terrorism (Financial and other Measures) (Overseas Territories) Order.
  - Codes of Practice and Guidance Notes issued to guide financial institutions in implementation.

### Previous external reviews and assessments
- March 1999: UK Government White Paper “Partnership for Progress and Prosperity: Britain and the Overseas Territories" emphasized preserving and enhancing reputation for honest administration and probity.
- December 1999: KPMG appointed to assess Overseas Territories' performance against international standards; KPMG review found Anguilla has many features necessary to be considered a well-regulated jurisdiction but identified areas of concern, including implementation of legislation.
- July 2000: Caribbean Financial Action Task Force (CFATF) evaluation found Anguilla had introduced legislation addressing many FATF and CFATF Recommendations but implementation mechanisms were still required.
- Second quarter 2000: Financial Stability Forum (FSF) report on Offshore Financial Centers placed Anguilla in group 3 (jurisdictions perceived as having low quality supervisory oversight, and/or as being noncooperative with onshore supervisors).

### Assessments and planned supervisory reviews
- An assessment of Anguilla’s compliance with the Basel Core Principles for Effective Banking Supervision (CP) conducted in the context of the IMF’s October 2002 Module 2 Offshore Financial Center assessment program and updated in September 2003 during the ECCB Financial Sector Assessment Program (FSAP).
  - Scope limited to regulation and supervision of offshore banks licensed in Anguilla.
  - Domestic banking regulation and supervision (responsibility of the ECCB) assessed separately as part of the 2003 FSAP.

*Anguilla Planning Unit and ECCB; Anguilla Government Labor Survey, July 2002; Anguilla Government Statistics; Financial Services Department, Ministry of Finance*

### 35.      This assessment serves several purposes. First, it benchmarks the current state of

### Assessment of Preparations for Supervision of Anguilla’s Offshore Banks

### Overview and Purpose
- The assessment benchmarks the current state of preparations for supervision of Anguilla’s offshore banks.
- It recognizes progress from the Trust Companies and Offshore Banking Act (2000) and the September 2002 MOU with the ECCB.
- It provides input for an action plan to move towards full compliance with the Basel Core Principles.

### Institutional and Macroprudential Setting; Market Structure
- Under the Constitution the Governor has overall responsibility for international financial services in Anguilla, including power to issue regulations under regulatory laws.
- Responsibility for supervision of offshore banks currently rests with the Financial Services Department (FSD).
- A draft Financial Services Commission (FSC) Act aims to transform the FSD into an autonomous supervisory agency; establishment target extended to September 2003, later referenced for December 2003 and end of 2003 enactment.
- On September 30, 2002, a MOU between the Governor and the ECCB delegates consolidated supervision responsibility for the two Anguillian offshore banks to the ECCB; full implementation requires appropriate Anguillian regulations and prudential requirements.
- At assessment time, two banks had recently been licensed to carry on offshore banking business but were not yet in operation; licenses granted to subsidiaries of Anguillian domestic banks planning to commence offshore operations in 2003.
- Parent banks estimate that between 25–30 percent of their current business will be transferred to their offshore subsidiaries, which amounts to approximately 17 percent of the total deposits in the domestic banking sector.
- An earlier offshore banking license to an international bank operating in the domestic market remained dormant with no plans to activate it.

### General Preconditions for Effective Supervision
- Anguilla has developed an appropriate legal framework allowing effective supervision, including provisions for enforcement and information sharing.
- Main drawback: absence of an independent regulatory authority; expected remedy is enactment of the FSC Act by December 2003 and establishment of the FSC as operationally independent.
- Once established, the FSC will need to hire and broaden professional and managerial capacity.
- ECCB participation in consolidated supervision of the two offshore bank subsidiaries should strengthen supervision.
- Draft amendments to the uniform Banking Act for domestic banking are being considered to provide additional ECCB powers for supervision of domestic bank affiliates.

### Main Findings on Compliance with Basel Core Principles
- The assessment is mainly based on the supervisory framework for licensed offshore banks (not yet operational) and considers the planned transformation of the FSD into an autonomous FSC.
- The mission did not undertake a full review of the ECCB supervisory processes; a full assessment of the ECCB supervisory processes is planned as part of the regional FSAP in September–October 2003.
- Findings:
  - Anguilla is either compliant or largely compliant with many Basel Core Principles.
  - The legal framework is relatively strong: supervisory objectives for the proposed FSC, robust provisions for information sharing, licensing, and monitoring bank ownership/control.
  - The FSC has arrangements to conduct offsite and onsite supervision via the MOU with the ECCB.
  - Deficiencies remain:
    - Need to formally adopt prudential regulations and guidelines suitable for offshore banking.
    - Need to make the MOU fully operational once offshore banks commence operations.
    - Regulatory framework for managing investment and credit risk needs to be put in place.
    - Need regulations/guidelines for investment criteria, connected lending, market and other operational risks.
  - Anti-money laundering (AML) progress:
    - Authorities have taken measures to raise AML awareness in the banking sector.
    - The ECCB commenced onsite inspections reviewing compliance with local AML requirements, including parent banks; inspections will extend to offshore banks under MOU.
    - Training of staff on AML has commenced but requires enhancement, especially for identification and reporting of suspicious activities and raising senior officers’ awareness of financial and reputational risks posed by money laundering.

### Compliance by Selected Core Principles (highlights)
- CP 1 (Objectives, autonomy, powers and resources):
  - Legal framework appropriate; FSD lacks legal/operational independence but the proposed FSC Act (to be passed by end of December 2003) should remedy most shortcomings.
  - Funding arrangements and preservation of August 27, 2002 draft Bill provisions are important.
  - Need to broaden professional and managerial strength of FSC.
- CPs 2–5 (Licensing and structure):
  - TCOB Act does not appropriately address major investments or acquisitions—laws/regulations should define investment criteria and supervisory approval requirements.
  - Ownership, licensing, permissible activities: robust legal provisions; planned amendments to TCOB regulations and adoption of ECCB licensing procedures to enhance CP 3 implementation.
- CPs 6–15 (Prudential regulations and requirements):
  - Except for CP 15, comprehensive regulations/guidelines for credit, investment, and other banking risks are absent.
  - Authorities plan to adopt regulations/guidelines broadly similar to ECCB’s for connected lending and market risks.
  - CP 15 (Money laundering): ECCB’s onsite AML/CFT inspections included parent institutions; effectiveness depends on implementation of MOU and continuation of inspections; further training needed.
- CPs 16–20 (Methods of ongoing supervision):
  - With the MOU, suitable arrangement for ongoing supervision including onsite inspections is in place; high degree of compliance.
  - CP 20 (consolidated supervision) determined not applicable in assessment context.
- CP 21 (Information requirements):
  - Supervisory authorities need more control over accounting standards for record-keeping and supervisory reports.
  - Need to specify scope/standards for external/internal audits and give supervisors power to revoke bank auditor appointments.
  - Authorities plan discussion with ECCB to ensure compatibility.
- CP 22 (Formal powers of supervisors):
  - Supervisor lacks adequate authority, backed by legal sanctions against bank/management/directors, to take remedial action; proposed FSC Act should address most shortcomings.
  - Respective enforcement powers of the Inspector and the ECCB under the MOU need clarification for compatibility with TCOB and FSC Act.
- CPs 23–25 (Cross-border banking):
  - CPs 23 and 24 not applicable.
  - CP 25: no provisions for home supervisors to readily conduct on-site inspections of Anguillian offshore banks; proposed draft FSC Act would allow foreign authority participation in inspections only in conjunction with FSC inspections.
  - No significant CP 25 risks currently as offshore banks were not operational; once operational, the ECCB MOU should facilitate onsite examinations of the two covered offshore banks.

### Recommended Action Plan (selected recommendations mapped to Core Principles)
- Independence - CP 1(2):
  - Enact the Financial Services Commission Bill largely in its present form and establish the FSC by September 2003 as an operationally independent supervisory agency.
  - Implement funding arrangements that do not compromise autonomy and broaden professional and managerial capacity.
- Enforcement powers – CP 1(4):
  - Grant the supervisor legal authority to take prompt remedial action and/or impose a range of sanctions (in addition to Governor’s powers to suspend/revoke licenses).
- Licensing criteria - CP 3:
  - Augment licensing criteria to cover corporate governance, etc.
- Investment criteria - CP 5:
  - Define types and amounts of acquisitions/investments requiring supervisory approval.
- CPs 6, 7, 8, 9, 10, 11, 12, 13, 14 (Capital adequacy, Credit policies, Loan evaluation and provisioning, Large exposures, Connected lending, Country risk, Market risk, Other risks, Internal control and audit):
  - Formally adopt and implement appropriate prudential regulations/guidelines for offshore banks broadly similar and compatible with ECCB-issued rules for domestic banks.
- Money Laundering – CP 15:
  - Continue training to enhance awareness of money laundering risks and training on identification/reporting of suspicious transactions.
- Bank management contact - CP 17:
  - ECCB to implement program of regular meetings beyond review of annual accounts and require banks to notify ECCB of material adverse developments.
- Off-site supervision – CP 18:
  - Establish principles/norms regarding consolidation of accounts and accounting techniques to be used.
- Validation of supervisory information – CP 19:
  - Grant supervisor authority to monitor quality of external auditors’ work for supervisory purposes.
- Accounting standards – CP 21:
  - Grant supervisor authority to specify accounting standards for supervisory reports.
- Remedial Measures – CP 22:
  - Grant supervisor authority, backed by legal sanctions, to take remedial actions and impose penalties; clarify enforcement roles of ECCB and FSC under MOU.
- Host country supervision – CP 25:
  - Grant home country supervisors on-site access to local offices and subsidiaries for safety and soundness purposes without waiting for host supervisor compliance inspections.

### Authorities’ Response and Follow-up Actions
- Government response:
  - Delay in passing the FSC Bill due to need for HMG approval for proposed Commission structure; approval received in June 2003 and Bill due to be enacted before end of 2003 with Commission ready to commence operations.
  - Anguilla has four domestic banks regulated by the ECCB as part of the Eastern Caribbean Currency Union; an IMF assessment of the ECCB and domestic banking regulation planned for September–October 2003.
  - Offshore banking is defined as dealing in a currency other than Eastern Caribbean dollars with nonresidents.
  - MOU dated September 30, 2002 assigns consolidated supervision of the two offshore bank subsidiaries to the ECCB and details supervisory cooperation and on-site inspection procedures.
- Regulatory development:
  - IMF recommendations call for technical regulations/guidelines governing bank investment criteria, connected lending, market, credit, and operational risks; many will be addressed by ECCB amendments to domestic Banking Act.
  - In June 2003 Anguilla’s regulatory body requested assistance from CARTAC to speed drafting of regulations/guidelines; CARTAC recommended ECCB transmit developed regulations/guidelines to Anguilla for review and implementation.
  - Anguilla’s financial services regulatory department drafted amendments to offshore banking legislation to cover several IMF recommendations and is in contact with ECCB on remaining recommendations (country, transfer, market, liquidity, interest rate, and operational risk guidelines) to ensure consistency between domestic and offshore legislation/supervision.

### AML/CFT Assessment: Introduction and Methodology
- The Report on Observance of Standards and Codes covers FATF 40 Recommendations and 8 Special Recommendations.
- The assessment team included IMF staff and external experts; an independent law enforcement expert (IAE) reviewed criminal law enforcement capacity and implementation.
- IMF staff reviewed AML/CFT laws, regulations, guidelines, supervisory systems in the regulated financial sector; focus was mainly on the banking sector and company/trust services sector.
- The assessment is mainly based on information available at the time of the mission, which was completed on November 1, 2002.

*Source: International Monetary Fund assessment of Anguilla’s offshore banking supervision and AML/CFT framework.*

### 59.      Anguilla has a relatively comprehensive legal and institutional AML/CFT

### Anguilla has a relatively comprehensive legal and institutional AML/CFT framework

### Overview
- Anguilla's legal and institutional AML/CFT framework is relatively comprehensive, including measures to combat terrorism and terrorist financing; criminalization of offenses; confiscation of the proceeds of criminal conduct; international cooperation; and law enforcement and prosecution powers.
- Legislation contains many principal elements required for compliance with the FATF Recommendations. Efforts are underway to introduce improvements and address recommendations made in the KPMG Report.

### Criminalization of money laundering (ML) and financing of terrorism (FT)
- As an Overseas Territory of the United Kingdom (UK), Anguilla depends on UK extensions to ratify conventions; it has implemented the Vienna Convention and the Convention for the Suppression of the Financing of Terrorism; the Palermo Convention has not been extended to Anguilla because the UK has not yet ratified it.
- Anguillian legislation:
  - Criminalizes money laundering and extends to the proceeds of all serious offences including extraterritorial offences.
  - Applies ML offences to both individuals and legal entities.
  - Applies CFT laws to terrorists and terrorist organizations irrespective of whether terrorist acts occur in Anguilla or in other countries.
  - Provides dissuasive sanctions for ML and FT: confiscation of property, fines, and suspension/revocation of licenses for regulated entities.
- Identified legal gaps and planned enhancements:
  - Anguillian law does not allow extradition of individuals for FT and ML offences.
  - Authorities are considering adoption of provisions from the new UK Proceeds of Crime Act to strengthen the AML/CFT regime.
  - Administrative arrangements for filing and analysis of suspicious activity reports (SARs) for combating FT are still to be developed.
  - Specific industry guidance on SARs for FT is required.

### Confiscation and seizure of proceeds or property used to finance terrorism
- Confiscation and seizure provisions are generally available:
  - Law enforcement can freeze property but only after criminal proceedings have been initiated for ML offences.
  - For FT offences, ex parte restraint orders may be obtained once an investigation has commenced.
  - Counter-terrorism laws include comprehensive seizure and confiscation provisions, including seizure of cash under civil proceedings.
  - Rights of innocent and bona fide third parties are protected under law for restraint and confiscation orders.
- Law enforcement powers to identify and trace property are adequate, particularly regarding production of material.
- Adoption of provisions similar to the new UK Proceeds of Crime Act would improve account monitoring orders, restraining orders and voiding of contracts for ML.

### Law enforcement considerations and capacity
- No seizures or confiscations have arisen from ML and FT cases to date.
- A few suspicious transaction reports have been filed but have not resulted in seizures or confiscations.
- A system has been developed to keep statistics on such issues.
- Training provided:
  - Police officers received basic training through the Trinidad and Tobago-based Caribbean Anti-Money Laundering Program on basic ML investigations; more advanced training is required.
  - Prosecution staff has received training on ML issues.
- No timeframe has been established for provision of advanced training for law enforcement officers.
- Recommendations for law enforcement capacity:
  - Develop local intelligence and investigative capacity as STRs increase, potentially via a multi-agency law enforcement/intelligence task force comprising police, customs and immigration officials.
  - Create a structured multi-agency financial investigation unit for AML/CFT.
  - Enhance training on typologies and trends in ML and FT for Police, Customs and Prosecution officers.
  - Require law enforcement officers assigned and trained in AML/CFT to be retained in their positions for at least five years.
- Use of undercover operations, including controlled deliveries, is lawful and has been used in collaboration with overseas counterparts.

### The FIU / Reporting Authority (RA) and processes for receiving, analyzing and disseminating intelligence
- The Money Laundering Reporting Authority (RA) is designated under the Money Laundering Reporting Authority Act as Anguilla’s FIU with general functions to receive and disseminate information on suspicious transactions relating to suspected ML offences.
- Legal and practical features:
  - Law does not specify a responsibility for the RA to analyze SARs; in practice the RA has not fully developed an analytical role.
  - Reports of suspected terrorism financing activities are not filed with the RA but are provided directly to either the police or the Governor.
  - The RA is required to provide information on suspicious activity to police and customs authorities for investigation.
  - In practice most reports are forwarded by the police to an investigative UK agency (WCCIT) for assistance.
  - The RA has access to financial, administrative and law enforcement databases and may disclose information to domestic and foreign law enforcement authorities, with due regard to interests of third parties and recipients’ use.
  - No specific legal provision mandates reporting institutions to provide additional information to the RA upon request, though this is reported to occur in practice.
- Operational constraints:
  - The RA comprises the Commissioner of Police, a senior police officer, the Comptroller of Customs and the Director of Financial Services.
  - The RA does not have an independent budget.
  - Processing of SARs is not conducted in a systematic manner due to resource constraints.
  - There have been a few cases of suspicious activity reported to the RA: "5".
  - No requests for assistance have been made or received from foreign FIUs.
  - There is no centralized system for filing SARs; reports can be sent to any one of the agencies that comprise the RA.
- Recommended actions:
  - Develop a centralized reporting mechanism and keep statistics on SARs and requests for assistance.
  - Assign responsibility for supervising compliance with CFT requirements to an agency such as the FSC.

### International cooperation
- Anguillian law provides a wide range of assistance to foreign authorities in criminal investigations and proceedings on a discretionary basis; compulsory measures are also possible.
- Anguilla has a mutual legal assistance treaty (MLAT) with the USA.
- Authorities may enforce foreign restraining and confiscation orders for various cases, including terrorism finance.
- RA can share information freely with foreign law enforcement authorities through mechanisms including Interpol and OTCRIS.
- Main drawback: inability under Anguillian law to extradite individuals for ML and FT cases; the Governor is authorized to deport individuals deemed “undesirables”.
- Law enforcement considerations:
  - Small number of mutual legal assistance requests received each year: "2-3".
  - None of these requests involved ML or FT cases.
  - No immediate need to maintain statistics or assign staff solely for MLA handling given low volume.

### Preventive measures for financial institutions and supervision
- Establishment of an operationally autonomous Financial Services Commission (FSC) postponed from December 2002 to September 2003; the proposed FSC should strengthen implementation of AML/CFT laws.
- Effectiveness of FSC will depend on available financial and staffing resources to conduct ongoing supervision, particularly onsite inspections.
- Important amendments required:
  - Amendments to the Anti-Money Laundering Regulations and Guidance Notes.
  - Extension of AML/CFT laws to specifically cover insurance agents and certain aspects of mutual funds business.
- The ML Regulations and Guidance Notes are primary instruments for AML controls; Guidance Notes are not mandatory and provide practical assistance and form the basis for supervisory compliance.
- The Director of the Financial Services Department (FSD) leads AML/CFT implementation efforts; the planned FSC will replace the FSD as an omnibus supervisory body.
- Recent signing of an MOU with the ECCB should enable consolidated supervision of offshore and domestic banks for AML/CFT purposes.
- Authorities should formally assign responsibility (e.g., to the FSC) for supervising compliance with CFT requirements.

### Customer due diligence, monitoring, and record-keeping
- All covered financial institutions must have procedures requiring evidence of customer identity, occasional or habitual; what constitutes satisfactory evidence is determined by reference to the Guidance Notes.
- No legal requirement to periodically review customer identification and due diligence documentation, though Guidance Notes provide situations where further evidence should be obtained.
- Records of customer identification and transactions must be retained for at least "six years".
- Recommended legal and institutional improvements:
  - Introduce core customer identification requirements in the ML Regulations that:
    - (i) establish general requirements for satisfactory evidence of identity including for legal entities;
    - (ii) require reverification of customer identity under certain circumstances;
    - (iii) require identification and due diligence information for introduced business to be made available to financial institutions promptly on request;
    - (iv) establish an obligation on company and trust services providers to ascertain adequacy of AML/CFT systems and controls of eligible introducers;
    - (v) require financial institutions to monitor for unusual complex transactions and unusual patterns of transactions.
  - Require FIs to comply with the Directive on information for funds transfers to meet FATF 8 Special Recommendations on terrorist financing.
  - Legislative initiatives planned with respect to money remittance firms, expected to come under ECCB or FSC supervision.

### Suspicious activity reporting (SARs)
- Key gaps:
  - Need for an explicit SAR requirement supported by an effective sanctioning system; failure to promptly file an SAR should be made an offence.
  - Need for explicit requirement regarding internal review and recording of unusual complex transactions and patterns.
  - For FT, additional guidance is required to assist financial institutions in identifying and reporting suspicious activity, including amendments to Guidance Notes and training for staff.
  - Authorities should investigate reasons for the small number of SARs filed to date.

### Non-prudentially regulated sector (Company and trust services providers, CSPs)
- CSPs are the fastest growth area in Anguilla's financial services; many licensed CSPs do not have a physical presence on the Island.
- Challenges and supervisory recommendations:
  - Onsite inspections for AML/CFT will be challenging for CSPs without physical presence.
  - With establishment of FSC, periodic onsite examinations of CSPs should be fully implemented and focused on AML/CFT compliance, including CSPs without physical presence.
  - Examinations should review arrangements for reliance on customer due diligence carried out by overseas introducers/sub-agents.
  - CSPs should be required to ascertain that AML/CFT systems of overseas agents are at least as rigorous as those required under Anguillian legislation and Guidance Notes.

### Medium-term challenges
- Principal challenges for authorities:
  - Establishment of a well-resourced and functioning FSC as lead agency for supervising AML/CFT implementation.
  - Attracting and retaining qualified staff for the FSC should be a primary objective.
  - Implementing the MOU with the ECCB for supervision of offshore banks.
  - Reviewing and enforcing compliance by CSPs that do not have a physical presence and who rely on eligible introducers for customer due diligence.

### Summary assessment against the FATF Recommendations and recommended actions
- Overall compliance: Anguilla complies well with the FATF 40+8 Recommendations; the legal framework is relatively strong.
- Key improvements to strengthen AML/CFT regime:
  - Improvements in extr adition provisions and regulations would significantly improve the regime.
  - Adoption of some provisions of the new UK Proceeds of Crime Act would strengthen the legal framework.
  - More comprehensive monitoring for compliance, heightened awareness and guidance for the financial sector, including for combating FT, would enhance compliance.
- Recommended actions (selected, preserving FATF numbering and actions as presented):
  - General framework (FATF 1–3):
    - Consider amending the Drugs Trafficking Offences Act to provide that disclosures to the Reporting Authority (FIU) are not treated as breaches of any restriction on disclosure of information.
    - Consider broadening disclosure provisions in the Eastern Caribbean Central Bank Agreement Act to enable the ECCB to disclose information to financial institution supervisors.
    - In conjunction with the United Kingdom, introduce legislative mechanisms to allow for extradition for money laundering and terrorist financing.
  - Scope of the criminal offence of ML (FATF 4–6): None specified.
  - Provisional measures and confiscation (FATF 7): None specified.
  - General role of financial system in combating ML (FATF 8–9):
    - Specifically list mutual funds/mutual fund administrators and insurance agents as persons/entities covered by the AML Regulations.
    - For AML/CFT compliance purposes, consider bringing money remittance firms under the supervision of the FSC or ECCB, as appropriate.
  - Customer identification and record-keeping rules (FATF 10–13):
    - Establish core customer identification and recordkeeping requirements in the regulations rather than guidance notes.
    - Require CSPs to ascertain that AML/CFT systems of sub-agents/eligible introducers meet Anguillian requirements and are effectively implemented.
    - Require identification of trust beneficiaries as appropriate.
  - Increased diligence of financial institutions (FATF 14–19):
    - Consider reporting suspicion of FT to the Reporting Authority rather than to a constable or the Governor.
    - Impose an affirmative obligation to report suspicion of ML/FT promptly to the Reporting Authority and make failure to report an explicit offence.
    - Ascertain reasons for the relatively small number of STRs filed to date.
    - Require enhanced monitoring for suspicious activity, including aggregation of related accounts.
    - Require enhanced training by financial institutions on recognition of suspicious transactions and activities.
  - Measures to cope with countries with insufficient AML measures (FATF 20–21):
    - Introduce a specific requirement that financial institutions pay special attention to transactions with counterparties in higher risk countries.
  - Other measures (FATF 22–25):
    - Expedite immobilization of bearer shares and review for compliance in the company and trust services sector, particularly by sub-agents.
  - Implementation & role of regulatory and other administrative authorities (FATF 26–29):
    - Enhance supervision of insurance and company and trust services providers for AML/CFT.
  - Other forms of cooperation – confiscation, mutual assistance, extradition (FATF 33–35):
    - Designate by Orders those jurisdictions whose confiscation orders are recognized by Anguilla.
    - Consider amending the Criminal Justice (International Cooperation) Act relating to searches to remove the limitation on searches of offenders’ premises.
    - Allow under law for extradition for money laundering and terrorist financing.
  - 8 Special Recommendations on terrorist financing (selected actions):
    - I. Ratification and implementation of UN Instruments: Extend the International Convention for the Suppression of the Financing of Terrorism to Anguilla.
    - IV. Reporting suspicious transactions related to terrorism: Introduce industry guidelines for recognition and reporting of suspicious transactions relating to FT.
    - V. International Cooperation: In conjunction with the United Kingdom, introduce legislative mechanisms to allow for extradition for terrorist financing.
    - VII. Wire transfers: Make the Directive on wire transfers legally binding and issue industry guidelines to assist with implementation.
- Other recommended law enforcement actions:
  - Create a structured multi-agency financial investigation unit for AML/CFT.
  - Enhance training and awareness for Police, Customs and Prosecution officers on typologies and trends in ML and FT.
  - Require law enforcement officers assigned and trained in AML/CFT to be retained in their positions for at least five years.

*Source: IMF OFC mission report.*

### 84.      Anguilla agreed to be assessed under the new AML/CFT Methodology document,

### Anguilla agreed to be assessed under the new AML/CFT Methodology document

### IMF AML/CFT assessment and Anguilla's response
- Anguilla agreed to be assessed under the new AML/CFT Methodology document, which was introduced shortly before the IMF assessment.
- The IMF made a number of AML/CFT recommendations, which are accepted by Anguilla.
- The IMF considers Anguilla to have a relatively robust legal and institutional AML/CFT framework.

### Legal framework, proposed legislative changes, and guidance
- Anguilla’s existing Proceeds of Crime legislation and Anti-Money Laundering Regulations and Guidance Notes on the Prevention of Money Laundering were largely drafted on similar UK legislation in place at the time.
- The UK has adopted a new Proceeds of Crime Act; Anguilla proposes to adopt a number of new measures contained in that new Act to address IMF legal and institutional recommendations.
- The IMF recommends transferring a number of provisions already contained in the Guidance Notes for the Prevention of Money Laundering into existing Regulations to give them more force of law.
- Anguilla has identified these Guidance Note provisions and they are being transferred into Regulations.
- A number of other minor recommendations concerning Anguilla’s AML Regulations are being formalized.

### Money Laundering Reporting Authority structure and Egmont Group membership
- The IMF recommends that Anguilla’s Money Laundering Reporting Authority should take on a more centralized structure.
- Arrangements and an extra resource person have already been put in place to meet this recommendation.
- Strengthening the FIU-type requirements is needed as Anguilla seeks to become a newly elected member of the Egmont Group.

### Oversight of company and trust services providers (CSPs): scale and licensing
- Anguilla is actively promoting the development of the offshore company industry.
- As at August 31, 2002, 4,642 companies and partnerships had been registered through its online registration system (ACORN).
- Twenty nine company managers have been licensed.
- There is no requirement to register trusts in Anguilla; the number of trusts formed is therefore not known.
- At the time of the mission, 12 trust companies had been licensed to operate from within Anguilla.
- Both company managers and trust companies are supervised by the FSD, which is to be replaced by the FSC in September 2003 as an operationally autonomous supervisory body.

### Statutory regimes and authorized activities
- Company managers are licensed under the Company Management Act, 2000 (CMA) and related Regulations; authorized services include:
  - incorporation and formation of companies including international business companies (IBCs), Company Ordinance Companies, and Limited Liability Companies (excludes the formation of partnerships);
  - acting as director, manager or officer of companies, including foreign companies;
  - acting as registered agent for companies;
  - providing registered office for companies;
  - preparation and filing of statutory documents on behalf of companies;
  - acting as nominee shareholder for companies, including foreign companies.
- Trust companies are licensed under the Trust Companies and Offshore Banking Act, 2000 (TCOB); trust business is defined as the business of “acting as trustee of property.”
- Section 3 of the Trusts Ordinance (1994) defines a trustee as a person who “holds or has vested in him, or is deemed to hold or have vested in him, property which does not form, or which has ceased to form, part of his own estate, for the benefit of any persons, purposes or both.”
- The Trusts Ordinance allows settlors to also be trustee, protector and beneficiary of the same trust, and allows designation of corporate trustees and protectors.
- Trust companies are authorized to carry on company management business under a trust license without the need for a company manager license; the practice has been for trust companies to mainly engage in company services as opposed to trust administration.

### Supervisory powers, information access, and sharing restrictions
- The CMA authorizes the Inspector of company managers to issue directions for filing regulatory returns and to examine the books and records of licensees during onsite inspections; similar powers exist in the TCOB for trust companies.
- The proposed FSC Act will contain enhanced authority for compliance inspections without restriction on access to information, and will provide more effective enforcement and disciplinary powers to the FSC, including imposition of financial penalties for noncompliance with legal and other regulatory requirements, including for AML/CFT.
- Under the CMA and the TCOB, the Governor’s authority to take enforcement action against CSPs is mainly restricted to the suspension and revocation of licenses.
- Section 17 of the CMA prohibits the regulator from disclosing information obtained during an examination of a licensee regarding a company managed by the licensee, except as required by a Court in Anguilla or where a disclosure is made to the Governor; the Court will authorize disclosure only where there is prima facie evidence of illegality and where the information may be useful for the investigation of illicit activity.
- Section 23 of the CMA permits information, except for details of companies under management, to be provided to foreign regulators for regulatory purposes subject to restrictions on further disclosure by the recipient.
- Section 31 of the TCOB imposes similar restrictions on disclosure of the name and title of a settlor; Section 35 of the TCOB makes provisions for disclosure to a foreign regulator on the same basis as Section 23 of the CMA.
- Section 21 of the draft FSC Bill will enable the FSC unrestricted access to information on CSPs in performance of its duties under the CMA and TCOB or any other law.
- Under Section 24 of the FSC Bill, the FSC will be able to share information with foreign regulators for regulatory purposes only, on the basis of reciprocity and subject to restrictions on further disclosure; information may not be provided if it will be used in criminal proceedings against the person furnishing it.
- Under the proposed law, the FSC will be able to require that a foreign regulator contributes towards the costs associated with the provision of information.

### Onsite inspections, operational challenges, and resource needs
- Plans are underway for the FSD/FSC to undertake onsite inspections of CSPs.
- Structural challenges include a number of licensees without a physical presence (cubicle agents) and business introduced by overseas sub-agents of CSPs, complicating onsite inspections.
- Strengthening staffing resources for the FSC is a primary objective of the authorities.
- The FSC’s ability to conduct periodic inspections will depend on securing sufficient funding for its operations and may require cooperation arrangements with foreign regulators in jurisdictions where CSPs and their sub-agents operate.

### Recommended Plan of Action for the company and trust services sector (high-level recommendations)
- Issue a Code of Practice under the Company Management Act and the Trust Companies and Offshore Banking Act that meet international best practices; consult the Anguillian Financial Services Association (AFSA) to avoid potential conflict with the Code issued by the AFSA.
- Implement the proposed program of onsite inspections of CSPs, including cubicle agents, in accordance with the proposed schedule prepared by the FSD; inspections should focus particularly on compliance with the applicable AML/CFT laws, guidelines and Codes.
- Review the adequacy of arrangements for reliance by CSPs on customer due diligence requirements conducted by eligible introducers/sub-agents.
- Review and implement a process by which the FSD/FSC will have timely and easy access to the records of CSPs that do not have a physical presence in Anguilla, particularly where such records are maintained by introducers/sub-agents overseas; access to such records should be made a condition to CSP licenses.
- Implement the requirement under the Company Management Act for external auditors to issue “certificates of compliance”, particularly for AML/CFT; copies of auditors’ management letters and compliance certificates should be sent to the FSD/FSC along with the annual audit reports.
- Consider reducing the period for filing of audited accounts to less than six months.
- Consider implementing a requirement for indemnity insurance for CSPs, as appropriate, particularly where cubicle licensees and sub-agents are involved.

### Authorities’ response and implementation status
- The IMF reviewed Anguilla’s oversight of CSPs, recognizing that there are no codes or standards set but only best practices.
- A main IMF recommendation was the need to implement a proposed program of onsite inspections of CSPs.
- At the time of the IMF visit, an on-site program had been established but had not yet commenced.
- By September 2003, the majority of CSPs had undergone on-site inspection by the regulatory body and had been asked to correct a number of deficiencies in their practices.
- The other four recommendations concern minor amendments to the existing Code of Practice for CSPs, clarifying issues concerning introduced business and an enhanced role for external auditors for AML/CFT compliance; these recommendations are being reviewed and amended directives are to be put in place accordingly.

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_Source: https://www.imf.org/-/media/files/publications/ofca/english/cr03370.pdf_