## ASSESSMENT OF THE SUPERVISION AND REGULATION OF THE FINANCIAL SECTOR ## Source details **Canonical URL:** [ASSESSMENT OF THE SUPERVISION AND REGULATION OF THE FINANCIAL SECTOR](https://www.imf.org/-/media/files/publications/ofca/english/cr04171.pdf) ## Other formats - [Markdown version](/-/media/files/publications/ofca/english/cr04171.pdf.md) - [Structured JSON version](/-/media/files/publications/ofca/english/cr04171.pdf.json) --- ### Overview and context - The IMF Monetary and Financial Systems Department mission visited Apia from August 27 to September 11, 2002, to conduct a Module 2 assessment under the IMF Offshore Financial Centers initiative. - Offshore and domestic financial activities are legally separated. - Population and macroeconomic context: - Population: 176,848 (2001 census). - Per capita annual income: approximately US$1,350. - Private remittances: equivalent to about 19 percent of GDP. - Official transfers: average about 10 percent of GDP in recent years. - Financial sector share of GDP in 2001: 6.7 percent; offshore sector: roughly 3 percent of GDP. - Real GDP growth in fiscal year to end June 2002 (FY2001/02): just over 1 percent versus an original projection of 4.0 percent. - Annual average inflation: 7.4 percent in June 2002, from 1.9 percent the previous year; CBS target is 3 percent. - Institutional roles: - Central Bank of Samoa (CBS) is responsible for prudential supervision of domestic commercial banks under the Financial Institutions Act (FIA) of 1996. - Samoa Offshore Financial Center (SOFC) acts as Registrar of International and Foreign Companies, Inspector of Offshore Banks, and Registrar of International Insurance; SOFC operates as a quasi-governmental department administered by the CBS. ### Size and composition of financial sectors (selected statistics) - Domestic financial institutions (as of August 2002): - Commercial banks: 3. - Credit unions: 20. - Insurance companies: 4. - Money changers: 3; Money transfer agents: 5; Money lenders: 3. - National Provident Fund (NPF); Development Bank of Samoa (DBS); Housing Corporation. - End-2001 and end-March 2002 banking statistics: - Nominal GDP in 2001: approximately SAT 900 million (or US$290 million). - Balance sheet totals (in millions of tala): 1995: 529.7; 1996: 580.3; 1997: 642.4; 1998: 690.1; 1999: 790.0; 2000: 875.7; 2001: 941.4. - Total assets of commercial banks at end-March 2002: SAT 440 million; loans and advances: SAT 290 million. - Deposits at end-March 2002: SAT 350 million; loan-to-deposit ratio: 83 percent. - Average capital ratio for commercial banks at end-March: 25.6 percent. - Total past due loans: 2.7 percent of loan portfolio; past due loans less specific provisions: 3.5 percent of capital. - Liquid assets represented 10.9 percent of domestic deposits. - System profitability for six months to March: annual return on net worth around 26 percent and 4.3 percent on assets. - Offshore sector (end‑August 2002): - Trustee companies: 6. - International trusts: 157. - International business companies (IBCs): 7,553 (long-term IBCs: 141). - International (offshore) banks: 8. - Segregated fund international companies: 3. - International insurance companies: 5. - Direct employment from offshore sector: 32 people. - Gross revenues from offshore sector fees in 2001: SAT 7.4 million (approximately US$2.5 million). - Annual revenue to government from offshore sector fees in 2001: US$2.0 million. - At end-2001, assets of offshore banks accounted for roughly 40 percent of GDP. ### Banking supervision and prudential regulation — findings - Differential supervisory regimes: - Domestic banks: licensed and supervised by the CBS. - Offshore banks: licensed by the Minister of Finance and supervised by the Inspector of Offshore Banks (SOFC). - Domestic banks: - Prudential Statements cover capital adequacy, asset concentration and risk exposures, liquidity, connected lending and direct ownership interest, asset quality, and foreign currency exposures, but most statements lack detailed minimum requirements. - Minimum risk-weighted capital adequacy ratio set at 15 percent. - On-site examinations were not being conducted at the time of the mission; CBS planned to begin them. - CBS off-site supervision in place but requires enhanced staff capacity for in‑depth risk analysis. - Offshore banks: - Prudential regulation is generally lacking; Inspector relies heavily on auditors’ reports and has not undertaken comprehensive reviews of risk management, internal control, accounting, or auditing systems. - Licensing does not require physical presence; only two offshore banks maintain offices in Samoa that hold records and accounts. - Five of eight licensed offshore banks are captive banks with restricted “B2” licenses; B2 minimum capital requirement US$250,000 and annual fee currently US$4,500. - Major supervisory issues: limited access to customer information, no explicit fit-and-proper requirements for management, absence of effective on-site supervision. - Shell bank concern: banks without meaningful mind and management in Samoa viewed as shell banks not amenable to Basel Core Principles supervision. ### Banking supervision — mission recommendations (selected) - Domestic banks: - Reinforce legislative powers for licensing and supervision to ensure supervisor’s scope for remedial action; vet all changes in control. - Develop specific policies on connected lending, fit and proper tests, and risk management systems. - Introduce prudential regulations and information requirements for connected lending, country exposures, maturity profile, credit grading, and interest rate exposures. - Build capacity for on-site examinations and more in-depth off-site analysis; increase FID staffing. - Develop plan for targeted use of external auditors and establish closer links with other supervisors. - Offshore banks: - Require all offshore banks to establish a real physical presence with mind and management within the jurisdiction or face removal of banking license. - Eliminate limitation on authorities’ access to customer information. - Require explicit “fit and proper” criteria for management as a licensing condition. - Develop ability to implement effective on-site visits at offshore banks or at registered offices within company service providers. - Apply the same supervisory and regulatory standards to domestic and offshore banks; consider treating licensing of offshore and domestic banks under the same banking legislation after addressing shell bank issues. - Increase transparency by listing names of all banks (and preferably IBCs) operating in or from the jurisdiction on the SOFC website. ### Anti‑Money Laundering and Combating Financing of Terrorism (AML/CFT) — findings - Legislative framework: - Money Laundering Prevention Act (MLPA) enacted in 2000; Money Laundering Regulations 2002 signed and effective October 15, 2002; Prevention and Suppression of Terrorism Act (PSTA) adopted in 2002. - Under MLPA, the Governor of the CBS exercises the powers of the Money Laundering Authority (MLA); Governor has delegated authority to the Deputy Governor, the Manager, and officers of the Financial Institutions Department (FID). - FIU functions: - MLA has two of three fundamental FIU powers (receive and disseminate suspicious transaction reports) but has never been operational as a full FIU and lacks the power to analyze suspicious transaction reports. - Authorities intend to broaden MLA powers to include full FIU functions and have these exercised by the Financial Intelligence Division (FID) of the CBS. - Operational capacity gaps: - Police and Customs Services lack expertise, skill, and experience to investigate money laundering effectively. - Customer identification and record keeping provisions in MLPA were incomplete: threshold for record keeping and reporting set at SAT 30,000 (about US$9,000); no general legal requirement for customer identification and verification prior to draft Regulations. - Funds transfer originator information not required to accompany transfers. - Trustee companies and some offshore entities were not unambiguously included in the MLPA’s definition of “financial institution” prior to an amendment. - Confiscation and mutual assistance: - MLPA provided forfeiture on conviction but lacked comprehensive forfeiture of instrumentalities, proceeds of predicate offences where no conviction for money laundering exists, confiscation of benefits, and pecuniary penalty order powers. - Mutual assistance limited and dependent on treaties; no provisions for informal or “ad hoc” mutual assistance; Attorney General is competent authority for overseas requests. ### AML/CFT — mission recommendations (selected) - Legal and institutional reforms: - Amend MLPA to include full range of FIU powers including analysis and information exchange with foreign FIUs and law enforcement agencies. - Broaden MLPA to include comprehensive requirements on customer identification and verification, record keeping and retention, and suspicious transaction reporting; remove SAT 30,000 threshold. - Prohibit anonymous or false name accounts. - Amend MLPA to improve reporting framework, extend tipping‑off provisions, improve protection for reporters and reported information, and require reporting of attempted suspicious transactions. - Amend MLPA to include comprehensive forfeiture and confiscation provisions and power to make penalty orders where forfeiture is not possible. - Extend mutual assistance provisions to cover all criminal offences and enable ad hoc judicial cooperation without prior mutual assistance arrangements. - Operational and capacity building: - Establish governance and oversight structure for the FIU; assign FIU functions to identified FID officers; develop standard operating procedures, analytical processes, secure databases and office facilities, and training programs. - Transfer property tracking and monitoring investigative powers to Police or Attorney General and allow FIU to forward reports directly to enforcement agencies. - Provide training and capacity building for Police and Customs investigators. ### Company Service Providers (Trustee Companies) — findings and recommendations - Structure and supervision: - Six registered trustee companies service 7,553 IBCs; trustee companies must be registered under Trustee Companies Act 1987 and meet capital and reporting requirements (capital not less than SAT 500,000). - Registrar has powers to inspect books and require information but had relied primarily on off-site analysis and, until August 2002, performed only one on-site inspection. - Trustee companies are required to file due diligence procedures as part of registration and to report suspicious transactions under MLPA obligations (trustee companies were later specifically included in the definition of “financial institution” in November 2002). - Risks and supervisory recommendations: - Require trustee companies to obtain copies of all due diligence material from introducers rather than relying solely on introducer undertakings. - Do not accept business from introducers in jurisdictions with doubtful supervision unless independent due diligence is performed. - Conduct enhanced due diligence for redomiciled business and consider exchanges of information and on-site visits to jurisdictions where due diligence is undertaken. - Registrar/Inspector should conduct regular on-site inspections of trustee companies, review records, security and disaster recovery, and consider mandatory Professional Indemnity cover. - Codify “fit and proper” tests for directors, managers, shareholders, and controllers in amended Trustee Companies Act and promulgate a Code of Practice consistent with OGBS recommendations. ### Insurance, securities, and collective investment schemes — findings and recommendations - Insurance: - Domestic insurance sector small: 4 domestic insurers (structure as of end‑August 2002); one majority state‑owned life insurer; one majority Australian bank‑owned company providing life and nonlife; two general insurers (one majority New Zealand‑owned). - Offshore international insurance companies: 5 registered, four captives. - Recommendation: modernize insurance legislation to establish CBS as licensing and supervisory authority for domestic insurance; expand FID staffing with specialized insurance supervision staff; require compliance with other countries’ laws when products sold abroad and establish information sharing with foreign regulators. - Securities and collective investment schemes (CIS): - No existing laws or regulations governing securities business and collective investment schemes; some IBCs may be conducting unregulated investment business. - Recommendation: introduce legislation on collective investment schemes while prohibiting establishment of unlisted collective investment schemes; introduce basic investment business and securities legislation to regulate fraudulent provision of financial advice and product sales. - Regulatory framework for CISs should distinguish public versus private funds, focus on disclosure, credible regulatory function, and qualified local service providers and custodians. ### Information sharing, secrecy, and organizational recommendations - Secrecy and information sharing: - Secrecy obligations exist under various Acts but MLPA overrides secrecy when disclosures are made pursuant to the Act. - Some supervisory laws restrict exchange of customer‑level information (e.g., Offshore Banking Act restrictions), limiting supervisory effectiveness. - Recommendations: - Permit supervisory authorities by law to exchange information with domestic and foreign supervisory authorities, the MLA/FIU, and law enforcement. - Require auditors of domestic and offshore entities to report suspicious transactions to the MLA/FIU and include whistle‑blowing provisions. - Ensure supervisors have complete and unfettered access to licensees’ information and secure gateways to communicate directly with auditors. - Institutional and capacity issues: - Mission recommended adopting a functional approach to supervision (banking, insurance, other nonbanking services, trustee companies, Registrar functions, and FIU) rather than separating domestic and offshore sectors. - Enhance staffing in CBS (FID), consider employing legal drafting capacity (general counsel), and strengthen coordination between FID, SOFC/Registrar/Inspector, and the MLA. ### Authorities’ response and action plan (selected commitments) - Timing and legislative actions: - Report completed February 2003; authorities agreed to publish report in December 2003. - International Banking Bill (IBA) 2003 approved by Cabinet; to be introduced in Parliament in mid-2004; IBA outlaws shell banks and requires licensees to establish real physical presence with mind and management in Samoa. - Money Laundering Prevention Regulations enacted effective December 4, 2002 (signed October 15, 2002); November 2002 amendment to definition of “financial institution” to include trustee companies. - Draft Money Laundering Prevention Amendment Bill (MLAB), Draft Proceeds of Crime Bill, Draft Mutual Legal Assistance Bill, Draft Insurance Bill, Amendments to the Financial Institutions Act, and International Mutual Funds Bill were prepared with expected enactment in early 2004 (authorities’ timetable and preparation as stated). - Supervisory and operational measures: - CBS: on-site inspections planned with IMF/ADB assistance; intend to conduct annual inspections of each international banking licensee commencing in 2004, subject to capacity and resources. - Trustee companies: training sessions on due diligence and MLPA compliance; preparatory training and planned annual inspections commencing in 2004, subject to capacity and resources. - Insurance: draft Insurance Bill to confirm CBS as licensing and supervisory authority of domestic insurers; consultations held and Bill to be enacted in 2004. - AML/CFT reforms: MLAB to establish FIU governance and powers including analysis and information exchange; Proceeds of Crime Bill to provide comprehensive forfeiture and confiscation regime including pecuniary penalty orders; Mutual Legal Assistance Bill to provide comprehensive mutual assistance for all serious offences. - Fit and proper codification: legislation to amend FIA and offshore statutes to codify fit and proper criteria for directors, controllers, shareholders, and managers to be introduced in 2004. *Source: IMF assessment report completed February 2003, Samoa OFC assessment (IMF Monetary and Financial Systems Department mission, August 27–September 11, 2002); Authorities’ Response and Action Plan as prepared by the Samoan authorities.* ### 2004. The views expressed in these documents are those of the staff team and do not necessarily ### ASSESSMENT OF THE SUPERVISION AND REGULATION OF THE FINANCIAL SECTOR ### Preface and background - The IMF Executive Board approved a program of assessments of offshore financial centers (OFCs) in July 2000. - The program is based on the paper “Offshore Financial Centers—The Role of the IMF” (June 23, 2000). - Samoa invited the IMF to carry out a stand-alone (Module 2) OFC assessment. ### Mission, dates, and participants - An IMF Monetary and Financial Systems Department (MFD) mission visited Apia from August 27 to September 11, 2002. - The mission was headed by Masayuki Tamagawa and included: - Vassili Prokopenko and Harald Anderson (mission assistant), MFD; - Cecilia Marian (Legal Department); - John Bourbon (bank supervision expert, formerly Cayman Islands Monetary Authority and formerly Isle of Man Financial Supervision Commission); - David Prees (bank supervision expert, formerly Reserve Bank of Australia). - Additional contributors during the mission: - Pat O’Sullivan (anti–money laundering expert, formerly Head of Financial Intelligence Unit of New Zealand) assisted with setting up the Financial Intelligence Unit for Samoa. - Ms. Rose-Marie Olaso (bank supervision adviser, Pacific Financial Technical Assistance Centre) assisted with the Basel Core Principles assessment of the domestic banking sector. ### Scope, methodology, and legal/technical basis - The mission assessed the extent to which Samoa’s regulatory and supervisory arrangements for domestic and offshore banking complied with internationally accepted standards. - The domestic and offshore banking sectors were assessed separately because they are regulated under different statutes by different agencies and according to different standards. - The mission assessed compliance with international standards on anti–money laundering (AML) and combating the financing of terrorism (CFT) guided by the June 2002 version of the draft AML/CFT methodology prepared by the IMF and World Bank. - The IMF’s policy allows deletion of market-sensitive information from staff reports and other documents. ### Institutions, meetings, and cooperation - The mission held discussions with: - The Prime Minister, Mr. Tuilaepa Sailele Malielegaoi; - The Governor of the Central Bank of Samoa (CBS), Mr. Papali’i T. Scanlan; - The Deputy Governor, Mr. Philip Penn; - Officers from the Financial Institutions Department of the CBS; - Regulatory authorities of the Samoa Offshore Finance Centre; - Officers from the Treasury Department and the Attorney General’s office; - A broad cross-section of private sector practitioners. - The Minister of Finance, Mr. Telefoni, was abroad during the mission. - The mission was able, with minor exceptions related to confidentiality provisions of the offshore sector, to review relevant documentation and received full cooperation from the authorities. ### Key administrative and publication facts - The report was completed in February 2003. - Samoa’s authorities agreed to publish the report in December 2003. - Appendix II (prepared by the Samoan authorities) reflects, as of December 2003, actions taken or planned in response to the report’s recommendations. - Copies of the report are available to the public from: - International Monetary Fund ● Publication Services - Address: 700 19th Street, N.W. ● Washington, D.C. 20431 - Telephone: (202) 623 7430 ● Telefax: (202) 623 7201 - E-mail: publications@imf.org ● Internet: http://www.imf.org - Price: $15.00 a copy ### Assessment focus and content structure - The report contains: - A Glossary of acronyms, including AML, BCPs, CBS, CBSA, CFT, CIS, CSP, DBS, FIA, FID, FIU, FSF, IBA, IBC, ICA, LFI, ML, MLA, MLPA, NCCTs, NPF, OBA, OFC, OGBS, PS, PSTA, SOFC, TCA. - Chapters covering: - Overview of the Financial Sector (domestic and offshore) and regulatory framework; - Summary of observance of Financial System Standards and Codes, including Basel Core Principles for Effective Banking Supervision and assessment of AML measures; - Other relevant issues such as Company Service Providers, trustee company regulation, supervision of insurance companies, investment business and collective investment schemes, information sharing and secrecy obligations, and organizational issues. - Tables, figures, boxes, and appendices, including: - Table: Structure of the Domestic Financial System, 1995–2001; - Figures: Number of Operating International Business Companies; Number of Operating Offshore Banks; - Box: Legislation Governing the Offshore Business in Samoa; - Appendices: Summary of 1998 Legislative Amendments to Samoa Offshore Legislation; Authorities’ Response and Action Plan (prepared by the Samoan authorities). ### Acknowledgments and coordination - The mission expressed gratitude to the Governor and officials of the CBS, officers of the Samoa Offshore Finance Centre, government officers, and representatives of financial institutions for assistance and hospitality. - Special thanks were given to: - Ms. Erna Va’ai, Registrar of International and Foreign Companies; - Ms. Laura M. Dempsey, Legal Adviser to the Registrar of International and Foreign Companies; for excellent preparation and coordination of the mission. *Source: IMF assessment report completed February 2003, Samoa OFC assessment (IMF Monetary and Financial Systems Department mission, August 27–September 11, 2002).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Overview of the Financial Sector - The MFD mission visited Apia from August 27 to September 11, 2002, to conduct a Module 2 assessment in the context of the IMF’s Offshore Financial Centers (OFC) initiative. - Offshore and domestic financial activities are legally separated. - Size and composition of offshore sector: - International Business Companies (IBCs) are the largest offshore business: as of August 2002, there were 7,553 IBCs registered. - Eight offshore banks are currently licensed; the number declined recently after stricter regulatory controls. - Five international insurance companies, four of which are captives. - Six licensed trustee companies (company service providers) have offices in Samoa and act as representative offices for offshore banks and international insurance companies. - Institutional arrangements: - The supervisory authority commonly known as the Samoa Offshore Financial Center (SOFC) acts as Registrar of International and Foreign Companies, Inspector of Offshore Banks, and Registrar of International Insurance. - SOFC operates as a quasi-governmental department and is administered by the Central Bank of Samoa (CBS). - Domestic sector composition: - Three commercial banks, 20 credit unions, and four insurance companies. - CBS licenses and supervises all commercial banks; the 2001 amendment of the Financial Institution Act authorized CBS to conduct prudential supervision of insurance companies. - Macroeconomic and financial sector context: - Population: 176,848 (data from the 2001 census). - Per capita annual income: approximately US$1,350. - Private remittances are equivalent to about 19 percent of GDP; official transfers average about 10 percent of GDP in recent years. - Financial sector accounted for 6.7 percent of GDP in 2001; offshore sector accounted for roughly 3 percent of GDP. - Real GDP estimated to have grown by just over 1 percent in the fiscal year to end June 2002 (FY2001/02), versus an original projection of 4.0 percent. - Annual average inflation rose to 7.4 percent in June 2002, from 1.9 percent the previous year; CBS target is 3 percent. ### Banking Supervision and Prudential Regulation - General finding: - Considerable differences exist in supervisory treatment of domestic and offshore banks; domestic banks are licensed and supervised by the CBS, whereas offshore banks are licensed by the Minister of Finance and supervised by the Inspector of Offshore Banks. - Domestic banks — findings and recommended actions: - Prudential Statements cover capital adequacy, asset concentration and risk exposures, liquidity, connected lending and direct ownership interest, asset quality, and foreign currency exposures, but most statements lack detailed requirements. - Off-site supervision is basically in place; on-site examinations are not currently conducted but CBS plans to begin them soon. - Recommended steps for CBS: - Reinforce legislative powers in relation to licensing and supervision to ensure that (i) the supervisor’s scope for action is not inhibited when remedial measures are required, (ii) all relevant matters are considered in license applications, and (iii) all changes in control are vetted by the supervisor. - Develop more specific policies in areas including connected lending, fit and proper tests and risk management systems. - Introduce new prudential regulations and other information requirements for connected lending, country exposures, maturity profile, credit grading, and interest rate exposures. - Build capacity to undertake on-site examinations and more in depth off-site analysis. - Develop a plan for more targeted use of external auditors. - Establish closer links with other supervisors. - Increase staffing in the Financial Institutions Department (FID) to provide greater supervision of nonbank financial institutions and anti-money laundering activities. - Offshore banks — findings and recommended actions: - Following the 1998 amendment to the Offshore Banking Act, the number of offshore banks has been reduced significantly; five of the eight licensed offshore banks are captive banks with restricted “B2” licenses allowing acceptance of deposits only from related persons and entities. - Licensing does not require physical presence; only two offshore banks maintain offices in Samoa which hold records and accounts. The other six have offices registered with company service providers that also provide directorships. - Prudential regulation for offshore banks is generally lacking; the Inspector relies heavily on bank auditors’ reports and has not undertaken comprehensive reviews of risk management, internal control, accounting, or auditing systems of offshore banks. - Major outstanding issues identified in the BCP assessment: - Limitation of authorities’ access to customer information. - No explicit “fit-and-proper” requirements for management. - Absence of effective on-site supervision. - Recommended measures: - Require all offshore banks to establish a real physical presence with mind and management within the jurisdiction or face removal of banking license. - Eliminate the limitation on the authorities’ access to customer information. - Require “fit and proper” criteria for selecting management as a licensing condition. - Develop ability to effectively implement on-site visits at offshore banks or at registered offices within the company service providers. - Apply the same supervisory and regulatory standards to domestic and offshore banks. - Consider treating licensing of offshore and domestic banks under the same banking legislation and supervisory authorities after addressing shell bank issues. ### Legal, Institutional, and Supervisory Aspects of AML/CFT - Legislative and institutional developments: - Money Laundering Prevention Act (MLPA) enacted in 2000. - Governor serves as the Money Laundering Authority (MLA); MLPA Regulations and Guidelines drafted. - Prevention and Suppression of Terrorism Act (PSTA) adopted in 2002. - Assessment of AML/CFT framework used the June 2002 draft AML/CFT methodology prepared by the IMF and World Bank. - Operational capacity and gaps: - Police and Customs Services lack expertise, skill, and experience to investigate money laundering issues effectively. - The MLA has powers to receive and disseminate suspicious transaction reports (two of the three fundamental FIU powers) but has never been operational as a full financial intelligence unit (FIU). - Samoan authorities intend to broaden the powers and functions of the MLA to include the full range of FIU powers and to have these functions exercised by the FID. - Identified legal framework concerns and recommended reforms: - Amend the definition of financial institution so that all offshore entities—and specifically trustee companies—are included. - Broaden the scope of the MLPA to include comprehensive and all substantive requirements relating to customer identification and verification, record keeping and retention and suspicious transaction reporting. - Amend the MLPA to improve the framework for reporting suspicious transactions, including extending the tipping-off provisions and improving protection for reported information and persons reporting. - Put in place administrative and operational steps toward establishing the FIU and provide governance and oversight structure for the FIU. - Amend the MLPA to include comprehensive forfeiture of proceeds of crime and confiscation of benefits provisions, as well as the power to make penalty orders where forfeiture is not possible. - Introduce common provisions in all regulatory laws requiring that shareholders and directors of financial service providers be “fit and proper” persons. - Amend the MLPA to afford the MLA the full range of powers and functions of an operational FIU, including the power to analyze information and to exchange information with foreign FIUs and law enforcement agencies. - Amend the MLPA to extend the scope of mutual assistance provisions to cover all criminal offenses. ### Company Service Providers (Trustee Companies) - Role and supervision: - Trustee companies primarily function as company service providers dealing with registration and administration of IBCs. - Trustee companies operate under a relatively rigorous licensing system with generally effective supervision. - The Registrar under the Minister of Finance conducts “fit-and-proper” vetting of management and ownership control, has significant powers to gather information and conduct on-site inspections, and has worked closely with the MLA and trustee companies in MLPA implementation. - Risks and recommended actions: - Trustee companies should conduct an enhanced level of due diligence, especially for new business transferring to the jurisdiction under redomiciliation. - Authorities should conduct regular on-site visits to trustee companies and consider entering into specific exchange of information agreements with host country supervisors. ### Other Issues (Insurance, Securities, Collective Investment Schemes) - Insurance: - Domestic insurance supervision is in early development. - Offshore insurance business is very small; IAIS core principles assessment was not conducted. - Mission supports modernization of insurance legislation to establish CBS as licensing and supervisory entity for domestic insurance companies. - Financial Institutions Department should be expanded to designate staff specializing in insurance supervision. - In licensing general international insurance business, require compliance with other countries’ laws where insurance products are sold and establish close communication and information sharing with foreign insurance regulators to prevent legal and reputational risk. - Securities and collective investment schemes: - No laws or regulations currently govern securities business and collective investment schemes; some IBCs may be conducting such business but scope is unknown because it is unregulated. - Risk that Samoa may be used to cover up fraudulent securities deals. - Mission supports authority’s plan to introduce legislation on collective investment schemes while prohibiting the establishment of unlisted collective investment schemes. - Recommend introduction of basic investment business and securities legislation to regulate fraudulent provision of financial advice and product sales to both domestic and international markets. ### Summary of Main Recommendations (selected, by subject) - A. Bank Supervision and Prudential Regulation - Domestic banks: - Develop more specific policies on connected lending, fitness and propriety tests, and risk management systems. - Build capacity for on-site examinations and more in-depth off-site analysis. - Strengthen legislative powers regarding licensing and supervision to ensure (i) supervisor’s scope for remedial action is not inhibited, (ii) all relevant matters are considered in license applications, and (iii) all changes in control are vetted by the supervisor. - Introduce prudential regulations and information requirements for connected lending, country exposures, maturity profiles, credit grading, and interest rate exposures. - Develop plan for more targeted use of external auditors. - Establish closer links with other supervisors. - Offshore banks: - Require all offshore banks to establish a real physical presence in Samoa with mind and management in place or face removal of banking license. - Eliminate limitations on authorities’ access to customer information. - Require “fit and proper” criteria for selecting management as a licensing condition. - Develop ability to implement on-site visits at offshore banks or at registered offices within the company service providers. - Apply the same supervisory and regulatory standards to domestic and offshore banks. - B. Anti-Money Laundering Measures - Amend the definition of financial institution to include all offshore entities and trustee companies. - Broaden MLPA to include comprehensive requirements on customer identification and verification, record keeping and retention, and suspicious transaction reporting. - Amend MLPA to improve reporting framework, extend tipping-off provisions, and strengthen protection for reported information and reporters. - Establish administrative and operational steps toward an FIU and provide governance and oversight structure for the FIU. - Amend MLPA to include comprehensive forfeiture and confiscation provisions and penalty-order powers. - Introduce common “fit and proper” requirements across regulatory laws. - Afford MLA full FIU powers, including analysis and information exchange with foreign FIUs and law enforcement. - Extend mutual assistance provisions in MLPA to cover all criminal offenses. - C. Company Service Providers - Trustee companies to conduct enhanced due diligence for redomiciled new business. - Conduct regular on-site visits to trustee companies and consider specific exchange of information agreements with host country supervisors. - D. Other Issues - Modernize insurance legislation to establish CBS as licensing and supervisory entity for domestic insurance companies. - In licensing general insurance business, require compliance with other countries’ laws where products are sold. - Establish close communication and information sharing with insurance regulators in other countries. - Introduce basic investment business and securities legislation to regulate fraudulent financial advice and product sales. - Introduce legislation on collective investment schemes while prohibiting unlisted collective investment schemes. *Findings and recommendations of the MFD mission (Module 2 assessment, IMF Offshore Financial Centers initiative) that visited Apia from August 27 to September 11, 2002.* ### 6. The effective exchange rate has been broadly stable in both nominal and real terms in ### 6. The effective exchange rate has been broadly stable in both nominal and real terms in recent years ### Exchange rate, inflation, and balance of payments - The effective exchange rate of the tala is linked to a currency basket comprising the euro and the Australian, Fiji, New Zealand, and U.S. dollars. The currencies in the basket and their corresponding weights are revised annually (the last revision occurred in August 2002). - Recent increase in inflation will likely result in a real appreciation or/and some pressures on the foreign exchange market. - The authorities have relaxed exchange controls; there are presently no restrictions on current account transactions. - The balance of payments recorded an overall surplus of SAT 3.4 million in FY2001/02 reflecting a decline in the total value of imports, large private remittances, and net capital inflows. ### A. Domestic financial sector — structure and size - Samoa has traditionally had a very small financial sector; a rapid expansion in numbers and type of financial businesses started in the late 1980s with the establishment of the offshore financial center in 1988. - As of August 2002, domestic financial institutions included: - Commercial banks (3); - Credit unions (20); - Insurance companies (4); - Money changers (3); - Money transfer agents (5); - Money lenders (3); - The National Provident Fund; - The Development Bank of Samoa; and - The Housing Corporation. - At end-2001: - Assets of commercial banks accounted for slightly more that 50 percent of the assets of all domestic financial institutions (excluding the central bank). - This was also equivalent to roughly 45 percent of GDP. - Nominal GDP in 2001 was approximately SAT 900 million (or US$290 million). - The commercial banking system is largely foreign owned: - Two of the three commercial banks are subsidiaries of major Australian banks and the third is locally owned. - Foreign-owned institutions have a joint market share of over 90 percent. - The domestically-owned bank meets the 15 percent capital adequacy requirement. - Table 1 (Structure of the Domestic Financial System, 1995–2001) — selected end-of-period balance sheet totals (in millions of tala): - Balance Sheet totals: 1995: 529.7; 1996: 580.3; 1997: 642.4; 1998: 690.1; 1999: 790.0; 2000: 875.7; 2001: 941.4. - CBS: 1995: 111.8; 1996: 123.7; 1997: 132.9; 1998: 128.9; 1999: 132.8; 2000: 125.7; 2001: 126.7. - Commercial Banks: 1995: 198.8; 1996: 225.0; 1997: 264.7; 1998: 284.1; 1999: 352.8; 2000: 395.1; 2001: 419.4. - ANZ: 1995: 136.4; 1996: 152.6; 1997: 185.8; 1998: 188.7; 1999: 226.5; 2000: 250.2; 2001: 258.7. - Pacific Commercial Bank: 1995: 57.7; 1996: 60.5; 1997: 62.3; 1998: 71.7; 1999: 103.2; 2000: 113.3; 2001: 121.9. - National Bank of Samoa: 1995: 4.7; 1996: 11.9; 1997: 16.6; 1998: 23.7; 1999: 23.1; 2000: 31.6; 2001: 38.8. - Nonbank financial institutions: 1995: 219.1; 1996: 231.6; 1997: 244.8; 1998: 277.1; 1999: 304.4; 2000: 354.9; 2001: 395.3. - National Provident Fund: 1995: 114.1; 1996: 124.8; 1997: 138.4; 1998: 158.9; 1999: 175.5; 2000: 215.3; 2001: 241.2. - Development Bank of Samoa: 1995: 53.3; 1996: 54.1; 1997: 50.1; 1998: 55.7; 1999: 59.5; 2000: 65.3; 2001: 72.6. - Samoa Life Assurance Corporation: 1995: 17.8; 1996: 18.6; 1997: 20.1; 1998: 21.9; 1999: 22.3; 2000: 23.6; 2001: 24.7. - Public Trust Office: 1995: 7.4; 1996: 7.8; 1997: 8.4; 1998: 8.4; 1999: 9.7; 2000: 10.0; 2001: 11.0. - National Pacific Insurance Corporation: 1995: 16.6; 1996: 15.3; 1997: 15.4; 1998: 19.0; 1999: 22.5; 2000: 25.0; 2001: 31.0. - Housing Corporation: 1995: 9.9; 1996: 11.0; 1997: 12.4; 1998: 13.2; 1999: 14.9; 2000: 15.7; 2001: 14.8. - The majority of nonbank financial institutions are very small; only the National Provident Fund (NPF) and the Development Bank of Samoa (DBS) have relatively important market shares. - NPF is the only pension fund; participation is compulsory for all public and registered private sector workers. - DBS is fully government-owned and focuses on financing projects in selected priority sectors like agriculture, fishing, and tourism. ### B. Offshore financial sector — composition and trends - The offshore financial sector is legally separated from the onshore sector and was launched in October 1988. - Lower taxation and fewer regulatory restrictions have stimulated OFC growth, but the sector remains relatively small by international comparison. - At end-August 2002, the Samoan offshore sector comprised: - Trustee companies (6); - International trusts (157); - International business companies (IBCs) (7,553), of which: - Long-term IBCs (141); - International (offshore) banks (8); - Segregated fund international companies (3); - International insurance companies (5). - Trustee companies (company service providers) are the core of the offshore industry and primarily engage in incorporation and servicing of IBCs; trustee companies often act as the office for offshore banks and managers of international insurance companies. - Offshore sector employment and revenues (estimates): - Direct employment from the offshore sector: 32 people. - Gross revenues from offshore sector fees in 2001: SAT 7.4 million (approximately US$2.5 million). - Annual revenue to the government from offshore sector fees in 2001: US$2.0 million. - International trusts: 157 trusts exist, but legislation does not provide for asset protection trusts and other innovative vehicles common in many other offshore jurisdictions. - IBC characteristics and incentives: - As of end-August 2002, there were 7,553 active IBCs and the number continues to increase. - Drivers of IBC registration include tax considerations, registration in foreign languages (particularly Chinese characters), and availability of new names. - There is no minimum capital requirement for IBCs (apart from offshore banks and international insurance companies), and bearer instruments may be issued. - Offshore banks: - The number of active offshore banks has been declining in recent years; several licenses were cancelled partly due to tighter regulatory controls under the revised Offshore Banking Act in 1998. - At end-2001, assets of offshore banks accounted for roughly 40 percent of GDP. - The majority of the eight existing offshore banks have a “B2” license, restricting them to specified offshore banking business and allowing them to accept deposits only from named persons or entities in the license undertaking. - Among the eight banks, two maintain offices in Samoa; others conduct business through representative trustee companies. - International insurance companies: - Four of the five international insurance companies are captives (insuring their own group business risks). - The remaining international insurance company is small and engaged in general insurance, assuming risks primarily in some South East Asian countries. ### Box 1 — Legislation governing offshore business (selected highlights) - Principal Acts governing offshore activities include: - International Companies Act 1987 (amended July 1998); - International Partnership and Limited Partnership Act 1998; - Offshore Banking Act 1987 (amended July 1998); - International Insurance Act 1988 (amended July 1998); - Trustee Companies Act 1987 (amended July 1998); - International Trust Act 1987 (amended March 1989); - Segregated Fund International Companies Act 2000; - Money Laundering Prevention Act 2000. - International Companies Act 1987: - No prescribed application form; application to Registrar through a licensed trustee company. - No minimum capital requirement for IBCs; bearer instruments may be issued. - Offshore Banking Act 1987 — classes of license and capital/fee requirements: - “A”-class: can establish a domestic company to transact onshore banking business (approval from CBS required); required aggregate capital at least US$10 million; annual fee currently US$17,500. - “B1”-class: transact specified offshore banking business; must transact through a registered trustee company unless authorized to maintain a business office in Samoa; required aggregate capital at least US$2 million; annual fee can be up to US$10,000. - “B2”-class: treasury operations only; cannot accept or solicit deposits from the public; accept deposits only from persons/entities listed in the undertaking; minimum capital requirement US$250,000; annual fee currently US$4,500. - International Insurance Act 1988 — minimum capital requirements: - General insurance and long term (life) business: minimum US$500,000. - Reinsurance business: minimum US$200,000. - Captive business: minimum US$100,000. - Trustee Companies Act 1987: - Required capital approximately US$170,000. - Every international company registered in Samoa must go through a trustee company. - Segregated Fund International Companies Act 2000: establishes regime for SFICs and segregated funds. - Money Laundering Prevention Act 2000: governs anti–money laundering activities in Samoa. ### C. Regulatory and supervisory framework - Under the Financial Institutions Act (FIA) of 1996, the CBS is responsible for prudential supervision of all domestic commercial banks. - Within CBS, the Financial Institution Department is responsible for supervision; it currently has six staff headed by a Manager. - CBS has taken steps to strengthen supervisory capacities, including introduction of on-site inspection of banks and efforts to comply with the Basel Core Principles for Effective Banking Supervision. *Source: CBS; Samoa Offshore Finance Center (figures and tables as cited in the report).* ### 18. The January 2001 amendment to the FIA provided a new definition of financial ### 18. The January 2001 amendment to the FIA provided a new definition of financial services, which allowed the Minister of Finance to extend the prudential supervision of CBS to nonbank financial institutions ### Prudential supervision and nonbank institutions - The January 2001 amendment to the Financial Institutions Act (FIA) provided a new definition of financial services, allowing the Minister of Finance to extend the prudential supervision of the Central Bank of Samoa (CBS) to nonbank financial institutions. - The Minister placed the National Provident Fund (NPF), the Development Bank of Samoa (DBS), and insurance companies under the prudential supervision of the CBS. - Insurance companies are licensed by the Ministry of Finance under the provisions of the Insurance Act. - The NPF and DBS are governed by their own acts. - The Asian Development Bank has been assisting to set up standards and procedures. ### Offshore financial sector: institutional roles and coverage - The Registrar of International and Foreign Companies, established in 1988, administers the offshore legislation and supervises all registered offshore entities. - The Registrar regulates and supervises trustee companies under the Trustee Companies Act 1987. - The Registrar handles registration of International Business Companies (IBCs) under the International Companies Act 1987, fulfills the role of Inspector of Offshore Banks under the Offshore Banking Act 1987, and is Registrar of International Insurance Companies under the International Insurance Act 1988. - The Office of the Registrar of International and Foreign Companies is a statutory position appointed by the Minister of Finance pursuant to the various offshore Acts. - Positions of Inspector of Offshore Banks, Registrar of International Trusts, and Registrar of International Insurance are appointed by the Minister. - The office is commonly known as the Samoa Offshore Finance Centre (SOFC). ### SOFC operations and staffing - The SOFC operates as a quasi-governmental department administered by the CBS. - It has currently nine staff members, including the Registrar, two trained accountants who deal with supervisory issues, and companies registration staff. - SOFC staff are technically employees of the CBS, but the office’s budget is completely self-funded from fee revenues. - The SOFC is charged rent and administrative costs by the CBS. - The present Registrar/Inspector is a qualified Samoan lawyer with over 13 years of legal experience who has held the present posts for over 10 years. ### International membership and recognition - In early 2002, Samoa was granted observer status in the Offshore Group of Banking Supervisors (OGBS), a precursor to full membership; that status was granted as a result of the follow-up on recommendations of the joint APG/OGBS mutual evaluation report. - In early 2001, Samoa was admitted as a full member of the Offshore Group of Insurance Supervisors. ### Anti-money laundering (AML) and counter-terrorism financing (CTF) framework - Primary AML legislative regime: - Money Laundering Prevention Act 2000 (MLPA), introduced in June 2000. - Prevention and Suppression of Terrorism Act 2002. - Key MLPA provisions and powers: - Requires record keeping and reporting of suspicious transactions. - Overrides all secrecy and confidentiality provisions for disclosures pursuant to the Act. - Criminalizes money laundering. - Provides for forfeiture of proceeds of crime and provisional measures such as freezing and seizure of assets, issuance of property tracking and production orders, and international cooperation in money laundering offences. - Provides for the appointment of the Money Laundering Authority (MLA). - Under the MLPA: - The Governor of the CBS exercises the powers of the MLA and has delegated authority to the Deputy Governor, the Manager, and officers of the Financial Institutions Department (FID). - Financial institutions covered include domestic banks, offshore banks, money remitters, accountants, and lawyers. - The Prevention and Suppression of Terrorism Act 2002 criminalizes the financing of terrorism and provides for freezing and forfeiture of funds and proceeds used for financing terrorism. - The Financial Institutions Act 1996 provides for retention of checks, bank drafts, bills of exchange, or promissory notes for seven years. ### Prior external assessments and follow-up - Financial Stability Forum (FSF): - Following publication of its report on OFCs (April 5, 2000), the FSF published on May 26, 2000, a categorization of OFCs reflecting perceived quality of supervision and cooperation. - The FSF included Samoa within Group III, jurisdictions considered to fall significantly short of the standards adopted by countries in the other two groups. - A number of initiatives have been undertaken to improve the country’s foreign perception since then. - Financial Action Task Force (FATF): - Samoa was subject to FATF review in May 2000 in the context of identifying Non-Cooperative Countries and Territories (NCCTs); Samoa was not placed on the list of NCCTs. - Joint APG/OGBS mutual evaluation (February 2001): - The Asia Pacific Group on Money Laundering and the Offshore Group of Banking Supervisors conducted a joint mutual evaluation of Samoa. - The report made a number of recommendations to strengthen the AML framework; the recommendations are being actively followed up by the Samoan authorities. ### Basel Core Principles assessment: approach and laws reviewed - The mission assessed compliance with the Basel Core Principles for Banking Supervision using the Core Principles Methodology, with concurrence of the CBS and SOFC staff. - For offshore banks, the assessment considered the SOFC’s self-assessment of compliance with the Core Principles. - The mission reviewed relevant laws and regulations; interviewed staff of the CBS, MLA, and SOFC; and held discussions with trustee companies and onshore and offshore banks. - Laws reviewed for the assessment: - The Financial Institutions Act 1996; - Offshore Banking Act 1987; - International Insurance Act 1988; - International Companies Act 1987; and - The Central Bank of Samoa Act 1984. ### Institutional framework and key financial sector statistics - Domestic banking sector: - There are three licensed banks operating in Samoa, all locally incorporated: two subsidiaries of major Australian banks and one locally owned institution. - Total assets of the commercial banks at end March 2002 were SAT 440 million, of which SAT 290 million comprised loans and advances. - Deposits at the same date were SAT 350 million, giving a loan-to-deposit ratio of 83 percent. - The average capital ratio for the commercial banks at end-March was 25.6 percent. - Total past due loans represented 2.7 percent of the loan portfolio and past due loans less specific provisions 3.5 percent of capital. - Liquid assets represented 10.9 percent of domestic deposits. - System profitability for the six months to March represented an annual return on net worth of around 26 percent and 4.3 percent on assets. - Development Bank: - A development bank does not take deposits. - Its assets at end-March were SAT 75 million, of which loans made up SAT 60 million. - According to the bank, its risk-weighted capital ratio during the same period was 38 percent. - Total past due loans, net of specific provisions, represented around 17 percent of capital. - National Provident Fund (NPF): - Assets at end March were SAT 240 million. - Investments, mainly in the domestic market, represented SAT 140 million, with another SAT 40 million of claims on the domestic banking sector and SAT 50 million of fixed assets. - Credit unions: - There are between 20 and 30 credit unions registered with the Credit Union League and licensed with the domestic Registrar of Companies. - Their assets at end-2001 were less than SAT 4 million. - Insurance and other finance providers: - There are four insurance companies operating in Samoa, some of which make loans. - There are several foreign exchange dealers and money lenders. - The Development Bank, National Provident Fund, and the insurance companies were brought under central bank supervision in 2001. - Offshore banking sector: - There are eight offshore banks operating in Samoa. - The majority have a B2 license, under which they may not accept deposits from the public. - They are primarily used for tax planning purposes and to carry out in-house treasury functions for their parent companies. - Two offshore banks maintain offices in Samoa that hold records and accounts; the remaining six have offices registered with trustee companies (company service providers), which also provide directorship to such banks. - At the end of 2001, assets of offshore banks accounted for roughly 40 percent of GDP. *Source: IMF mission assessment.* ### 37. The land tenure system in Samoa represents a constraint in terms of enterprise ### 37. The land tenure system in Samoa represents a constraint in terms of enterprise financing ### Land tenure and collateral constraints - Freehold land, the major type of collateral required by banks, accounts for only about 4 percent of the land. - Customary land accounts for about 80 percent of the land. - The remainder of land is government-owned. - Laws and the court system allow banks to promptly take possession of real property security on defaulting loans. - There is a system for registration of banks’ ownership interests in motor vehicles but a need for a register of encumbered vehicles. - The court system is regarded as sound with legal firms of sufficient quality. - Availability and reliability of financial data varies greatly. - The new Companies Act encourages businesses to prepare statements within a specified time. - An active professional body of accountants exists and international accounting standards are generally the norm. - There is no deposit insurance in Samoa and depositors are treated as general creditors. ### Objectives, Autonomy, Powers, and Resources (CP 1) — domestic banking sector - The Financial Institutions Act (FIA) governs banking business in Samoa; banking activity can be undertaken only by financial institutions licensed by the Central Bank of Samoa (CBS), which is the sole supervising authority. - The FIA and the Central Bank of Samoa Act (CBSA) provide the CBS with a broad range of powers relating to licensing, ongoing supervision, enforcement, and remedial action. - A Board of Directors, which includes the Governor as Chairman, is responsible for policy and general administration of the CBS. - The FIA provides the CBS with operational independence and powers to carry out its mandate, including legal protection to staff while discharging their duties in good faith. - There are five professional staff in FID headed by a manager who is an accountant with considerable experience; additional staff will be needed with expanded responsibility for supervision of nonbanks and anti-money laundering activities. - No explicit protection exists in relation to costs of supervisory staff in defending their actions; the CBS has legal advice that staff costs are covered under the common law doctrine of vicarious liability. ### Objectives, Autonomy, Powers, and Resources (CP 1) — offshore banking sector - Under the Offshore Banking Act (OBA), the Minister of Finance grants and renews offshore banking licenses and is empowered to take corrective actions against licensed banks; the Inspector of Offshore Banks is charged with regulation and supervision. - In practice, the Minister is advised by the Steering Committee (Inspector/Registrar, Governor of the CBS, Financial Secretary, Attorney General). - The OBA provides immunity to the Minister and other officials involved in offshore banking matters for acts done in good faith; under vicarious liability the government as employer would ultimately be responsible. - The OBA allows the Inspector to exchange information with foreign banking supervisors, but current law limits access to customer information, adversely restricting supervisory ability. ### Licensing and Structure (CPs 2–5) — domestic banking sector - Permissible activities of licensed financial institutions (banks and credit institutions) are properly delineated; use of the term “bank” is limited to those licensed by the CBS. - General licensing requirements are outlined in the FIA; CBS guidelines elaborate matters such as fit and proper criteria for directors and management. - The fit and proper criterion for licensing is not consistently applied to ongoing changes in directors and management. - Doubts exist whether the CBS is permitted under the FIA to consider matters it deems relevant that are not specified in legislation. - Prior approval of the CBS is required for acquisition/transfer of control (defined as ownership of 20 percent or more of the voting shares in a licensed financial institution—LFI); no similar provisions relate to dispersion of control below 20 percent. ### Licensing and Structure (CPs 2–5) — offshore banking sector - Definition of banking business under the OBA is broad, covering deposits, treasury functions and in-house banking operations of B2 banks; unlicensed offshore banking is prohibited. - Criteria for issuing licenses are clear; current OBA does not provide for explicit fit and proper criteria for management selection, though they are considered in licensing. - Banks are not required to maintain a physical presence. - Minimum capital required: US$10 million for an A-class bank, US$2 million for a B-class bank and US$250,000 for a B2-class bank. - At present, no review is done of major bank acquisitions or investments. ### Prudential Regulations and Requirements (CPs 6–15) — domestic banking sector - Nine prudential statements outline CBS approach; responsibility for affairs of a bank resides with the board and management. - Prudential statements focus on broad principles and generally do not provide detailed minimum requirements. - Prudential coverage includes capital adequacy, asset concentration and risk exposures, liquidity, connected lending and direct ownership interests, asset quality (including provisioning), and foreign currency exposures; no specific requirements for interest rate and operational risks. - A minimum risk-weighted capital adequacy ratio of 15 percent has been set (reflecting small developing economy conditions), above the Basel Accord minimum of 8 percent. - The 25 percent limit on large exposure, including connected lending, is within international standards. - CBS does not set a reporting threshold for exposures of 10 percent of capital; the smallest of the top ten exposures reported each quarter is currently well below this level. - Suggested additional safeguards: more stringent limits on unsecured loans to connected parties and aggregate ceilings on overall large exposures and connected lending. - CBS has lifted liquidity requirements but active monitoring of positions would be beneficial. - CBS reviewed banks’ internal foreign currency net open position limits and agreed with banks they will observe these limits. - Significant progress on anti-money laundering (AML) and related issues, although regulations and guidelines still have to be finalized and issued to fully implement the Money Laundering Prevention Act. ### Prudential Regulations and Requirements (CPs 6–15) — offshore banking sector - Prudential regulations are generally lacking; most offshore banks are B2-class that do not accept public deposits and are primarily used for tax planning or in-house treasury functions. - The Inspector has not undertaken comprehensive review of individual bank risk management processes. - The OBA prohibits unsecured advances or loans in aggregate amounts in excess of US$5,000 or 1 percent of the paid-in capital, whichever is greater, to connected borrowers. - Inspector relies heavily on bank auditors and has not comprehensively reviewed internal control or accounting and auditing systems of offshore banks. - A- and B1-class banks that can accept deposits from the public are required to file customer due diligence policies, but no effective mechanism exists to secure AML implementation for offshore banks with no physical presence. ### Methods of On-going Supervision (CPs 16–20) — domestic banking sector - The FIA enables the CBS to use on-site and off-site supervision techniques. - Off-site supervision in FID is basically in place; upgrading staff skills via training and introduction of extra returns would enable more comprehensive in-depth risk review. - Write-ups and reports on off-site supervision results are submitted to management quarterly and as required. - Aggregate industry data/information is published in the Central Bank Bulletin and annual report. - FID does not currently conduct on-site examinations to complement off-site supervision; external auditors have been used to independently confirm reliability of data. - Governor recognizes merits of on-site supervision; plans under way for FID staff training with assistance from banking supervision experts. ### Methods of On-going Supervision (CPs 16–20) — offshore banking sector - Inspector has power to inspect accounting records, registers of shares, transaction records, and other records kept by offshore banks. - Inspector and external auditors have carried out two on-site inspections of offshore banks to verify supervisory information; on-site visits at offshore banks or at registered offices within company service providers may be ineffective since mind and management are not located in the jurisdiction. - Regular communication with officers of licensed trustee companies (directors of many offshore banks) may not be effective for bank management contact. - Inspector relies heavily on external auditors to validate supervisory information. - Inability to access customer information without a court order limits effectiveness of supervisory procedures. ### Information Requirements (CP 21) - Adequate and effective accounting systems are required by the FIA, PS and Companies Act. - Annually, the CBS obtains audited financial statements from LFIs with any notes; these must be published within four months of balance date in a newspaper circulating in Samoa. - In absence of a prescribed format, presentation and information content of published statements vary. - Prudential Statement No. 10 (drafted and sent to banks for comment) expands on the relationship between banks, external auditors, and the CBS; it requires among other things confirmation of accuracy and reliability of reports submitted to CBS and assessment of compliance with prudential requirements (minimum capital adequacy ratio, large exposures, asset quality and performing loans and net open positions in foreign exchange). Compliance with requirements for connected lending is not specifically mentioned in PS 10. - Other PSs require financial information to be based on generally accepted international accounting standards and provide valuation rules for loans, including minimum provisioning levels. - External auditor must inform the LFI before disclosing information to the CBS; secrecy and confidentiality rules apply to information obtained by the CBS and its staff, but there is scope to share information on a consolidated basis with other supervision authorities outside Samoa. - Offshore banks must prepare audited accounts although there is no explicit requirement to comply with international accounting standards; offshore banks are not required to publish annual accounts or reports. The only publicly available information is banks’ names and their registered offices. ### Formal Powers of Supervisors (CP 22) - Domestic: CBS has broad remedial powers, including revocation of a banking license; Attorney General can institute proceedings to prevent and restrain breaches and prosecute offenses. Powers do not include taking control of an LFI without a court order, which could hinder timely remedial action. - Offshore: Authorities have adequate formal powers to take action ranging from directions and appointment of an advisor to appointment of a manager or cancellation of a license. Except for license cancellation, lack of physical presence may render measures ineffective in practice. ### Cross Border Banking (CP 23–25) - Domestic: Consolidated supervision and arrangements with host country supervisors are not relevant as LFIs have no branches or subsidiaries outside Samoa. All offshore offices require prior CBS approval. - Foreign bank operations in Samoa are through subsidiaries subject to the same supervisory regime; licensing criteria include requirement that a parent bank be subject to consolidated supervision and written confirmation be obtained. - Offshore: No subsidiaries of offshore banks operate within Samoa. Where mind and management are located outside Samoa, it is essentially impossible to determine activities in other jurisdictions. ### Recommendations — domestic banking sector (mission) - Strengthen legislative powers relating to licensing and supervision to ensure supervisor’s scope for action is not inhibited when remedial measures are required, that all relevant matters are considered in license applications, and that all changes in control are vetted by the supervisor. - Develop more specific policies in areas including connected lending, fit and proper tests, and risk management systems. - Introduce new prudential returns and information requirements for connected lending, country exposures, maturity profile, credit grading and interest rate exposures. - Build capacity to undertake on-site examinations and conduct more in-depth off-site analysis. - Develop a plan for more targeted use of external auditors. - Establish closer links with other supervisors. ### Recommendations — offshore banking sector (mission) - Remove limitation on authorities’ access to customer information. - Require explicit fit and proper criteria for selecting management as a licensing condition. - Develop ability to effectively implement on-site visits at offshore banks or registered offices within company service providers. - Require all offshore banks to establish a real presence with mind and management within the jurisdiction or face removal of banking license; emerging consensus that such banks cannot be supervised properly in accordance with the Basel Core Principles or from an AML perspective. - Require the same supervisory and regulatory standards for offshore banks as those applicable to domestic banks. - Increase transparency by having the SOFC list names of all banks and preferably also the IBCs operating in or from the jurisdiction on the SOFC website. ### Assessment of Anti-Money Laundering Measures — General and Institutional framework - Laws reviewed include: The Money Laundering Prevention Act 2000; The Financial Institutions Act 1996; Offshore Banking Act 1987; International Insurance Act 1988; International Companies Act 1987; Prevention and Suppression of Terrorism Act 2002; Trustee Companies Act 1987; Criminal Procedure Code; and Extradition Act. - Regulations under the Money Laundering Prevention Act 2000 have been drafted and are in final stages of approval; Guidelines under the Act have also been drafted and await approval of the Regulations before issuance. - Section 10 of the MLPA creates the MLA. Until the Minister of Finance makes an alternative designation, the function is fulfilled by the Governor of the CBS or any person authorized by him. The Governor has delegated MLA powers and functions to the Deputy Governor, the head of the FID, and the staff of that department. *Source: IMF mission assessment and recommendations contained in the cited IMF chapter.* ### 43. The powers of the MLA include the power to receive suspicious transaction reports ### 43. The powers of the MLA include the power to receive suspicious transaction reports ### Overview - The Money Laundering Authority (MLA) has the power to receive suspicious transaction reports issued by financial service providers. - The MLA can send such reports to the Attorney General and the Commissioner of Police if, after considering the report, the MLA has reasonable grounds to suspect that the business transaction involves proceeds of crime or that a money laundering offense is being, has been or is about to be committed. - The MLA currently has no specific power to analyze suspicious transaction reports. ### Legislative framework and institutional roles - Samoa’s primary anti-money laundering legislative regime is contained in: - the MLPA (introduced in June 2000), and - the Prevention and Suppression of Terrorism Act 2002. - The MLPA requires record keeping; the reporting of suspicious transactions; overrides secrecy and confidentiality provisions for disclosures pursuant to the Act; criminalizes money laundering; and provides for forfeiture of the proceeds of crime and other provisional measures such as freezing and seizure of assets, the issuance of property tracking and production orders and international cooperation in money laundering offenses. - The MLPA provides for the appointment of a Money Laundering Authority empowered to exercise some powers of a financial intelligence unit (FIU). - The financial service providers covered under the MLPA include domestic banks, offshore banks, money remitters, accountants, and lawyers. - The Prevention and Suppression of Terrorism Act 2002 criminalizes financing of terrorist acts and provides for freezing and forfeiture of funds used for financing terrorist acts. - The Financial Institutions Act 1996 requires retention of checks, bank drafts, bills of exchange, or promissory notes by domestic banks for a period of seven years. - The mission was subsequently informed that Money Laundering Regulations 2002 were signed by the Head of State of Samoa and became effective on October 15, 2002. ### FIU functions and intentions - Although the MLA has two of the three fundamental powers of an FIU (receive and disseminate suspicious transaction reports), the MLA: - is not and has never been operational as an FIU in terms of exercising the full range of FIU functions, and - currently lacks the power to analyze suspicious transaction reports. - Samoan authorities intend to widen the powers and functions of the MLA to include the full range of FIU powers and functions and have these exercised by the Financial Intelligence Division (FID) of the Central Bank of Samoa (CBS). ### Roles of enforcement agencies - The Police Department is responsible for investigating money laundering offences. - The Attorney General is responsible for prosecution of such offenses and has responsibility for international cooperation on money laundering matters. - The Customs Department enforces control of carriage of cash and negotiable instruments into and out of Samoa. - The Police and Customs Services currently lack expertise, skill, and experience to deal effectively with money laundering issues; further effort is needed for effective implementation of the MLPA. ### Criminalization of money laundering and terrorism financing - Money laundering is criminalized as a separate offense in Section 3 of the MLPA. - Elements of the ML offense: - Transaction involving property that is proceeds of crime where the person knows or has reasonable grounds for believing same to be proceeds of crime; or - Receiving, possessing, concealing, disguising, transferring, converting, disposing of, removing from or bringing into Samoa any property that is proceeds of crime, knowing or having reasonable grounds for believing same to be proceeds of crime. - It is not necessary that a person be convicted of a predicate offense to convict of laundering proceeds of such offenses. - Money laundering extends to all serious offenses where punishment is death or imprisonment of not less than 5 years but excludes tax and exchange control offenses. - The offense applies to knowing or having reasonable grounds for believing the property to be proceeds of crime; the concept that knowledge may be inferred from objective factual circumstances is not specifically included. - Entities (e.g., companies, foundations) are held legally accountable for money laundering. - Financing of terrorism is dealt with in the Prevention and Suppression of Terrorism Act 2002, which criminalizes specific terrorist acts and financing them, provides for seizure of funds intended or used to finance terrorist acts, creates an offense of assisting financing of terrorist acts, and allows arrest and extradition of suspected foreign terrorists. - The Act does not specifically define general terrorist acts or terrorist organizations nor does it criminalize financing of terrorist organizations. - The Vienna Convention, the Convention for the Suppression of the Financing of Terrorism and the Palermo Convention have not been signed and ratified (the mission was subsequently informed that in October 2002, Samoan authorities approved the ratification of 1988 Vienna Convention). ### Recommendations (criminalization and conventions) - Amend the MLPA so that the standard in the money laundering offense includes “ought reasonably to have known” and to include the concept that knowledge of the offense can be derived from objective factual circumstances. - Ratify the Vienna Convention, Suppression of Financing of Terrorism and Palermo Conventions. ### Confiscation and other provisional measures - Section 21 of the MLPA provides for forfeiture of any property of, or in the possession or under the control of, a person convicted of money laundering. - There is no provision for forfeiture of instrumentalities of the offense. - In determining whether property is derived from money laundering the standard of proof required in civil proceedings is applied. - The power to forfeit property is limited to property owned by or in the possession of a person convicted of money laundering or property alleged to be proceeds of crime; there is no power to directly forfeit proceeds where a person is convicted of a predicate offense or property used in commission of the offense that had not been frozen. - There is no provision for confiscation of benefits and no specific provision allowing confiscation of property of equivalent value where the property to be forfeited is not available. - The MLPA provides for other provisional measures such as freezing, property tracking, and monitoring orders. - Adequate legal safeguards are provided to protect property and due process rights of owners of frozen or seized assets and other third parties. ### Recommendations (confiscation and provisional measures) - Amend the MLPA so that the power to issue a search warrant extends to all predicate offenses. - Amend the MLPA to include a general forfeiture provision including power to forfeit instrumentalities used in commission of the offense; proceeds of predicate offenses; and property derived from money laundering or predicate offenses whether or not it has been frozen. - Introduce provisions for confiscation of benefits by means of a pecuniary penalty order. - Amend the MLPA to include the power to make a penalty order equivalent to the value of the property to be forfeited where the property to be forfeited is not available. ### Financial service providers and coverage - The term “financial institution” is broadly defined and covers most financial service providers active in Samoa, but is not particularly specific about coverage of offshore entities (such as offshore trusts and insurance companies) other than offshore banks. - Trust business is covered, but trustee companies (company service providers) may not be covered within the ambit of the MLPA. - Money remitters are covered but not money changers. - Lawyers and Certified Public Accountants are defined as “financial institutions” in the MLPA, but there is no clarification of what part of a lawyer’s or accountant’s practice is covered and there are no provisions dealing with legal professional privilege. - An amendment to the Schedule of “financial institutions” under the MLPA, which would specifically include trustee companies, has been drafted and is expected to be promulgated shortly by the Minister of Finance. ### Recommendation (financial institution definitions) - Amend the definition of financial institution so that all offshore entities—and specifically trustee companies—are included in the definition. ### Customer identification and funds transfers - The only customer identification provision in the MLPA is Section 42, which provides for the making of regulations in relation to identification procedures and systems in financial institutions; there is no legal requirement in the MLPA for general customer identification and verification. - There are requirements for financial service providers to develop internal policies, procedures and controls to combat money laundering and develop audit functions to evaluate such policies. - There is no prohibition on false name or anonymous accounts in the legislation. - Implementation of customer identification requirements for offshore entities that do not maintain records within Samoa will be difficult. - Financial service providers are not required to include originator information and related messages on funds transfers. ### Recommendations (customer identification and funds transfers) - Widen the scope of the MLPA to require customer identification and verification requirements for all new business relationships and remove the SAT 30,000 threshold (about US$9,000). - Amend the MLPA to prohibit anonymous and false name accounts in the legislation. - Introduce enabling provisions into the MLPA so the main substantive provisions relating to customer identification and verification, record keeping and retention and suspicious transaction reporting are included. - Include a requirement in the MLPA that financial institutions should include originator information on funds transfers that should remain throughout the payment chain and that funds transfers without originator information should be refused and reported as suspicious transactions. ### Record keeping - Requirement to retain records of business transactions by financial service providers is subject to a threshold of an amount exceeding SAT 30,000 (about US$9,000). - Such records are to be retained for seven years after the transaction has terminated. - Section 22 of the Financial Institutions Act 1996 requires that checks, bank drafts, bills of exchange or promissory notes in possession of a bank be retained for seven years; records may be kept on microfilm, microfiche, tape or disc or electronic or photographic storage media. ### Recommendation (record keeping) - Amend the MLPA to impose record keeping requirements for all transactions and remove the SAT 30,000 threshold. ### Compliance process and supervision - Power to enforce compliance with the MLPA currently rests with the MLA. - The Registrar of International and Foreign Companies supervises offshore entities; the FID of the CBS supervises domestic banks. - To date the MLA and the supervisors have not undertaken on-site verification of compliance with AML requirements. - Authorities plan to widen MLA membership to include the Registrar of International and Foreign Companies and have compliance enforced by the Registrar for offshore entities and by the FID for domestic banks; the MLA would ensure compliance by all other financial service providers. - The lack of on-site verification is expected to be improved by implementing the above measures in conjunction with issuing the Guidelines for Financial Institutions and the Regulations, provided they are issued as currently drafted. ### Integrity standards - Offshore Banking Amendment Act 1998 requires the Office of the Inspector of Offshore Banks to ensure prospective directors are fit and proper before written approval of appointment; approval may be revoked by the Inspector with the Minister’s approval. - These fit and proper provisions are not reflected in the Trustee Companies Act 1987 and the International Insurance Act 1988. - Provisions require prior written approval of the Regulator for transfer of shareholdings in offshore banks, insurance and trustee companies. - No common provisions exist across regulatory laws for fit and proper tests for controlling shareholders, management, and directors. - There are no requirements preventing shell companies, charitable, or not-for-profit organizations from being used for criminal purposes. ### Recommendations (integrity standards) - Introduce common provisions in all regulatory laws requiring that shareholders and directors of financial service providers comply with “fit and proper” requirements and preventing serious criminals from controlling financial service provider businesses. - Introduce provisions to prevent use of shell corporations, trust businesses, charitable or not-for-profit foundations or other similar entities being used for criminal purposes. ### Process of collecting, analyzing, and disseminating financial information and intelligence - Financial service providers are required to report to the MLA any business transaction where identity of persons involved, the transaction itself or other circumstances give any officer or employee of the financial institution reasonable grounds to suspect the transaction involves proceeds of crime. The MLPA takes no account of attempted transactions. - The MLPA provides protection from civil and criminal liability for disclosures relating to potential money laundering offenses to the MLA provided such reports are made in good faith. - There is no provision for suspicious transaction reports by external auditors or financial regulators. - No confidentiality or secrecy law prevents effective transaction reporting or monitoring by competent authorities and financial service providers. - Financial service providers (including directors, officers, and employees) are prohibited from warning (tipping off) their customers when information relating to them is being reported to the MLA. - The MLA is not yet performing the full functions of an FIU. ### Recommendations (FIU functions, reporting, and protections) - Widen the “tipping-off” provisions of the MLPA to clarify how suspicious transaction information can be dealt with prior to and subsequent to a report being made in a similar fashion as stipulated in the guidance notes. - Amend the MLPA to require the reporting of attempted suspicious transactions. - Widen protections to include identity of persons making suspicious transaction reports and of the reports themselves particularly relating to their possible production in judicial proceedings. - Introduce explicit provisions in the MLPA permitting or requiring regulatory agencies and auditors to report suspicious activity and granting immunities and protections for making such reports. - Amend the MLPA to afford protection from compulsory legal process and suits for the FIU (when established) and others dealing with financial information reported to the MLA/FIU; extend same protections to the information itself; provide immunity for the MLA, the FIU (when established) and their employees against civil suit. - Amend the MLPA to remove the requirement for reports to be referred to the Attorney General and the Commissioner of Police and allow the FIU to forward them directly to the appropriate enforcement agency. - Transfer investigative powers relating to property tracking and monitoring orders currently vested in the MLA to the Police or the Attorney General. - Amend the MLPA to afford the MLA with the full range of powers and functions of an operational FIU, including the power to analyze information and to exchange information with foreign FIUs and law enforcement agencies. ### Administrative and operational steps to establish an FIU - Provide a governance structure and establish clear reporting lines for administrative purposes; identify officer(s) within the FID to carry out FIU functions. - Compile standard operating procedures, an operations manual, or a desk file setting routine operations including as a minimum: - Procedures for recording incoming information; - A basic analytical process to be applied to incoming information; - Confidentiality procedures for handling information; - Procedures for handling incoming inquiries and requests for assistance; - Procedures for dissemination of information from the FIU; - Establishment and maintenance of relationships with client organizations including regular feedback to reporting institutions, filing system, and secure filing facilities; - Procedures for database use, control, and security; - Provision of secure office space and appropriate office equipment; - Provision of suitable computer equipment and operating software; - Provision of a suitable database with at least basic analytical capability; - Provision of access to appropriate law enforcement databases/records; - Where possible, provision of access to commercial “due diligence” type databases such as Dunn and Bradstreet, Baynet, etc.; - Provision of training for the FIU staff; - Compilation of an action plan setting timely dates for achieving goals, and a financial plan for achieving the above. *Source: IMF mission report.* ### 82. The competent authority for overseas requests for assistance is the Attorney General. ### 82. The competent authority for overseas requests for assistance is the Attorney General. ### Mutual legal assistance, extradition, and international cooperation - The Attorney General is the competent authority for overseas requests for assistance. - Provisions exist for mutual assistance for: - obtaining of search warrants, - property tracking, - monitoring orders, - freezing and forfeiture of property and evidence orders. - There are no provisions for informal or “ad hoc” mutual assistance. - The circumstances in which mutual assistance is given are solely dependent on what is agreed upon in any treaties or arrangements signed. - International cooperation is limited to cooperation in relation to money laundering offences. - Sharing with other countries of confiscated property is allowed. - There are provisions enabling extradition for money laundering purposes and for financing of terrorism. - Example cited: In 2001, the Samoan Government, through the Attorney General’s Department and the MLA, assisted the US authorities in freezing and repatriating over 14 million USD, which were the proceeds of crime. Recommendations (mutual assistance and extradition) - Enable ad hoc judicial cooperation to take place without the prior condition of entering into a mutual assistance arrangement. - Introduce procedures dealing with the extradition of individuals charged with money laundering or a related offense and to permit prosecution domestically when the individual is not extraditable. - Extend the scope of the mutual assistance provisions to cover all criminal offenses. ### Financial regulators’ ability to cooperate with foreign counterparts - Legal provisions are varied: - Under the Financial Institutions Act, the CBS may exchange information “in confidence” with foreign regulators without further restriction. - Under the Offshore Banking Act, the Registrar of International and Foreign Companies, acting as Inspector of Offshore Banks, may exchange information but may not provide details of the affairs of individual customers. - In other offshore regulatory laws (with an exception of the International Insurance Act 1988) the Registrar has no gateway for international co-operation. ### Monitoring and controlling cash transactions Findings - Matters relating to international wire transfers transactions are not provided for. - Reports of domestic cash transactions over SAT 30,000 (about US$9,000) are required by Samoa’s Foreign Exchange Regulations. - All cross border transactions over SAT 30,000 (about US$9,000) are required to be reported on weekly basis by onshore banks. These reports are not sent to the MLA. - Authorities are considering extending this requirement to money remittance businesses. - The MLPA imposes a requirement that all imports and exports by travelers of SAT 10,000 (about US$3,000) or the equivalent in foreign currency or negotiable instruments be reported. Recommendation (financial transaction reporting) - Amend the MLPA to ensure that the FIU, once established, receives weekly reports regarding cash transactions involving over SAT 30,000 and cross border transactions. ### Legislative and institutional gaps - Regulations to be issued pursuant to the MLPA and Guidelines for financial institutions have been drafted but are not yet in effect. - There is currently no general Asset Forfeiture (Proceeds of Crime) or Mutual Legal Assistance legislation in Samoa. There are limited provisions in the MLPA only. - The report recommends Samoa should consider: - a separate Financial Transactions Reporting Act, and - moving the money laundering offense into a Proceeds of Crime Act or Crimes Act. - Passage of a Financial Transactions Reporting Act, or amendments to the MLPA as well as comprehensive proceeds of crime and mutual assistance in criminal matters legislation would provide Samoa with a comprehensive AML/combating of financing of terrorism (CFT) legislative framework. ### Company Service Providers (CSPs) — background and supervisory framework Findings - The CSP sector is governed primarily by the Trustee Companies Act 1987 (TCA) and Trustee Companies Regulations 1992. - Only a registered trustee company can: - act as a company formation agent; - provide registered offices or directors, officers, or nominee shareholders for international companies; - act as a trustee of an international trust; and - register or file documents with the Registrar of International and Foreign Companies. - There are currently six registered trustee companies in Samoa, which have incorporated and provide services to 7,553 IBCs. - Five are subsidiaries of established trustee/financial services companies with parent companies in Hong Kong, Singapore, or Bermuda. - One trustee company is locally owned as a subsidiary of a government body. - With one exception, each trustee company has an office in Samoa with at least one manager with a legal/accounting background and up to ten local staff members. - One trustee company does not maintain a physical office in Samoa but uses the offices of another trustee company to provide services. Licensing and fit-and-proper - Section 5 of the TCA requires an application to the Minister of Finance through the Registrar of International and Foreign Companies with the prescribed fee. - If head office or registered office is outside Samoa, a principal office in Samoa and two authorized agents subject to Samoa jurisdiction must be designated. - The Minister of Finance may grant registration “subject to such terms and conditions, if any, as he may deem fit” (Section 6 of the TCA). - The license must be renewed annually. - No specific statutory fit-and-proper test exists, but the application form requires declarations about bankruptcy, receivership/liquidation involvement, and convictions for fraud or dishonesty; CVs and certified professional qualifications are required and are subject to vetting. - Question 19 of the application requires references from three independent parties regarding reputation, professional experience, and financial good standing. Ownership change and ongoing supervision - Section 11 of the TCA: any transfer or issue of shares or other securities of a trustee company requires written approval of the Minister of Finance; such changes are subject to the same due diligence as initial registration. - The TCA prohibits a trustee company from issuing bearer shares or share warrants to bearer. - Section 8 of the TCA grants the Registrar powers to inspect all books, records, vouchers, cash, and securities and to require submission of “such information, data, and returns as may be prescribed at such times as may be prescribed.” - Despite these powers, the Registrar has relied primarily on off-site analysis of annual audited accounts and reports and, until August 2002, had conducted only one on-site inspection. Enforcement and financial soundness - Sections 8 (7) and 8 (8) provide monetary penalties for failure to comply with information requirements or for providing false information. - The Minister of Finance may require remedial steps or cancel registration if business is carried on detrimentally to the public interest. - Section 9 allows cancellation of a license for contraventions, breaches, or criminal offenses, with a right to appeal to the Court. - Section 5 requires capital issued and paid up in cash or unimpaired reserves of not less than SAT 500,000 (approximately US$170,000) or equivalent in approved currency. - Trustee companies must hold trust monies separate from their own moneys (Section 26). - Trustee companies are required to file annual audited accounts prepared according to international standards by an approved auditor; the auditor’s report and Annual Report must be submitted to the Registrar. Anti-money laundering obligations and practices - Under the Prevention and Suppression of Terrorism Act 2002 (PSTA), terrorist financing and assisting in financing of terrorist acts are criminalized; the PSTA applies to trustee companies and Samoan entities they form. - Authorities consider trustee companies covered by obligations and responsibilities under the MLPA, including reporting suspicious transactions to the MLA. - Trustee company applicants must file copies of due diligence procedures as part of registration. - Trustee companies are in the process of establishing policies and procedures to comply with MLPA Regulations and Guidelines; some have implemented recommendations from draft Guidance Notes circulated in 2001 or practices from other jurisdictions. Evaluation and recommendations for CSP supervision - The provision of company services is a major feature of OFC markets; lack of information about CSP activities could permit fraudulent purposes or money laundering. - The Offshore Group of Banking Supervisors (OGBS) Statement of Best Practices for Trust and Company Service Providers is referenced as guidance. - Recommendations to strengthen regulation and supervision include: - Require trustee companies to obtain copies of all due diligence material from the introducer when accepting business rather than relying solely on introducer undertakings. - Trustee companies should not accept business from jurisdictions with doubtful supervision of the introducer unless independent due diligence is performed, especially when introducers are legal or accounting professionals not directly subject to AML provisions. - Conduct enhanced due diligence for all new business transferring to the jurisdiction under redomiciliation, including detailed enquiries with regulatory and law enforcement bodies. - The SOFC should consider specific exchange of information agreements with host country supervisors and on-site visits to jurisdictions where due diligence is undertaken. - Consider adoption of corporate governance models that include experienced nonexecutive directors to provide independent oversight, particularly where trustee companies provide services to banks. - The Registrar should conduct regular on-site visits to inspect record keeping, accounting records, due diligence processes, training records, complaints books, policy and procedures manuals, and application and minute books; review of security of records, back-up, and disaster recovery is recommended. - Consider mandatory introduction of Professional Indemnity cover for all trustee companies. - The SOFC is preparing amendments to the TCA to codify the “fit and proper” test for all directors, managers, shareholders, and controllers, require regulatory approval for changes in directors or management, require on-site inspections by the Registrar, and envisage a Code of Practice for trustee companies encompassing OGBS recommendations. ### The future of banking regulation (shell banks) Findings and policy direction - There are eight offshore banks operating in Samoa: - two have offices in Samoa, - six do not have physical offices and rely on company service providers for directorship and registered office. - Banks without meaningful mind and management in Samoa are regarded as shell banks; they have no physical presence in the country where they are incorporated and licensed and are not affiliated with any financial service group subject to effective consolidated supervision. - The Working Group on Cross-Border Banking is addressing supervisory issues for shell banks; an emerging consensus is that shell banks cannot be supervised in accordance with the Core Principles and supervisors should no longer approve establishment or accept continued operation of shell banks. - The Basel Committee’s Customer Due Diligence for Banks (2001) recommends refusing correspondent relationships with shell banks located in foreign jurisdictions. - Several major banks in the Pacific islands have terminated correspondent relationships with shell banks. - Samoan authorities have prepared a new International Banking Bill and have reduced the number of offshore banks; a major policy decision is needed to require offshore banks to establish a real presence with mind and management within the jurisdiction. *IMF report.* ### 116. In order to achieve real physical presence, those who run the bank need to be resident ### 116. In order to achieve real physical presence, those who run the bank need to be resident ### Banking presence and shell-bank controls - Requirement: those who run the bank need to be resident on a permanent basis within the jurisdiction to achieve real physical presence. - Governance: there needs to be at least a “four eyes” control in place; this may require several core staff plus administrative support. - Records and audit: the books and records need to be fully maintained and audited within the jurisdiction. - Supervision: the full range of supervisory tools in accordance to the Core Principles should be applied. - Supervisory equivalence: growing consensus that international banking activities should be subject to the same supervisory standards as domestic banking activities; licensing of offshore and domestic banks could be treated under the same banking legislation (apart from tax treatment). - Legislative review: after addressing shell bank issues, authorities are recommended to reconsider the future form of banking legislation and supervision; some elements of the International Banking Bill under preparation contain provisions applicable to domestic banking. ### Supervision of insurance companies — Domestic insurance - Market structure and ownership (as of end‑August 2002): - 4 domestic insurance companies operating in Samoa. - 1 company is majority state‑owned and only carries out life insurance business; established in 1976 through the Insurance Act and the Life Insurance Corporation Act. - 1 company provides both life and nonlife (general) insurance, including health insurance; majority owned by an Australian bank. - 2 companies provide only general insurance (mainly property and motor insurance): one majority owned by a New Zealand insurance company; the other has local and American Samoan owners. - 4 insurance agents and 1 insurance broker primarily sell foreign insurance products. - Size: the insurance sector is very small in relation to banking. - Current legal and supervisory setup: - Under the Insurance Act, the Minister of Finance is responsible for licensing insurance companies (license fee and deposit required) and for supervision; cancellation of a license is the privilege of the Supreme Court. - Insurance companies are subject to some reporting requirements but not detailed supervisory requirements. - Transition and institutional arrangements: - Following amendment of the Financial Institutions Act in January 2001, the Minister placed domestic insurance companies under the prudential supervision of the Central Bank of Samoa (CBS) in October 2001. - CBS began communication and information gathering; with Asian Development Bank assistance, CBS is formulating prudential statements to be stipulated as prudential regulations, applying some banking supervision principles to insurance. - Authorities recognize this as temporary; Treasury and CBS are preparing a new insurance law to replace the Insurance Act of 1976, envisaged to confirm CBS as licensing and supervisory authority. - Capacity and staffing recommendations: - The mission supports modernization to conform with IAIS Core Principles of insurance supervision. - Need to ensure adequate staffing of insurance supervision: expand the Financial Institutions Department (FID) at CBS; designate staff to specialize in insurance supervision; obtain training under IAIS and other international organizations. - IMF follow-up: - Once the authorities prepare the draft law on regulation and supervision of the domestic insurance sector, the Fund will review and provide comments. ### Supervision of insurance companies — Offshore insurance - Market structure (as of end‑August 2002): - 5 registered international insurance companies, of which 4 were captives. - Risks and constraints: - Captive insurance companies should not cause major problems for financial soundness and policyholder protection in current infancy of business. - Development of a captive industry requires effective segregated portfolio company legislation, advisors conversant with its use, and services from international auditors; Samoa lacks international insurance managers operating locally. - The only existing general insurance company selling products in other countries can raise customer concerns, especially in claims experience and reserve adequacy; adverse claims experience can quickly eat into reserves and poor underwriting exacerbates risk. - Legal and reputational risk mitigation: - Recommendation: in licensing general international insurance business, require compliance with other countries’ laws where products are sold. - Establish close communication and information sharing with insurance regulators in other countries. ### Investment business and collective investment schemes (CIS) - Legal gap: - At present, there are no laws or regulations relating to investment business and securities in Samoa; possible that some IBCs are already conducting such business as mutual funds, CISs, or other entities. - Risk: jurisdictions lacking comprehensive legal provisions can be used for fraudulent activities (e.g., boiler‑room operations) though there is no suggestion such operations exist or have existed in Samoa. - Planned reforms: - Authorities plan to introduce new legislation on collective investment schemes in the near future. - Recommended approach: introduce a regulatory framework while simultaneously prohibiting establishment of unlisted collective investment schemes. - Regulatory design considerations: - Models exist from other OFCs (Isle of Man Financial Supervision Act of 1988; refinements in British Virgin Islands and Cayman Islands). - CISs split into public and private: public offerings are highly regulated and target general public; private funds are subject to much lower oversight and intended for experienced or professional investors (criteria often based on personal net worth; principle “buyer beware”; focus on full disclosure). - Successful CIS jurisdiction requires credible regulatory function with appropriately trained staff; regulators concentrate on fund documentation, disclosure regime, and background/professional qualifications of directors and investment managers (checks that managers are regulated and in good standing). - Private sector needs suitably qualified attorneys with international contacts; at least one local body able to provide rudimentary custodian services (linked to global banking group) and links to major global custodians. - Jurisdiction and regulator must have sufficient credibility to be accepted by major stock markets for fund quotation and legislation permitting full remedies if a fund needs to be wound up. ### Information sharing and secrecy obligations - Statutory secrecy and permitted sharing: - CBS, Inspector of Offshore Banks, Registrar of International Insurance, Registrar of International and Foreign Companies are all subject to secrecy requirements under various laws. - CBS and Inspector of Offshore Banks are allowed to share information with foreign banking supervisors or like supervisory authorities on a confidential basis. - Registrar of International Insurance is similarly permitted to share information with foreign supervisory authorities, but this does not extend to information on specific customers. - Anti‑money laundering (AML) interactions: - For AML, secrecy obligations are specifically overridden by the MLPA if disclosures are made pursuant to the MLPA. - However, CBS, Inspector of Offshore Banks, Registrar of International Insurance, and Registrar of International and Foreign Companies are not permitted to exchange information with the MLA or to report suspicious transactions; restrictions in Section 25(3) of Offshore Banking Act, Section 26 of the International Insurance Act, Section 31 of the Trustee Company Act 1987, Section 24 of the Financial Institutions Act and Section 17 of the CBSA are not overridden. - Recommendations to strengthen framework: - All supervisory authorities should be allowed by law to exchange information with domestic and foreign supervisory authorities, the MLA, and other foreign financial intelligence units through the MLA. - All supervisory authorities should be allowed by law to share information—through an appropriate domestic agency—on suspected criminal activity with law enforcement agencies, both foreign and domestic. - Impose whistle‑blowing provisions (similar to domestic and offshore banking law) on auditors of all offshore entities; both domestic and offshore whistle‑blowing information should include reporting of all suspected criminal activity. - Require auditors of both domestic and offshore entities to report suspicious transactions to the MLA. - Ensure complete and unfettered access to information from licensees and implement gateways for regulators to communicate directly with auditors. ### Organizational issues and institutional capacity - Historical and institutional context: - Samoa became independent in 1962. The CBS was established in 1984. - CBS mandates: issue currencies; promote internal and external monetary stability; promote credit and exchange conditions conducive to orderly and balanced economic development; supervise and regulate the domestic financial system. - Staffing and structure: - CBS currently has 85 staff, including those in the office of the Registrar of International and Foreign Companies. - Under the Governor and Deputy Governor, CBS has six departments headed by managers; the Financial Institutions Department (FID) is responsible for supervision of financial institutions (originally Bank Supervision Department; name changed in 1996 with the Financial Institutions Act). - Treasury Department has approximately 118 staff, headed by the Financial Secretary; located in the CBS Building; Office of the Minister of Finance is in the Central Government Building (the Minister is also Deputy Prime Minister). - Shared responsibilities between CBS and Ministry of Finance include licensing and supervision of various financial institutions. - SOFC role: - The SOFC has performed administrative roles as Registrar of International and Foreign Companies (including offshore banks and international insurance companies) and supervisory role of trustee companies (company service providers). - Post‑1998 legal changes (including creation of the Inspector of Offshore Banking), the SOFC’s supervisory role has become increasingly important; promotional role is limited to ordinary public affairs as registrar and supervisor. - Licensing authority and advisory practice: - Formal licensing authority of all entities involved in the offshore business (except international insurance companies) is the Minister of Finance. - In practice, the Minister is advised by a Steering Committee composed of the Governor of the CBS (chairman), the Financial Secretary, the Attorney General, and the Registrar of International and Foreign Companies on all licensing and regulatory matters; this practice has been followed since inception of the SOFC in 1988 and helps limit private/political influence and documents procedures. - Coordination and functional supervision recommendation: - The Registrar/Inspector functions are closely interrelated with those of the FID; the Governor appointed the Registrar as part of the MLA to supervise AML measures adopted by company service providers. - Tasks of the MLA (managed under the Deputy Governor) and of the FID need close coordination with the Office of Registrar/Inspector. - Mission recommendation: adopt a functional approach to supervision divided into categories (banking, insurance, other nonbanking services including trustee companies, Registrar of International and Foreign Companies, and an FIU) rather than separating domestic and offshore sectors. - Enhance current organizations and staffing so each function can keep up with evolving international best practices. - Legal drafting capacity: - At present, CBS relies almost solely on the Attorney General’s office to draft all legislation and subsidiary regulations regarding the domestic financial sector. - As demand for new and specialized financial and central banking legislation increases, consideration could be given to equipping CBS with a lawyer specializing in financial sector and central banking legislation (e.g., position of general counsel). Further technical assistance in this area is warranted. ### Appendix I — Summary of 1998 Legislative Amendments to Samoa Offshore Legislation: Offshore Banking Act 1987 (selected point) - Purpose of 1998 Amendment Act: protect reputation and integrity of the Samoa Offshore Financial Centre by increasing powers of the Banking Regulator to supervise the offshore banking sector and adopt internationally accepted prudential supervision guidelines. - Creation of post of Inspector of Offshore Banking: - Under Section 3(a), the post of Inspector of Offshore Banks was created to supervise and regulate offshore banking practice in Samoa. - Inspector granted broad powers to obtain and compel information from licensees, including power of search under Section 22(a) and supply of information under Section 22. - Inspector required to examine audited accounts, statements and returns filed by licensees and examine all license applications and make recommendations to the Minister. *— IMF mission* ### 2. Stricter controls over ownership of offshore banks ### 2. Stricter controls over ownership of offshore banks ### Offshore Banking — ownership, governance, operations, and enforcement - Section 12A: The approval of the Inspector is required for the issue or transfer of any beneficial interest in an offshore bank, other than where shares or securities were issued to existing shareholders on a pro-rata basis. - Issuing of bearer shares by licensees was prohibited. - Section 12(b): All new directors of an offshore bank must first be approved by the Inspector as a “fit and proper director of the licensee.” - Section 12 C: Government approval is required for opening a subsidiary bank, branch office, agency, or representative office. - Section 12(d): The Government can require a licensee to effect a policy of insurance against certain risks, such as the dishonesty of employees, loss of documents or other specified risks. - Section 25 (added Subsection (3)): The Inspector may share information about a licensee with foreign banking regulators, subject to adequate protections on confidentiality. - Section 33 (amended): Strengthened the powers of the Minister of Finance to take enforcement measures, including: - Applying to the Court for a court ordered liquidation; - Imposing conditions; - Requiring the removal and replacement of any director or officer; - Appointing an adviser; - Appointing a receiver or manager; and - Cancellation of the license. - Duration of an A class license reduced from 5 years to 2 years. - Section 20: Filing requirements: - Quarterly returns for all A and B1 class banks; - Half-yearly returns for all B2 banks; - The form of the returns to be prescribed by the Inspector to allow flexibility. - Section 24 (audit provisions, amended): Auditors are required to report on the licensee’s compliance with the terms of its license and whether the quarterly/half-yearly returns were completed correctly. - Section 25 (auditor reporting): Auditors must report to the Inspector any irregularities or evidence of wrongdoing; legal protection for auditors making such disclosures provided under Subsection (6). - Section 44(a): Immunity for all Government agencies and employees for any act or omission done in good faith in the exercise of their functions under the Act. - New offences and penalties created, including: - Failure to comply with any request for information by the Inspector (Section 3(a)(6)); - Providing false or misleading information under Section 22(b). ### International Companies Act 1987 — 1998 amendments - New products introduced: companies limited by guarantee and hybrid companies (companies limited by shares and guarantee). - Section 11 (amended): Registration and payment of an annual registration fee for company liquidators. - Section 13 (amended): Registration of companies limited by guarantee and hybrid companies; consequential amendments to Sections 18, 18(a), 18(b), 18(c), 18(d), 25, 26, 209, and 210 to reflect membership interest of guarantee members. - Section 16 (amended): Simplified redomiciliation procedure for companies incorporated in other jurisdictions to join the Samoan international company register. - Section 22 (amended): Deleted the words “Public limited company” or “PLC” from forming part of an international company’s name. - Section 197 (amended): Strengthened powers of the Registrar to strike companies off the Register for noncompliance and increased discretion in restoring struck-off companies. - New section 216(a): Allows filing of documents with the Registry by electronic means. - Section 216(d): Trustee companies must maintain the records of a company struck off the register for a minimum period of seven years. - Section 225 (amended): Increased and strengthened the powers of the Minister to prohibit certain companies or classes of companies from registering or continuing to carry on business in Samoa. - Section 227 (amended): Statutory exemption for the Registrar or any public officer in vetting and investigating license applicants; allows Registrar to make available for inspection an index of company names and their registered offices. - New section 228(a): Allows the Registrar to maintain the company registry records in electronic form. - Section 249 (amended): Prohibits international companies from carrying on banking or trust business or the business of an insurance or reinsurance company or an insurance manager, unless licensed under the appropriate legislation. ### International Insurance Act 1988 — 1998 amendments - New section 4(a): Prohibits use of words such as “insurance, assurance, underwriting, reinsurance, surety, indemnity, or guarantee” or any other words that connote insurance business by any person without the approval of the Registrar of Insurance. - Section 12 (amended): Registered insurers who fail to notify the Regulator of any material change, as defined in the Act, commit an offence. - Section 14 (amended): All auditors of registered insurers must be approved by the Minister. - New section 14(a): Actuarial valuations every two years of the assets and liabilities of all registered insurers carrying on long term business. - Section 20(6): Offence created for any licensee who contravened the provisions dealing with specific restrictions on the offshore insurance license. - New section 20(a): Any change in beneficial ownership of a registered insurer requires the prior written approval of the Registrar; bearer shares prohibited. - New section 26: Gateways for exchange of information between the Registrar of Insurance and foreign insurance regulators. - Section 32 (amended): Allows disclosures by the external auditors or actuaries of a registered insurer to the Registrar. - Section 40 (amended): Penalties for the new offences created under the 1998 amending legislation. ### Trustee Companies Act 1987 — 1998 amendments - Section 11 (amended): Any change in beneficial ownership of a registered trustee company requires the prior written approval of the Minister; bearer shares prohibited. - New section 37: Immunity for legal actions against the Government, the Minister or any public official for all acts or omissions done in good faith in the exercise of their functions under the Act. ### Authorities’ Response and Action Plan (Samoan authorities) - General: The Government of Samoa expresses appreciation for the IMF review of the Samoa OFC, and the recommendations in the Assessment Report are being implemented as set out in the action plan. - Banking supervision and prudential regulation — Domestic banks: - Policy initiatives considered for banks’ risk management systems following on-site examinations. - Current policies for licensing expressly state Central Bank’s approach regarding fit and proper persons to be directors or principal officers. - On-site inspections conducted with assistance of an ADB Consultant; training programs and attachments to other Reserve Banks conducted. - Amendments to the Financial Institutions Act 1996 under consideration to strengthen supervisory powers. - Appropriate prudential policies being considered for connected lending, country exposures, maturity profiles, credit grading, and interest rate exposures. - Section 10 of the FI Act 1996 specifies statutory duties of external auditors; closer relationships between auditors and supervisors are developing. - Samoa is a full member of the regional Association of Supervisors of Pacific Countries (ASPC). - Offshore banks: - International Banking Bill (IBA) 2003 approved by Cabinet; to be introduced in Parliament in mid-2004. - IBA Bill outlaws “shell banks” and requires licensees to establish a real physical presence in Samoa with mind and management in place. - IBA Bill allows the regulator access to all relevant information for the purposes of banking supervision, including customer account information. - IBA Bill codifies the practice of applying “fit and proper” criteria for approval of directors, controllers, shareholders, and managers. - Preparatory training sessions (with IMF assistance) implemented for conducting on-site inspections; authorities intend to conduct annual inspections of each licensee commencing in 2004, subject to capacity and resources. - IBA Bill provides for Regulatory Codes to introduce similar prudential requirements and standards for international and domestic banks. - Anti-money laundering measures: - November 2002: Definition of “financial institution” amended to specifically include trustee companies. - October 2002: Money Laundering Prevention Regulations enacted with effect from December 4, 2002, providing for customer identification, verification, record keeping and retention and suspicious transaction reporting. - Draft legislation to amend the MLPA prepared and expected to be enacted in early 2004 to include substantive provisions in primary legislation. - Money Laundering Prevention Amendment Bill (MLAB) to improve reporting framework for suspicious transactions, extend tipping-off provisions, and improve protection for information and reporters. - MLAB will formally establish the governance and oversight structure for the FIU and provide the full range of powers and functions including analysis and exchange of information with domestic and overseas FIUs and law enforcement agencies. - Draft Proceeds of Crime Bill prepared and expected to be enacted in early 2004 to provide comprehensive forfeiture and confiscation regime, including pecuniary penalty orders. - Draft Mutual Legal Assistance Bill prepared and expected to be enacted in early 2004 to provide a comprehensive regime for mutual legal assistance for all serious offences. - Legislation to amend the Financial Institutions Act and offshore legislation to codify “fit and proper” criteria to be introduced in 2004. - Company service providers: - Training sessions conducted with trustee companies on due diligence requirements under the MLPA; enhanced due diligence emphasized for redomiciliated business; provisions to be included in new MLPA Guidelines upon enactment of MLPAB. - Preparatory training sessions (with IMF assistance) for conducting on-site inspections of trustee companies; annual inspections intended commencing in 2004, subject to capacity and resources. - Other issues: - Draft Insurance Bill prepared to establish CBS as the licensing and supervisory entity of domestic insurance companies; consultations held in late 2003; Bill to be enacted in 2004. - International insurance applications will require compliance with other countries’ laws where products are sold; license application form to be amended. - Samoa OFC is a member of the Offshore Group of Insurance Supervisors (OGIS) and the International Association of Insurance Supervisors (IAIS); provisions exist for sharing of information between regulators. - Amendments to the Financial Institutions Act prepared to regulate investment and securities business under the CBS. - International Mutual Funds Bill drafted and expected to be enacted in early 2004 to regulate collective investment schemes and prohibit unlisted collective investment schemes. --- _Source: https://www.imf.org/-/media/files/publications/ofca/english/cr04171.pdf_