## _cr08105 - PREFACE ## Source details **Canonical URL:** [_cr08105 - PREFACE](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08105.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08105.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08105.pdf.json) --- ### Assessment basis and mission - Assessment based on the Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2001 of the FATF using the AML/CFT assessment Methodology 2004, updated June 2006. - Materials considered: all materials supplied by the authorities, on-site mission from May 7 to 23, 2007, and subsequent information soon after the mission. - Mission team: Manuel Vasquez (LEG, team leader, financial sector expert); Antonio Hyman-Bouchereau (LEG, legal expert); Ross Delston (legal expert); John Abbott (DNFBP expert). - Scope: institutional framework; AML/CFT laws, regulations, guidance notes; regulatory and institutional systems for FIs and DNFBPs; capacity, implementation, and effectiveness. - Program context: IMF OFC Assessment Program; presented to CFATF and endorsed at ministerial meeting November, 2007. ### Executive summary — key findings (numbered as in source) - 1. Limited change in AML/CFT regime since 1998/2003; only significant new legislation was Anti-Terrorism (Financial and Other Measures) Act 2004 (ATFA); new draft GNs pending; reforms slow; several legislative items under consideration at mission. - 2. Insufficient reforms limit application of risk-sensitive approaches; AML Regulations and GNs contain exemptions/reductions in CDD that are not always justified; draft Regulations/GNs and post-mission legislation could address weaknesses. - 3. Criminalization of ML and FT generally comprehensive; effectiveness unclear given only one ML prosecution in last five years and limited ML investigations; no FT prosecutions, investigations, or SARs. - 4. Protections for SAR filers limited: civil liability protection applies only to ML-related SARs; regulated institutions filing FT-related SARs not explicitly protected; tipping-off offense narrowly focused on investigations rather than on SAR filing or SAR contents. - 5. BMA has wide formal sanctioning powers but has never imposed them for AML/CFT deficiencies; enforcement practice relies on moral suasion and warning letters in a few cases. - 6. Well-developed legal framework for investigation and prosecution; DPP and FIU staffing and budget constraints (training, vacancies) limit investigations and prosecutions; recommendation to fill vacancies and prioritize AML/CFT investigations. - 7. FIU under-resourced: insufficient staff (12 approved posts with 3 vacancies at mission), limited analyst capacity and forensic accounting expertise; planned transition from police-based FIU to administrative FIA requires adequate staffing to avoid operational gaps. - 8. Three draft laws under consideration at mission were enacted in June 2007: POCA amendments, Criminal Justice (International Cooperation) (Bermuda) Act amendments, and Financial Intelligence Agency Act — expected to address several weaknesses. ### Primary preventive weaknesses (summary) - Coverage gaps: AML Regulations exclude life insurance and certain mutual fund administration aspects; POC Regulations and GNs largely unchanged since 2003. - CDD and risk-based deficiencies: Regulations narrowly focused on identification; lack full CDD requirements; no proper wire transfer provisions; Guidance Notes contain exemptions harmful to CDD. - Supervision: BMA integrated supervisor with professionalism but limited AML/CFT onsite inspection capacity, especially for insurance and investment sectors; absence of specific AML/CFT sanctions undermines oversight. - DNFBPs: only trust service providers effectively covered and supervised; lawyers, accountants, CSPs, real estate, jewelers largely not subject to preventive regimes at mission time (some measures adopted post-mission). --- ### Bermuda: country, economy and financial sector — selected factual data - Geography: archipelago of some 150 islands; area: approximately 21 square miles; location: about 570 miles east-southeast of mid-Atlantic region of the United States. - Population: 65,773 (July 2006 est.). - Exchange rate: fixed peg US$1.00=BMD$1.00. - Economy: GDP per capita (nominal 2005) US$76,403; Nominal GDP: $4.8 billion; Real GDP (1996 constant prices): $3.7 billion; main sectors: international financial services and tourism. - Banking sector (as of June 2006): 4 banks; 1 Deposit Co.; total assets US$23.1 billion; total deposits US$20 billion; 15 domestic branches for the four banks; two largest banks had 33 overseas subsidiaries; end-2005 off-balance sheet assets under administration about US$51.3 billion. - Insurance sector: approximately 1,433 insurance/reinsurance companies; Classes: Class 1: 355; Class 2: 399; Class 3: 566; Class 4: 40; Long term insurers: 80; composite insurers: 40; total long term/composite 120. Total gross premiums exceed US$105 billion; long-term (life) comprises more than 20 percent of gross premiums. - Mutual funds (as of 2006-Q3/Q4): registered funds about 1,267 (2006-Q3); total portfolios 2,161 (2006-Q3); TOTAL NET ASSET VALUE: $210.95 (2006-Q3), $211.52 (2006-Q4) — (figures in $ Billions). - Registered entities (end-March 2007): Companies total 16,742 (Exempt companies 13,091; Overseas companies 499; Local companies 3,152); Partnerships total 907 (Exempt partnerships 839; Overseas partnerships 67). - Trust service providers: 33 licensed trust service companies; approx. 300 persons employed in trust sector. - DNFBP counts: Lawyers — 42 law firms; approx. 325 lawyers certified; Accountants — 165–170 ICAB public accountants; Real estate agents — 56 agents and approx. 200 licensed salesmen; Dealers in precious metals/stones — several jewelry stores. --- ### Money laundering and drug indicators - ML prosecutions: only one successful ML prosecution in Bermuda; several cases pending. - Confiscated Assets Fund (CAF) balance (selected years; US$): - 2003 — $147,205.00 (Balance available for use $120,795.00; Balance detained $26,410.00) - 2004 — $233,714.27 (Balance available $159,577.27; detained $74,137.00) - 2005 — $285,892.57 (Balance available $222,339.57; detained $63,553.00) - 2006 — $703,605.82 (Balance available $656,753.82; detained $46,852.00) - 2007 (1 QTR) — $764,487.89 (Balance available $707,487.89; detained $56,852.00) - Drug arrests and seizures (total arrests / total seizures): - Total arrests: 2002: 494; 2003: 611; 2004: 561; 2005: 516; 2006: 526. - Total seizures: 2002: 781; 2003: 951; 2004: 946; 2005: 824; 2006: 813. - FIU SARs (selected years): - Total SARs filed: 2003: 275; 2004: 162; 2005: 200; 2006: 313. - SARs by banks: 2003: 257; 2004: 142; 2005: 183; 2006: 286. - Total ML Investigations initiated: 2003: 3; 2004: 4; 2005: 3; 2006: 1. --- ### Legislative framework — primary instruments - POCA 1997 (Proceeds of Crime Act 1997) and Proceeds of Crime (Money Laundering) Regulations 1998 (entered January 1998). - ATFA 2004 (Anti-Terrorism (Financial and Other Measures) Act 2004). - Investment Funds Act 2006; Investment Business Act 2003; Trusts (Regulation of Trust Business) Act 2001. - Money Service Business Regulations 2007 (issued January 16, 2007); BMA Act amended Dec 27, 2006 to cover MSBs. - Financial Intelligence Agency Act 2007 (post-mission enactment to establish administrative FIA). --- ### Criminalization and sanctions — ML and FT (selected) - POCA ML offenses: Sections 43–45 set out basic ML offenses (concealing/transferring proceeds; assisting retention; acquisition/possession/use). - POCA Sanctions (Section 48; Box 8 highlights): - Prejudicing investigation (Section 42): Summary fine $5,000 or imprisonment 2 years or both; Indictable fine $10,000 or imprisonment 5 years or both. - Concealing/transferring proceeds (Section 43): Summary fine $50,000 or imprisonment 5 years or both; Indictable unlimited fine or imprisonment 20 years or both. - Assisting another to retain proceeds (Section 44): Summary $50,000 or imprisonment 5 years or both; Indictable unlimited fine or imprisonment 20 years or both. - Acquisition/possession/use (Section 45): Summary $50,000 or imprisonment 5 years or both; Indictable unlimited fine or imprisonment 20 years or both. - Disclosure of knowledge/suspicion (Section 46): Summary $15,000 or imprisonment 3 years or both; Indictable unlimited fine or imprisonment 10 years or both. - Tipping off (Section 47): Summary $15,000 or imprisonment 3 years or both; Indictable unlimited fine or imprisonment 10 years or both. - Failure to comply with ML Regulations 2003: Summary $10,000; Indictable first offence $50,000; second/subsequent $100,000. - ATFA FT sanctions (Section 13; Box 9 highlights): - Fund-raising/use/possession/funding arrangements/ML re FT: Summary fine $20,000 or imprisonment 12 months or both; Indictable fine $200,000 or imprisonment 14 years or both. - Disclosure of information (Section 9(9)): Summary $10,000 or imprisonment 6 months or both; Indictable $100,000 or imprisonment 5 years or both. - Liability of legal persons: POCA Section 56 extends liability to bodies corporate and to directors/officers who consented or connived. --- ### Confiscation, freezing and provisional measures (R.3, SR.III) - Confiscation regimes: - Drugs-related (MDA Section 37): broad forfeiture including property acquired within six years prior to proceedings; court may order forfeiture regardless of conviction; burden-shifting presumptions in place. - Non-drugs (POCA Sections 9 and 10): value-based confiscation; preponderance of evidence standard; realization/appraisal rules; producer of realizable property includes gifts to third parties (POCA Section 3(b)). - Gaps and concerns: - Legislation does not explicitly provide for confiscation of instrumentalities intended for use in ML, FT, or other non-drug predicate offenses (recommendation to add). - Legal basis for treating ML as drug-trafficking offense for broader confiscation scope is described as "not entirely clear." - No civil forfeiture (confiscation without conviction) for ML (except MDA Section 37 for drugs). - Freezing for terrorist financing: - Freezing implemented via UK Orders in Council (Terrorism (UN Measures) (Overseas Territories) Order 2001 and Al-Qaida and Taliban Order 2002); Governor empowered to issue freezing orders; no local freeze notices invoked to date. - Gaps: no procedures published for delisting/unfreezing; Guidance Notes provide no specific FI guidance on UNSCR 1267 affirmative obligations. - CAF statistics (see above) and confiscation outcomes: relatively low amounts seized/forfeited to date; few confiscation orders and low recovery totals compared with jurisdiction characteristics. --- ### Financial Intelligence Unit (FIU) / Financial Intelligence Agency (R.26) - FIU status at mission: - FIU is a police-based unit within the Commercial Crime Department of the Bermuda Police Service; member of Egmont Group since 1999; hosted Egmont Plenary May 2007. - Legal basis: operates under Police Act 1974 and related powers; no dedicated statutory FIU instrument at time of mission (FIA Act enacted June 2007 to establish an administrative FIA). - Staffing and resources: - Approved posts: 12 (9 police investigators; 3 civilian positions: Analyst, Forensic Accountant, Secretary); 3 vacancies at mission (1 Detective Sergeant, 1 Detective Constable, 1 Forensic Accountant). - Operational constraints: inadequate analyst capacity (one analyst), officers assigned non-FIU duties, limited training budget, limited forensic accounting resources. - Confidentiality and dissemination: - Strict confidentiality under POCA Section 58 with gateways for law enforcement; disclosures sanitized when disseminated; 12 MOUs with other Egmont members signed. - SAR handling and outputs: - All SARs initially reviewed but only a small percentage analyzed; FIU compiles SAR statistics and reports quarterly to BLERG; FIU does not produce stand-alone annual public reports. - Ratings and recommendations: - R.26 — LC (limited capacity and new FIA not yet operational at mission). - Recommendation: ensure FIA established and operational; adequately staff existing FIU during transition; increase analyst and forensic accounting capacity; publish typologies/trend information once FIA established. --- ### Law enforcement, prosecution, and mutual legal assistance (R.27–28; R.36–39) - DPP and prosecution capacity: - DPP office structure: 1 Director, 1 Principal Crown Counsel, 2 Senior Crown Counsels, 5 Crown Counsels, 5 Junior Crown Counsels; 4 vacant posts at mission including Principal Crown Counsel and 3 Crown Counsels. - Low ML/FT prosecution activity: no ML prosecutions in last three years; only one ML prosecution in last five years; no FT prosecutions. - Resource and recruitment challenges: retention difficulties, non-competitive pay, contract positions. - Investigative powers: - POCA provides production orders (Section 37), monitoring orders (Section 41), search and seizure (Section 39(5)), and restraint/charging orders (Sections 27–29). - ATFA provides account monitoring orders (Schedule 4 paragraph 2) and civil forfeiture for terrorist cash (Section 15). - International cooperation: - CJICBA (1994) provides MLA powers including production of evidence, restraint, transfer of prisoners for testimony; Attorney General central authority. - Bermuda has granted all 31 MLA requests received in last five years; Bermuda has made no MLA requests in that period. - Extradition framework: Extradition Act 1989 (UK) extended to Bermuda; extradition available to countries designated by UK arrangements (not universally). - Ratings: R.27 — LC; R.28 — C; R.36–38 — LC/LC/LC (noted limitations in timelines, procedures, and enforcement of external confiscation of instrumentalities). --- ### Supervision, oversight, and sanctions (BMA and AML supervisory framework) (R.17, 23, 29, 30, 32) - BMA role and powers: - BMA is integrated regulator for banks, deposit-takers, investment business, mutual funds, trust business, insurance (recently), money services (since Jan 2007); supervisory powers exist under sectoral Acts and BMA Act. - At mission, AML Regulations and POCA did not explicitly assign AML/CFT supervisory and enforcement responsibility to the BMA; proposed POCA amendment (post-mission) to add monitoring AML/CFT as a BMA principal objective but would not itself create enforcement/sanction powers. - Onsite supervision status and resource constraints: - Banks: AML onsite inspections commenced around 2000–2001; inspections limited in scope. - Insurance: AML onsite inspection program only commenced in 2007; prior coverage limited primarily to Class 4 and some Class 3 inspections. - Mutual fund administrators: licensing and supervision under Investment Funds Act 2006 with 12-month grace period starting March 2007; no fund administrators licensed at mission. - BMA inspection staffing: examples — Insurance Department: 16 onsite examiners; typical onsite teams 2–4 examiners; new organigram and procedures provided post-mission. - Enforcement practice: BMA has range of powers (letters, directions, removal of directors, revocation) but has never imposed formal AML/CFT sanctions; tendency to use moral suasion. - Sanctions sufficiency: - Criminal fines and penalties considered not sufficiently dissuasive for large global entities; recommendations to introduce civil money penalties and conservatorship powers for BMA; increase POCA fines for summary and certain indictable convictions. - Supervision quality and gaps: - Gaps in supervision of non-banking sectors (insurance, mutual funds, fund administrators, MSBs until 2007). - Insufficient consolidated/group-wide AML/CFT supervision for cross-border groups. - Guidance Notes outdated, non-mandatory, and contain problematic exemptions that weaken CDD (e.g., life insurance exclusions). - Ratings: - R.17 — PC (availability of effective, proportionate and dissuasive sanctions — issues with penalties and absence of use). - R.23 — NC (supervision inadequate, especially non-banking sectors; no CFT supervision). - R.25 — PC (Guidance Notes inadequate; FIU feedback procedures absent). - R.29 — PC (no explicit AML/CFT enforcement mandate in POCA/Regulations; need to clarify BMA powers). - R.30 — PC (capacity/training/resource shortfalls at supervisors/FIU/DPP). --- ### Preventive measures — detailed deficiencies and recommendations (FIs, wire transfers, monitoring, internal controls) - CDD (Rec. 5–8): Regulations only require identification; do not implement full FATF CDD suite; Guidance Notes non-enforceable and contain exemptions; recommended actions include: - Establish full CDD, ongoing monitoring, enhanced CDD for higher risk customers, PEPs, correspondent banking; require purpose and intended nature of business relationships; reduce wire-transfer CDD threshold to US/BD$1,000; remove unjustified exemptions (Guidance Notes G129–G141, G131–G133). - Third parties and introduced business (Rec. 9): current reliance on written assurances from introducers is insufficient; require immediate availability of CDD documentation and FIs to satisfy themselves of adequacy and prompt access. - Recordkeeping and wire transfers (Rec. 10 & SR.VII): Reg. 5 requires records for minimum period of 5 years but ambiguity on retention beyond 5 years during investigations; current threshold for wire CDD US/BD$10,000 (too high vs FATF $1,000); recommendation: reduce threshold to US$1,000 and require full originator information retention; SR.VII — NC. - Monitoring transactions (R.11 & R.21): No legal requirement to pay special attention to complex/unusual transactions or relationships with persons from countries not applying FATF Recommendations; R.11 — NC; R.21 — NC. - Internal controls, compliance, audit (R.15 & R.22): Regulations require procedures but not full independent compliance/audit functions; no explicit obligations for employee screening, independence of MLRO, overseas branch controls; R.15 — PC; R.22 — NC. - Shell banks (R.18): No explicit prohibition, but no known shell banks operating; R.18 — LC. --- ### DNFBPs — scope, supervision and recommendations (R.12, 16, 24–25, 20) - At mission: - Trust Service Providers: subject to POC Regulations and supervised by BMA with annual on-site visits and file testing. - Other DNFBPs (lawyers, accountants, CSPs, real estate agents, dealers in precious metals/stones, casinos (N/A)) largely not covered by POC Regulations; lawyers/accountants covered only by generalized SAR reporting under POCA Section 46(2) and not by mandatory preventive obligations. - Post-mission legislative change: - On June 22, 2007, POCA amendments adopted to bring lawyers and accountants under preventive measures, but scope narrower than FATF Recommendation 12 envisages. - Key recommendations: - Amend POCA and POC Regulations to require lawyers, accountants, CSPs, real estate agents, high-value dealers (cash threshold e.g., $15,000 referenced for jewelers) to implement AML/CFT programs (CDD, recordkeeping, internal reporting/MLRO, training). - Establish supervisory arrangements (SROs or direct supervisors) with effective powers to monitor and sanction. - Revise legal privilege/tipping-off carve-outs so professional obligations do not unduly impede SAR obligations; ensure SAR protections and anti-tipping-off apply to FT-related SARs. - Compliance ratings: - R.12 — NC (except TSBs). - R.16 — NC (DNFBP SAR reporting and oversight inadequate). - R.24 — NC; R.25 — NC (Guidance Notes inadequate, DNFBP coverage limited). --- ### Legal persons, trusts, foundations and NPOs (R.33–34, SR.VIII) - Companies: - Registrations: total 16,742 companies (end-March 2007) with vetting at incorporation; BMA vets beneficial ownership at incorporation; companies must maintain share registers accessible at registered office. - Bearer shares prohibited (Section 53 Companies Act 1981). - Trusts: - No general trust registration; trust business regulated: trust service businesses licensed under Trusts (Regulation of Trust Business) Act 2001 and subject to POC Regulations. - Trustees required to know identity of settlors, protectors and beneficiaries; where companies are owned by trusts, incorporators must submit trust identity information to BMA. - Foundations: may be formed as companies limited by guarantee; Companies Act provisions apply. - NPO sector: - Charities registered under Charities Act 1978: approx. 400 charities; total revenues approx. US$84 million per year (excludes Bermuda Hospital Board approx. US$120 million). - Oversight light; no specific NPO risk assessment; recordkeeping standards and investigative procedures not fully aligned with FATF SR.VIII; SR.VIII — PC. - Ratings: - R.33 — C (companies — access to beneficial ownership via BMA and company registers). - R.34 — C (legal arrangements — trust service provider supervision and access to settlor/beneficiary information). - SR.VIII — PC (NPO review and recordkeeping gaps). --- ### Cross-border cash controls and Customs (SR.IX) - No formal declaration/disclosure system in place at mission for incoming and outgoing physical cross-border transportation of cash and bearer instruments. - Collector of Customs prepared draft notice under Section 16 Revenue Act 1898 to require disclosure of cash/negotiable instruments above $10,000 for arrivals (outgoing not covered in draft). - Seizure powers: POCA Section 50 permits police to seize/detain cash imported/exported if suspected to represent proceeds of criminal conduct; ATFA Schedule 2 paragraph 2 allows seizure of suspected terrorist cash. - Penalties under Revenue Act 1898 (Box 12): - False declaration (Section 85): civil money penalty $12,000. - False declaration (Section 86): civil penalty $12,000; criminal fine $30,000 or imprisonment up to two years. - Concerns and recommendations: - Proposed declaration system should cover both incoming and outgoing transfers; civil/criminal penalties considered too low; consider authority to confiscate on false declaration; enhance domestic cooperation and information-sharing (MOU Customs/FIU/FIA); SR.IX — NC. --- ### Institutional coordination, statistics and recommended institutional reforms (R.31, 32) - NAMLC exists (statutory under POCA Section 49(1)) and advises Minister of Finance; functions in practice include issuing guidance notes — mandate limited to advising not coordinating implementation. - Recommendation: appoint national AML/CFT coordinator; energize NAMLC into policy/coordination role; establish systematic coordination mechanisms (regular meetings, assigned duties, contact lists). - Statistics: FIU maintains SAR statistics; other statistics incomplete (MLA, restrained vs confiscated property, supervisory data on non-resident deposits); recommendation to expand and use statistics for supervisory risk-targeting and effectiveness review. - Ratings: - R.31 — PC (coordination ad hoc; NAMLC role insufficient). - R.32 — PC (statistics maintained but underutilized; gaps present). --- ### FATF Special Recommendations — selected ratings (as in assessment) - SR.I — PC (SFT and Palermo Conventions not extended to Bermuda by UK; UNSCRs implemented via UK Orders but gaps remain). - SR.II — PC (ATFA omissions: definition of terrorism, terrorist organizations, organizing/directing others, extra-territorial offences). - SR.III — LC (freezing mechanisms exist via UK Orders; no local designation practice and lack of published delisting/unfreezing procedures/guidance). - SR.IV — PC (FT-related SARs not being filed; legal distinctions/confusion in FT SAR standards; protections/tipping-off gaps). - SR.VI — PC (MSB legal/regulatory framework in place but untested; SR.VI rating PC). - SR.VII — NC (wire transfer originator information and thresholds not in line with FATF; CDD threshold US$10,000 vs FATF US$1,000). - SR.VIII — PC (NPOs: no review; recordkeeping/investigative gaps). - SR.IX — NC (no comprehensive declaration system; outgoing cash not covered; penalties insufficient). --- ### Priority recommendations (selected, as presented in source) - Ensure FIA established, operational, and adequately staffed with analysts and forensic accounting expertise; maintain sufficient FIU capacity during transition. - Fill DPP vacancies; prioritize AML/CFT investigations and prosecutions; allocate sufficient funding and staffing; enhance retention and recruitment policies. - Amend POCA and POC Regulations to extend preventive regime to lawyers, accountants, CSPs, real estate agents, jewelers and other high-value dealers; specify supervisory modalities and sanctions. - Revise AML Regulations and issue enforceable instruments to implement full FATF Recommendations 5–8 (full CDD, enhanced/simplified CDD only where justified, PEP measures, wire-transfer originator information with US$1,000 threshold). - Improve recordkeeping: require full originator information retention for wire transfers; reduce recordkeeping threshold to US$1,000; clarify retention during investigations beyond five-year minimum. - Enact explicit confiscation powers for instrumentalities and consider civil forfeiture options; clarify legal basis for broad realizable property in ML convictions. - Develop procedures and publish guidance for freezing/unfreezing/delisting under UNSCR regimes and strengthen BMA/FI guidance to FIs. - Strengthen BMA mandate to monitor, enforce and sanction AML/CFT compliance (consider civil money penalties and conservatorship powers), expand AML onsite inspections (insurance, mutual funds, MSBs), and implement consolidated group supervision. - Implement cross-border cash declaration system covering incoming and outgoing flows; increase penalties and consider confiscation powers for false declarations; establish MOUs and information-sharing processes between Customs, Police and FIU/FIA. - Conduct system-wide ML/FT risk assessment, revise Guidance Notes, and improve statistical collection and use for risk-based supervision. --- ### Authorities’ response — summary highlights - Government committed to updating AML/CFT regime; welcomed IMF assessment. - Notable 2007 changes: June 2007 enactment of POCA amendments, CJICBA amendments, and Financial Intelligence Agency Act establishing administrative FIA; revised POCA Regulations in advanced development; National AML/CFT Coordinator approved. - Authorities prepared a detailed Plan of Action and intend to use IMF recommendations as roadmap for prioritized implementation. --- *Content derived from the IMF staff assessment preface, executive summary, detailed assessment excerpts and annexes in document _cr08105 - PREFACE_.* ### PREFACE................................................................................................................. ### _cr08105 - PREFACE ### Document structure and major sections - PREFACE (page 7) - EXECUTIVE SUMMARY (page 8) - DETAILED ASSESSMENT REPORT (page 13), comprising: - 1 GENERAL (starts page 13) - 1.1 GENERAL INFORMATION ON BERMUDA (page 13) - 1.2 GENERAL SITUATION OF ML AND FINANCING OF TERRORISM (page 14) - THE ML SITUATION (page 14) - THE TERRORIST FINANCING SITUATION (page 15) - 1.3 OVERVIEW OF THE FINANCIAL SECTOR (page 15) - 1.4 OVERVIEW OF THE DNFBP SECTOR (page 19) - 1.5 OVERVIEW OF COMMERCIAL LAWS AND MECHANISMS GOVERNING LEGAL PERSONS AND ARRANGEMENTS (page 24) - 1.6 OVERVIEW OF STRATEGY TO PREVENT ML AND FT (page 27) - 2 Legal System and Related Institutional Measures (page 31) - LAWS AND REGULATIONS (page 31) - 2.1 CRIMINALIZATION OF ML (R.1 & 2) (page 31) - 2.1.1 Description and Analysis (page 31) - 2.1.2 Recommendations and Comments (page 34) - 2.1.3 Compliance with Recommendations 1 & 2 (page 34) - 2.2 CRIMINALIZATION OF TERRORIST FINANCING (SR.II) (page 35) - 2.2.1 Description and Analysis (page 35) - 2.2.2 Recommendations and Comments (page 38) - 2.2.3 Compliance with Special Recommendation II (page 38) - 2.3 CONFISCATION, FREEZING AND SEIZING OF PROCEEDS OF CRIME (R.3) (page 38) - 2.3.1 Description and Analysis (page 38) - 2.3.2 Recommendations and Comments (page 44) - 2.3.3 Compliance with Recommendation 3 (page 45) - 2.4 FREEZING OF FUNDS USED FOR TERRORIST FINANCING (SR.III) (page 45) - 2.4.1 Description and Analysis (page 45) - 2.4.2 Recommendations and Comments (page 48) - 2.4.3 Compliance with Special Recommendation III (page 48) - 2.5 THE FINANCIAL INTELLIGENCE UNIT AND ITS FUNCTIONS (R.26) (page 49) - 2.5.1 Description and Analysis (page 49) - 2.5.2 Recommendations and Comments (page 53) - 2.5.3 Compliance with Recommendation 26 (page 53) - 2.6 LAW ENFORCEMENT, PROSECUTION AND OTHER COMPETENT AUTHORITIES – THE FRAMEWORK FOR THE INVESTIGATION AND PROSECUTION OF OFFENSES, AND FOR CONFISCATION AND FREEZING (R.27, & 28) (page 53) - 2.6.1 Description and Analysis (page 53) - 2.6.2 Recommendations and Comments (page 58) - 2.6.3 Compliance with Recommendations 27 & 28 (page 58) - 2.7 CROSS BORDER DECLARATION OR DISCLOSURE (SR.IX) (page 59) - 2.7.1 Description and Analysis (page 59) - 2.7.2 Recommendations and Comments (page 63) - 2.7.3 Compliance with Special Recommendation IX (page 63) - 3 PREVENTIVE MEASURES - FINANCIAL INSTITUTIONS (page 64) - CUSTOMER DUE DILIGENCE & RECORD KEEPING (page 64) - 3.1 RISK OF ML OR TERRORIST FINANCING (page 64) - 3.2 CUSTOMER DUE DILIGENCE, INCLUDING ENHANCED OR REDUCED MEASURES (R.5 TO 8) (page 66) - 3.2.1 Description and Analysis (page 66) - 3.2.2 Recommendations and Comments (page 80) - 3.2.3 Compliance with Recommendations 5 to 8 (page 81) - 3.3 THIRD PARTIES AND INTRODUCED BUSINESS (R.9) (page 82) - 3.3.1 Description and Analysis (page 82) - 3.3.2 Recommendations and Comments (page 84) - 3.3.3 Compliance with Recommendation 9 (page 85) - 3.4 FINANCIAL INSTITUTION SECRECY OR CONFIDENTIALITY (R.4) (page 85) - 3.4.1 Description and Analysis (page 85) - 3.4.2 Recommendations and Comments (page 86) - 3.4.3 Compliance with Recommendation 4 (page 86) - 3.5 RECORD KEEPING AND WIRE TRANSFER RULES (R.10 & SR.VII) (page 86) - 3.5.1 Description and Analysis (page 86) - 3.5.2 Recommendations and Comments (page 89) - 3.5.3 Compliance with Recommendation 10 and Special Recommendation VII (page 90) - UNUSUAL AND SUSPICIOUS TRANSACTIONS (page 90) - 3.6 MONITORING OF TRANSACTIONS AND RELATIONSHIPS (R.11 & 21) (page 90) - 3.6.1 Description and Analysis (page 90) - 3.6.2 Recommendations and Comments (page 91) - 3.6.3 Compliance with Recommendations 11 & 21 (page 91) - 3.7 SUSPICIOUS TRANSACTION REPORTS AND OTHER REPORTING (R.13-14, 19, 25 & SR.IV) (page 92) - 3.7.1 Recommendations and Comments (page 97) - 3.7.2 Compliance with Recommendations 13, 14, 19 and 25 (criteria 25.2), and Special Recommendation IV (page 98) - INTERNAL CONTROLS AND OTHER MEASURES (page 98) - 3.8 INTERNAL CONTROLS, COMPLIANCE, AUDIT AND FOREIGN BRANCHES (R.15 & 22) (page 98) - 3.8.1 Description and Analysis (page 98) - 3.8.2 Recommendations and Comments (page 101) - 3.8.3 Compliance with Recommendations 15 & 22 (page 101) - 3.9 SHELL BANKS (R.18) (page 102) - 3.9.1 Description and Analysis (page 102) - 3.9.2 Recommendations and Comments (page 102) - 3.9.3 Compliance with Recommendation 18 (page 102) - REGULATION, SUPERVISION, GUIDANCE, MONITORING AND SANCTIONS (page 102) - 3.10 THE SUPERVISORY AND OVERSIGHT SYSTEM - COMPETENT AUTHORITIES AND SROS. ROLE, FUNCTIONS, DUTIES AND POWERS (INCLUDING SANCTIONS) (R. 17, 23, 25, 29, 30 & 32) (page 103) - 3.10.1 Description and Analysis (page 103) - 3.10.2 Recommendations and Comments (page 124) - 3.10.3 Compliance with Recommendations 17, 23, 25 & 29 (page 125) - 3.11 MONEY OR VALUE TRANSFER SERVICES (SR.VI) (page 127) - 3.11.1 Description and Analysis (page 127) - 3.11.2 Recommendations and Comments (page 128) - 3.11.3 Compliance with Special Recommendation VI (page 129) - 4 PREVENTIVE MEASURES – DESIGNATED NON-FINANCIAL BUSINESSES AND PROFESSIONS (page 130) - 4.1 CUSTOMER DUE DILIGENCE AND RECORD-KEEPING (R.12) (page 130) - 4.1.1 Description and Analysis (page 130) - 4.1.2 Recommendations and Comments (page 134) - 4.1.3 Compliance with Recommendation 12 (page 135) - 4.2 SUSPICIOUS TRANSACTION REPORTING (R.16) (page 135) - 4.2.1 Description and Analysis (page 135) - 4.2.2 Recommendations and Comments (page 136) - 4.2.3 Compliance with Recommendation 16 (page 137) - 4.3 REGULATION, SUPERVISION AND MONITORING (R.24-25) (page 137) - 4.3.1 Description and Analysis (page 137) - 4.3.2 Recommendations and Comments (page 139) - 4.3.3 Compliance with Recommendations 24 & 25 (criteria 25.1, DNFBP) (page 139) - 4.4 OTHER NON-FINANCIAL BUSINESSES AND PROFESSIONS & MODERN-SECURE TRANSACTION TECHNIQUES (R.20) (page 139) - 4.4.1 Description and Analysis (page 139) - 4.4.2 Recommendations and Comments (page 140) - 4.4.3 Compliance with Recommendation 20 (page 140) - 5 LEGAL PERSONS AND ARRANGEMENTS & NON-PROFIT ORGANISATIONS (page 140) - 5.1 LEGAL PERSONS – ACCESS TO BENEFICIAL OWNERSHIP AND CONTROL INFORMATION (R.33) (page 140) - 5.1.1 Description and Analysis (page 140) - 5.1.2 Recommendations and Comments (page 141) - 5.1.3 Compliance with Recommendations 33 (page 141) - 5.2 LEGAL ARRANGEMENTS – ACCESS TO BENEFICIAL OWNERSHIP AND CONTROL INFORMATION (R.34) (page 141) - 5.2.1 Description and Analysis (page 141) - 5.2.2 Recommendations and Comments (page 143) - 5.2.3 Compliance with Recommendations 34 (page 143) - 5.3 NON-PROFIT ORGANISATIONS (SR.VIII) (page 143) - 5.3.1 Description and Analysis (page 143) - 5.3.2 Recommendations and Comments (page 144) - 5.3.3 Compliance with Special Recommendation VIII (page 144) - 6 NATIONAL AND INTERNATIONAL COOPERATION (page 145) - 6.1 NATIONAL COOPERATION AND COORDINATION (R.31) (page 145) - 6.1.1 Description and Analysis (page 145) - 6.1.2 Recommendations and Comments (page 146) - 6.1.3 Compliance with Recommendation 31 (page 146) - 6.2 THE CONVENTIONS AND UN SPECIAL RESOLUTIONS (R.35 & SR.I) (page 146) - 6.2.1 Description and Analysis (page 146) - 6.2.2 Recommendations and Comments (page 148) - 6.2.3 Compliance with Recommendation 35 and Special Recommendation I (page 148) - 6.3 MUTUAL LEGAL ASSISTANCE (R.36-38, SR.V) (page 148) - 6.3.1 Description and Analysis (page 148) - 6.3.2 Recommendations and Comments (page 153) - 6.3.3 Compliance with Recommendations 36 to 38 and Special Recommendation V (page 153) - 6.4 EXTRADITION (R.37, 39, SR.V) (page 154) - 6.4.1 Description and Analysis (page 154) - 6.4.2 Recommendations and Comments (page 155) - 6.4.3 Compliance with Recommendations 37 & 39, and Special Recommendation V (page 155) - 6.5 OTHER FORMS OF INTERNATIONAL COOPERATION (R.40 & SR.V) (page 156) - 6.5.1 Description and Analysis (page 156) - 6.5.2 Recommendations and Comments (page 158) - 6.5.3 Compliance with Recommendation 40 and Special Recommendation V (page 158) - 7 OTHER ISSUES (page 158) - 7.1 RESOURCES AND STATISTICS (page 158) - 7.2 OTHER RELEVANT AML/CFT MEASURES OR ISSUES (page 159) - TABLE 1. RATINGS OF COMPLIANCE WITH FATF RECOMMENDATIONS (page 160) - TABLE 2. RECOMMENDED ACTION PLAN TO IMPROVE THE AML/CFT SYSTEM (page 171) - TABLE 3. AUTHORITIES’ RESPONSE TO THE ASSESSMENT (page 184) - ANNEX 1: DETAILS OF ALL BODIES MET ON THE ON-SITE MISSION: MINISTRIES, OTHER GOVERNMENT AUTHORITIES OR BODIES, PRIVATE SECTOR INSTITUTIONS (page 186) - ANNEX 2: LIST OF ALL LAWS, REGULATIONS AND OTHER MATERIAL RECEIVED (page 187) ### Primary focus areas reflected in the table of contents - Comprehensive assessment of Bermuda’s AML/CFT framework across legal, institutional, preventive, and cooperative dimensions. - Detailed evaluation of compliance with FATF Recommendations and Special Recommendations (specific references: R.1–40, SR.I–IX). - Emphasis on preventive measures for financial institutions and DNFBPs, including customer due diligence, record-keeping, suspicious transaction reporting, and supervision. - Coverage of mechanisms for confiscation, freezing, seizure, and international cooperation including MLA and extradition. - Inclusion of ratings, a recommended action plan, and authorities’ responses. ### Acronyms and key terminology (as listed) - AML/CFT - Anti-Money Laundering and Combating the Financing of Terrorism - AG - Attorney General - AGC - Attorney General’s Chambers - ATFA - Anti-Terrorism (Financial and Other Measures) Act 2004 - BL - Banking Law - BCP - Basel Core Principles - BMA - Bermuda Monetary Authority - BLERG - Bermuda Law Enforcement Review Group - CAF - Confiscated Assets Fund - CALP - Caribbean Anti-Money Laundering Programme - CBP - US Customs and Border Protection - CC - Criminal Code - CCs - Crown Counsels - CDD - Customer Due Diligence - CFATF - Caribbean Financial Action Task Force - CJICBA - Criminal Justice (International Cooperation) (Bermuda) Act 1994 - CO - Confiscation Order - CPC - Criminal Procedure Code - CSP - Company Service Provider - DNFBP - Designated Non-Financial Businesses and Professions - DPP - Director of Public Prosecutions - FATF - Financial Action Task Force - FI - Financial institution - FIA - Financial Intelligence Agency - FIU - Financial Investigation Unit - FSAP - Financial Sector Assessment Program - FSRB - FATF-style Regional Body - FT - Financing of terrorism - GNs - Guidance Notes - HM - Her Majesty - IAIS - International Association of Insurance Supervisors - ICE - US Immigration and Customs Enforcement - IMF - International Monetary Fund - JCC - Junior Crown Counsel - JIU - Joint Intelligence Unit - KYC - Know your customer/client - LEG - Legal Department of the International Monetary Fund - MDA - Misuse of Drugs Act 1972 - MEF - Ministry of Finance - MFA - Ministry of Foreign Affairs - MOU - Memorandum of Understanding - ML - Money laundering - MLA - Mutual legal assistance - NAMLC - National Anti-Money Laundering Committee - NPO - Non-profit organization - PACE - Police and Criminal Evidence Act 2005 - PEP - Politically exposed person - POC - Proceeds of Crime - POCA - Proceeds of Crime Act 1997 - RILO - Caribbean Customs Law Enforcement Council’s Regional Intelligence Liaison Officer Network - RO - Restraining Order - ROSC - Report on Observance of Standards and Codes - SCC - Senior Crown Counsel - SFT - Suppression of the Financing of Terrorism - SRO - Self-regulatory organization - SAR - Suspicious Activity Report - TCSP - Trust and Company Services Provider - TSB - Trust Service Business - UN - United Nations Organization - UNSCR - United Nations Security Council Resolution *Content derived from the document table of contents and acronym list in the provided PDF.* ### PREFACE ### _cr08105 - PREFACE ### Preface and Assessment Basis - Assessment based on the Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2001 of the Financial Action Task Force (FATF). - Methodology used: AML/CFT assessment Methodology 2004, as updated in June 2006. - Materials considered: all materials supplied by the authorities, information obtained on-site during mission from May 7 to 23, 2007, and other information subsequently provided by the authorities soon after the mission. - Mission meetings: officials and representatives of all relevant government agencies and the private sector (list in Annex 1 to the detailed assessment report). - Assessment team composition: - Manuel Vasquez (LEG, team leader and financial sector expert) - Antonio Hyman-Bouchereau (LEG, legal expert) - Ross Delston (legal expert under LEG supervision, lawyer) - John Abbott (expert under LEG supervision, Designated Non-Financial Businesses and Professions) (DNFBP) - Scope of review: institutional framework; relevant AML/CFT laws, regulations, guidance notes and other requirements; regulatory and institutional systems for FIs and DNFBP; capacity, implementation, and effectiveness of these systems. - Purpose: summarize AML/CFT measures in Bermuda at time of mission and shortly thereafter; describe and analyze measures; set out Bermuda’s levels of compliance with the FATF 40+9 Recommendations (see Table 1); provide recommendations to strengthen aspects of the system (see Table 2). - Program context: produced by the IMF as part of the Offshore Financial Center Assessment Program (OFC); presented to the Caribbean Financial Action Task Force (CFATF) and endorsed at ministerial meeting in November, 2007. ### Executive Summary — Key Findings (numbered as in source) 1. There has not been much change in the AML/CFT regime since the AML legislation and Guidance Notes (GNs) were brought into force in 1998 and the last IMF assessment in 2003. Apart from a few changes to the Proceeds of Crime Act (POCA) and the GNs, the only significant new legislation enacted was the Anti-Terrorism (Financial and Other Measures) Act 2004 (ATFA). New draft GNs, prepared soon after the last IMF mission, are still to be finalized and implemented. The current AML/CFT regime has, therefore, not kept pace with changes in the FATF Recommendations, and the authorities have been slow in implementing a number of key recommendations from the last IMF assessment, particularly with respect to the reporting entities in the financial and non-financial sectors. At the time of the mission, several pieces of new legislation were under consideration by Parliament to address a number of weaknesses in the regime as described below. 2. The lack of sufficient reforms to the AML/CFT regime has also limited Bermuda’s ability to apply risk-sensitive approaches to controls in the reporting entities sector permitted under the FATF Recommendations. In Bermuda’s case, the application of risk-based approaches seems particularly relevant not only to the insurance sector, but also to other types of financial and non-financial activities. The AML Regulations and GNs contain exemptions or a reduction in the application of customer due diligence (CDD), but lower risk has not been proven in all cases, and some are clearly inappropriate. Implementation of the recently passed legislation (post mission), and proposed draft Regulations and GNs can address some of the identified weaknesses in the preventive regime and, as contemplated, can provide for a more risk-based approach to compliance and supervision. 3. The criminalization of ML and FT is generally comprehensive, with offenses applying to both natural and legal persons, and to the requisite predicate offenses. However, it is difficult to assess effectiveness of the legal framework given that there has been only one prosecution for ML in the last five years, as well as limited ML investigations. With respect to FT, there have been no prosecutions, investigations, or SARs filed. 4. Under current law, protections from civil liability, but not criminal liability, only apply to those who file ML–related SARs. In addition, regulated institutions who file FT–related SARs are not explicitly protected from either civil or criminal liability. The tipping–off offense is narrowly focused on investigations, rather than explicitly prohibiting disclosures relating to a SAR being filed or the contents of the SAR. 5. The Bermuda Monetary Authority (BMA) has a wide array of formal sanctioning powers available to it, but has never imposed them against a financial institution (FI) for a deficiency or violation of AML/CFT requirements. The practice has been for the BMA to apply moral suasion and less formal approaches to enforcement of compliance with these and other requirements, generally through the issue of warning letters, and these have been used only in a few cases. 6. The legal framework for investigation and prosecution of ML is well-developed, and law enforcement and prosecutorial staff are highly motivated and professional. However, the staffing and budgetary (e.g. for training) constraints in the office of the DPP and the FIU may have contributed to a low number of ML investigations, limiting their ability to carry out their AML/CFT tasks effectively. There have been no ML prosecutions in the last three years despite the relatively large number of SARs. In practice, only a small number of SARs that are analyzed are fully investigated. The number of vacant positions in the DPP’s office should be filled, and efforts made to retain professional staff. The recruitment policy should therefore be revisited to ensure the adequacy and continuity of staff responsible for AML/CFT issues. Investigating and prosecuting AML/CFT cases should be made a priority by the law enforcement authorities, including the provision of adequate funding and staffing. 7. Bermuda’s FIU should be more adequately funded, staffed, and provided with additional technical resources, including, for instance, expertise in forensic accounting. The FIU is part of the Bermuda Police Service and is a member of the Egmont Group. All police officers within the FIU have training in basic financial investigations, and most have been trained in areas such as confiscations, money laundering, and advanced financial investigative techniques. However, the current volume of work impacts the effectiveness of the FIU in undertaking timely analysis and investigation. The number of staff positions allocated to the FIU is insufficient, and assigning non-ML/FT duties to its police officers places further strain on available resources. The sufficiency and continuity of FIU staff should be reviewed, including during the planned transition from a police-based to an administrative FIU over the next 12 months. In this regard, there will be a need for adequate staff during the transitional period to avoid operational gaps, and to efficiently manage the transfer of the intelligence-related tasks of the new FIU. 8. At the time of the mission, three important draft laws were under consideration which were later enacted in June 2007. These are amendments to the Proceeds of Crime Act (POCA), the Criminal Justice International Cooperation (Bermuda Act), and the Financial Intelligence Agency Act (FIA Act) to establish an administrative FIU. Once implemented, these new laws will address a number of the weaknesses in the AML/CFT legal framework identified by the mission. ### Preventive Measures — Financial Institutions (key points) - Coverage gaps: - The AML regulatory framework does not address CFT issues, and does not cover key areas of the financial sector, including life insurance business, and certain elements of the investment/mutual funds sector. - The POC Regulations and GNs remain practically unchanged since 2003; new draft Regulations and contemplated GN amendments were pending passage of proposed new legislation enacted June 2007. - CDD and risk-based issues: - Regulatory framework lacks basic customer due diligence (CDD) requirements; CDD requirements are narrowly focused on customer identification. - No provisions for complying with key CFT recommendations such as those for wire transfers. - GNs do not provide sufficient guidance for broad-based CDD and contain customer identification provisions that could be detrimental to compliance. - Cross-border ML/FT risks require increased attention, especially for business relationships and transactions introduced through local and foreign intermediaries. - Recordkeeping requirements, including for beneficiary clients and business relationships established before 1998, need strengthening. - Supervision: - Strength: integrated financial sector supervision by the BMA and professionalism of its staff; relatively strict licensing regime. - Weaknesses: AML/CFT supervision developing, particularly onsite inspections; enhanced capacity, skills, and resources required for onsite inspections in insurance and investments services sectors. - Practical constraints on consolidated and cross-border AML/CFT supervision; need for collaboration with external auditors and overseas regulators. - Recommendation: conduct sector-specific ML/FT risk assessments to manage supervisory priorities and resource allocation. - Absence of specific sanctions for AML/CFT breaches limits BMA’s compliance oversight effectiveness; more focused risk-based AML/CFT inspections and enforcement action recommended. - BMA should increase attention to onsite review procedures for compliance with CDD for beneficiaries, including enforcement for accounts existing when AML regime was introduced in 1998. ### Preventive Measures — Designated Non-Financial Businesses and Professions (DNFBPs) - DNFBP framework status at mission: - Comprehensive AML/CFT framework for DNFBPs was only beginning to be put in place; only trust service providers were subject to preventive measures and monitoring. - Other DNFBPs subject to general requirement to report suspicious activities, but without effective preventive measures and compliance oversight these requirements are not effectively implemented. - It is rare that DNFBPs, other than trust services businesses, file SARs. - Specific sectors: - Lawyers, accountants, trust service providers, and company service providers are key gateways to Bermuda’s financial sector; their ML vulnerabilities have not been closely analyzed and are generally perceived as low by the professions. - Regulation and supervision of trust service business (TSBs) mitigate risks through trust operations; incorporation procedures and requirements reduce potential for ML/FT. - Reforms in progress: - Plans advanced to bring lawyers and accountants in public practice, as well as corporate service providers, within the preventive regime; supervisory arrangements not yet agreed. - Amendments to POCA and draft amendments to POC Regulations under consideration to include lawyers, accountants, and corporate services providers under preventive regime. - Subsequent to the mission, on June 22, 2007, POCA was amended to bring lawyers and accountants under the preventive measures regime, but the scope of activities subject to AML/CFT is narrower than under the FATF Recommendations. ### Legal Persons and Arrangements; Non-Profit Organizations - Legal persons and arrangements: - Bermuda is not a significant jurisdiction for incorporation of companies; controls mitigate misuse for illicit purposes. - Incorporation requires ultimate beneficial ownership to be established twice before registration is accepted: once by the applicant (normally a lawyer) and again independently by the authorities. - Companies required to maintain a register of shareholders accessible to the public. - Persons offering trust services as a business must be licensed and supervised by the BMA; TSBs required to establish identity of parties to a trust including settlors and ultimate beneficiaries. - Law enforcement has full access to CDD information and can share with foreign authorities. - Non-profit organizations (NPOs): - Charities required to register if raising money from the public; ongoing oversight is light but compliance appears good. - Most funds raised in Bermuda are applied in Bermuda and sector vulnerability to ML and FT appears low. - No risk assessment undertaken and AML/CFT is not a focus of charities oversight. ### National and International Cooperation - Domestic cooperation: - National Anti-ML Committee (NAMLC) brings together key ministries and departments and functions in practice as the AML/CFT policy formulation body. - NAMLC’s legal mandate is to advise the Minister of Finance and issue industry guidance on AML issues, not to coordinate formulation and implementation of AML/CFT policy. - Lack of conventional cooperation mechanisms among governmental institutions has resulted in a fragmented informal approach, contributing to slow pace of reforms since 2003. - International cooperation: - Adequate and comprehensive legal and institutional framework largely consistent with international standards. - Additional issues: - The Suppression of the Financing of Terrorism (SFT) and Palermo Conventions have not been extended to Bermuda by the United Kingdom; situation should be remedied without delay. - Bermuda lacks a declaration or disclosure system for physical cross-border transportation of cash and bearer instruments; authorities plan to implement such a system which should provide for declaration of both incoming and outgoing transfers. ### Detailed Assessment — General (selected factual data) - Geography and governance: - Bermuda: United Kingdom’s oldest overseas dependent territory; archipelago of some 150 islands in the Atlantic Ocean, about 570 miles east-southeast of the mid-Atlantic region of the United States. - Area: approximately 21 square miles. - Population: 65,773 (July 2006 est.). - Head of State: British monarch, represented by the Governor; Governor appoints the Premier and other ministers in accordance with advice of the Premier. - Legislature: bicameral — a senate of 11 appointed members and a House of Assembly of 36 elected members. - Bermuda Constitution Order 1968 establishes parliamentary system and internal self-government; UK retains responsibility for defense, internal security, and international affairs. - Bermuda relies on the United Kingdom to extend relevant provisions, including international conventions and United Nations Security Council Resolutions (UNSCRs). *Source: IMF assessment preface and executive summary from _cr08105 - PREFACE* ### 24. Bermuda’s legal system is based on the British model consisting of codified ### Bermuda: legal framework, economy, AML/CFT landscape, and financial sector (excerpt) ### Legal and governance framework - Legal system: based on the British model consisting of codified legislation and English common law. - Court system: Magistrate Courts, a Court of Appeal, and a Supreme Court, with final appeal to the Privy Council in Britain. - Criminalization of official corruption: has been a criminal offence since the Criminal Code Act was passed in 1907. - International anti-corruption: government has agreed in principle to have the UN Convention against Corruption extended to it by the UK. - Creditworthiness: government has excellent credit ratings; leading credit rating agencies have stable or positive outlooks based on fiscal prudence, international financial center status, and track record in managing the economy and business environment. ### Economy — size, structure, and exchange rate - GDP per capita (nominal terms 2005): US$76,403. - Nominal GDP: $4.8 billion. - Real GDP (at 1996 constant market prices): $3.7 billion. - Main economic sectors: international financial services and tourism (both represented a significant portion of Bermuda's nominal GDP). - Growth: Bermuda economy exhibited strong growth over the last decade largely attributed to the expanding international business sector. - Exchange rate regime: fixed exchange rate pegged to the US dollar at par US$1.00=BMD$1.00. ### AML/CFT legal framework and institutional arrangements - Key legislation: - Proceeds of Crime Act 1997 (POCA 1997). - Proceeds of Crime (Money Laundering) Regulations 1998 (entered into force January 1998). - Anti Terrorism (Financial and Other Measures) Act 2004 (ATFA). - Regulatory and institutional bodies: - Bermuda Monetary Authority (BMA): integrated financial regulator established in 1969; sole regulator of the financial services sector with responsibility for authorizations, registrations, and prudential supervision. - National Anti-ML Committee: advises the Minister of Finance and issues guidelines on AML issues. - Bermuda is a member of: Caribbean Financial Action Task Force (CFATF), Offshore Group of Banking Supervisors, Basel Cross Border Banking Group, IAIS, and IOSCO. - International assessments: - Last AML/CFT assessment referenced: IMF in March 2003 (part of an OFC assessment), using the October 2002 Methodology based on the FATF 40+8 Recommendations prevailing at that time; assessment found Bermuda to be compliant or largely compliant with a majority of the Recommendations. - UK (KPMG review) evaluations in 2000 and 2003 of financial supervisory and AML/CFT regimes concluded Bermuda ranked as one of the most developed offshore jurisdictions with considerable progress toward meeting international financial standards. - Proposed institutional change noted at time of mission: amendments to the POCA had been laid before Parliament, including for the establishment of a new Financial Intelligence Agency (FIA) to replace the current FIU. ### Money laundering (ML) situation — findings and indicators - Prosecutions: - Number of prosecutions for ML: only one prosecution in Bermuda (successful); several other cases pending prosecution. - Asset recovery: - Confiscated Assets Fund established in 2001; balance over US$700,000.00, with an additional $1 million confiscated but not yet deposited in the Fund. - Domestic predicate crime: - Bermuda is not a drug producing country nor an important transshipment point for drugs. - Law enforcement has made seizures of cannabis, cocaine, and other illegal drugs; intelligence support from the US Drugs Enforcement Agency noted. - Trend in drug arrests and seizures over the last five years described as rather flat, except for 2003 when arrests and seizures increased sharply. - Drug-related arrests and seizures (Box 1): - Total arrests: 2002: 494; 2003: 611; 2004: 561; 2005: 516; 2006: 526. - Total seizures: 2002: 781; 2003: 951; 2004: 946; 2005: 824; 2006: 813. - ML risk exposure: - Bermuda is exposed to ML risk from predicate crimes occurring in other countries, particularly through its large international financial services sector. - Regulatory measures for FIs: the 1998 Regulations imposed procedural requirements on FIs in areas of customer identification, recordkeeping, and suspicious activity reporting. - Gaps/limits noted: - Since the IMF’s 2003 assessment, there had been little change to the AML/CFT legal and regulatory framework (as of the mission). - AML Regulations do not cover life insurance business, and only certain aspects of mutual fund administration (subscriptions and redemptions) are covered. ### Terrorist financing (TF) situation - Domestic TF indicators: To date, there has been no evidence of terrorism or FT in Bermuda. - UK Orders in Council extended to Bermuda to comply with UN requirements: - The Terrorism (United Nations Measures) (Overseas Territories) Order 2001. - The Afghanistan (United Nations Sanctions) (Overseas Territories) Order 2001 (as amended in 2001). - The Al-Qa’ida and Taliban (United Nations Measures) (Overseas Territories) Order 2002. - Domestic TF legislation: Anti-Terrorism (Financial & other Measures) Act 2004 (ATFA) enacted after the IMF’s 2003 assessment. ### Overview of the financial sector — banks and deposit-taking institutions - Banking sector scale: - Number of licensed banks: 4 banks. - Number of deposit-taking companies: 1 Deposit Co. - Total assets (as of June 2006 equivalent): US$23.1 billion. - Total deposits: US$20 billion. - Number of branches in Bermuda (four banks): 15 branches. - Number of overseas subsidiaries for the two largest banks: 33 overseas subsidiaries. - No current statistics on off-balance sheet assets under administration, but end of 2005 data indicate total about US$51.3 billion. - No information collected/available on non-resident deposits. - Credit union: 1 credit union with members exclusively from a local labor union; supervised by the BMA under delegated authority from the Minister of Finance. - Banking groups and supervision: - Some banks are members of financial groups with affiliates involved in trust business, investment companies, and other organizations; about 25 entities belonged to such groups at the time of the mission. - BMA adopted an integrated approach to supervision as single integrated supervisor for banks, deposit taking companies, trust business, insurance, investment business including mutual fund administration, money services business (none licensed as yet), and credit unions under delegated authority. ### Insurance sector - Number of insurance/reinsurance companies: approximately 1,433 companies. - Classes of licensees: - Class 1: 355 companies (single parent captives insuring risk of its owners or affiliates). - Class 2: 399 companies (multi-owner captives and certain single–parent and multi-owner captives deriving up to 20 percent of net premiums from unrelated risk). - Class 3: 566 companies (other than Class 1, 2, and 4 including re-insurers writing third party business; insurers writing direct policies with third parties; single parent/group/association/joint venture captives where more than 20 percent of net premiums written arise from risks unrelated to owners; finite insurers and rent-a-captives). - Class 4: 40 companies (high end insurers and re-insurers capitalized at a minimum of US$100 million underwriting direct excess liability and/or property catastrophe reinsurance risk). - Long term Insurers: 80 and composite insurers: 40; total 120 companies. - Premiums and intermediaries: - Total gross premiums exceed US$105 billion, of which more than 20 percent consists of pure long term (life) insurance. - About 30 percent including life and composite insurance. - Authorized insurance intermediaries: 16 (agents 5, brokers 4, managers 7). - Market statistics by domicile (year ended 31st December, 2005) — selected figures from Box 2 (as presented): - Sub-Totals for Captives: No. Co's 869; Gross Premiums 19,430,090; Net Premiums 15,070,045,478; Total Assets 65,011,348,496; Cap. and Surplus 25,805,202,124. - Sub-Totals for Professional Ins./Reinsurers: No. Co's 443; Gross Premiums 81,251,958,879; Net Premiums 71,205,086,488; Total Assets 264,810,875,100; Cap. and Surplus 84,229,109,445. - Totals: 1,312 companies; Gross Premiums 100,682,049,394; Net Premiums 86,275,131,966; Total Assets 329,822,223,596; Cap. and Surplus 110,034,311,569. - Data limitations: apart from information on foreign subsidiaries of Bermudian banks, there is no information readily available to the BMA with respect to branches and subsidiaries of long term insurance companies. ### Investment services, mutual funds, and securities market - Mutual funds (as of September 30, 2006): - Registered mutual (investment) funds: about 1,267 funds. - Investment portfolios: some 2,161 investment portfolios. - Net asset values totaling in excess of US$210 billion. - Investment Funds Act 2006: - New licensing regime for fund administrators in process of being implemented. - Firms conducting such business (about 58 firms) given a 12-month grace period starting March 2007. - Mutual funds statistics (Box 3) — selected series and net asset values: - TOTAL NUMBER OF SCHEMES by quarter: 2005-Q2: 1,147; 2005-Q3: 1,117; 2005-Q4: 1,182; 2006-Q1: 1,202; 2006-Q2: 1,242; 2006-Q3: 1,267; 2006-Q4: 1,302. - TOTAL PORTFOLIOS by quarter: 2005-Q2: 2,026; 2005-Q3: 1,946; 2005-Q4: 2,043; 2006-Q1: 2,121; 2006-Q2: 2,152; 2006-Q3: 2,161; 2006-Q4: 2,190. - TOTAL NET ASSET VALUE ($ Billions): $178.58 (2005-Q2); $180.01 (2005-Q3); $187.53 (2005-Q4); $209.07 (2006-Q1); $207.52 (2006-Q2); $210.95 (2006-Q3); $211.52 (2006-Q4). - Securities market: - Bermuda Stock Exchange (BSX): fully-electronic offshore securities market in operation since 1971. - BSX listings: about 72 companies and 346 investment funds. - Market capitalization: about US$350 billion; domestic market comprises about US$2.6 billion. - Authorized broker-dealers: about 18. ### Types of financial institutions (FIs) and supervisory coverage (Box 4, summary) - Banks and deposit companies: - 4 banks and 1 Deposit Co.; Total assets US$23.1 billion; Supervisor: BMA under Banks and Deposit Companies Act 1999. - Licensed investment businesses: - 58 licensed; Supervisor: BMA under Investment Business Act 2003. - Investment fund administrators: - 40–50 entities; Supervisor: BMA under Investment Funds Act 2006; no fund administrator had been licensed because of the 12-month grace period starting March 2007, but subject to fit and proper screening by the BMA. - Investment (mutual) funds: - 1,267 funds; US$211 billion (net); Supervisor: BMA under Investment Funds Act 2006. - Insurance business: long-term insurance: - 80 entities; US$21 billion; Supervisor: BMA under Insurance Act 1978. - Approximate figures for end 2006 include some 80 long-term insurers and about 40 composites accounting for a total of about US$32 billion in gross premium. - Credit union: - 1 credit union; approximately US$10 million; Supervisor: BMA under Credit Unions Act 1982. - Payments systems services and Money Service Business: - Payments systems services: 1 (NA); Money Service Business: 1 (0 NA); supervisory framework: BMA under Bermuda Authority Act 1969 and Money Service Business Regulations 2007; payments provider unsupervised at time of mission but expected to be licensed. - Voluntary Regulated Institutions: - 0 at time of mission. ### Supervisory practices and industry cooperation - BMA responsibilities include reviewing AML/CFT systems and controls of licensed entities to check compliance and ensure prudent risk management. - The AML Regulations do not cover life insurance business and only certain aspects of mutual fund administration. - Compliance Association: consists of compliance officers from a number of regulated FIs; very active in Bermuda with a key focus on AML/CFT issues. ### Designated non-financial businesses and professions (DNFBPs) — AML/CFT framework (Box 5 summary) - DNFBP sectors and legislative coverage (as presented): - Trust Service Providers: CDD Yes; Record Keeping Yes; Compliance Program Yes; SAR Reporting Yes; Supervised for AML/CFT Yes; Supervisor Guidance Issued Yes. - Company Service Providers: CDD No; Record Keeping No; Compliance Program No; SAR Reporting No; Supervised for AML/CFT Yes; Supervisor Guidance Issued No. - Lawyers: CDD No (Yes, post-mission); Record Keeping No (Yes, post-mission); Compliance Program No (Yes, post-mission); SAR Reporting No (Yes, post-mission); Supervised for AML/CFT Narrow obligation; Supervisor Guidance Issued No. - Notaries: No coverage in CDD, Record Keeping, Compliance Program, SAR Reporting; Supervised for AML/CFT Yes; Supervisor Guidance Issued No. - Auditors: CDD No (Yes, post-mission); Record Keeping No (Yes, post-mission); Compliance Program No (Yes, post-mission); SAR Reporting No (Yes, post-mission); Supervised for AML/CFT Yes; Supervisor Guidance Issued No. - Accountants: CDD No; Record Keeping No; Compliance Program No; SAR Reporting No; Supervised for AML/CFT Yes; Supervisor Guidance Issued No. - Dealers and retailers in Precious Metals and Stones: CDD No; Record Keeping No; Compliance Program No; SAR Reporting No; Supervised for AML/CFT Yes; Supervisor Guidance Issued No. - Real Estate Agents: CDD No; Record Keeping No; Compliance Program No; SAR Reporting No; Supervised for AML/CFT Yes; Supervisor Guidance Issued No. - Casinos: N/A (no applicable coverage indicated). - Overall observation: legislative coverage for DNFBPs varied by sector, with trust service providers identified as broadly covered and several other DNFBP categories lacking CDD, recordkeeping, compliance program, or SAR obligations at the time of the mission, though some measures were noted as introduced or expected post-mission. *Source: IMF country report text excerpt provided in the content unit.* ### Box 6. Characteristics of Bermuda DNFBPs ### Box 6. Characteristics of Bermuda DNFBPs ### Sector size and scope of sector activity - Lawyers: 42 law firms. Approximately 325 lawyers certified to practice. Must be certified by the Bar to provide legal advice. Licensed/registered: Yes, by the Bar Association. Distinctive practices: Bermuda law firms provide a very broad range of commercial and financial services. - Notaries: Only lawyers may be notaries. Notaries, as such, do not prepare for, or engage in, or carry out transactions for clients. Licensed/registered: No. Distinctive practices: The notary function in Bermuda is generally limited to verification of identity and authentication of signatures. - Accountants: 165-170 members of Institute of Chartered Accountants of Bermuda (ICAB) are public accountants, mainly providing audits services. A small number of non-ICAB professional accountants provide non-audit accounting services. Licensed/registered: Yes, for public accountants under ICAB. Distinctive practices: Only members of ICAB may render opinion on financial statements. No formal requirements govern activities the small number of non-ICAB independent accountants who may offer a range of accounting and business consultant services. - Trust Service Providers: 33 licensed trust service companies. 3 licensed trust companies affiliated with banking groups and 2 licensed trust companies owned by law firms carry on the majority of trust business. Approximately 300 persons employed in trust sector. Licensed/registered: Yes, licensed. Distinctive practices: Trust licensees who deal only with non-resident clients are subject to full scope of regulation. Full range of trust services is available in Bermuda, with a market emphasis on discretionary trusts for high net worth clients. - Company Service Providers: Services provided by a number of legal and accounting firms. Licensed/registered: No, not a regulated line of business. Distinctive practices: Broad range of corporate services are provided by law and accounting firms. - Casinos: Gaming activities prohibited under Criminal Code. Prohibition extends to cruise ships and internet gaming. Licensed/registered: N/A. Distinctive practices: N/A. - Dealers in Precious Metals and Stones: Several jewelry stores deal in high value goods. Licensed/registered: No. Distinctive practices: Cash transactions of $15,000 are rare. Jewelers do not routinely buy precious metals and stones from retail clients. - Real Estate Agents: 56 agents and approximately 200 licensed salesman, of whom approximately 100 active. Two large firms account for about one half of employment and business. A total about 575 transactions concluded in 2006. Licensed/registered: Yes, licensed under Real Estate Agent’s Licensing Act 1976. Distinctive practices: Only licensed salesmen may sell real estate. Bermuda real estate is very expensive and many properties are held through trusts. ### Casinos - Finding: Casinos do not operate in Bermuda. Under the Criminal Code 1907, Section 155, gaming is prohibited in Bermuda. - Legal constraints: Prohibition under the Prohibition of Gaming Machines Act 2001 and related legislation on importation, purchase, sale, maintenance, or use of gaming machines. - Scope: Prohibition extends to cruise ships in Bermuda waters; Bermuda companies are prohibited from offering internet gambling services. ### Real estate sector and ML risk - Sector composition: Approximately 56 Agents and 204 sales persons involved in intermediating sales/rentals; licensing required under the Real Estate Agents Act of 1976. - Controls on non-residents: Purchase or sale of property by non-Bermuda is tightly controlled and highly taxed; each such transaction requires exchange control permission by the Minister of Finance, through the BMA. - Effects and risks: - These features reduce liquidity of Bermuda property for non-residents and appear to limit attractiveness to international money launderers. - Property transactions between Bermuda residents are not subject to similar controls, creating segmented market and sharp differentials in property value for non-residents vs domestic residents. - Trust agreements designed to mask underlying ownership appear to have been used to circumvent restrictions. - Law enforcement investigators frequently find local drug traffickers have invested criminal proceeds in the property market, particularly in lower cost property. - Regulatory gaps and reforms considered: - Real estate agents are not subject to AML/CFT preventive measures requirements. - Government is considering extending the scope of application of POC Regulations to classify other DNFBPs, including real estate agents, as Regulated Dealers. At the time of the mission no formal proposal had been tabled. ### Dealers in precious metals and stones - Market: A number of retail jeweler stores sell high value goods (e.g., Rolex, diamond rings); no wholesale market for trading in precious metals and stones. - Cash transactions: Cash transactions of $15,000 are rare. - Regulatory position and reforms considered: - Dealers are not covered by POC Regulations at the time of the mission. - Government is considering extending POC Regulations to cover other designated non-financial business to be classified as Regulated Dealers, covering persons who accept high value cash payments above a threshold level. No formal proposal had been tabled as of the mission. ### Lawyers and notaries - Lawyers: - Role: Legal profession plays an important role in financial and commercial sectors; law firms advise and prepare full range of sophisticated financial transactions; subsidiaries of law firms are key providers of trust and company services. - Size: As of January 2007, 42 Law Firms were active in Bermuda and the Bar had issued current practicing certificates to approximately 325 individuals. - Regulatory status in AML/CFT: Lawyers are not subject to the POC Regulations 1998 and thus are not required to implement mandatory AML/CFT preventive measures. Lawyers are covered by generalized SAR reporting under Section 46 (2) of POCA; Section 46 (3) provides a broad exemption for information received in privileged circumstances. - Compliance/enforcement: No current arrangements for monitoring and enforcing compliance by lawyers; in practice, no SARs filed by lawyers acting as lawyers. Members are subject to the Barristers Code of Professional Conduct, 1981, and the Bar can discipline members for failure to comply with the Code. - Legislative change: At time of mission a government-sponsored bill before Parliament would amend POCA to impose certain AML/CFT preventive obligations on professional legal advisers in independent practice when involved in financial transactions. Arrangements for the Bermuda Bar to act as an SRO for compliance monitoring/enforcement under consideration. Subsequent to the mission, on June 22, 2007, the amendments to POCA dealing with preventive measures for lawyers were approved. - Notaries: - Requirement: Notaries must be a barrister or attorney. - Function: Main function is to verify identities and authenticate signatures; they do not prepare or carry out financial transactions for clients. ### Accountants - Market composition: Approximately 12 public accounting firms, including both local and international, operate in Bermuda, including offices of the 'Big Four'. Many firms specialize in insurance. Some public accounting firms, through affiliates, are licensed trust service providers; some provide company services (CSPs). - Governance: The Institute of Chartered Accountants of Bermuda (ICAB) is the statutory governing body; ICAB is formally affiliated to the Canadian Institute of Chartered Accountants. Membership in ICAB is required to act as a public accountant. 165-170 members of ICAB are public accountants (see sector table above). - Regulatory status in AML/CFT: Like lawyers, accountants are not subject to explicit AML/CFT preventive obligations of the POC Regulation 1998 but are covered by generalized SAR reporting under Section 46 (2) of POCA. No regime for monitoring and enforcing compliance by accountants with SAR reporting. - Legislative change: At time of mission, a government-sponsored Bill before Parliament would amend POCA to impose AML/CFT preventive requirements on public accountants in limited circumstances. Subsequent to the mission, on June 22, 2007, the amendments to POCA dealing with the AML/CFT obligations of public accountants were adopted as law. Arrangements for ICAB to act as an SRO for compliance monitoring/enforcement are under consideration, but modalities not yet determined. ### Trust Service Providers and Company Service Providers (TCSPs) - Trust Service Providers: - Scope: Bermuda firms offer extensive trust services; provision of trust services is regulated under the Trusts (Regulation of Trust Business) Act 2001. - Size: Some 33 licensed Bermuda companies, with combined employees of over 300 individuals, offer full range of trust services, market emphasis on discretionary trusts for high net worth families. - Regulatory treatment: Trust service providers are categorized as FIs and are subject to POCA requirements for FIs. BMA is the supervisor of trust companies and has a well-developed supervisory program including oversight of compliance with AML/CFT requirements. - Company Service Providers (CSPs): - Market: Some 30-40 firms provide CSP services, including incorporation applications, company administration, provision of directors, and registered offices. Main CSPs are law firms. Bermuda Bar Act 1974 restricts persons who may prepare a memorandum for incorporation to lawyers and accountants. Presently about 90 percent of incorporation applications are submitted by the two largest law firms. - Regulatory status at mission: CSPs were not regulated nor subject to specific AML/CFT preventive measures. Amendments to the POC Regulations were being drafted to bring CSPs within scope of POCA. It is anticipated that BMA will be charged with oversight. - Mitigating controls despite lack of regulation: - Companies Act 1981 requires identification of beneficial ownership at incorporation and on an ongoing basis, necessitating a certain level of CDD by CSPs. - Prior to acceptance by the Registrar of Companies, all company applications are individually vetted by the BMA, including independent due diligence on beneficial owners and controllers of the company. ### Non-Profit Organizations (NPOs) - Registration and scale: - Under Charities Act 1978, charitable organizations wanting to undertake money-raising must register with the Registrar General. - Approximately 400 charities are registered and they have total revenues of approximately US$84 million per year. (This total excludes the Bermuda Hospital Board, which alone has total annual revenue of approximately US$120 million.) - Many registered charities are small, with half having annual revenues of US$25,000 or less. - Several large international charities have affiliates registered in Bermuda (e.g., Red Cross, World Vision, Salvation Army). - Organizations carrying out charitable activities but not soliciting public funds are not required to register; no information available on scope of these activities. - Oversight and reporting: - Applications considered by the Charities Commission, an all volunteer advisory board. - Registration formalities include listing officers and directors, statement of objectives, explanation of fundraising and application of funds, and summary of latest financial information. - Charities are required to maintain general financial records and file an annual financial statement with the Registrar General. - The Commission views files at the Registrar General as not well organized or up-to-date; access to files permissible but cumbersome, including payment of fees. - Risks observed: Authorities have not encountered significant illegalities in the NPO sector aside from misappropriation of small balances. The financing of terrorism has not been a focus of official oversight. ### Overview of commercial laws and mechanisms governing legal persons and arrangements - Registered entities as of end-March 2007: - Companies and partnerships total: 16,742 companies and 906 partnerships registered in Bermuda. - Boxed figures: - Exempt companies 13,091 - Overseas companies 499 - Local companies 3,152 - Total 16,742 - Exempt partnerships 839 - Overseas partnerships 67 - Total 907 - Companies: - Types under Companies Act 1981: limited liability companies, companies limited by guarantee, and unlimited liability companies. - Distinction: Exempted companies (foreign owned) vs local companies (Bermudian-owned). Only local companies owned by at least 60 percent Bermudians and meeting criteria may carry on business in Bermuda without Minister permission. - Overseas/permit companies: Non-Bermudian companies authorized by Minister to carry business in/from Bermuda through a local branch. - Disclosure and vetting: - Companies Act 1981 and Exchange Control Act 1972 impose requirements to disclose owners and charge BMA to vet chain of ownership and beneficial owners. - BMA vetting of all owners required at incorporation; vetting of non-resident owners required when transfers of equity securities to/from non-residents occur. - Beneficial ownership information reviewed by BMA is confidential and maintained by the Authority on behalf of the Minister of Finance. - Registrar and Ministerial powers: - Register maintained by Registrar of Companies within Ministry of Finance. - Minister has powers to compel compliance and sanction non-compliance. - Companies formed under other laws carrying on business in Bermuda must obtain permit under Section 134; permission requires full vetting of beneficial ownership by BMA; register of permits maintained by Registrar of Companies. - No requirement to disclose subsequent changes of ownership for overseas companies unless specified in permit; no sanction if overseas company misrepresents beneficial owners, but Minister can revoke permit. - Residency requirements: - Under Section 130 of the Companies Act 1981, every exempted company must have: - two directors resident in Bermuda; or - a director or secretary ordinarily resident in Bermuda; or - a director or resident representative ordinarily resident in Bermuda; or - in the case of a company with shares listed on an approved stock exchange, a resident representative. - For local companies, it is generally accepted that one or more directors will reside in Bermuda. - Registers and public access: - Under Section 65, every company must have a registered office in Bermuda and maintain at its registered office an up-to-date register of members; information pertaining to the share register must be retained in Bermuda. - It is an offence not to make the register available to the public. - Publicly held companies listed on an appointed stock exchange are not required to have information about the ultimate owners of its shares. - Trusts: - Registration and scale: Bermuda does not require trusts (excluding unit trusts registered as mutual funds, about 109) to be registered; no reliable figures on number of trust relationships or assets held in trust, but number and assets believed substantial. - Legal framework: Bermuda follows common law for trust formation. Trustee Act 1975 (similar to UK Trustee Act 1925) provides duties and powers of trustees. - Hague Convention and domestic law: 1987 UK Trustee Act provisions extended to Bermuda via Trusts (Special Provisions) Act 1989, making Hague Convention provisions applicable re conflict of laws and descriptive definition of trust characteristics. - Treatment of non-resident trusts and purpose trusts: Provisions for trusts formed for non–residents or with assets outside Bermuda are the same as domestic trusts. Trusts (Special Provisions) Act 1989 allows establishment of a purpose trust, other than charitable, under specified conditions. - Registration: There is no general requirement for trusts to be registered. *Source: _cr08105 - Box 6. Characteristics of Bermuda DNFBPs* ### 73. All persons who hold themselves out as carrying on the business of offering the ### _cr08105 - 73. All persons who hold themselves out as carrying on the business of offering the ### Trust and trust services regulation - All persons who hold themselves out as carrying on the business of offering the services as a trustee are required to be licensed under the Trusts (Regulation of Trust Business) Act 2001. - Trust services businesses are subject to the POC Regulations 1998 and supervised as FIs by the BMA. - Trust service providers must know the identity of the settlors, as well as the protectors and the beneficiaries of trusts. - Persons carrying on trust business in Bermuda must be licensed under the Trusts (Regulation of Trust Business) Act 2001 whether trusts are governed by Bermudian or foreign law. - Trust service providers are regulated entities under the POCA and have obligations similar to trustees of domestic trusts regarding identification of settlors, beneficiaries, and protectors. - Where companies are owned by trusts, the persons authorized to incorporate the companies of a trust must submit, at the time of incorporation to the BMA as the agent of the MEF, information about the trust, in particular the identity of settlors and beneficiaries. ### Partnerships and foundations - Partnerships: - Two types under Bermuda law: ordinary partnerships and limited partnerships. - Some partnerships must be registered; registration includes official vetting of partners by the BMA. - Registration requirement depends on residency status of partners and on where the partnership will carry on business. - When all partners are Bermuda residents or non-exempted Bermuda registered companies, no registration or official vetting is required. - If one or more partners is a non-resident or an exempted Bermuda registered company, registration and official vetting by the BMA is required to identify ultimate beneficial owners. - Foreign partnerships intending to operate in or from Bermuda must register as overseas partnerships, including full vetting of partners by the BMA. - All limited partnerships, regardless of residency, must be registered, including vetting by the BMA. - Exempted partnerships and overseas partnerships must appoint a resident representative in Bermuda and maintain a registered office. - Foundations: - May be formed as companies limited by guarantee. - Provisions pertaining to companies under the Companies Act 1981 apply to foundations incorporated under the Companies Act 1981, or under a private Act and subject to the Companies Act 1981. - A charitable trust may also use the term foundation in its name. ### AML/CFT strategy and priorities - Authorities indicate development and review of an AML strategy coordinated through the NAMLC, but it does not appear to have been formally adopted as a national strategy with clearly formulated and implemented components (policies, goals, action plans, priorities, accountabilities). - Bermuda describes its strategy as consisting of five components: - Enhance AML Enforcement Initiatives. - Undertake Additional Public/Private Sector Education and Collaboration. - Supervisory, Regulatory, and Law Enforcement Agencies Coordination. - Strengthen International Cooperation. - Amendments to Legislation and GNs. - Implementation has generally been limited; legal, regulatory, and institutional requirements and arrangements to combat ML/FT remain relatively unchanged since the last AML/CFT assessment in 2003. ### Institutional framework for combating ML and FT - National Anti-ML Committee (NAMLC): - Advises government on AML issues and provides guidance with compliance. - Facilitates coordination among relevant government authorities and agencies. - Membership includes the Financial Secretary (Chairman); the Attorney General; the Permanent Secretary of the Ministry of Labour, Home Affairs, and Public Safety; the Chairman and CEO of the BMA; the Commissioner of Police; and persons appointed by the Ministry of Finance. - Bermuda Monetary Authority (BMA): - Responsible for regulation and supervision of banking and deposit-taking business; insurers; collective investment schemes/mutual funds; investment services providers; the Bermuda Stock Exchange; trustees; and the Credit Union. - Insurers, Exempt Investment Service Providers, Exempt Trust Service Providers and Company Services Providers are not supervised by the BMA. - Financial Intelligence Unit (FIU): - Part of the Commercial Crime Department of the Bermuda Police Service. - Administers provisions of: (i) the Proceeds of Crime Act 1997 as amended in 2000; (ii) the Proceeds of Crime (Money Laundering) Regulations 1998; (iii) the Anti-Terrorism (Financial & Other Measures) Act 2004; and (iv) the UN Terrorism Order (The Terrorism [UN Measures] Overseas Territories Order 2001). - As a law enforcement unit, exercises powers under the Police Act 1974. - Customs Department and Joint Intelligence Unit (JIU): - Customs monitors cross-border movements of currency and goods. - Suspicious cross-border movement information is forwarded to the JIU, comprising the Police, HM Customs, and US Customs. - JIU controls collecting, collating, and dissemination of revenue and drug intelligence. - Office of the Director of Public Prosecutions (DPP) and AG’s Chambers: - DPP responsible for prosecution of offences, including ML and FT, and for forfeiture/confiscation applications. - AG’s Chambers handle non-criminal aspects of AML/CFT and are central authority for receiving overseas requests to obtain evidence locally. ### Approach to risk and identified vulnerabilities - No systemic ML/FT risk assessment has been conducted to support implementation of AML/CFT measures. - Current legal and regulatory framework does not provide a basis for applying risk-based approaches that include enhanced CDD for higher risk activities. - AML Regulations and GNs provide for exempted or reduced customer identification requirements but lack an established basis for such exemptions or reductions in CDD. - GNs contain exemptions/simplifications, particularly for insurance and investment services, that can adversely affect effective AML/CFT controls. - Public and private sectors commonly view domestic drug-trafficking as a main source of ML in Bermuda; this perception may be influenced by the fact that a large majority of SARs filed to date relate to suspected drug-trafficking, reflecting a legislative limitation that requires suspicious activity reporting only when it relates to drug-trafficking. - By international comparison, incidence of drug-trafficking in Bermuda is small, given the population and economy size, and Bermuda is not known to be a significant drug producing, consuming or transit country. - Bermuda is more significantly exposed to ML/FT risks connected with activities in its large international (offshore) sectors: banking, trust, investment/mutual fund services, and life and investment components of the insurance sector. - At the time of the mission, law only required reporting of suspicious activity relating to drug trafficking, and AML Regulations specifically exempt certain business activities (e.g., life insurance business). - Authorities acknowledge greater vulnerability in the international business sector to ML; there is no knowledge or expressed view regarding system vulnerabilities to FT. ### Progress since the last IMF/WB assessment and legislative developments - Since the 1998 AML legislation and GNs and the last IMF assessment in 2003, progress has generally been slow despite increased FATF standards and revised assessment methodologies. - Recent legislative activity: - A Bill to amend the POCA was introduced before Parliament to strengthen aspects of the regime. - Draft new AML Regulations were prepared and issued for consultation. - Draft new Guidance Notes are being considered to reflect proposed changes to the Regulations. - Main changes proposed in the POCA Bill include: - Sharing of information between the FIU and BMA, and with other jurisdictions. - Vetting of employees and audit tests of AML systems. - Voiding of contracts when the parties know or should have known they were related to ML activities. - Granting the Minister of Finance powers to make AML Regulations relating to lawyers, accountants and corporate service providers. - Granting powers of search and seizure under the Criminal Justice (International Cooperation) (Bermuda) Act 1994 (the CJICBA). - Information orders. - Temporary freezing orders. - Post-mission developments reported by authorities: - The POCA amendment Bill was passed in June 2007, along with a new Financial Intelligence Act to establish an administrative FIU, and amendments to the CJICBA. - Proposed POC Regulations are being drafted to align with international standards and recent/ forthcoming legislation. - Key changes introduced by the draft Regulations include: - Extending the reference to a person licensed under the Investment Business Act 2003 to include persons who, in the course of their business, handle client money or assets. - Amending the definition of persons within the insurance sector regarded as subject to the Regulations, targeting insurance firms susceptible to ML abuse (underwriting/placement of life insurance and other investment-related insurance business, including single premium annuities). - Including certain additional financial activities not otherwise regulated (lending money to the public, financial leasing, providing financial guarantees or commitments, and money service providers) in the definition of ‘regulated institution’. - Extending ‘regulated institution’ to cover a range of non-financial businesses and professions, including lawyers, accountants, and any person carrying on the business of corporate (or partnership) service provider. - The mission reviewed proposed changes, identified remaining gaps and lack of clarity in some provisions, and recommended a thorough review to ensure full compliance with the FATF Recommendations and the result of this assessment. ### Criminalization of money laundering — legal framework and issues - Primary instruments: The Proceeds of Crime Act 1997; Proceeds of Crime (Money Laundering) Regulations 1998. - Sections 43–45 of POCA set out the ML offence: - Section 43: basic offence of concealing or transferring proceeds of criminal conduct. - Section 44: assisting another to retain such proceeds. - Section 45: acquisition, possession, or use of such proceeds. - Sections 479(5) and 491 of the Criminal Code 1907 provide that the use of the term ‘money’ includes all forms of money. - Bermudian law does not provide for the offence of possession of criminal property by the perpetrator of the predicate crime, as required by Article 3(c)(i) of the Vienna Convention and Article 6(1)(b)(i) of the Palermo Convention. - Definition and scope of laundered property: - Sections 4(1), 5, and 6 of POCA provide for a wide-ranging definition of property, including property that directly or indirectly represents the proceeds of crime. - Section 2(2) provides that ‘property’ includes property, wherever situated. - Proving property is proceeds of crime: - There is no requirement in Sections 43–45 of POCA of a prior conviction of a predicate offence. - Authorities indicate evidence at trial must establish criminal conduct as an element of the ML crime without proof of all elements of a specific offence. - There have been no ML cases prosecuted in the last three years, and only one in the last five years; authorities are confident conviction for ML would be possible without conviction for the underlying predicate offence. - Scope of predicate offences: - Section 3 of POCA defines ‘criminal conduct’ to include drug-trafficking offenses and ‘relevant offenses’ (other indictable offenses). - Predicate offences include a range of offences in each designated category. - Threshold approach: all serious offences constitute predicate offences under Section 3 of POCA; some crimes may be tried indictably or summarily. - Extraterritorial predicate offences: - Conduct occurring outside Bermuda may constitute predicate offences by virtue of POCA definitions for ‘drug trafficking’ and ‘relevant offence’. - Laundering one’s own illicit funds: - Section 43 applies to persons who commit the predicate offence and then launder the proceeds thereof. - Ancillary offences: - Sections 27, 28, 230, and 231 of the Criminal Code apply conspiracy, attempt, aiding, and abetting to the offence of ML. - Sections 44 and 45 of POCA create related specific offences. - Extraterritorial conduct that was lawful overseas: - POCA Amendments Act adds Section 45B: provides a positive defense where the predicate offence was committed in a foreign jurisdiction and was not unlawful there at the time, unless the Minister issues an order prescribing conduct not subject to this defense. - Purpose: to prevent Bermudian FIs being charged with ML for taking funds or investments from, for example, US gambling casinos, since gambling casinos are prohibited under Bermudian law. - Financing of terrorism: - Section (9)(8) of the ATFA provides that for purposes of Subsection (1)(a) a person shall be treated as having committed an offence under one of Sections 5 to 8 if he "would have committed an offence under one of those Sections [5-8] if he had been in Bermuda at the time when he took the action or was in possession of the thing." - Liability and mental element: - Sections 43–45 apply to both natural and legal persons; the term ‘person’ covers both. - Intention is inferred from facts proved under Section 28(b) of the Evidence Act 1905; courts draw reasonable inferences from evidence to determine intent. *Source: Excerpt from the IMF mutual evaluation and legal assessment document provided in the content unit.* ### 106. Liability of Legal Persons (c. 2.3): The definition of ‘person’ under Bermudian law ### Liability of Legal Persons (c. 2.3): The definition of ‘person’ under Bermudian law ### Liability of Legal Persons under POCA and Interpretation Act 1951 - The defined term ‘person’ under the Interpretation Act 1951 refers to both natural and legal persons. - Section 56 of POCA extends criminal liability for ML offences to legal persons: “Where a body corporate is guilty of an offence under this Act and that offence is proved to have been committed with the consent or connivance of any director, manager, secretary or other similar officer of the body corporate or any person who was purporting to act in any such capacity, he, as well as the body corporate, shall be guilty of that offence and shall be liable to be proceeded against and punished accordingly.” - Liability of legal persons does not preclude parallel criminal proceedings against natural persons who gave consent or connived with the legal person (by virtue of Section 56). - Each of the six regulatory laws and regulations has general sanction provisions that grant liability to directors and officers on conviction of the financial institution. ### Sanctions for Money Laundering (c. 2.5) - Under Section 48 of POCA, available sanctions for ML: - Imprisonment ranging from three to 20 years. - For summary offences, fines ranging from US$ 5,000.00 up to US$50,000.00 for more serious offences. - For indictable offences, fines can range from US$10,000 to US$100,000 and, in some cases, to an unlimited amount. - Section 230 of the Criminal Code (conspiracy) provides penalties ranging from one-half to the full penalty associated with the principal offense. - Directors and officers who have connived with legal persons are also subject to sanction under Section 56 of POCA for the same offense charged against the legal person. - Section 70G of the Criminal Code provides for a fine in the court’s discretion for indictable offences, and up to US$20,000 for summary offences. - There is a range of criminal, civil and administrative sanctions applied by the BMA. ### Box 8 — Criminal Sanctions Under Proceeds of Crime Act 1997 (selected entries) - Prejudicing investigation (Section 42; S. 42(4)): - Summary: A fine of $5000 or imprisonment for 2 years or both - Indictable: A fine of $10,000 or imprisonment for 5 years or both. - Concealing or transferring proceeds of criminal conduct (Section 43; Section 48): - Summary: A fine of $50,000 or imprisonment for 5 years or both - Indictable: An unlimited fine or imprisonment for twenty years or both - Assisting another to retain proceeds (Section 44; Section 48): - Summary: A fine of $50,000 or imprisonment for 5 years or both - Indictable: An unlimited fine or imprisonment for twenty years or both - Acquisition, possession or use of proceeds (Section 45; Section 48): - Summary: A fine of $50,000 or imprisonment for 5 years or both - Indictable: An unlimited fine or imprisonment for twenty years or both - Disclosure of knowledge or suspicion of money laundering (Section 46; Section 48): - Summary: A fine of $15,000 or imprisonment for 3 years or both - Indictable: An unlimited fine or imprisonment for 10 years or both - Tipping off (Section 47; Section 48): - Summary: A fine of $15,000 or imprisonment for 3 years or both - Indictable: An unlimited fine or imprisonment for 10 years or both - Failure to comply with The ML Regulations 2003 (Regulations; Section 8): - Summary: A fine of $10,000 - Indictable: For a first offence, a fine of $50,000; For a second or subsequent offence, a fine of $100,000 ### Assessment, Recommendations and Compliance (R.1 & R.2) - Findings: - Although the Bermudian legal framework is generally complete with respect to Recommendations 1 and 2, there has only been one prosecution of ML in the last five years, and limited numbers of ML investigations. - Criminal fines for ML are not sufficiently high so as to be dissuasive. - Compliance ratings: - R.1 — LC - While criminalization of ML is generally comprehensive, the effectiveness of the legal framework is difficult to gauge, given that there has only been one prosecution for ML in the last five years and a limited numbers of investigations. - R.2 — LC - Fines under POCA with respect to summary convictions and certain convictions on indictment are not sufficiently high so as to be dissuasive. - The effectiveness of the legal framework is difficult to gauge, given that there has only been one prosecution for ML in the last five years and a limited numbers of investigations. --- ### Criminalization of Terrorist Financing (SR.II) ### Legal Framework — The Anti-Terrorism (Financial and Other Measures) Act 2004 (ATFA) - The ATFA is the primary legislation criminalizing the financing of terrorism. - Terrorist financing offences extend to any person who willfully provides or collects money or other property by any means, directly or indirectly, with the unlawful intention that they should be used, or in the knowledge that they are to be used, in full or in part by virtue of Sections 5–15, of the ATFA. - Section 2 of the ATFA defines ‘property’ to “include[] property wherever situated and whether real or personal, heritable or moveable, and things in action and other intangible or incorporeal property.” The term ‘property’ was used rather than ‘funds’. ### Elements and Scope of Terrorist Financing Offences (c. II.I, c. II.2, c. II.3) - Two levels of intent exist in the ATFA: - Sections 5(1)(b) and 5(2)(b): intending or suspecting that the funds will be used. - Section 5(3)(b): knowledge or suspicion that the funds will or may be used. - Offences described include fund-raising (Section 5), use and possession (Section 6), and funding arrangements (Section 7). - It is an offence under Section 5(2) of the Terrorism Act to attempt to commit the offence of terrorist financing. - Inchoate offences (conspiracy, attempt, aiding and abetting) apply to terrorist financing by virtue of Sections 27, 28, 230 and 231 of the Criminal Code. - All terrorist financing offences are indictable offences under Section 3 of the ATFA, and therefore are predicate offences under Section 3 of POCA. - Under Section 17 of the ATFA, any person committing a terrorist financing offense outside of Bermuda that would have constituted such an offense in Bermuda will be guilty of the offense. - The ATFA does not cover terrorist organizations, which is identified as a significant omission. ### Gaps relative to international standards - The Act lacks several elements required by the SFT Convention and the Interpretative Note to SR II: - The definition of terrorism does not include all acts covered by the list of nine conventions referred to in Article 2(1)(a) of the SFT Convention. - The Act does not criminalize conduct of those who “organize or direct others” to commit terrorist financing offenses under Article 2(5)(b). - The definition of ‘terrorism’ in Section 3(1)(b) fails to mention international organizations, as required by Article 2(1)(b) of the Convention. - There is no reference in the relevant legislation to the financing of terrorist organizations. - There is no reference in the relevant legislation to extra-territorial offenses relating to terrorist organizations. ### Mental Element and Liability of Legal Persons (c. 2.2 & c. 2.3/c. 2.4) - Under Bermudian law, intention is inferred from facts proved (Evidence Act 1905, Section 28(b)): a court or jury “shall decide whether he did intend or foresee that result by reference to all the evidence, drawing such inferences from the evidence as appear proper in the circumstances.” - The defined term ‘person’ includes both natural and legal persons under the Interpretation Act 1951; ATFA contains no specific reference to legal persons as POCA does. - Section 70G of the Criminal Code applies to legal persons (fines in the court’s discretion for indictable offences; up to US$20,000 for summary offences). ### Sanctions for Terrorist Financing (c. 2.5) — Box 9 summary - Section 13 of the ATFA: Sanctions for FT: - Summary convictions: fines of up to US$20,000 and imprisonment of up to 12 months, or both. - Indictable offences: fines of up to US$200,000 and imprisonment of up to 14 years. - Selected entries from Box 9: - Fund-raising (Section 5; Section 13): - Summary: A fine of $20,000 or imprisonment for 12 months or both - Indictable: A fine of $200,000 or imprisonment for 14 years or both - Use and possession (Section 6; Section 13): - Summary: A fine of $20,000 or imprisonment for 12 months or both - Indictable: A fine of $200,000 or imprisonment for 14 years or both - Funding arrangements (Section 7; Section 13): - Summary: A fine of $20,000 or imprisonment for 12 months or both - Indictable: A fine of $200,000 or imprisonment for 14 years or both - ML (Section 8; Section 13): - Summary: A fine of $20,000 or imprisonment for 12 months or both - Indictable: A fine of $200,000 or imprisonment for 14 years or both - Disclosure of information (Section 9(9)): - Summary: A fine of $10,000 or imprisonment for 6 months or both - Indictable: A fine of $100,000 or imprisonment for 5 years or both - Failure to disclose (Regulated Sector; Schedule 1 Para. 1): - Summary: A fine of $10,000 or imprisonment for 6 months or both - Indictable: A fine of $100,000 or imprisonment for 5 years or both - Disclosure of information for overseas purposes (Schedule 1 Para. 4): - Summary: A fine of $5000 or imprisonment for 3 months or both - Indictable: A fine of $50,000 or imprisonment for 2 years or both ### Recommendations, effectiveness and compliance (SR.II) - Recommendations and comments: - Amend relevant legislation to remedy deficiencies: include the acts covered by the nine conventions in the definition of terrorism; include reference to “organizes or directs others”; include international organizations in the definition. - Increase efforts on training of the financial sector and analysis of SARs. - Effectiveness concerns: - No SARs filed, investigations or prosecutions of the financing of terrorism under Bermudian law, making assessment of effectiveness difficult. - Compliance rating: - SR.II — PC - Reasons: - The definition of terrorism does not reference the acts covered by the nine conventions and does not reference acts against international organizations. - No reference in legislation to financing of terrorist organizations. - No reference in legislation to extra-territorial offenses relating to terrorist organizations. --- ### Confiscation, freezing and seizing of proceeds of crime (R.3) ### Legal framework and scope - General conditions for confiscation found in: Criminal Code 1907; Proceeds of Crime Act 1997 (POCA); Misuse of Drugs Act 1972 (MDA); Anti-Terrorism (Financial and Other Measures) Act 2004 (ATFA); and the Police and Criminal Evidence Act 2005 (PACE). - Confiscation regime divided between drugs-related and non-drugs-related schemes: - Drugs-related confiscation: - Broader regime that includes power to forfeit all property acquired by the defendant within the six years prior to proceedings being instituted against him, and reversal of the burden of proof (MDA, Section 37). - Under Section 37 of the MDA the court may order forfeiture regardless of conviction and may allow redemption by payment of the value or proportion thereof to the Crown [MDA, Section 37(2)]. - Non-drugs-related confiscation (POCA): - Sections 9 and 10 of POCA provide for confiscation of property obtained as a benefit in connection with drug trafficking (Section 9) and as a benefit from one or more relevant offences (Section 10). - ‘Relevant offence’ (POCA, Section 3) means any indictable offence committed in Bermuda other than a drug trafficking offence or any act or omission which, had it occurred in Bermuda, would have constituted an indictable offence other than a drug trafficking offence. - Confiscation under POCA is value-based; orders specify the amount to be recovered. - The court must be satisfied under the preponderance of the evidence standard (civil standard) that the defendant’s benefit originates from the offence for which he is convicted. - In appraising realizable property, the court may take into account a statement of the Attorney General regarding matters related to the value of the proceeds (POCA, Section 13). - ‘Realizable property’ includes any property held by a person to whom the defendant has, directly or indirectly, made a gift caught by this Act [POCA 3(b)]. - Bermudian laws (other than MDA Section 37) do not provide for confiscation of instrumentalities intended for use in the commission of ML, FT, or other non-drug trafficking predicate offences. *Source: _cr08105 - 106. Liability of Legal Persons (c. 2.3): The definition of ‘person’ under Bermudian law* ### 130. If the court is satisfied that the amount that might be realized at the time the confiscation ### Confiscation and Forfeiture (POCA, MDA, ATFA) — Sections 130–157 ### Scope and mechanics of confiscation orders - If the court is satisfied that the amount that might be realized at the time the confiscation order is made is less than the amount the court assesses to be the value of the defendant's proceeds of criminal conduct, the court may resolve that the amount to be recovered under the confiscation order shall be on par with the amount deemed realizable (see POCA, Sections 15(3) and 20). - For the purposes of POCA, the value of property (other than cash) in relation to any person holding the property shall be its market value [POCA, Section 591)]. - The Attorney General (AG) may apply to the court for a revision of the assessment of the amount to be recovered under a confiscation order if there is evidence that the real value of the defendant’s proceeds of crime is greater that the value assessed by the court (Section 18). ### Money laundering prosecutions characterized as drug-trafficking for confiscation - Section 9 (POCA) provides a broader scope of realizable property upon conviction for a drug-trafficking offense than Section 10. - Prosecutors may allege the predicate crime is a drug trafficking offense to take advantage of Section 9’s broader scope. - Under POCA Section 12(3)(a) the court is required to assume that: - (a) any item held by the defendant at any time since his conviction or transferred to him during the period of six years prior to proceedings being instituted against him, constitutes proceeds of drug trafficking; - (b) any item of expenditure during the said six year period was met out of such proceeds; and - (c) for purposes of valuing any item of property received by him, that he received the property free of any other interests on it. - The authorities state these assumptions will apply at the court’s discretion when the only drug trafficking offense the defendant is being sentenced for is an ML offense, regardless of the predicate offense [POCA, Section 12(5)]. - The authorities explain that for confiscation stemming from a conviction for ML, the ML offense is categorized by the court as a drug-trafficking offense in the MDA 1972; confiscation orders are issued under Section 9 of POCA, and not under Section 10. - Section 3 of the POCA states that ‘drug trafficking offence’ means a ML offence which relates to the proceeds of drug trafficking. - The legal basis for categorizing ML as a drug trafficking offense regardless of the predicate offense is described as "not entirely clear." Such confiscation orders have not been challenged to date. ### Terrorist property and forfeiture under ATFA - Section 14 of the ATFA provides for post-conviction forfeiture of any money or other property under the possession or control of the defendant at the time of the offence, or that is related to a funding arrangement intended for the purposes of terrorism. - Pursuant to Section 3 of the CC, "have in possession" means “having under control in any place whatsoever, whether for the use or benefit of the person of whom the term is used or of another person, and although another person has the actual possession or custody of the thing in question.” - Under Bermudian law, ‘terrorist property’ includes: - (a) money or other property which is likely to be used for the purposes of terrorism; - (b) proceeds of the commission of acts of terrorism; and - (c) proceeds of acts carried out for the purposes of terrorism (see ATFA, Section 4). - Section 14 is broad enough to encompass all forms of property, in addition to any property found in the possession of the defendant at the time of arrest or found at his place of residence. - ATFA Section 15 provides for forfeiture, in civil proceedings before a magistrate's court, of cash obtained through terrorism or intended to be used for the purposes of terrorism; Schedule 3 applies to cash intended to be used for the purposes of terrorism or is property earmarked as terrorist property. - Article 6 of Schedule 3 of the ATFA permits a police officer, a customs officer, or an immigration officer to submit the application for forfeiture; powers conferred by Schedule 3 are exercisable in relation to any cash, whether or not proceedings have been brought for an offence in connection with the cash [Section 15 (2)]. - For FT (financing of terrorism), ATFA provides for forfeiture of: - money or other property related to an arrangement which facilitates the retention or control of terrorist property by or on behalf of another person [Section 14(5)]; - money or other property received as a payment or other reward in connection with the commission of the offence [Section 14(6)]. - The court determines the amount to be recovered through the forfeiture order, based on the assessed value of all the property caught, including gifts. ### Confiscation of property derived from proceeds of crime - Section 10(3)(b) of the POCA makes available for confiscation any pecuniary benefit derived as a result of or in connection with an offense; any such pecuniary advantage is treated as if the defendant had obtained a sum of money equal to the value of the pecuniary advantage. - Section 31(1)(b) of the MDA provides for forfeiture to the Crown of any money or other property received or possessed by any person as the result or product of a drug trafficking offense; authorities interpret this as covering any kind of gain in the value of property derived, obtained, or realized from a drug offense. - Paragraph 15 of Schedule 3 of the ATFA provides that profits accruing in respect of terrorist property are to be treated as representing the property obtained through terrorism. ### Property held by third parties and gifts - Provided the prosecutor proves the link between the property held by a third party to the drug offense the defendant is being prosecuted for, the court may order forfeiture of any money or thing that has been used in the commission of or in connection with the offense, as well as any money or other property received or possessed by any person as the result or product of the offense [MDA, Section 37(1)(b)]. - Section 31(4) of POCA provides that the court may order any person having possession of realizable property to give possession of it to the receiver appointed by the court, which includes property held by a person to whom the defendant has directly or indirectly made a gift. - For ML, a gift is covered by POCA if: - it was made by the defendant at any time since the commission of the relevant offence, or, if more than one, the earliest of the offences to which the proceedings relate (including any offence which the court takes into consideration in determining his sentence); and - the court considers it appropriate in all the circumstances to take the gift into account [POCA, Section 6(2)]. - Both the POCA and the MDA provide for issuance of confiscation orders not with respect to particular property, but against the defendant/offender for a specific sum. ### Provisional measures to prevent dealing in property subject to confiscation - For ML, where proceedings have been instituted against a person for drug-trafficking or a relevant offense, and there is reasonable cause to believe that the person had benefited from such offenses, Bermuda law provides for provisional measures to prevent the transfer and disposal of realizable property. - Sections 27, 28, and 29 of the POCA provide for prosecutors to apply for a restraint and/or charging order from the Supreme Court on all realizable property held by a person charged with drug trafficking or relevant offences (including ML), or held by a defendant convicted of such crimes. - A restraint order prohibits any person from dealing with any realizable property, subject to such conditions and exceptions as may be specified by the Supreme Court in the order [POCA, 28(1)]. - A charging order secures the payment of money to the Crown on any such realizable property specified in the order [POCA, 29(1)]. - Restraint and charging orders are exercisable by the prosecution even when criminal proceedings, or the application for a confiscation order have not been concluded, if the court is satisfied there is reasonable cause to believe that the defendant benefited from drug trafficking or from any relevant offence [POCA, 27(1)(c)(ii)]. - Currently, there is no provision for civil forfeiture (confiscation without conviction) for ML. - "Realizable property" under POCA is defined as any property held by the defendant other than property in respect of which there is in force a forfeiture order under the MDA, and any property held by a person to whom the defendant has directly or indirectly made a gift (Section 3). - Section 18 allows the AG to apply to the court to adjust the restraining order (judge has discretion). - Charging orders may be imposed specifically on land, securities, interests held as a trustee of a trust, units of a unit trust, and interest and dividends payable on the property. - Sections 27 and 28 of POCA appear to apply also to offenses under the ATFA, to the extent offenses under this Act are indictable offenses (see ATFA, Section 13), and therefore would constitute relevant offenses for the purposes of the POCA. ### Ex parte applications for provisional measures - Sections 28 and 29 of POCA allow for ex parte applications to be made to a Supreme Court Judge for restraint or charging orders. ### Identification, tracing, and seizure powers - Section 37 of POCA allows a police officer to apply to the Supreme Court for a production order in relation to a particular material, or a material of a particular description; failure to comply with a production order is punishable on summary conviction to imprisonment for two years or a fine of US$10,000, or both (POCA, Section 38). - Section 39(5) of POCA establishes police powers for seizing any material of substantial value to the investigation in the execution of a search warrant granted by the Supreme Court. - Under Section 464(1) of the CC, a magistrate or a Justice of the Peace may issue a search warrant, upon complaint made under oath, directing police officers to search any premises for material with evidentiary value with respect to any offense or that it is intended to be used for the purpose of committing an offense. - Search and seizure powers are also available with respect to property that has evidentiary value, under Sections 8 and 19 of PACE; police seizure powers are limited to material that has evidentiary value (PACE, Sections 8 and 19), although other material discovered may be seized by the police on application to a judge. - Section 50 of the POCA allows police officers to seize and detain cash being imported into or exported from Bermuda. ### Protection of bona fide third parties - Section 16 of the POCA allows third parties who have an interest in realizable assets to apply to the Supreme Court, before or after the making of a confiscation order, to have the nature, extent and value of their interest in such property declared and taken into account in the making of or the satisfaction of the confiscation order. - A person who asserts an interest in realizable property must prove to the court that: - there is no involvement in the defendant’s criminal conduct; and - the interest in the property was acquired for sufficient consideration and without knowing or having reasonable grounds to suspect that the property was, at the time he acquired it, involved in or the proceeds of criminal conduct (POCA, Sections 16(1) and (2)]. - With regard to forfeiture under the ATFA, the court shall give persons claiming an interest in the forfeitable property an opportunity to be heard before making the order [ATA, Section 14(7)]. ### Powers to void actions and address fraudulent transfers - New Section 45A (recent amendment to POCA): “Any agreement entered into for the purposes of facilitating the commission of money laundering is void.” - The provision is generally consistent with Recommendation 3 but "does not provide the authorities with the means to prevent actions to hinder the recovery of property subject to confiscation." - Section 18 of POCA permits prosecutors to request the court to take into account, for making the confiscation order, the value of any property transferred by the defendant through a fraudulent transaction, under the civil standard of balance of probabilities. - According to the authorities, the burden of proof is then reversed, so that the defendant must prove the legitimacy of the transaction. ### Additional elements (Rec 3) - Criminal organizations: - There is currently no specific provision allowing for the confiscation of property of organizations that are found to be primarily criminal in nature. - Civil forfeiture: - There is currently no provision for civil forfeiture (confiscation without conviction) for ML. - Reversed burden of proof: - In drug trafficking convictions, application of Section 12(3)(a) of POCA places on defendants the burden of proving that property acquired during the six years prior to the beginning of proceedings was not purchased with the proceeds of drug trafficking. - The statute creates a refutable presumption that any property of the defendant held or acquired during the period beginning six years prior to the date when the proceedings were instituted against him and ending on this date, are proceeds of drug trafficking. - The presumption is discretionary only when the defendant is being convicted for laundering of proceeds of crimes connected with a drug trafficking offense. ### Statistics on confiscation and implementation - The FIU maintains statistics relating to cash seizures, confiscations and forfeitures; Bermuda Police Service keeps statistics relating generally to all crimes. - Box 10. Confiscated Assets Fund - Balance per year 2003–2007 (in US$) - YEAR — Number of cases — Balance — Balance available for use — Balance detained (pending forfeiture) - 2003 — 12 — $147,205.00 — $120,795.00 — $26.410.00 - 2004 — 14 — $233,714.27 — $159,577.27 — $74,137.00 - 2005 — 13 — $285,892.57 — $222,339.57 — $63,553.00 - 2006 — 17 — $703,605.82 — $656,753.82 — $46,852.00 - 2007 (1 QTR) — 5 — $764,487.89 — $707,487.89 — $56,852.00 - Implementation data: - In 2004 the courts issued two successful confiscation orders under the POCA, for a total amount of $52,335. - Forfeitures under the MDA in 2004: six forfeitures amounting to $17,529, compared to $13,908 forfeited in three separate 2003 cases. - Cash seized in 2004 under POCA detention orders exceeded $56,600. - In 2005 there were two cash seizures worth $57,761. - 2004 and 2005 represented a drop from the $173,000 seized in 2003. - Three restraining orders still in place from 2003/2004 are valued at approximately $1.5 million. - One new restraining order was issued in 2005 for approximately $621,000. - Three cash seizures from 2004 were forfeited under the POCA during 2005 amounting to $47,561. - Assessment: - Bermuda’s legal framework for confiscation and provisional measures is described as well-developed. - The amount of funds seized, confiscated or forfeited appears fairly low for a jurisdiction of Bermuda’s characteristics. - The low number of cases and of confiscations and forfeitures is considered to be partly due to the insufficient resources assigned to the DPP, the Police, the FIU, and the Customs Department. - Identified information gaps: - No information on amounts of restrained property compared with amounts ultimately confiscated, nor the types of crimes related to these actions. - Information on the recovery rates of the amounts subject to confiscation orders, and the amounts actually recovered is needed. ### Recommendations and comments (Section 2.3.2) - Explicitly provide in legislation for the confiscation of property which constitutes instrumentalities intended for use in the commission of ML or other non-drug trafficking predicate offenses. - Explicitly provide in legislation that, for the purposes of confiscation of the benefits of ML offenses, the proceeds that are the basis of the offense may include any payments received by the defendant at any time in connection with the ML offense carried out by him or by another person. - While there is a new provision for voiding contracts, it does not provide the authorities with the means to prevent actions to hinder the recovery of property subject to confiscation. *IMF staff report (extracted text Sections 130–157).* ### 158. Additional statistics should be maintained on amounts of restrained property compared with ### _cr08105 - 158. Additional statistics should be maintained on amounts of restrained property compared with ### Asset restraint, provisional measures, and confiscation (Compliance with Recommendation 3) - Rating: R.3 — PC - Key legal and implementation shortcomings: - The legislation does not provide for the confiscation of instrumentalities. - The legal basis for applying the broadest scope of realizable property of an offender convicted for ML is not clearly stated and should be made explicit in legislation. - A new provision for voiding contracts does not provide the authorities with the means to prevent actions to hinder the recovery of property subject to confiscation. - Implementation shows a relatively low total of seizures, confiscations and forfeiture, which may be due to insufficient resources available to law enforcement and prosecutorial services. - Critical statistical deficiencies: - Statistics are lacking with regard to amounts of restrained property compared with amounts ultimately confiscated, and the types of crimes related to these actions. - Information is also lacking on the recovery rates of the amounts subject to confiscation orders, and the amounts actually recovered. - Suggested statutory/policy consideration: - The authorities may wish to consider whether to introduce provisions for civil forfeiture, for the confiscation of assets of criminal organizations. ### Freezing of funds used for terrorist financing (SR.III) — description and analysis - Framework and instruments: - UN implementation is via the extension by the UK of the Terrorism (United Nations Measures) (Overseas Territories) Order 2001 and of the Al Qaida and Taliban (United Nations Measures) (Overseas Territories) Order 2002. - To date, no freeze notices directed at specific FIs have been necessary under the Terrorism Orders. - Freezing under S/RES/1267 (c. III.1): - Section 7 of the Al Qaida and Taliban (Overseas Territories) Order 2002 implements sanctions against persons listed pursuant to UNSCR 1267 (1999). - Section 8 empowers the governor to issue freezing orders on reasonable grounds to suspect assets are held by, for or on behalf of listed individuals pursuant to UNSCR 1267. - Freezing under S/RES/1373 (c. III.2): - Section 5(1) of the Terrorism Order 2001 allows immediate freezing of funds by notice of the Governor ordering freezing immediately without prior notice; orders may be for a limited or unlimited length of time. - Freezing notice may be issued where the Governor has reasonable grounds to suspect the person is or may be (i) a person who commits, attempts to commit, facilitates or participates in the commission of acts of terrorism; or (ii) a person controlled or owned directly or indirectly by, or acting on behalf of or under the direction of, such person. - Bermudian authorities have not designated persons and entities that should have their funds or other assets frozen, as required by UNSCR 1373. - Freezing actions at request of other countries (c. III.3): - Bermuda can respond to freezing requests from other countries under the Terrorism Order 2001; requests are referred to the Attorney General’s Chambers and the DPP Office for analysis and, if justified, prepared for the Governor’s signature. - Scope and definitions (c. III.4): - Section 5(1) applies to “funds”, comprising financial assets and economic benefits of any kind held by or on behalf of suspected terrorists, persons controlled by terrorists, or persons acting on their behalf or direction. - Communication to financial sector and guidance (c. III.5–c. III.6): - The BMA has drawn attention to reporting obligations but has issued no specific written guidance concerning affirmative obligations to implement measures with respect to the UNSCR 1267 list. - Changes to the UNSCR lists are notified by the UK Foreign and Commonwealth Office to the Cabinet Office of the Government of Bermuda, then to relevant Ministries and to the BMA; the BMA informs FIs in writing of changes and encourages monitoring of relevant websites including the Bank of England. - The Guidance Notes contain no guidance for FIs concerning their obligations to freeze funds of designated terrorists or check accounts against UN or national terrorist lists. - Notification obligations and enforcement: - Both Terrorism Orders require FIs holding frozen assets to send without delay a copy of the received notification to the person whose funds have been frozen or on whose behalf they are held [Section 5(5)]; compliance conditions set out in Section 5(6); failure is an offense under Terrorism Order 2001 [Section 5(10)] and Terrorism Order 2002 [Section 8(10)]. - The BMA checks against the Bank of England’s list under UNSCR 1267 and notifies FIs of updates. - Delisting and unfreezing (c. III.7): - The Governor can revoke a freezing order at any time, but neither the Orders nor the ATFA include specific listing or delisting procedures; requests are referred to the Attorney General for application to the Governor or Court as applicable. - Access, review, and other measures: - Section 13 of the Terrorism Order 2001 and Section 22 of the Terrorism Order 2002 provide that licenses granted by the Governor in connection with freezing notices may be subject to conditions (c. III.9). - Both Orders allow affected persons to apply to the Supreme Court to have a freezing order set aside; applicants must provide the Governor with a copy of the application and all witness statements at least seven days before the hearing (c. III.10). - ATFA Schedule 2 paragraph 2 provides for seizure of cash by police, immigration or customs officers where there are reasonable grounds for suspecting cash intended for terrorism; Section 14 of the ATFA provides for conviction-based forfeiture related to terrorism (c. III.11). - Section 15 of the ATFA provides for forfeiture in civil proceedings before a magistrate's court of terrorist cash; Schedule 3 paragraph 17 provides investigative powers; Schedule 4 paragraph 2 allows ex parte account monitoring orders for investigating terrorism. - Protection of third-party rights (c. III.12): - No general procedure for protecting bona fide third parties apart from the single case of same-name assets. - Paragraph 7 of Schedule 3 of the ATFA allows appeal to the Supreme Court within 30 days of a forfeiture order; Paragraph 9 of Schedule 3 allows application to a magistrate’s court for release of cash detained under the Schedule. - Enforcement and practical application (c. III.13): - Orders may be released for limited or unlimited time. The Terrorism Orders vest broad discretion in the Governor on a case-by-case basis rather than creating a designated administrative mechanism. - Bermudian authorities have never invoked the Governor’s authority to issue freeze orders directed at local institutions suspected of holding terrorist funds. - Theoretically, the Attorney General can review information and prepare necessary applications and the Governor would issue an order promptly and without prior notice as necessary. - Sanctions for breach (c. III.13 continuation): - Breach of a freezing notice is punishable on summary conviction to imprisonment for a term not exceeding six months or to a fine not exceeding £5,000 or its equivalent, or to both, or on conviction on indictment for a term not exceeding seven years or to a fine, or to both [Section 11(1)]. - For the person holding the funds, failing to comply is punishable on summary conviction by imprisonment for a term not exceeding six months or to a fine not exceeding £5,000 or its equivalent, or to both [Section 11(3)]. - Additional elements and gaps: - Measures set out in the Best Practices Paper for SR.III have not been implemented (c. III.14). - There are no procedures to authorize access to funds or other assets frozen pursuant to S/RES/1373(2001) to pay for expenses or service charges (c. III.15). ### Recommendations for SR.III - Procedures for delisting requests and unfreezing funds should be developed and published. - Guidance should be issued to the financial services community concerning affirmative obligations to freeze assets of persons listed by the UNSCR 1267 Committee and the EU; such obligations should include incorporating the information into AML/CFT compliance programs, and reporting to authorities on any transactions that may be connected to terrorist financing. ### Financial Intelligence Unit (FIU) and Financial Intelligence Agency (R.26) - Establishment, status, and transition: - The Financial Investigation Unit (FIU) was established in 1998 as a law enforcement model financial intelligence unit within the Commercial Crime Department of the Bermuda Police Service. - The Commercial Crime Department comprises the Fraud Unit and the FIU. The FIU is the designated central reporting authority in Bermuda for receiving, collating, analyzing, and disseminating disclosures of financial information and other relevant information and intelligence concerning suspected ML or FT activities. - The FIU also conducts follow-up investigations on SARs, and implements provisions of the POCA and the PCMLR as regards ML and FT investigations, cash seizures, confiscations and forfeitures. - The FIU does not have powers to impose sanctions or penalties under the AML/CFT regime. - The Financial Intelligence Agency Act 2007 (the FIA Act) recently enacted provides for a new administrative agency (the FIA) to take on FIU responsibilities. The assessment here is limited to the FIU because the FIA was not in existence at the time of the mission. - Authorities expect the FIA will be established before the end of 2007, but it is unclear when it will become operational; a transition period is desirable to avoid a vacuum. - Legal basis and powers: - No specific statutory provision establishes and empowers the FIU as a national centre; it exercises powers as a law enforcement body under the Police Act 1974 and related investigatory powers within proceeds of crime and terrorist financing legislation. - Section 46(2)(c) of POCA requires SARs to be filed with a police officer; Regulation 6(1)(d) of the Proceeds of Crime (Money Laundering) Regulations 1998 requires reporting officers of regulated institutions to file SARs with a police officer. - The Guidance Notes (GNs) provide for filing SARs with the FIU and this is reinforced by the FIU, the BMA and the SROs through training and outreach. - Operational capacity and shortcomings: - The existing FIU is fully operational as an independent agency but, as a police FIU, may not have the capacity to fully perform functions with available resources, particularly SAR analysis, which is a significant shortcoming. - Guidance to reporting entities (c. 26.2): - Guidance on reporting SARs is provided in The Guidance Notes on the Prevention of ML issued by the National Anti-ML Committee (NAMLC); a senior member of the FIU sits on NAMLC. - GNs (paragraphs 74–77 and Appendix E) provide guidelines for identifying complex and unusual transactions or patterns; Paragraphs 77A–92 and Appendix G provide guidance on reporting manner and forms. - GNs were initially published in 1998 with a minor amendment in 2001; they are currently under review to update and widen scope. - Access to information and investigative powers (c. 26.3–26.4): - As part of the Bermuda Police Service, the FIU has access to immigration, tax, company records, vehicle registration, and customs databases, and through NAMLC, to other sources via BMA and Ministry of Finance relationships; access appears effective. - The FIU can obtain additional information from regulated institutions after a SAR by general police powers and by production and monitoring orders under Sections 37 and 41 of the POCA. - It can access information relating to a person who has at any time held realizable property from a government department by disclosure order under Section 40 of the POCA. - The FIU normally will not approach the customer unless criminal activity has been identified. *Source: _cr08105 - 158. Additional statistics should be maintained on amounts of restrained property compared with* ### 186. Dissemination of Information (c. 26.5): Although the authority is not expressly provided ### _cr08105 - 186. Dissemination of Information (c. 26.5): Although the authority is not expressly provided ### Dissemination of information and operational independence - The FIU may disseminate financial information and intelligence to domestic authorities for investigation or action based on its general police powers (c. 26.5). - The FIU is an autonomous police unit within the Bermuda Police Service. For administration purposes it falls under the Commercial Crime Department, reports to the Commissioner of Police, and relies on budget and resources from the Bermuda Police Service (c. 26.6). - The mission is not aware of any factor that would inhibit the FIU’s operational autonomy or subject it to undue influence or interference, including any restriction on its ability to analyze SARs, proceed with investigations, or present evidence or reports to the DPP for further action. Such decisions are taken solely by the head of the FIU, and not by the Chief of Police. ### Information safeguards and confidentiality - Current premises and planned move: - The Commercial Crime Department (FIU/Fraud) currently occupies rented office space in the City of Hamilton, which is now small for its operations. - The FIU is planning to move to larger and newly constructed offices elsewhere in the City of Hamilton later in 2007. - Access and data protection: - The FIU currently shares office space with the Fraud Unit, and there is common access for members of both units. - Access to the office building is limited to staff only and by invitation. - Apart from staff of the Fraud Unit, with whom it shares a closed network and database, no other Police units or domestic agencies have access to the database or data. - Appropriate physical and information technology security measures are in place to prevent unauthorized access to FIU information and to protect the physical security of the FIU’s staff. - Documents and files are generally kept in a secure place, the office is protected by an alarm system, and data is stored on a closed database system utilized by members of both the FIU and Fraud Unit. - Staff confidentiality and sanctions: - FIU staff has been trained to handle sensitive information and have demonstrated keen sensitivity to the confidentiality of STR information. - FIU staff are subject to disciplinary action, including the possibility of criminal charge, under internal police and customs regulations in accordance with officer conduct and the Official Secrets Act 1989. - The FIU is obliged not to disclose any financial information or intelligence save for the purpose of carrying out its functions or when required by the law or the courts. - Legislative confidentiality gateways: - Under newly amended Section 58(4) of the POCA, there are strict confidentiality requirements with an explicit gateway to enable the Bermuda Police and FIA to disseminate in any case that would allow them to discharge their statutory functions. - Under Sections 18 and 21 of the FIA Act, strict confidentiality provisions will apply to the new FIA as well. - Current disclosure practice: - Disclosures of SARs and FIU’s information/case are sanitized prior to disseminating to designated police or customs officers and are transmitted by secure hand delivery or secure mail. ### Reporting, outreach and international engagement - Annual/public reporting: - The FIU does not produce or publish any official annual reports. Instead, it reports to the Commissioner of Police and FIU related activities are published in the annual Police Report (Commercial Crime Department’s section). - The FIU reports on a quarterly basis to the Bermuda Law Enforcement Review Group (BLERG) through the Commissioner of Police. - The FIU has a program of speaking engagements with the private sector when it shares information on statistics, trends, and typologies. - Through membership in the NAMLC, it regularly shares and discusses issues relating to ML and FT trends, techniques, and related policy matters with other NAMLC members. - Egmont Group membership and information exchange: - The Bermuda FIU became a member of the Egmont Group in 1999 and is regularly represented at Egmont Group meetings. - The current Head of the FIU is actively involved in the Egmont Training Working Group. - Bermuda hosted the Egmont Group Plenary in May 2007. - The FIU generally follows the Egmont Principles for Information Exchange and is authorized to share financial information and intelligence with foreign counterparts, either through its own initiative or upon request. - Limitation: Section 58(1) of POCA states the FIU shall not disclose any financial information or intelligence save for the purpose of carrying out its functions or when required by the law or the courts. - There is no specific provision governing the manner in which the FIU may exchange financial information with counterparts and other competent authorities; information may be shared without a Memorandum of Understanding (MOU). - Where requested by another Egmont Group member, MOUs have been made following the Egmont MOU template. - To date, 12 MOUs have been agreed and signed with other Egmont members. Five of these MOUs were agreed and signed during the May 2007 Egmont Group Plenary in Bermuda, while and additional one remains under negotiation. ### Resources, staffing and integrity - Approved posts and vacancies (c. 30.1): - The FIU has 12 approved staff posts composed of: nine police financial investigators (one Detective Inspector/Head of FIU, three Detective Sergeants, and five Detective Constables), in addition of three civilian positions of Analyst, Forensic Accountant, and Secretary. - At the time of the mission, there were three vacant positions: one Detective Sergeant, one Detective Constable (financial investigator), and one Forensic Accountant. - The FIU shares office space and a computer system with the Fraud Unit. - Budget and operational constraints: - The FIU relies for its resources on the Police Service. Its budget forms part of the general Police Service budget, consequently it competes with other Police units for a share of a limited budget. - Financial and resource constraints limit training and operational activities, including the analysis and investigation of SARs. - The FIU has limited specialized financial analysis capacity with only one Financial Analyst who has collaborated over the last two years has with other police units in the investigation of major non-POCA related cases. - Authorities indicate the current volume of work requires additional resources to enable comprehensive and timely investigations of SARs which have not been possible with the available resources. - It is expected that when the proposed new FIA becomes operational in the next 12 months, it will be well equipped to carry out investigations and confiscation activities. - Staff retention and succession: - The FIU has difficulty maintaining staff succession, due largely to difficulties in recruiting and retaining officers that would replace those that leave the Commercial Crime Department due to promotion, retirement, and non-competitive pay grades. - Integrity checks: - Upon application to join the FIU, all persons (Police and civilians) undergo background checks, in addition to those conducted when being hired by the Bermuda Police Service, to determine and identify their levels of suitability and integrity. - All members of the FIU are subject to the duty of confidentiality provision of Section 58 of the POCA. - It is not a specific requirement that Police officers possess a high level of skill in financial investigation, as the resource pool is limited within the Police Service. A full training program is undertaken once the successful candidate commences work in the unit. - Applicants for the civilian positions of Analyst and Forensic Accountant are required to already possess the necessary skills and training. ### Training - Training availability and constraints (c. 30.3): - Most FIU staff are experienced law enforcement officers and all police financial investigators participate in an ongoing training program based upon available financial resources. - Training includes modular training offered through the UK’s Assets Recovery Agency in London (courses on financial investigations, confiscation, ML, and enhanced financial investigation skills). - FIU staff has also attended overseas training courses offered by organizations such as the US Securities and Exchange Commission, and the Regional Drug Law Enforcement Training Center (REDTRAC) in Jamaica. - FIU personnel regularly attend overseas conferences as well as locally-based workshops and seminars. - The training budget of the Bermuda Police Service has been decreasing over the last few years; this reduction has affected the FIU’s own training budget. - Lack of adequate funding prevents development of skills of financial investigators; during 2005 and 2006, training was funded using limited resources from the Confiscated Assets Fund (CAF). ### Statistics on SARs (applying R.32 to FIU) - The FIU compiles statistics on the number of SARs received, investigations carried out and results, including types of reporting institution, the number of investigated reports, and details of the underlying reasons for suspicion or predicate offense. - The Office of the Director of Public Prosecutions maintains statistics on SARs resulting in investigations, prosecutions, or convictions for ML, FT or an underlying predicate offense. - Box 11. Suspicious Activity Reports 2003-2007: - Reporting Entity — 2003 — 2004 — 2005 — 2006 - Banks — 257 — 142 — 183 — 286 - Collective Investment Scheme — 1 — 1 — 3 — 0 - Investment Providers — 2 — 5 — 5 — 14 - Long Term Insurer — 6 — 2 — 2 — 6 - Credit Union — 1 — 0 — 2 — 0 - Trust Company — 2 — 0 — 2 — 0 - Bermuda Stock Exchange — 3 — 1 — 0 — 1 - Non regulated — 3 — 11 — 3 — 6 - Total SARs filed — 275 — 162 — 200 — 313 - Total ML Investigations initiated — 3 — 4 — 3 — 1 ### Recommendations and comments (2.5.2) - Ensure that the new administrative Financial Intelligence Unit (FIA) is established and becomes operational, and provide sufficient staffing levels at the existing Police FIU to enable an increased number of ML/FT-related investigations. - Once established, the FIA should publish information relating to trends and typologies, with the input of the Police Service. ### Compliance with Recommendation 26 (2.5.3) - Rating: R.26 — LC - Summary of factors relevant to s.2.5 underlying overall rating: - The FIU has limited specialized financial analysis capacity. - Although under the FIA Act there is explicit statutory authority to establish an administrative agency, the FIA, as the national center for receiving and processing SARs and other relevant information concerning suspected ML or FT activities, the new agency is not yet operational and therefore could not be assessed. ### Law enforcement, prosecution and powers (overview of R.27 & R.28) - Designation of authorities (c. 27.1): - The FIU is responsible for matters relating to the proceeds of crime, including ML offenses. - As a unit within the Bermuda Police Service, the FIU administers POCA 1997 (as amended in 2000), the Proceeds of Crime (Money Laundering) Regulations 1998, the Anti-Terrorism (Financial & Other Measures) Act 2004, the Terrorism [United Nations Measures] Overseas Territories Order 2001, and the Al Qaida and Taliban (UN Measures) (Overseas Territories) Order 2002. - The FIU exercises its powers under the Police Act 1974. - The Special Branch and the Criminal Investigation Department are empowered to investigate predicate offenses of terrorist acts under the Criminal Code Act 1907. - The Office of the Director of Public Prosecutions (DPP) is responsible for prosecution of offenses under Bermudian criminal laws, including POCA and terrorist financing legislation. - Effectiveness concerns: - There have been no ML cases prosecuted in the last three years, and only one in the last five years, despite indications of drug proceeds being concealed or integrated in the jurisdiction in real estate or high end goods, suggesting a lack of effectiveness in investigations relating to ML and FT. - Arrest/seizure postponement/waiver (c. 27.2): - PACE provides wide-ranging arrest and detention powers to the police in matters connected to criminal proceedings. - No specific provisions allow the police to postpone or waive arrest or seizure for the purpose of identifying persons involved or evidence gathering; authorities indicated these measures are considered on a case by case basis with consultation with the DPP. - Special investigative techniques (c. 27.3, 27.4): - No specific legal provisions, but general Police Act 1974 powers allow investigative techniques; wire-tapping has a specific statutory basis. - Controlled delivery and surveillance are considered part of general police powers; surveillance is the technique most often used by the FIU. - Controlled delivery is available and often used by the Narcotics Unit; FIU has used a specially trained surveillance team in several ML investigations. - Specialized groups and multinational cooperation (c. 27.5): - There is an inter-agency joint Customs/Police Combined Enforcement Interdiction Team, mainly focused on drug-related ML interdictions, with potential for a greater role in financial crime investigations. - Existing information-sharing gateways between Customs, Police, and Bermuda Monetary Authority should be strengthened where necessary. - Joint Customs/Police units operate under established guidelines with Customs leading at borders and Police leading domestic investigations; Customs officers in these units hold Special Constable status. - Review of ML & FT trends (c. 27.6): - ML and FT trends, techniques, and related policy issues are shared informally by the FIU with NAMLC members, but no formal review of ML and FT trends has been undertaken. - Compel production, searches and monitoring (c. 28.1, 28.2): - Production orders, monitoring orders and search warrants are available (POCA, Sections 37, 39, and 41). - Section 37 POCA allows police to apply to the Supreme Court for a production order; failure to comply is punishable on summary conviction to imprisonment for two years or a fine of $10,000 or both (POCA, Section 38). - Disclosure orders from government departments (Section 40 POCA) and search/seizure of cash (Section 50 POCA) are available; customs officers are deemed Police officers for these provisions. - Confiscation of proceeds of crime is provided under Sections 9 and 10 of POCA. - Anti-terrorism legislation provisions: Section 16 ATFA provides for account monitoring orders; Sections 18, 19, 20 provide general police powers related to FT (production orders, search warrants); Sections 14 and 15 ATFA provide for forfeiture of funds related to terrorist financing. - Section 41 POCA allows monitoring orders directing a bank to give Police information about transactions on a specified account for a specified period up to three months, renewable for an additional three months. - Section 42 POCA makes it an offense to disclose existence of a production or monitoring order if such disclosure is likely to prejudice the investigation or reveal the monitoring order. - Although legal powers to compel production and seize/forfeit proceeds exist, these powers are not exercised to a sufficient degree, resulting in relatively few investigations, prosecutions, seizures and forfeitures; underlying causes may include inadequate resources, failure to prioritize ML/FT, or lack of training. - Witness statements (c. 28.2): - The Bermuda Police Service and Customs Department may take witness statements; witnesses may make statements before a magistrate or swear statements before a commissioner of oaths. - The Court may summon witnesses under Section 4 of the Evidence Act 1905; depositions may be read under Section 9 of the Indictable Offenses Act 1929; Sections 78 - 80 provide for proof by written statement. *Source: _cr08105 - 186. Dissemination of Information (c. 26.5): Although the authority is not expressly provided* ### 219. Financial Investigation Unit. The current volume of work of the FIU requires substantial ### _cr08105 - 219. Financial Investigation Unit. The current volume of work of the FIU requires substantial ### Financial Investigation Unit (FIU): capacity and operations - All SARs received are subject to an initial review, but only a small percentage of SARs are analyzed. - The FIU has a sole analyst who is often required to assist in non-FIU related investigations, limiting full-scale investigations arising from SARs. - Expected institutional change: once the FIA is established and becomes operational over the course of the next 12 months, it will assume the financial intelligence functions of the existing FIU. - Under the proposed FIA law, the new agency will have two full-time analysts. - Anticipated effect: the Police financial investigation unit may be somewhat better equipped to focus on investigation and confiscation tasks once FIA assumes FIU functions. ### Staffing, recruitment, and retention issues - Police Service difficulty in maintaining staff succession of experienced financial investigators in the FIU due to: - promotions within the Police, - specialized nature of financial investigation work and required expertise, - non-competitive pay grade compared with the private sector. - Department of Public Prosecutions staffing structure and vacancies: - Staff positions: 1 Director, 1 Principal Crown Counsel, 2 Senior Crown Counsels (SCCs), 5 Crown Counsels (CCs) and 5 Junior Crown Counsels (Jaccs). - POC team: three members assigned for the investigative stage and police support. - Two SCCs and two CCs are contract workers. - At the time of the mission, the Department was understaffed with 4 vacant posts: Principal Crown Counsel (vacant for the last two years) and 3 Crown Counsels. - JCC positions are reserved for Bermudian nationals; recruitment and retention problems are driven by lower pay grades than the private sector and limited interest among Bermudian-returned lawyers in criminal law careers. - High staff turnover as trained staff leave for more lucrative private sector positions; contract positions may not be renewed or incumbents may depart. ### Legal offices and mutual legal assistance capacity - Attorney General’s Chambers (AGC) Litigation and Civil Advisory section staff: Solicitor General, Principal Crown Counsel, Senior Crown Counsel and three Crown Counsels. - Bermuda does not receive an inordinate number of mutual legal assistance (MLA) requests; one Crown Counsel currently deals with such requests, with other Crown Counsels capable of handling them if needed. - AGC resources are adequate in number of Crown Counsels but require training on MLA; they rely on the DPP for drafting some requests. - In 2005, the Attorney General made provisions to have a dedicated Counsel for MLA matters. - DPP responsibility: sending MLA requests on behalf of the AGC to the Police in a timely manner. ### Budgetary and institutional independence concerns - The DPP is appointed by the Governor and is not subject to election or appointment by the government. - The Department’s budget is determined by the Ministry of Justice; the DPP must justify its budget to the AG, who is a political appointee—identified as potentially problematic when the DPP must investigate politicians. - Office of the DPP staff appointments are made by the DPP upon recommendation of the Public Service Commission. ### Integrity and vetting of competent authorities (c. 30.2) - FIU applicants (Police and civilian) undergo background checks in addition to Police hiring checks to determine suitability and integrity. - All members of the Police FIU are subject to the duty of confidentiality under Section 58 of the POCA. - Customs applicants undergo aptitude testing, enhanced vetting through the Police, and an interview prior to hiring as trainee Customs Officers. - Trainee Officers undergo a two-year training process and must pass the Customs Officers examination; failure results in dismissal. - All staff must swear the Official Secrets Act. - Promotion process governed by a Memorandum of Understanding with the Bermuda Public Service Union; transparent and compliant with Public Service Commission Regulations. - Interview panels include internal and external members; assessment questions are stored in a centralized database with restricted administrator access and are randomly selected. - Periodic external audits assess operations against “best practice” and revenue compliance with financial instructions. - Legal professional staff at AGC and DPP: - Required track record for professional standards and integrity, oath under Official Secrets Act, and appropriate skill levels per job description. - Recruitment is joint responsibility of Department of Human Resources, Public Services Commission, the Governor & the DPP. - Recruitment adheres to (a) minimum qualifications, (b) suitability based on job description, and (c) standards set by the National Bar Council. - Crown Counsels must be qualified Barristers and Attorneys with five (5) years post-qualification experience and must abide by the Official Secrets Act. - Prospective support staff subjected to Police background checks and sworn under the Official Secrets Act. ### Training for competent authorities (c. 30.3 and c. 30.4) - FIU training and personnel: - FIU is a law enforcement model within the Bermuda Police Service with some nine Police officers attached who are fully trained financial investigators. - The civilian FIU Analyst is a retired Police officer and fully trained financial investigator. - All Police officers within the FIU have basic financial investigator training; most have training in confiscations, money laundering, and enhanced financial investigative skills. - FIU officers familiar with the Egmont Group secure web and Egmont Group Principles of Information Exchange. - Training programs and constraints: - Full training program provided on commencement; ongoing training based on available financial resources. - Civilian Analyst and Forensic Accountant positions require applicants to already possess necessary skills and training. - Training includes modular training from the Assets Recovery Agency in London, UK, basic and enhanced financial investigation skills, confiscation, and money laundering. - Other courses attended: Securities & Exchange Commission (Washington DC), REDTRAC (Jamaica), overseas conferences, local workshops and seminars. - 2006 local training seminar focused on terrorist financing. - Training is limited by funding allocated annually within the overseas training budget of the Bermuda Police Service. - 2005: additional training funding allocated from the Confiscated Assets Fund; funding fully utilized. - The funding allocated annually for FIU training is insufficient and prevents timely development of Police financial investigators’ skills. - Customs and legal training: - Some Customs officers received training from the concluded Caribbean Anti-Money Laundering Programme (CALP) and were certified as financial investigators; currently officers are not being trained in financial investigations. - Crown Counsel responsible for MLA received FATF 40+9 Methodology training from CFATF in February 2005 and local money laundering conferences. - The DPP recognizes need for permanent training for legal staff on ML/FT issues; efforts are hampered by limited staff numbers, budgetary constraints, and absence of locally-based training opportunities. - Special training for judges (c. 30.4): No training on international developments in the criminal law of ML and FT has taken place. ### Statistics and enforcement outcomes (applying R.32) - There have been no ML cases prosecuted in the last three years. - Only one ML prosecution in the last five years. - There have been no FT cases brought in Bermuda. - The DPP is responsible for maintaining statistics on prosecutions and convictions for ML and FT. ### Recommendations and policy actions (from 2.6.2) - The authorities should make enhanced efforts to investigate cases with indications of ML arising from SARs, and use the existing legal powers to initiate non-SAR triggered investigations. - Establish measures to ensure continuation of the experience and skill in financial investigations in the Commercial Crime Department. - Separate provisions must be made in the budget for training of AGC, DPP, Customs and Police staff, as well as judges, in AML/CFT related matters. ### Compliance ratings (section 2.6.3 and summary) - R.27 LC - Factors: - No ML cases prosecuted in the last three years and only one in the last five years, despite indications of drug proceeds being concealed or integrated in the jurisdiction in real estate and in high-end goods. - No FT cases brought in Bermuda. - Low priority given to ML/FT crime by the Police Service, as reflected by the very small number of prosecutions. - R.28 C ### Cross-border declaration/disclosure (SR.IX) — key findings - Legal framework referenced: Sections 85, 86 of the Revenue Act and Section 50 of the Proceeds of Crime Act (POCA). - Current status: - Bermudian law does not require declaration or disclosure of incoming and outgoing physical cross-border transportation of cash and bearer instruments. - The Collector of Customs is planning to issue a notice under Section 16 of the Revenue Act 1898 and has prepared a draft notice requiring disclosure of cash and negotiable instruments above $10,000 by all persons arriving in Bermuda. - The draft notice would cover negotiable instruments as well as cash, addressing typologies using checks for domestic payment of drugs. - The draft declaration system would not cover outgoing transportation of currency, although the Collector has legal authority under Section 16 to do so. - Compliance assessment: - The proposed declaration system is an important step but would not fully comply with SR.IX because it would not cover outgoing transportation of currency. - Recommendation: adopt a system covering both incoming and outgoing transportation of currency given ML concerns associated with domestic drug trafficking. - Powers to request information and restraint: - Once declaration/disclosure system is in place, Customs and Police will have legal authority to ask questions about possible crimes under Section 5 of the Police Act. - Under Section 50(1) of the POCA, a police officer may seize and detain any cash being imported into or exported from Bermuda if the officer has reasonable grounds for suspecting it directly or indirectly represents proceeds of criminal conduct or is intended for use in criminal conduct. - Section 50(2) of the POCA: seized cash may not be detained for more than 48 hours unless a magistrate authorizes continued detention for up to a three-month period, which may be extended in three-month increments for up to two years. - For terrorist financing, under the ATFA any authorized officer may seize cash “if he has reasonable grounds for suspecting that it is terrorist cash.” Detention time periods are the same as Section 50(2). - Customs and Police do not have authority to seize, detain and confiscate cash and negotiable instruments in the event of a false declaration; they only have authority under suspicion of ML or FT (POCA and ATFA). - Information retention and sharing: - Detentions under Section 50 are recorded by the Police/Customs Joint Intelligence Unit using ‘i2’ analytical software. - Once a declaration system is implemented, procedures will be developed to provide the FIU with information on declarations filed; authorities indicated no information-sharing mechanisms are currently being contemplated. - Recommendation: a memorandum of understanding (MOU) between Customs, the Police and the FIU (and future FIA) to establish information-sharing procedures would be useful. - Domestic and international cooperation: - Customs works with Immigration; Customs is frontline at ports of entry with delegated authority from the Governor; Immigration makes final determinations on immigration issues. - Both departments are represented on NAMLC; expected cooperation to cover disclosure system once in place. - Example of cooperation: recent extradition-related criminal case involved Customs, Immigration, Police (including FIU), DPP, AGC and the US Department of Justice; two individuals were tried and convicted in the US. - Recommendation: formalize and enhance domestic cooperation by developing a mechanism (e.g., a NAMLC sub-committee) for regular meetings among Customs, Police (including FIU), future FIA, Immigration, AGC, and DPP. - International reporting: search and detention reports recorded in Bermuda internal database (i2), World Customs Organization’s Customs Enforcement Network, and Caribbean Customs Law Enforcement Council’s RILO network. - Cooperation with foreign customs, FIU and law enforcement agencies available through normal channels; recent cooperation with US Immigration and Customs Enforcement (ICE) and US Customs and Border Protection (CBP). - Sanctions for false declarations (applying c. 17.1-17.4 in R.17; c. IX.8): - When the declaration system is in place, Sections 85 and 86 of the Revenue Act would apply. - Section 85: offense to knowingly make a false declaration, punishable by civil penalty imposed by the Collector of up to $12,000 for any false statement. - Section 86: two offenses: - strict liability false declaration punishable by forfeiture to pay $12,000, - knowingly making a false declaration punishable by up to two years imprisonment and a civil penalty of up to $30,000. *Source: _cr08105 - 219. Financial Investigation Unit. The current volume of work of the FIU requires substantial — https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08105.pdf* ### Box 12. Penalties under Revenue Act 1898 ### Box 12. Penalties under Revenue Act 1898 ### Offenses and statutory penalties under the Revenue Act - False declaration (Section 85) - Civil money penalty imposed by Collector of Customs of $12,000 - False declaration (Section 86) - Civil money penalty of $12,000 - Criminal fine of $30,000 or imprisonment for up to two years ### Legal persons and application of sanctions - The Interpretation Act defines ‘person’ as used in all Bermudian laws to include legal persons as well as natural persons; corporate entities are therefore included in the sanctions imposed under the Revenue Act. ### Assessment of penalty levels and administrative options - The fines attached to these violations are described as not sufficiently dissuasive and may be viewed as simply a cost of doing business given the potential for the transportation of large sums of cash or negotiable instruments. - Section 84A(6) gives the authority to the MEF to increase the level of penalties for certain crimes without reverting to the legislature. - The Third Schedule, Standard Scale of Penalties, was revised in 2004 and therefore could not be used to increase penalty levels because there has not been “a change in the value of money” as required by that provision. ### Liability of corporate officers - Recommendation to include a provision comparable to Section 56 of POCA, Offences by Bodies Corporate, in the Revenue Act so that if corporations are found guilty of an offence under the Revenue Act, there would be clear legal authority to charge directors and officers who have connived with the corporation in committing an offense. ### Sanctions for cross-border physical transportation of currency (ML and FT) - Money laundering (POCA Section 48) - Penalties: fine of $50,000 to an unlimited amount, and imprisonment of between five and 20 years - Seizure and forfeiture: cash and negotiable instruments seized under Section 50 of POCA may be subject to forfeiture on application of DPP to a court, under Section 51 - Terrorist financing (ATFA Section 13) - Penalties: fines range from $20,000 up to $200,000 and imprisonment of between 12 months and 14 years - Forfeiture: available under Section 15(1) of the ATFA which gives effect to the provisions in Schedule 3 of the Act ### Confiscation authorities and gaps - Consideration is being given to drafting legislation authorizing the Collector to require forfeiture of all undeclared items, including cash and negotiable instruments. - Where there are reasonable grounds for suspicion of ML or financing of terrorism, confiscation measures under POCA are available. - There are no confiscation provisions explicitly relating to the confiscation of outgoing or incoming currency (UNSCRs context). ### Reporting and notification of precious metals and stones movements - All search and detention reports relating to gold, other precious metals and precious stones are recorded in: - Bermudian internal database (i2) - World Customs Organization’s Customs Enforcement Network - Caribbean Customs Law Enforcement Council’s Regional Intelligence Liaison Officer (RILO) network - Routine notifications to other customs agencies are made only for gold. - Authorities indicated cooperation has never been requested with respect to unusual movements of precious metals but is available through normal channels. - Recommendation: authorities should consider developing a procedure to notify other customs agencies of search and detention reports relating to precious metals other than gold, as well as to precious stones. ### Safeguards and information systems - All data systems used to record seizures and detentions of currency are password protected. - Domestic and international access is limited to specified customs officers for both the domestic and international networks; passwords are required to be changed periodically. - Customs’ computerized database is available to specified police officers who have direct access; information from that database is provided to other competent authorities on request. ### Implementation of best practices and database computerization - Authorities considered the SR.IX Best Practices paper when drafting the notice regarding disclosures of cash and negotiable instruments. - The computerized database maintained by Customs is accessible to specified police officers and information is shared with other competent authorities on request. ### Recommendations and operational priorities - Move quickly to fully implement the basic elements of SR IX, particularly to address ML associated with domestic drug trafficking. - Extend the declaration system to cover outgoing transportation of currency. - Consider legal authority not just to seize and detain, but also to confiscate currency solely on the basis of a false declaration. - Increase the amount of civil money penalties. - Enhance domestic cooperation and information-sharing among law enforcement authorities. - Implement procedures to provide the FIU with information from declarations filed. - Develop a procedure to notify other customs agencies of search and detention reports relating to precious metals other than gold, and to precious stones. ### Compliance assessment (Special Recommendation IX) - SR.IX rating: NC - Summary of factors relevant to s.2.7 underlying overall rating: - There is no currency disclosure or declaration system in place for either incoming (as currently planned) or outgoing transportation of currency. - The scale of civil money fines is not sufficiently dissuasive. - Domestic cooperation on customs issues is insufficient. - Information-sharing among Customs and other law enforcement authorities is inadequate. - The authorities have not considered the implementation of a procedure to notify other customs agencies of search and detention reports relating to precious metals other than gold, as well as to precious stones. *Source: Box 12. Penalties under Revenue Act 1898, _cr08105.* ### 274. Covered Institutions: The institutions covered by the POCA, Regulations (and Guidance ### _cr08105 - 274. Covered Institutions: The institutions covered by the POCA, Regulations (and Guidance Notes) ### Box 13 — Institutions Covered by POCA - Institution categories, numbers, supervisor and governing law: - a) Bank and Deposit Companies: 4 banks; 1 Deposit Co. — Bermuda Monetary Authority: Banks and Deposit Companies Act 1999 - b) Licensed Investment Businesses (dealing, arranging & underwriting securities issues, investment managing & advice, safeguarding & administration of investments): 58 — Bermuda Monetary Authority: Investment Business Act 2003 - c) Investment Fund Administrators: only for processing subscriptions and redemptions for mutual funds/collective investment schemes: 40–50 — Bermuda Monetary Authority: Investment Funds Act 2006. No fund administrator has been licensed because the Act provided a grace period of 12 months starting March 2007 when the Act was put into effect. - d) Investment (mutual) Funds: 1,267 — Bermuda Monetary Authority: Investment Funds Act 2006. - e) Insurance Business: long-term insurance: 80 — Bermuda Monetary Authority: Insurance Act 1978. Only approximate figures available for end 2006, including some 80 long-term insurers and about 40 composites accounting for a total of about US$32 billion in gross premium. - f) Credit Union: 1 — Bermuda Monetary Authority: Credit Unions Act 1982 - g) Payments systems services: 1 — Bermuda Monetary Authority: Bermuda Authority Act 1969 and Money Service Business Regulations 2007. There is one company that provides electronic/internet payment services, check cashing and guarantee services that is currently unregulated but in process of seeking a license in accordance with the Money Service Business Regulations. - h) Money Service Business: 7 — See g) above. - i) Voluntary Regulated Institutions: 0 — There are no voluntary institutions under Reg. 3(4) but in the past there has been at least one. ### Scope of application of the Regulations — Insurance sector - Reg. 2(2)(a)(iv) of the AML Regulations: - explicitly excludes life insurance business from AML requirements. - may exclude insurance policies with both life and investment components where the life component is the most significant element. - Practical implications and risks: - exclusion of life insurance constitutes a significant lacuna in the AML/CFT regime given the importance of the insurance industry in Bermuda. - Guidance Notes identify life insurance as a risky activity for ML. - long term business (includes life and annuity/investment business) constitutes about 30 percent of total gross premium (2005 statistics including reinsurance), totaling some US$30 billion. - only societies and companies registered under the Insurance Act are covered by the Regulations, thereby excluding insurance intermediaries (persons acting as salesmen, agents and brokers). - Insurance managers: - insurance managers, including those for captive companies, are not covered by the Regulations. - BMA expects such managers to ensure underlying companies comply with AML Regulations, but the Regulations exclude life business as noted above. - mutual fund administrators (processing subscriptions and redemptions) are covered as described elsewhere. ### Investment/Securities Sector - Reg. 2((2)(a)(vi) covers persons processing subscriptions and redemptions for collective investment schemes (now defined as mutual funds under the Investment Funds Act of December 2006) as defined in Section 1(2)(a) of the Bermuda Monetary Authority Act. - Legal changes and gaps: - The Investment Funds Act 2006 repealed the referenced section of the BMA Act and the BMA (Collective Investment Schemes) Regulations 1998, which appears to have excluded mutual funds from the legal scope of the AML Regulations — creating a significant gap. - mutual fund administrators have a broader definition of activities under the Investment Funds Act that go beyond processing subscriptions and redemptions and which are captured by the FATF definition of FIs. - Scale and proposed remedies: - number of mutual funds: 1,267 - mutual funds assets under administration: US$211billion - authorities drafted proposed new AML Regulations to include licensed fund administrators as financial institutions covering all activities as defined under the Investment Funds Act. ### DNFBPs (Designated Non-Financial Businesses and Professions) - Current coverage and ambiguity: - DNFBPs, particularly lawyers and accountants, are currently not covered by the AML/CFT regime. - ambiguity exists whether such professionals are covered by the Regulations when providing investment advice or other investment services under Part 2 of the Investment Business Act. - authorities have not licensed such professionals under the Investment Business Act (e.g. lawyers) and are unaware whether they carry on such investment activities. ### Money and Value Transfer Business, formal or informal - Coverage changes: - Up to 17 January 2007, the Regulations did not cover money transfer services, only currency exchange services under Reg. 2 (2)(ix). - By amendment on 16 January 2007, persons licensed under the BMA’s Money Service Business Regulations (issued on 16 January 2007) are now covered. - MSB scope and licensing: - MSB Regulations cover persons who carry on a money service business including inter alia money transmission, currency exchange business, debit/credit card issuance and check cashing, administering/intermediating electronic payments. - Persons covered by the MSB Regulations have a 12-month period to apply for a license; at the time of the mission none had been issued and only a couple were under consideration. - Market developments: - prior to MSB Regulations, there had been one formal independent money transfer service operating in Bermuda through a local licensed FI; it was closed down by the FI due to increasing compliance costs and reputational concerns. - authorities aware of one informal money transmission operator serving expatriate workers; the account used was closed. - at the time of the mission, a well established company operating in Bermuda was in process of applying for a license under the BMA Money Service Business Regulations; this company also manages electronic payment and check cashing services. ### Prohibition of Anonymous Accounts (c. 5.1) - Legal provisions: - there are no specific legal provisions that prohibit FIs from maintaining anonymous accounts or accounts in fictitious names. - Practice and regulatory expectations: - known practice: neither fictitious, nor numbered accounts, are maintained by FIs in Bermuda. - Regulations require FIs to have procedures to conduct and record customer identification for all accounts and to ensure effective monitoring. - authorities maintain that these requirements, including adherence with the Guidance Notes, effectively discourage maintenance of numbered accounts. - any institution seeking to use numbered accounts would still need to ensure it did not prevent proper internal diligence and monitoring. ### Customer Due Diligence timing and thresholds (c. 5.2) - Reg. 4(1): - FIs shall “establish and maintain identification procedures” requiring an applicant for business to produce satisfactory evidence of identity as soon as is reasonably practical after first making contact with the FI. - where such identification is not obtained, the business shall not proceed further. - exception: when a one-off transaction gives rise to knowledge or suspicion of ML, the FI may proceed only in accordance with any directions given by a police officer for that purpose (helps avoid tipping off). - Limitations: - Reg. 4(1) relates to customer identification but does not extend to the full range of CDD requirements under Rec. 5 of the FATF. - Guidance Notes do not cover how to obtain identification when there is suspicion without tipping off the client. - Reg. 4(2) requires customer identification when: - a) Forming a business relationship; - b) Carrying out occasional one-off transactions where the amount is BD$10,000 or more (equivalent to US$10,000, or the equivalent in any foreign currency). This requirement includes multiple transactions below this amount which appear to be linked, and where the total equals or exceeds BD$10,000. The Guidance Notes state that the interval period for aggregating such small transactions should be three months. - Note: There are no specific provisions for wire transfers and the US$10,000 threshold is too high for a wire transfer under SR VII which establishes the threshold at US$1,000. - c) In respect of any one-off transactions, any person handling such transactions for the FI knows or suspects that the applicant for business is engaged in ML or that the transaction is being carried out on behalf of another person engaged in ML. - This requirement does not specifically cover FT suspicion and limits the application to one-off transactions, thereby excluding circumstances where suspicion or knowledge of ML/FT arises in the course of business relationships. - Additional gaps: - There are no requirements for FIs to conduct CDD when there are doubts about the veracity or adequacy of previously obtained customer identification information. (c. 5.2(e)) - Guidance Notes (G71) state that once verification and recordkeeping of identification has been completed, no further evidence of identity is needed when transactions are subsequently undertaken. ### Identification measures and verification sources (c. 5.3) - Regulatory framework: - AML Regulations do not cover all CDD requirements under Rec. 5. - Guidance Notes expand on the Regulation but are non-mandatory and not “Other Enforceable Means”. - Reg. 4(1) requires procedures to identify applicants for business (individuals, legal entities, arrangements, one-off transactions or business relationships) and to obtain “satisfactory evidence” of identity, implying verification. - Reg. 4(7) permits satisfactory evidence to be determined in accordance with the Guidance Notes. - Guidance Notes detail (selected): - G12: FIs should have procedures to determine or receive confirmation of true identity of customers. - G26–G73: provide further details on verification for joint account holders, principals and beneficiaries, individuals, partnerships, companies and corporate trustees, regulated intermediary and other institutions and legal arrangements. Exemptions (G38–G45) for regulated FIs and small one-off transactions. - Part III: additional but limited guidance especially for deposit taking institutions. - For individuals, G56–G66 list relevant personal information (full name, date and place of birth, nationality, address, contact details, occupation and employer or nature of self-employment, and specimen signature) and preferred identification documents (e.g. passport and driving license with photographs). Documents easily obtained in any name (e.g. credit cards) should not be accepted. - G62–G64: guidance for non-resident customers. - Where FIs cannot obtain information from Guidance Note sources, they may seek confirmation from another institution; a request form is provided in Appendix D of the Guidance Notes. ### Identification of Legal Persons or Other Arrangements (c. 5.4) - Reg. 4(4): - requires FIs to “establish and maintain identification procedures” to identify persons (the principal) on whose behalf an applicant for business appears to be acting. - Guidance Notes and expectations: - G28: FIs should establish the true nature of the relationship between the principal and applicant for business, including authorized signatories. Principals are widely interpreted to include beneficial owners, settlors, controlling shareholders, directors and major beneficiaries. - trusts and settlements: FI should obtain written confirmation from trustees or managers of the trust/settlement regarding their knowledge of the underlying principals (settlors and named beneficiaries) and that there are no anonymous principals. - Companies and corporate trustees (G32 and G33): - FIs should verify identity of underlying beneficial owners — those that ultimately own or control interests of 5% or more. - Information to be obtained includes: - i) certificates of incorporation - ii) names and addresses of beneficial owners and/or persons on whose instructions signatories are empowered to act - iii) memorandum of Association and by-laws - iv) board resolutions and other mandates and other account opening authorities, including full names of all directors and specimen signatures - v) certificate of incumbency and powers of attorney - vi) signed director’s statement as to the nature of the company’s business. - Noted weaknesses: G67 and G68 use wording that could weaken requirements (e.g., “should duly accredit all account signatories” and “relevance and usefulness in this context” should be “carefully considered”), which could reduce clarity for FI implementation. - Partnerships (G69): - Guidance suggests considering the “relevance and usefulness” of obtaining the partnership agreement and information on partners and managers — wording viewed as inadequate to support compliance. - Files and suspension procedures (G72): - a file for each applicant should show steps taken and evidence obtained in verification; where exemptions apply, justification should be recorded. - where verification is not possible, the process should be suspended and funds held to the order of the applicant until verification is completed. - funds should be returned only to the source from which they came and not to third parties. - where suspicion of ML exists, a report to the FIU (police) should be made and guidance sought on how to proceed. ### Identification of Beneficial Owners (c. 5.5*; 5.5.1* & 5.5.2) - Reg. 4(4) and Guidance Notes (G28): - Reg. 4(4) requires FIs to identify persons (the principal) on whose behalf an applicant for business appears to be acting. - G28: FIs should establish the relationship between the principal and applicant for business, including authorized signatories. - Principals are widely interpreted to include beneficial owners, settlors, controlling shareholders, directors and major beneficiaries. - For trusts and settlements: FI should obtain written confirmation from trustees or managers regarding their knowledge of underlying principals (settlors and named beneficiaries) and assurance that there are no anonymous principals. *Source: Excerpt from the provided IMF content unit.* ### 292. Where FIs provide fiduciary services, e.g. trust and company services (as defined in Part III ### _cr08105 - 292. Where FIs provide fiduciary services, e.g. trust and company services (as defined in Part III ### Fiduciary services (trust and company services) - Guidance Note G135 places the onus on “relevant employees” to ensure engagement documentation is “duly completed and signed at the time of entry.” - Finding: The onus should be on the FI/service provider and not on the employees per se. - CDD for new clients in these circumstances should include: - (i) the settlor and/or “where appropriate” the principal beneficiary(ies); - (ii) the beneficial owners of companies; and - (iii) a note as to any further information on identification required from the customer’s agent or intermediary. ### Insurance business (long-term life/investment) - Scope inconsistency: Guidance Notes (e.g., G139, G140 and G141) address long-term (life/investment) business despite Regulations excluding life insurance. - G139 and G130 interaction: - G130 states an FI is considered to have complied with the duty to verify the client when payment to a policy holder is made by check or to an account held solely or jointly in the name of a policy holder by electronic means, even if verification is not completed before payment. - Finding: This exemption can give rise to ML/FT risk, particularly where premiums paid in cash or received from/through another person that is not the applicant or beneficiary. - Conversion risk: Payment on surrender by check, wire transfer or other non-cash means could still involve ML/FT risk in the absence of a general prohibition on cash acceptance. - Recommendation: G139 should be reviewed for the potential loophole it creates. - G140/G141: - G140 permits no CDD for a significant one-off “switch” transaction under certain payment conditions; this can enable series of future transactions that effectively establish a business relationship. - G141 similarly exempts customers using facilities where payments from one policy fund another policy for the same customer. - Finding: G139, G140 and G141 should be reviewed for potential to enable laying or structuring ML/FT transactions. - G142: verification not required for persons receiving benefit payments under employer-sponsored pension or savings schemes where such persons do not seek personal investment advice; if advice is sought, identification is simplified and considered met when employer/trustee verification and written confirmation are provided. ### Investment Services (securities) - G123/G125: - Where an agent or intermediary introduces an underlying customer (principal), the underlying customer should be identified (G123). - Where the intermediary acts as a nominee and deals in its own name, both the intermediary/nominee and the underlying customer are subject to identification and verification, except when the applicant for business is a regulated FI (G125). - Recommendation: Clarify/emphasize that the underlying customer/principal includes ultimate beneficiaries. - G129/G130/G131–G133/G132: - G129 (investment services) allows verification to be satisfied by payment methods (e.g., check or to an account in the legal owner’s name) for redemptions, potentially long after a relationship is established; this can be inconsistent with Rec. 5. - G130 exempts Investment Services businesses from CDD when involving Switch transactions, similar to insurance — assessed as not appropriate. - G131–G133: when an investment is funded by a customer but registered in the name of a “third party,” the person who funds the cash transaction is identified; G132 states the “legal owner” at realization is to be verified except where that person funded the investment. - Finding: This is unacceptable for Rec. 5.5 because the “third party” or beneficiary should be identified at the time the business relationship or one-off transaction is established/conducted. - If the third party/beneficiary changes prior to realization, the new person(s) should be verified at the time of change. - Identification of the “legal owner” at realization may be insufficient where the investment is held in trust for others. - G133: creates an exemption from identification for customers/investors establishing savings and investment vehicles where income is to be reinvested; G133 states establishment of such facilities and reinvestment of income should not be considered entering into a business relationship and hence no verification is required. - Finding: G133 should be reviewed as it creates an inappropriate exemption. ### Exemptions, simplified/reduced CDD and related gaps (c.5.9–5.12) - No general legal/regulatory provisions permit simplified/reduced CDD; Guidance Notes list cases where identification is not required but lack justification on low risk and adequate controls. - Explicit exempted/treated-as-simplified cases: - Reg. 4(5): No customer identification/verification is required when the applicant for business is another regulated FI, including a foreign FI, representing an underlying client/principal; only a written assurance from the FI is required that evidence of identity of the underlying client has been obtained and recorded. Reg. 4(3) contains similar provisions for introductions by a regulated FI. - Finding: No regulatory provisions allow for simplified CDD when the client/principal is another regulated FI subject to adequate AML/CFT requirements and supervision. - G39 exempts FIs from verifying identity of an “applicant for business” where such customer is a regulated FI including a foreign FI subject to regulations at least equivalent to the Bermudian Regulations (Appendix A). G39 makes no distinction whether the client FI is acting as principal or introducing/acting on behalf of another — potential for confusion and gaps, e.g., use of internal/consolidation accounts. - Recommendation: Clarify and make consistent G39 with Regulations; clarified exemptions could better support justified simplified CDD under Rec. 5.9. Note: enhanced CDD required under FATF Rec. 7 for client FIs seeking cross-border relationships. - G32: does not require verification of underlying beneficial owners for companies quoted in a recognized stock exchange. - G130 (Investment Services): exempts identification for significant one-off “switch” transactions where proceeds are directly reinvested; no basis for proven low risk given potential multiple transactions establishing a business relationship. - G132: exempts the third party/legal owner/beneficiary at the time a savings scheme is established for funding investments registered/held in the name of third parties. - G133: exempts establishment and reinvestment within savings/investment vehicles from being considered entering into a business relationship; no verification required for the entire facility. - Insurance: Reg. 2(2)(iv) exempts all life insurance business; G140 and G141 provide additional switch/facility exemptions analogous to investment services. - Additional Guidance Notes exemptions (para. 303): - Guidance Notes list cases where identification is not required including: - (i) other regulated institutions in Bermuda and overseas from countries listed in Appendix A; - (ii) small one-off transactions, single or linked (no threshold specified; assumed to be US/BD$10,000 or more in other Guidance Note definitions); - (iii) certain accounts transacted through post, telephonic or electronic means involving accounts/products that do not allow funds transfers, and where payment is received from another regulated institution and reliance is made on that institution’s CDD (see Rec. 9); - (iv) certain mailshot, coupon and similar business conducted through telephone or electronic means. - Finding: It is unclear why mailshot/telephone/electronic businesses are exempt given potentially higher risk from lack of face-to-face contact (see Rec. 8 discussion). ### Purpose and nature of business relationship (c.5.6) and ongoing/ enhanced CDD (c.5.7–5.8) - Finding: No specific provisions in the POCA, Regulations or Guidance Note require FIs to obtain information on the purpose and intended nature of the business relationship with customers. - Verification procedures in Guidance Notes focus on evidence of identity (Reg. 5, G11, G12) and do not define “duty of vigilance” or “verification” to explicitly include full FATF CDD requirements such as purpose/nature. - Ongoing due diligence: - Finding: No specific provisions require FIs to conduct ongoing CDD during the business relationship, including enhanced monitoring for higher risk business and regular updating of customer profile information. - Enhanced due diligence for higher risk customers: - Finding: No specific provisions require enhanced CDD for higher risk customers, business relationships or transactions. - Note: General principles in regulatory guidance (e.g., BMA Guidance Note 13 for insurers) encourage risk management and controls but do not clearly tie to AML/CFT enhanced CDD obligations. ### Simplified/reduced CDD for overseas residents and prohibition when ML/FT suspected (c.5.10–5.11) - c.5.10: No requirements limit simplified CDD to non-resident customers from countries Bermuda considers to have effectively implemented FATF Recommendations. - Appendix A lists countries considered to have AML regulations at least equivalent to Bermuda’s but primarily for introductions and intermediaries, not for simplified/reduced CDD. - c.5.11: No provisions prohibit simplified/reduced CDD where there is suspicion of ML/FT, except a limited reference in G43(e) restricting reliance on another institution for customer verification for certain post/telephone/electronic transactions when ML is suspected. ### Timing of verification (c.5.13–5.14.1) - Reg. 4(1): FIs must “establish and maintain identification procedures which require: (a) that any applicant for business of a type mentioned in paragraph (2) shall produce satisfactory evidence of his identity as soon as practical after first making contact with the regulated institution.” - Finding: This covers both business relationships and significant one-off transactions but does not explicitly require verification before establishing the relationship or conducting the occasional transaction. - Guidance Notes: - G47: Best time to verify identity is prior to entry rather than at entry; verification should be completed before completing any transaction. - G48: If sound business reasons exist, an account may be opened or a significant one-off transaction carried out before verification is completed; FIs must have stringent controls to prevent funds transfer to third parties, or a senior employee may authorize such accounts/transactions with decisions recorded in writing (suggested form in Appendix C). - G50: For business transacted by telephone where payment is from financial intermediaries or another account, the FI should ensure the account is held in the name of the applicant for business at or before time of payment and should not remit proceeds to the applicant until verification completed. - Finding: Because Guidance Notes are not mandatory, enforceability of these timing provisions is an important shortcoming. - Investment Services specific timing: - G129: verification should normally be completed before payment of proceeds of redemption in significant one-off transactions and transactions within a business relationship. This wording can be interpreted to permit verification any time after establishment of the relationship (potentially a very long time) and is inappropriate for Rec. 5. - G129 further allows an “investment manager” to satisfy verification where payment of redemption is made to the “legal owner” by check or to an account in the legal holder’s name — potentially inconsistent with Rec. 5. - G132: verification of identity of the “legal owner” of an investment (if not the person who funded it) completed “when the investment is realized” — assessed as unsatisfactory and potentially inconsistent with Rec. 5. *Source: Excerpts from the provided IMF content unit _cr08105 - 292–299 (Guidance Notes and Regulations analysis).* ### 310. For Insurers, G139 contains similar provisions as for Investment Services and states that ### _cr08105 - 310. For Insurers, G139 contains similar provisions as for Investment Services and states that ### Verification on Policy Surrender (paragraph 310) - G139: where surrender of a policy occurs prior to completion of verification, including significant one-off transactions and those carried out within a business relationship, verification should be completed before the customer receives the proceeds of the surrender. - Uncertainty: postponement of verification of identification of the customer should be only for a reasonable period of time to facilitate the process of establishing the business relationship. - Postponement of verification before or at the time of payment or exercise of rights under the policy should nonetheless only apply to beneficiaries of life policies (FATF Rec. 5.14) and not generally. ### Failure to Complete CDD before Commencing the Business Relationship (paragraph 311) - Reg. 4(2): where an FI is unable to obtain satisfactory evidence, the business in question shall not proceed any further. - Exception: where there is knowledge or suspicion of ML the FI can proceed on instructions from the competent authority. - Reg. 4(2)(d): such cases only relate to “one-off” transactions and not to business relationships. - Investment Businesses G127: where verification of identity is not completed within a reasonable time, the business relationship or significant one-off transaction shall not proceed any further. - G128: where an investor exercises cancellation rights (or cooling off rights) before completion of verification, such repayment of funds will not constitute “proceeding further with the business”. - FIs are advised to exercise care to ensure that ML is not involved; under no circumstances should such repayment be made to a third party. ### Failure to Complete CDD after Commencing the Business Relationship (paragraph 312) - Reg. 4(1)(b): where satisfactory evidence is not obtained in the course of establishing a business relationship (does not cover existing customers/relationships under FATF Rec. 5.17), the business in question shall not proceed any further except in accordance with instructions from a police officer (FIU) when there is knowledge or suspicion of ML BUT only with respect to one-off transactions (Reg. 4(2)(d). ### Existing Customers and Anonymous Accounts (paragraphs 313–314) - No provisions in POCA, Regulations or Guidance Notes requiring CDD on existing customers at the time the requirements were established. - In practice, lack of sufficient CDD documentation on such clients is considered by some FIs as a main challenge and a source of ML risk. - BMA has focused on this issue during onsite visits. - Anonymous-account customers: Not applicable, except with respect to numbered accounts which are not prohibited; authorities state such accounts do not exist in Bermuda. BMA has not encountered such accounts in supervisory activities. ### Politically Exposed Persons (PEPs) (paragraphs 315–320) - Foreign PEPs – Requirement to Identify (c. 6.1): There are no requirements for FIs to have risk management systems to determine whether clients or beneficiaries are PEPs. - Foreign PEPs – Risk Management (c. 6.2; 6.2.1): There are no requirements for FIs to obtain senior management approval for establishing or continuing business relationships with PEP clients or beneficiaries. - Foreign PEPs – Requirement to Determine Source of Wealth and Funds (c. 6.3): There are no requirements to take reasonable measures to establish the source of wealth and source for PEPs. - Foreign PEPs – Ongoing Monitoring (c. 6.4): There are no requirements to conduct enhanced CDD and monitoring for PEP relationships. - Domestic PEPs – Requirements (Additional Element c. 6.5): There are no requirements to extend enhanced CDD for domestic PEPs. - Domestic PEPs – Ratification of the Merida Convention (Additional Element c. 6.6): No Ratification. ### Correspondent Banking and Respondent Institutions (paragraphs 321–326) - No requirements to conduct enhanced CDD with respect to correspondent banking and similar relationships; Guidance Notes (G39) exempt FIs from CDD when the applicant is another regulated FI, including foreign FIs from countries listed in Appendix A. - Requirement to Obtain Information on Respondent Institution (c. 7.1): No requirements to obtain information to understand respondent’s business, reputation, quality of supervision, or regulatory/enforcement action for AML/CFT reasons. - Assessment of AML/CFT Controls in Respondent Institution (c. 7.2): No requirements for FIs to assess adequacy and effectiveness of a respondent’s AML/CFT controls. - Approval of Establishing Correspondent Relationships (c. 7.3): No requirements for senior management approval to establish or continue correspondent relationships. - Documentation of AML/CFT Responsibilities (c. 7.4): No requirements to document respective AML/CFT responsibilities of the FI and respondent institutions. - Payable-Through Accounts (c. 7.5): No requirements for FIs to satisfy themselves that respondent institutions have conducted CDD in accordance with Rec. 5 for clients with direct access to correspondent accounts, nor to satisfy themselves they can obtain information on such customers from the respondent institution upon request. ### Technology and Non-Face-to-Face Business (paragraphs 327–328) - Misuse of New Technology for ML/FT (c. 8.1): No provisions requiring FIs to implement measures to prevent misuse of technological developments that could facilitate ML/FT. - Risk of Non-Face-to-Face Business Relationships (c. 8.2 & 8.2.1): No regulatory requirements for FIs to implement specific policies/procedures to address risks associated with non-face-to-face business. - Guidance Notes (G42–G44) permit FIs to rely on verification by another regulated FI for non-paying accounts and for business conducted through mailshots, off-the-page and coupons. ### Recommendations and Comments (Section 3.2.2) - Establish in the Regulations or in other enforceable instrument (Other Enforceable Means) all of the applicable requirements under FATF Recommendations 5–8; current Regulations are limited and Guidance Notes are not enforceable. - Amend the Regulations to cover all relevant financial activities covered by the FATF Recommendations, particularly life insurance. - Extend the regulatory regime for FIs to explicitly cover CFT issues. - Extend CDD requirements beyond customer identification. - Require CDD in all cases (business relationships and one-off transactions) where there is knowledge or suspicion of ML/FT and not only in cases of one-off transactions; clarify that the threshold for one-off transactions does not apply when there is suspicion. Include reporting of suspicion when an FI cannot obtain required identification/CDD information under Rec. 5.15 and 5.16. - Reduce the minimum CDD threshold for wire transfers to the equivalent of US/BD$1,000. (See recommendation on recordkeeping under section 3.5.3.) - Extend CDD requirements to cases where there is doubt as to the veracity or adequacy of previously obtained information; update information for “grandfathered accounts”. - Reg. 4(4) could more explicitly establish the requirement to identify and obtain CDD information on underlying beneficiaries, including for legal persons and arrangements. - Review customer identification exemptions in Guidance Notes for consistency with the Regulations and FATF Rec. 5, 8, and 9. - Review wording of Guidance Notes 129, 130, 139, 140 and 140 (insurance and investment services) and GNs 131, 132 and 133 (investment services) to ensure they do not create practical limitations of CDD; review timing of verification for Rec. 5.13 and 5.14. - Establish CDD requirements that include the purpose and nature of business relationships and significant one-off transactions. - Require FIs to conduct enhanced monitoring for higher risk business and regular updating of customer profile information; conduct enhanced CDD for higher risk customers, business relationships and transactions. - Require FIs to conduct enhanced CDD for PEPs. - Require FIs to conduct enhanced CDD with respect to correspondent banking and similar relationships. - Require FIs to address risks associated with non-face-to-face business relationships or transactions, and to implement measures to prevent misuse of technological developments that could facilitate ML/FT. - Review exemptions/simplifications in Regulations and Guidance Notes to ensure justified on basis of documented low risk; limit simplified measures to cases where customer information is publicly available or clients are regulated FIs. - Do not allow exemptions or reduced CDD measures when there is suspicion of ML/FT. - Remove general exemption in Guidance Note 50 on timing for verification when payment is to be made from “other account” (risk of broad interpretation). - Require FIs to expedite conduct of CDD and update client documentation for clients in existence when the Regulations were issued (the Regulations were issue in 1998 (about 9.5 years ago)); slow progress in updating creates significant vulnerability. ### Compliance with Recommendations 5 to 8 (Section 3.2.3) - R.5 — NC - The AML Regime for FIs (in particular the POC Regulations) does not cover CFT. - Lack of enforceability of the Guidance Notes limits effectiveness of implementation of applicable provisions under Rec 5. - Inadequate coverage in the Regulations of the insurance sector, securities/investments, money remittance, and payments management sectors. - CDD requirements are limited to customer identification and verification, and do not extend to the full range CDD under FATF. - CDD is required when there is suspicion of ML only in cases of one-off transactions; limitation affects Rec. 5.2, 5.15 and 5.16. - CDD for wire transfers is only required when the transaction is US$10,000 or more. - No CDD requirements when in doubt of adequacy of previously obtained customer identification information. - Good practice recommendations in Guidance Notes (e.g., G42, G44, G129–G140, G131–G133) weaken implementation of CDD requirements. - No requirements for FIs to obtain information on the purpose and intended nature of business relationships. - FIs are not required to update and conduct ongoing CDD/monitoring nor enhanced CDD for higher risk customers, business relationships or transactions. - Exemptions/reductions in customer identification in the Guidance Notes are not justified on the basis of low risk and are too broad; should not apply when there is suspicion of ML/FT. - No requirement to update information for clients in existence when the POCA and Regulations were introduced; in practice this is a key challenge for FIs. - R.6 — NC - No requirements for FIs to conduct enhanced CDD for PEPs. - R.7 — NC - No requirements to conduct enhanced CDD with respect to correspondent banking and similar relationships. - R.8 — NC - No requirements for FIs to implement measures to prevent misuse of technological developments that could facilitate ML/FT. ### Third Parties and Introduced Business (R.9) — Description and Analysis (paragraphs 329–335) - Legal framework: Regulations only require FIs to obtain evidence of identity and do not extend to full range of CDD; reliance on intermediaries/introducers would therefore only apply to customer identification. - Reg. 4(3): where an applicant is introduced by another regulated institution or foreign regulated institution, a written assurance that evidence of identity has been obtained shall be satisfactory evidence of identity. - Reg. 4(5): where the applicant is another regulated institution acting other than as a principal, it shall be reasonable to accept a written assurance that evidence of identity of the principal has been obtained and recorded under procedures maintained by the applicant for business. - Guidance Notes (non-mandatory): G5 (bottom) states where an applicant is introduced by a member of the same group, verification of identity is not required (unclear scope of “member of the group”). - G35: where an intermediary client is a regulated institution acting on behalf of an underlying client and the account is in the institution’s name, customer identification of the underlying customer is not required. - G43, G45, Appendix B and multiple GNs (G56, G57, G65, G114, G123–G126, G147–G148) provide further guidance and examples on reliance on intermediaries and introducers for deposit, insurance and investment services sectors, including a template letter of introduction. - Foreign regulated institutions are defined under Reg. 2(2) as persons/entities in the 27 jurisdictions listed in Appendix A of the Guidance Notes. - Requirement to Immediately Obtain Certain CDD Elements from Third Parties (c. 9.1): No requirement for FIs to immediately obtain CDD information from third parties; written assurance is deemed satisfactory evidence of identity, which is insufficient. - Availability of Identification Data from Third Parties (c. 9.2): No provisions or enforceable means to require information be made available promptly on request. Guidance Notes (G100) state records held by third parties are not in readily retrievable form unless regulated institution is satisfied the third party is able and willing to keep and disclose such records; does not impose obligation to ensure availability without delay or override secrecy/confidentiality laws. - Regulation and Supervision of Third Party (c. 9.3): Regulated institutions (Reg. 2(2)) cover banks, securities providers, fund administrators, insurance entities, trustees, credit unions, currency exchange services; life insurance is not covered in Regulations though relied upon in practice. - No evidence that authorities/FIs have satisfied themselves that third parties are adequately covered by and supervised for compliance with CDD requirements under FATF Recommendations. - Appendix A country list was largely drawn from FATF countries at time of issue; in practice some FIs conduct business in Asia, Latin America and the Caribbean and rely on intermediaries in such regions where most countries are not listed (except Japan). *Italic: Content derived from the supplied source document.* ### 336. Furthermore, for purposes of ascertaining whether such FIs are subject to adequate ### _cr08105 - 336. Furthermore, for purposes of ascertaining whether such FIs are subject to adequate ### Customer Due Diligence (CDD) and Reliance on Third Parties (Recommendation 9) - Observations: - Not all Bermudian FIs have been subject to effective AML/CFT supervision, particularly with respect to onsite inspections and including in the insurance sector. - Appendix A of the Guidance Notes lists 27 countries and territories considered to have AML regulations at least equivalent to those of Bermuda; the list has not been revised since 1998 and there is no established process to ascertain adequacy of those regimes. - There is no explicit provision that imposes ultimate responsibility on FIs for customer identification and verification in the Regulations or other enforceable instrument; in practice, FIs acknowledge they are ultimately responsible for CDD. - Recommendations and comments: - Require FIs to immediately obtain CDD information from acceptable third parties when relying on their CDD. - When allowing FIs to rely on CDD conducted by third parties, require them to satisfy themselves that the requisite CDD documentation has been obtained by such third parties, and that it will be made available to the FIs promptly on request. - Periodically review the adequacy of the basis on which FIs rely on the CDD of other third parties whether in Bermuda or in other countries, with respect to their supervision for AML/CFT purposes, and implementation of the FATF Recommendations by countries where the third parties are located. - Make it explicit that where reliance on others for certain aspects of CDD is allowed, that the ultimate responsibility lies with the FI. - Compliance with Recommendation 9 — Rating: NC - Summary of factors underlying rating: - No requirement for FIs to immediately obtain CDD information from third parties. - No requirement for FIs to satisfy themselves that CDD documentation has been obtained by third parties and that such documentation can be made available to FIs promptly on request. - Agreements obtained by FIs from introducers/intermediaries in other countries do not generally assure that secrecy and confidentiality restrictions will not be an impediment to access to CDD information when requested. - Insufficient information available to the industry with respect to adequacy of regulation and supervision of other FIs, and on implementation of FATF Recommendations by countries to justify reliance on third parties. - Need to specify, as seems to be the practice that ultimate responsibility for CDD lies with the Bermudian FIs. ### Financial Institution Secrecy or Confidentiality (Recommendation 4) - Legal framework and analysis: - Bermuda has no general statutory law on secrecy other than regulatory laws discussed and common law principles of confidentiality that apply to customers of banks and other FIs. - Authorities cite Tournier v. National Provincial and Union Bank of England [1924] 1KB461 as leading precedent: “a bank owes to its customer an implied contractual duty to keep his affairs secret, but that the duty is qualified. The duty arises at the commencement of the relationship and continues after the customer has closed his account in relation to information gained during the period of the account. It covers information about the customer’s affairs gained by virtue of the banking relationship and is not limited to information from or about the account itself.” (R. G. Toulson and C. M. Phipps, Confidentiality, 2nd ed. (Sweet & Maxwell, 2006), p. 257.) - Four qualifications/exceptions to the duty: (a) disclosure under compulsion by law; (b) duty to the public to disclose; (c) interests of the bank require disclosure; (d) disclosure by express or implied consent of the customer. - Bermudian case law has followed this precedent (example: Brian Lines v. Lines Overseas Management Ltd. [2006] Bda LR 43, 236, at 242). - Regulatory statutes provide confidentiality with gateways to authorities; e.g., Banks and Deposit Companies Act 1999 Section 52(1) prohibits disclosure and Section 52(3) prescribes penalties of up to $100,000 and five years imprisonment or both for unlawful disclosure. Gateways exist in Sections 53–55 and comparable provisions appear in Insurance Act 1978, Investment Business Act 2003, Investment Funds Act 2006, and Trusts (Regulation of Trust Business) Act 2003. - No explicit gateway in these laws for disclosures to the FIA; consideration should be given to amending relevant laws to remedy this deficiency. - Compliance with Recommendation 4 — Rating: C ### Recordkeeping and Wire Transfer Rules (Recommendations 10 & SR.VII) - Legal framework: - Reg. 5 establishes recordkeeping procedures for FIs covered by the AML Regulations; requires FIs to maintain records for the minimum period of 5 years or longer when required. - Recordkeeping requirements include: - (a) evidence of client identity; - (b) a record indicating the nature of evidence of identity providing information that would enable a copy of it to be obtained; - (c) other business records or copies of such records that may be necessary to assist an investigation into ML. - Guidance Notes (G11, G12, G93–G102, and sector-specific guidance such as G123, G144–G148) provide further detail on recordkeeping. - Some regulatory laws’ minimum licensing criteria require maintaining “adequate accounting and other records of its business and adequate systems of control of its business and records.” Investment Funds Act (2006) and Money Service Business Regulations (2007) have Schedules that exclude reference to application of recordkeeping requirements to compliance with other legislation; recommendation to harmonize Schedules to include reference to other legislation and specifically to AML/CFT legislation. - Record retention specifics: - Reg. 5(4): records relating to opening of an account are to be kept for five years after the day on which the account is closed. For renting of a deposit box, the five year period commences the day after which the box ceases to be used. - For transaction records, the five year period starts the day after which a transaction takes place. Reg. 5(4) also states that where a police officer notifies the FI in writing that particular records are/may be relevant to an investigation, such records shall be retained pending the outcome of the investigation. - Ambiguity exists whether the retention in cases of an investigation extends beyond the five-year period and what constitutes the “outcome of the investigation.” - Guidance Notes (G95) suggest FIU may request FIs to keep records beyond the five year period. - Sufficiency and scope of transaction records: - Reg. 5(2) requires transaction records to contain details to assist in ML investigations and refers to Guidance Notes for specifics. - Guidance Notes G94–G102 list account opening records, ledger records and supporting documentation, and identification records including for beneficiaries. - G97 states that records relating to “transactions” include (a) customer identification details and (b) details of securities and investments transacted, which would exclude non-securities related business (e.g., banking and insurance transactions). - G98 requires sufficient details of payment records made through electronic transfers to enable FIs to establish remitting customers’ identity and as far as possible that of ultimate recipients, but does not specify what “sufficient detail” is or whether it includes full originator information per SRVII. - Availability of records to competent authorities: - Reg. 5(3) requires records or copies be kept to allow retrieval in legible form within a reasonable period. Guidance Notes indicate records may be original, microfilm, microfiche or electronic. - G100: records held by third parties would not be considered readily retrievable unless the regulated institution is satisfied the third party can and will keep and disclose them when required. In practice, some FIs obtain third-party agreements; such agreements may not include effective and tested mechanisms to obtain records without delay. - G101: where the FIU (police?) requires sight of records that would have been destroyed, the FI is required to search for such records and provide as much detail as possible to the FIU. - Wire transfer originator information and thresholds: - Customer identification for one-off transactions below the equivalent of US$10,000 (BD$10,000) are not covered by CDD requirements. Consequently, wire transfers between the equivalent of US$1,000 and US$9,999 are not subject to customer identification requirements and hence FIs are not required to obtain and maintain full originator information. - For wire transactions above US$10,000, the non-mandatory Guidance Notes (G94–G98) set out types of detail records that should be maintained to identify a customer but do not specify inclusion of account numbers, address or substitute information as allowed for by SRVII. - G98 only states FIs should retain records of electronic payments with “sufficient detail” to enable identification of remitting customer and as far as possible the identity of the ultimate recipient. Methods of Verification (G56–G70) may include address, date of birth and other information. - In discussions with banks, there appears to be no restrictions in law or practice on inclusion of names and account numbers in outgoing wire transfers. - There is no requirement to include full originator information in cross-border wire transfers. - No provisions exist for domestic wire transfers regarding originator information. - No provisions require intermediary and beneficiary FIs in a wire transfer payment chain to transmit originator information. - No requirements for adoption of risk-based procedures for handling wire transfers not accompanied by complete originator information; Guidance Notes (Appendix E) do not include lack of such information as a basis for deciding if a transaction is suspicious. - No systems in place to specifically review compliance with wire transfer requirements under SRVII; BMA onsite procedures and examinations to date do not specifically focus on wire transfer activity risk and activity. - As there are no specific enforceable requirements for wire transfers, there are no applicable sanctions. - Recommendations and comments: - Include in all the Schedules for minimum licensing criteria of the financial regulatory laws a recordkeeping requirement to comply with the AML/CFT legislation, not only for purposes of the regulatory laws. - Consider rewording Reg. 5(4) to make it more consistent with Guidance Note 95 to state that the retention period in cases of an investigation would be longer than the minimum five-year period specified. Clarify what constitutes the “outcome of the investigation” and whether it includes, e.g., the prosecution, trial, conviction or confiscation procedures. - Revise the Guidance Notes (G97) to ensure that the retention of transaction records are not limited to details of securities and investments transacted, and that they apply to non-securities related business, e.g., banking and insurance transactions. - Require that FIs satisfy themselves that they can obtain records promptly on request from third parties on which reliance is placed for CDD. - Reduce the minimum recordkeeping threshold to the equivalent of US$1,000, and specify that full originator information should be obtained and retained for the minimum period in accordance with SRVII. - Ensure that the Regulations, Guidance Notes, examination procedures and general oversight of FIs includes compliance with wire transfer requirements as set out under all the essential criteria of SRVII. - Include lack of complete originator information as a basis for determining whether a suspicious activity report is filed with the FIU. - Compliance with Recommendation 10 and Special Recommendation VII: - R.10 — Rating: LC - Summary of factors underlying rating: - Weak recordkeeping requirement in the financial regulatory laws, and expand good practice recommendations in the Guidance Notes, G97 (securities only) and G98 (wire transfers). - SR.VII — Rating: NC - Summary of factors underlying rating: - No recordkeeping requirements for full originator information. - The threshold for CDD and full originator recordkeeping requirement is US$10,000, significantly above the FATF level of $1,000. - No provisions for originator information to be included and retained in domestic wire transfers. - No provisions that require intermediary and beneficiary FIs in a wire transfer payment chain to transmit originator information. - No requirements for risk-based procedures for wire transfers not accompanied by complete originator information. Neither the Regs. nor the Guidance Notes (Appendix E) include the lack of such information wire transfers as a basis for deciding if a transaction is suspicious. - No systems to review and sanction for compliance with wire transfer requirements under SRVII. *Source: _cr08105 - 336. Furthermore, for purposes of ascertaining whether such FIs are subject to adequate* ### 3.6 Monitoring of transactions and relationships (R.11 & 21) ### 3.6 Monitoring of transactions and relationships (R.11 & 21) ### 3.6.1 Description and Analysis - Legal Framework: - "There are no requirements in law or regulations or other enforceable means for FIs to pay special attention to complex, unusually large, or unusual patterns of transactions that have no apparent economic or lawful purpose." - G75: Guidance Notes "tend to focus on new business relationships and transactions," but state FIs should be alert to implications of financial flows and transaction patterns of existing customers, particularly where there is a significant, unexpected and unexplained change in behavior of an account. This guidance does not meet the standards requirement. - Examples of suspicious transactions are provided in Appendix E of the Guidance Notes. - Special Attention to Complex, Unusual Large Transactions (c. 11.1): - "There are no requirements for FIs to pay special attention to complex, unusually large, or unusual patterns of transactions that have no apparent economic or lawful purpose." - Some FIs do not aggregate customer accounts for monitoring unusual and suspicious transactions either on a standalone basis or group-wide. - In practice, FIs have filed SARs with the FIU which may involve monitoring for such transaction types under the suspicious reporting regime. - Examination of Complex & Unusual Transactions (c. 11.2): - Referenced to Rec. 11.1 (no requirements). - Record-Keeping of Findings of Examination (c. 11.3): - Referenced to Rec. 11.1 (no requirements). - Special Attention to Countries Not Sufficiently Applying FATF Recommendations (c. 21.1 & 21.1.1): - "There are no requirements in law or regulations or other enforceable means for FIs to pay special attention to business relationships and transactions with persons from or in countries which do not sufficiently apply the FATF Recommendations." - Guidance Notes Appendix A provides a list of 27 jurisdictions where foreign regulated institutions can be accepted by Bermudian FIs as "reliable" introducers of business, but this does not satisfy Rec. 21. - Examinations of Transactions with no Apparent Economic or Visible Lawful Purpose from Countries Not Sufficiently Applying FATF Recommendations (c. 21.2): - Referenced to Rec. 21.1 (no requirements). - Ability to Apply Counter Measures with Regard to Countries Not Sufficiently Applying FATF Recommendations (c. 21.3): - "Except as described in the Guidance Notes above, there is no process to enable Bermuda to apply counter-measures with respect to countries that do not sufficiently apply the FATF Recommendations." ### 3.6.2 Recommendations and Comments - "Introduce in law, regulations or OEMs a requirement to monitor, examine and record information on complex, unusually large, or unusual patterns of transactions that have no apparent economic or lawful purpose." - "Require FIs to pay special attention, examine and record business relationships/transactions with persons from or in countries which do not sufficiently apply the FATF Recommendations, and implement a system identify such countries." ### 3.6.3 Compliance with Recommendations 11 & 21 - R.11 — NC - No requirement to pay special attention, examine and record information on complex, unusually large, or unusual patterns of transactions that have no apparent economic or lawful purpose. - Inadequate systems in some FIs, e.g., do not aggregate customer accounts for purposes of monitoring for unusual and suspicious transactions throughout the FI or on a group-wide basis. - R.21 — NC - No requirement to pay special attention, examine and record business relationships/transactions with persons from or in countries which do not sufficiently apply the FATF Recommendations. - No system to ascertain and inform FIs about which countries do not or insufficiently apply the FATF Recommendations, or to apply countermeasures against such countries. _Source: _cr08105 - 3.6 Monitoring of transactions and relationships (R.11 & 21)_ ### 391. Feedback to Financial Institutions with respect to STR and other reporting (c. 25.2): ### 391. Feedback to Financial Institutions with respect to STR and other reporting (c. 25.2) ### Feedback practices in Bermuda - Feedback is not required by law or regulation and is not formalized in any procedures. - Feedback may take several forms: - a pro forma letter sent to reporting institutions on the results of the investigation of the SAR; - verbal feedback providing more detail; - training and awareness sessions that provide general feedback on SARs filed. ### Recommendations and comments (from section 3.7.1) - POCA should provide for an explicit requirement to file SARs for attempted transactions. - Remedy that the POC Regulations do not require the Reporting Officer actually to file the SAR: - There is no requirement that the Reporting Officer file the SAR, only that procedures be in place to require him to do so. - No offence is created by the Reporting Officer’s failure to file. This should be remedied by an explicit requirement in POCA or the POC Regulations that the Reporting Officer must file a SAR when he has suspicions of ML or FT, or alternatively that failure to do so should be an offense. - Simplify and harmonize FT-related SAR filing standards: - Current law uses two different standards for FT SARs: - All persons in a trade, profession, business or employment, other than regulated institutions, are required to file SARs with respect to terrorist financing where they have a belief or suspicion of FT. The same standard is used for voluntary SARs. - FIs are required to file SARs when they know or suspect FT. - It is unclear why there is a higher standard for FIs; having two different standards is confusing and should be remedied by amending the relevant sections of POCA and the ATFA to simplify these provisions. - Protect FT-related SARs from tipping-off: - Under current law, there are no explicit protections for disclosures of suspicions of FT as required under Section 9 and Schedule 1, Part 1, paragraph 1 of the ATFA. - No explicit protections against criminal liability for the making of such disclosures or for disclosures under POCA. - Address tipping-off provision deficiencies: - Concern 1: No explicit prohibition against disclosing the fact that a SAR has been filed, or any information contained in that SAR, unless that disclosure also is likely to prejudice an investigation that might be conducted following the filing of a SAR. - Concern 2: FT-related SARs are not protected from tipping-off. - Recommendation: Add a new provision to Section 47 that explicitly creates a tipping-off offence for SARs filed for any purpose, including the fact of filing and the information contained therein, without any linkage to investigations as under current law. ### Compliance with Recommendations 13, 14, 19 and 25 (criteria 25.2), and Special Recommendation IV — rating summary (from 3.7.2) - R.13 — PC - POCA does not provide an explicit requirement for filing SARs for attempted transactions. - No requirement to file FT-related SARs for funds linked to terrorist organizations. - No FT-related SARs have been filed. - Since the vast majority of SARs have been filed by banks even though they make up a small part of the financial sector, it appears that other sectors may be underreporting. - R.14 — PC - Protections against civil liability for those who file SARs are limited to SARs based on ML and those who file voluntary FT-related SARs and do not cover regulated institutions who file SARs based on FT. - There is also no explicit protection from criminal liability resulting from a SAR filing. - Tipping-off offenses do not explicitly cover the fact of a SAR filing and the contents therein, and tipping-off generally relating to SARs is only an offense if likely to prejudice a possible investigation. - R.19 — C - R.25 — PC - The Guidance Notes do not provide adequate descriptions of FT techniques, do not cover CFT, are outdated, and are limited in scope. - No FIU procedures are in place for providing feedback to FIs. - SR.IV — PC - Current law does not require SARs for funds linked to terrorist organizations or for tax matters. - No FT-related SARs have been filed and therefore questionable whether requirement under ATFA is being met. --- ### 3.8 Internal controls, compliance, audit and foreign branches (R.15 & 22) ### Legal framework and general analysis (from 3.8.1) - The Regulations require procedures but do not impose explicit obligations that require FIs to formulate and implement AML/CFT policies, compliance and controls. - A “policy” requirement is important to reflect duties of the Board of Directors and senior management and to establish lines of accountability. - Financial and regulatory laws that require FIs to establish adequate systems could indicate in minimum licensing criteria that such systems include AML/CFT controls. ### Specific elements and gaps - Establish and Maintain Internal Controls to Prevent ML and FT (c. 15.1, 15.1.1 & 15.1.2): - Reg. 4 requires FIs to establish and maintain customer identification procedures, but not the full range of CDD requirements. - Reg. 5 does not explicitly require FIs to establish and maintain procedures for recordkeeping purposes. - Internal reporting procedures (Reg. 6): - Requires FIs to institute and maintain internal reporting procedures for: - identifying a staff member (“reporting officer”) to whom employees report knowledge or suspicion of ML; - the reporting officer to analyze internal reports and determine whether they give rise to knowledge or suspicion; - allowing the reporting officer access to information for this purpose; - the reporting officer to file an SAR with a police officer/FIU. - No requirement that the reporting officer be designated at management level, though in practice this appears to be the case. - Guidance Notes (G16) state reporting officer should have sufficient authority; in practice reporting officers generally have sufficient seniority. - Regulatory duties of the reporting officer are limited only to internal and external reporting of ML cases and do not extend to broader compliance functions. - Independent Audit of Internal Controls (c. 15.2): - No requirements in the Regulations for maintaining an independent and adequately resourced internal audit function. - The G12 includes a general statement on internal auditing and compliance, but there are generally no legal requirements imposing an internal audit (only external audit) on FIs. - Ongoing Employee Training (c. 15.3): - Reg. 7 requires FIs to take measures to periodically train employees in recognition and reporting of suspicious transactions, including for new employees soon after recruitment. - No explicit provision requiring training on ML/FT developments, methods and trends. - Reg. 7(4) defines “relevant employees” narrowly as those who have/may have access to information relevant to determining ML; this may exclude product development, back office staff, and Board of Directors. - Guidance Notes (G103 to G105) provide further direction on training and refresher training and could include provisions for additional or specialized training for staff transferring to higher-risk functions. - Employee Screening Procedures (c. 15.4): - No provisions in the Regulations or Guidance Notes for screening employees to ensure high standards. - Various regulatory laws contain fit and proper provisions for directors and senior officers but not for lower level employees. - Independence of Compliance Officer (c. 15.5): - No requirements in the Regulations and only a reference in Guidance Notes (G16) to the AML/CFT officer having “sufficient authority”. - Application to Foreign Branches & Subsidiaries (c. 22.1, 22.1.1 & 22.1.2): - No provisions in the Regulations requiring FIs to ensure overseas branches and subsidiaries implement AML/CFT measures consistent with the Bermudian regime and the FATF Recommendations. - Guidance Note (G5) (non-mandatory) suggests group observance of Bermudian Guidance Notes or adherence to equivalent local standards, keeping group informed of policy, and ensuring each member identifies local reporting FIU and SAR filing procedures. - Requirement to Inform Home Country Supervisor if Foreign Branches & Subsidiaries are Unable to Implement AML/CFT Measures (c. 22.2): - No requirements on FIs to inform the Bermudian authorities when overseas operations cannot observe appropriate AML/CFT measures due to foreign laws, regulations or measures. - Consistency of CDD Measures at Group Level (c. 22.3): - No requirements for group level application of CDD measures, only an implicit provision in Guidance Note 5 to keep all members informed of group policy. - BMA’s policy paper on consolidated supervision expects policies and procedures in place for Bermudian FIs to be applied, mutatis mutandis, throughout a group subject to consolidated supervision. - For banking institutions, the BMA should require FIs to implement the principles set out in the Basel Paper (October 2004) on the management (and supervision) of ML/FT risk on a group level. ### Recommendations and comments (from 3.8.2) - Extend the procedures requirements in the Regulations to the full range of CDD and recordkeeping requirements, and require formulation of AML/CFT policies, compliance and controls; consider specifying that control systems requirements in the financial regulatory laws apply to AML/CFT. - Expand the role of the AML/CFT compliance function beyond suspicious activity reporting and include a requirement for an independent internal audit function that covers AML/CFT. - Extend training requirements beyond “relevant employees” to others who can play a role in implementing and monitoring compliance with institutional and legal AML/CFT requirements. - Include employee screening requirements in the AML Regulations to complement fit and proper requirements for senior officials of FIs contained in various financial regulatory laws. - Include in the Regulations an explicit obligation for FIs to implement AML/CFT measures in overseas branches and subsidiaries. - Require FIs to inform the Bermudian authorities when their overseas operations cannot observe appropriate AML/CFT measures. ### Compliance with Recommendations 15 & 22 — rating summary (from 3.8.3) - R.15 — PC - Limited obligations in the AML/CFT Regulations for FIs to formulate and implement AML/CFT policies, compliance and controls; only covers procedures with limited application. - No requirement in the Regulations that the reporting officer be designated at the management level (though in practice generally the case). - Limited scope of the compliance management function to suspicious activity reporting activities. - No requirements for maintaining an independent and adequately resourced internal audit function in the Regulations. - Limited coverage in the Regulations of training obligations to “relevant employees”. - No obligation in the AML Regulations for employee screening and limited coverage in the various regulatory laws. - R.22 — NC - No provisions in the AML Regulations for AML/CFT applying measures to overseas branches and subsidiaries. - No requirements on FIs to inform the Bermudian authorities when their overseas operations cannot observe appropriate AML/CFT measures. --- ### 3.9 Shell banks (R.18) ### Description and analysis (from 3.9.1) - Legal framework: No prohibitions on the establishment of shell banks in Bermuda, nor provisions requiring licensed FIs to have substantive physical presence and/or mind and management in Bermuda. - In practice the BMA does not approve establishment or licensing of shell banks, and there are no known shell banks operating in or from within Bermuda. - These requirements could be incorporated in financial/regulatory laws, especially in schedules establishing minimum criteria for licensing and registration. - Prohibition of establishment of shell banks (c. 18.1): Bermuda has not approved, and there are no known, shell banks operating in or from within Bermuda. In practice, implementation of minimum licensing criteria would preclude establishment of shell banks. - Prohibition of correspondent banking with shell banks (c. 18.2): No prohibitions against banking entities entering into or continuing correspondent banking relationships with shell banks. From meetings with banks, most do not provide correspondent facilities to other banks. - Requirement to satisfy respondent financial institutions prohibit use of accounts by shell banks (c. 18.3): No provisions requiring banks to satisfy themselves that respondent banks are not permitting their accounts to be used by shell banks. In practice probability is small given the small number of banks in Bermuda (4) and the practice by most banks not to provide correspondent facilities to other banks. ### Recommendations and comments (from 3.9.2) - Consider incorporating an explicit prohibition on the licensing of shell banks or requiring in the licensing criteria that licensees maintain a significant presence and mind and management in Bermuda, consistent with the Basel Paper on shell and parallel banks. ### Compliance with Recommendation 18 — rating summary (from 3.9.3) - R.18 — LC - No prohibition against the establishment/dealing with shell banks, but the opening of banking correspondent facilities is an unknown practice. --- ### 3.10 The supervisory and oversight system — competent authorities and SROs. Role, functions, duties and powers (including sanctions) (R. 17, 23, 25, 29, 30 & 32) ### Description and analysis (from 3.10.1) - Legal framework: - The AML Regulations do not identify a supervisory or regulatory authority as having specific duties to monitor, enforce and sanction FIs with respect to compliance with the AML legislation. - General supervisory powers are contained in the Bermuda Monetary Authority Act and the financial regulatory laws as part of the BMA’s oversight responsibilities for FIs. - Financial regulatory laws cover AML/CFT supervisory issues in a general manner mainly through obligations on FIs to conduct business in a prudent manner as part of minimum licensing criteria. Some prudent conduct requirements define prudent conduct to include compliance only with financial regulatory laws themselves; others extend to compliance with “other” provisions of law which can encompass AML legislation. - It would be desirable to extend prudent conduct requirements for FIs to compliance with applicable AML/CFT legislation in all cases. - BMA Act provisions and proposed amendment: - The BMA Act is explicit in Sections 3 (b), (bc) and (f) that establish principal objectives of the BMA including: - 3(b) to supervise, regulate and inspect any FI which operates in or from within Bermuda; - (bc) to assist with the detection and prevention of financial crime; and - (f) to perform such function as may be necessary to fulfill such principal objects. - A recent Bill to amend the POCA (before Parliament at the time of the mission) will amend the BMA Act by adding an explicit AML/CFT compliance objective to the list of principal objectives of the BMA. The proposed amendment states that one of the BMA’s principal objectives will be “...to monitor compliance with the reporting and other obligations of regulated persons under the Proceeds of Crime Act 1997, regulations and orders made thereunder, and the Anti- Terrorism (Financial and Other Measures) Act 2004, regulations and orders made thereunder.” - The proposed amendment appears limited in scope and would not extend the BMA’s supervisory functions and authority to enforcement and sanctions for non-compliance with the AML/CFT requirements. *Source: _cr08105 - 391. Feedback to Financial Institutions with respect to STR and other reporting (c. 25.2).* ### 415. Regulation and Supervision of Financial Institutions (c. 23.1): There has been no ### _cr08105 - 415. Regulation and Supervision of Financial Institutions (c. 23.1): There has been no ### Current scope and timing of AML/CFT supervision and inspections - There has been no supervision for CFT risk issues with the current AML onsite inspections regime concentrating mainly on those areas covered by the existing Regulations. - The BMA commenced AML onsite inspections for banks around 2000-2001. - For non-bank FIs, especially the insurance and mutual fund sector, the AML onsite inspection program is less developed. - Development of an onsite inspection program for insurance companies subject to the AML Regulations only commenced in 2007, and at the time of the mission the BMA was just starting to implement it. - Limited general onsite reviews were conducted for a smaller number of insurers (e.g. Class 4) around 2005 but there was no specific focus on AML/CFT. - The BMA stated that onsite inspections of investment business firms for AML commenced around 2001. - There have been no AML inspections for mutual fund administrators because applications for licenses were only beginning to be processed in 2007 under new legislation. - As noted, at the time of the mission the BMA was in process of implementing an onsite inspection program for captive insurers; up to that time no AML/CFT supervision of captives and their managers was conducted. ### Insurance sector coverage, risk assessment, and management of captives - The BMA states that examination of insurance managers can include reviewing the operations of the underlying captives; this should be done routinely especially for captive insurers that present a higher risk for ML/FT. - Industry participants indicated certain operations of captives could present ML risks, but no ML/FT vulnerability or risk assessment had been conducted by the authorities to ascertain the existence and significance of such risks. - The majority of insurance companies inspected to date were not regulated institutions for AML purposes as defined by the Regulations (the Regulations exclude life insurance). - Limited onsite inspections only commenced around 2005 for Class 4 insurers (direct excess liability and/or property catastrophe insurance). - Inspections for a limited number of Class 3 insurers (making up the largest group in excess of 560 entities and engaging in 3rd party/captives/rent a-captive business) only commenced in 2007. - At the time of the mission, the BMA had recently developed inspection procedures and had just begun implementing them. - Inspections of insurance managers, which administer most of the captive classes of insurers (about 1,320 entities involved in captive business), had still not commenced at the time of the mission, but preparations were being made to start preliminary onsite visits. ### Onsite inspection procedures, sampling, and deficiencies - Onsite examination procedures for insurance managers will be largely based on questionnaires and interviews; the procedures, as currently drafted, are not very clear and seem to cover AML/CFT issues in a very limited manner. - The Review Objectives mention assessing compliance with the requirements of POCA and the AML Regulations, but there are virtually no detailed procedures as to how the assessment will be conducted. - The examination procedures indicate the sample selected for documentary review of the underlying clients (insurance companies administered by managers) will be selected by the managers and not the BMA staff (Part C: Method of Inspection para. (3)); this would not be appropriate and indicates undue reliance on the industry for supervisory functions. - Post mission, the BMA indicated its policy allows supervisors to choose the review sample and that a separate process applies for follow up examinations for new licensees where the procedures allow for the sample is chosen by the licensees. - The BMA disputes the manager-selected sample assertion and provided a draft Questionnaire Template (“BMA – New Start”) that removed the reference to selection by the manager, but that draft also excluded the assessment of compliance with POCA and the Regulations as part of review objectives; if implemented, coverage of AML/CFT issues under the draft procedures would be negligible. ### Staffing, resources, and enforcement - The on-site inspections of the domestic insurance companies subjected to AML/CFT procedures had not been completed and the BMA was not able to confirm an average number of days/time spent on inspections. - Average number of staff participating in each on-site visit is 4 (Director, Manager, Senior Analyst and Actuary). - There are a total of 16 onsite examiners in the Insurance Department but as yet there is no dedicated specialized staff on AML/CFT issues. - One staff member has been assigned AML responsibilities which are insufficient given the size and number of insurance entities in the system. - The BMA states it can supplement staffing levels by outsourcing some supervisory activities to external firms. - No sanctions have been applied for non-compliance with AML/CFT requirements as a result of onsite activities. - There has been one instance in the investment services sector where the BMA took action to remove a director for, inter alia, AML issues; no similar cases have been reported for the insurance sector. - The BMA has a range of enforcement powers including issue of supervisory letters requiring measures to be taken by FIs or threatening supervisory action. The general impression is the BMA prefers a more informal approach to enforcement and FIs generally comply with BMA’s expectations. ### Inspection scope, typical on-site work, and weaknesses in coverage - Inspections conducted so far have largely been limited in scope but have in most cases focused on legal compliance relating to customer identification, suspicious activity monitoring and the role of AML/CFT compliance officers (MLROs). - At the time of the mission, the BMA was still developing (risk-based) AML/CFT inspections procedures which were yet to be implemented throughout the sectors. - Priority should be given to conducting full scope AML/CFT inspections of higher risk areas of the insurance sectors, mainly those carrying on long-term business (both life and investment/annuity business). - There has been no ongoing supervision of insurance intermediaries (brokers, agents and salespersons) either directly or through supervision of insurance companies. - The BMA should review contractual agreements and arrangements between insurers and intermediaries to ensure controls for identification and reporting of suspicion, and training requirements for intermediaries. - As part of onsite inspections, focused attention should be/continue to be given to monitoring and suspicious activity reporting systems and controls in FIs. - BMA staff should routinely review the sufficiency and quality of SARs filed with the FIU; the FIU can provide the BMA with information on the quality SARs filed by FIs, by institution and across sectors to assist planning and risk-focusing. - Inspection process should emphasize review of adequacy of internal audit and compliance functions, take account of external auditors’ work, review auditors’ management letters and meet with them to discuss findings. - Post mission, the BMA indicated it reviews auditors’ management letters and meets with them to discuss material exceptions or concerns; auditors can convey exceptions and concerns through management letters or orally including formal presentations to FIs’ management. ### Off-site data use and supervisory planning - The BMA has not developed a systematic system for using off-site information as a planning tool for risk-focusing the AML/CFT onsite inspection process. - The insurance supervision unit is in the early stages of developing such an approach which should be extended to other supervisory units. - The BMA should review availability and adequacy of its offsite data to assess usefulness for on and offsite AML/CFT supervision. - Example deficiency: the BMA’s statistics currently does not capture data on non-resident bank depositors which can provide useful information in developing institutional ML/FT risk profiles and for planning onsite inspections. ### Inspection statistics (onsite inspections completed by the BMA in the past 3 years) - Banks and deposit taking companies (5): 2004 — 5; 2005 — 6; 2006 — 4 - Insurance: (1,450.) — 2004 — (not listed); 2005 — (not listed); 2006 — 13 - Investment business companies (No. 58): 2004 — 7; 2005 — 11; 2006 — 3 - Mutual funds and Administrators (there are some 1,242 collective investment schemes)/1: 2004 — 0; 2005 — 0; 2006 — 0 - Credit union (1): 2004 — 0; 2005 — 1; 2006 — 1 - Trust companies (No. 33) (see Section 4 DNFBPs): 2004 — 5; 2005 — 12; 2006 — 8 - Note: Total insurance companies, all classes approx. 1,450 of which 1,312 actively write business. - Note: There are some 120 insurers engaged in long-term/life business with gross premiums of some US$45.8 billion, which include reinsurance but no statistics available. - On-site examinations to date include AML and not CFT elements. - Pre-inspection: FIs are sent a Proceeds of Crime pre-visit questionnaire to be completed and sent to the BMA prior to the on-site visit. - The onsite process generally takes between 1 and 2 days depending on the type of institution and is conducted by examination teams averaging between 2 and 4 examiners. - Meetings with the compliance officer/MLRO generally last about 2-3 hours. Individual file testing normally involves another 2-4 hours. - The BMA states generally 1 person who participates in onsite visits has training in AML issues. ### Post-mission changes, new procedures, and outstanding challenges - Post-mission, the BMA provided a new organigram for the Banking, Trust and Investment Department with a total “approved” head count of 28, including the Director. - Under the new structure: 8 Senior Analysts and 7 Analysts of which there are 5 vacancies (3 Senior Analysts and 2 Analysts), responsible for general supervision. - A Financial Groups Team is responsible for 25 entities/groups and currently consists of 5 professional supervisory staff: 1 Assistant Director, 2 Principals (under the Asst. Director), 1 Senior Analyst (plus 1 vacancy) and 1 Analyst (plus 1 vacancy). - A Financial Institutions Team will supervise stand alone trust and investment companies and money service businesses when they are licensed. There are currently 60 companies under its supervision with a staff complement of 6 professional staff: 1 Assistant Director, 1 Principal, 2 Senior Analysts (plus 1 vacancy) and 2 Analysts (plus 1 vacancy). - An Investment Funds Team will supervise investment funds and administrators when licensed during 2007/08; there are no such entities currently supervised for AML. There are 3 currently on staff consisting of 1 Principal, 1 Senior Analyst (1 vacancy) and 1 Analyst. - The BMA states that all staff members, up to the Director of the Department, are available to participate in onsite inspections. - Post-mission, the BMA provided an On-site Examination Procedures AML/CFT manual completed just before the mission which documents and expands previous procedures and provides brief procedures/guidance for: - Description of the supervisory objective - Sources of information for onsite planning - Preparation of a pre-examination report - Development of institutional risk profile/risk assessment and - Development of an examination plan and scope memorandum - The manual also provides procedures for examiners to review: - AML policy in accordance with the POCA, Regulations and Guidance Notes (it mentions CFT but the Regulations and Guidance Notes currently do not address this issue) - Detection, reporting and monitoring of suspicious activities - Customer due diligence - Management and control/audit systems - Employee awareness and integrity - Additional review guidance and working papers are provided in Appendices along with the standard pre-examination questionnaire prepared by the institution. - These new procedures do not distinguish in their application between banks, trust companies and investment businesses but seem more generally applicable to banks. - Because the new staff structure and onsite procedures were received after the mission and were only recently developed and started to be implemented, the mission was not able to assess whether this new structure and procedures are effective. - The BMA will face challenges providing a sufficient number of staff to conduct ongoing offsite and onsite supervision for both prudential and AML/CFT purposes given the large number of licensees currently in operation, as well as future licensees particularly for mutual funds and administrators. - There are plans to assign the BMA responsibility for the supervision of corporate services providers (CSPs) which will also have resource implications. *Source: IMF team mission text provided in content unit _cr08105 - 415.* ### 437. Designation of Competent Authority (c. 23.2): The BMA is the primary supervisory for all ### _cr08105 - 437. Designation of Competent Authority (c. 23.2): The BMA is the primary supervisory for all ### Designation of Competent Authority and legal scope - The BMA is the primary supervisory for all FIs licensed or registered. - The BMA’s supervisory powers extend variably and in a general manner to AML/CFT issues, mainly relating to supervision of the minimum licensing/prudent conduct requirements in various financial regulatory laws. - The AML Regulations (and POCA) do not assign supervisory responsibility for monitoring and enforcing AML/CFT compliance to the BMA. - A Bill to amend the POCA lists as one of BMA’s principal objectives monitoring of compliance with AML/CFT legal obligations but does not extend to enforcement and application of existing administrative sanctions under the regulatory laws. - Conclusion: A clearer and firmer legal basis is needed for the BMA to apply its enforcement and other regulatory powers for compliance with AML/CFT obligations. ### Fit and Proper criteria and prevention of criminal control of institutions (c. 23.3 & 23.3.1) - Bermuda’s financial regulatory laws provide adequate provisions for licensing of FIs intended to ensure that only fit and proper persons can own and control FIs if strictly and consistently applied. - Given the relatively large number of licensees and registrations in Bermuda, the licensing process is an important pillar of the BMA’s supervisory regime. - Applicable legal provisions and instruments are sector-specific (Banks and Deposit Companies Act; Insurance Act; Investment Business Act; Investment Funds Act) and include fit and proper criteria based on probity, competence, soundness of judgment, diligence, and likely impact on depositors. ### Sectoral licensing and fit-and-proper features (selected provisions preserved) - Banks and deposit taking institutions (The Banks and Deposit Companies Act): - Section 11: licensing requirement for deposit taking entities. - Section 14 (1): imposes minimum licensing criteria (Second Schedule). - Schedule: only fit and proper persons can be directors, controllers or senior executives; bases include probity, competence, soundness of judgment, diligence, impact on depositors; background to include inappropriate conduct and evidence of breaches of law (mainly fraud and dishonesty). - Note: No mention of breaches of AML/CFT legislation or association with entities that may have breached such laws in Bermuda or elsewhere. - Section 25: notification to BMA of increases in shareholder control or new principal shareholders; BMA can object under Section 26. - Section 27: BMA can object to existing shareholder controller; Section 29: sanctions for breaches; Sections 35 and 36: notification requirements for changes in directors, controllers and senior executives, and acquisition of significant shareholding. - Insurance companies (Insurance Act): - Section 3: registration requirement. - Section 5: BMA to satisfy itself that minimum licensing criteria are fulfilled as set out in the Schedule. - Sections 9 and 10: registration of insurance managers and intermediaries. - Section 11: BMA to take into account minimum licensing criteria in the Schedule. - Sections 30D, 30E, 30F, 30H: notification of changes in controllers and shareholders. - Sections 30G and 30I: sanctioning against controllers for contraventions. - Guidance Notes (e.g. Guidance Note 7) issued to inform fit and proper assessment. - Investment business services (Investment Business Act): - Sections 12 to 17: licensing requirements; Section 17: BMA to satisfy minimum licensing criteria in the Second Schedule. - Section 7: defines directors, controllers, senior executives and associates. - Mutual funds and fund administrators (Investment Funds Act): - Sections 11–14: provisions for authorization of mutual funds. - Section 14(1)(d)(iii)(c): operator and proposed service providers must be fit and proper persons. - Section 25: operator must notify BMA of changes to fund including service providers, trustees, directors, general partners. - Sections 41–43: licensing for fund administrators; Section 43: BMA to take into account minimum licensing criteria in the Schedule. - Section 46: notification to BMA of changes in directors, senior executives and controllers. ### BMA licensing practice and observed effectiveness - The BMA has generally applied strict licensing practices, including vetting in company registrations. - Experience indicates such controls have generally been effective in preventing criminals from owning or controlling FIs in Bermuda. - BMA’s integrated supervisor role, including vetting of company registration, provides opportunity to implement proper screening procedures for owners, directors and controllers. ### Recommendations to strengthen licensing policy and practice - Conduct a review of licensing policy and practice to improve consistent, comprehensive reflection of ML/FT and other financial abuse risks, focusing on: - (a) More stringent application of ongoing licensing and prudent conduct requirements when there are known or suspected financial abuse and ML concerns with FIs, applicants and/or their affiliates. - (b) More robust vetting and approval procedures when underlying proponents or beneficiaries may be associated with high risk persons, ventures, countries or regions. - (c) More robust vetting where business proposals are unusually complex, e.g. for certain types of investment funds. - (d) Where the BMA is a consolidated supervisor, take into account fit and proper/prudent conduct/minimum licensing criteria on a group-wide basis, potentially requiring additional conditions or arrangements with overseas supervisors. - (e) Review appropriateness of reliance on due diligence by introducers of applicants (e.g. professional firms and institutions). - Establish explicit policy and enhanced review processes for continuing fitness and propriety of local FIs when there are legal or reputational concerns about affiliates, whether domestic or foreign. - Review licensing and supervisory approach where a licensee’s affiliate has given rise to supervisory concerns, including refusing new licenses to applicants affiliated with existing problem licensees. ### Insurance sector licensing documentation and declarations - Recommendation: review insurance licensing procedures to ensure full documentation requirements for ultimate beneficiaries of proposed insurers and managers are always met, particularly information on financial standing of underlying owners or principals. - Enhance review of application documentation to ensure applicant declarations on competence and probity match the license type sought. ### Application of prudential regulations to AML/CFT and consolidated supervision (c. 23.4) - BMA has a policy paper on Consolidated Supervision for banks; banks expected to apply policies and controls on a consolidated basis. - BMA has not developed and implemented a comprehensive program for consolidated supervision across all financial groups and sectors to review group-wide AML/CFT policies, procedures and controls. - Importance: many financial groups are headquartered in Bermuda with significant operations overseas. - No. of Bermuda branches: 15 - No. of overseas subsidiaries: 33 - BMA reports conducting on-site visits to foreign subsidiary operations of banks/FIs subject to consolidated supervision since 1990, largely discussions with foreign FIs; local regulators sometimes accompany BMA staff. - BMA provided post-mission summary statistics concerning overseas visits during 2002–2005 (included AML issues; concentrated on two large banking groups and a trust company (1 visit) with headquarters in Bermuda): - Year 2005: No. of FIs visited 1 — Jurisdiction United Kingdom (1) — Duration days/No. Staff 2/3; Cayman (1) 2/3 - Year 2004: No. of FIs visited 2 — Bahamas (1) 2/3; Guernsey (1) 1/3; Luxembourg (1) 2/4 - Year 2003: No. of FIs visited 3 — Ireland (1) 2/4 - Year 2002: No. of FIs visited 7 — UK (2) 2/3 1/3; Jersey (1) 1/2; Isle of Man (1) 2/3; Guernsey (1) 5/4; Hong Kong (1) 5/4; Singapore (1) 2/3 - Observations: - Statistics reflect a rapidly declining trend with no visits reported for 2006, and no similar visits outside the banking and trust sector. - Duration and staff assigned suggest a high-level approach with limited testing of compliance. - Confidentiality constraints may limit access to customer files; BMA increasingly prefers dealing with AML issues through dialogue with overseas supervisors. - No significant formal exchanges of information have occurred in practice. - Industry indicates not all Bermudian parent FIs implement consolidated AML/CFT approaches; subsidiaries often apply only local procedures. - Recommendations: - Review arrangements to ensure compliance with Rec. 22 of the FATF Recommendations and ensure Bermudian requirements are applied where more stringent than host country. - Review whether adequate group-wide implementation and consolidated supervision is in place for FIs with branches, subsidiaries and affiliates in countries considered to have implemented effective AML and CFT measures. ### On-site supervision, auditors, and management letters - On-site supervision includes discussion with internal audit staff about AML/CFT procedures and controls. - Discussion with external auditors is not a routine part of BMA supervision; AML/CFT issues have not in practice been raised in external auditor’s management letters when issued. - Auditors state management letters are generally issued and may convey findings verbally and/or via PowerPoint presentations. - Post mission: supervisors review management letters when available; staff can meet jointly with auditors and FIs to discuss material exceptions or concerns including AML. ### Licensing and supervision of Value Transfer/Exchange Services (c. 23.5–23.6) - Until December 1006/January 2007, Bermuda had no legal framework for licensing/registering money services business. - Historically one international money remittance firm operated in Bermuda under a licensed FI; the facility ceased operations in 2002. - New licensing regime introduced in December 2006 via amendment to the BMA Act (Section 20AA) and Money Service Business Regulations issued on 16 January 2007. - As of the date of the mission, only one application for a license under these Regulations was being considered. - A 12-month transition period was granted for existing service providers to apply for a license. - Simultaneous amendment to the AML Regulations in January 2007 extended coverage to money service businesses licensed under the new regulations. - Once licensed, money service businesses will be subject to BMA supervision. ### Licensing and AML/CFT supervision of other FIs (c. 23.7) - Except for one electronic payments (and check cashing/guarantee) company, authorities are not aware of other financial activity outside current BMA supervision that should be brought under the AML/CFT regime per FATF definition. - The electronic payments and check cashing/guarantee company is now covered under the BMA Act and the new Money Service Business Regulations, expected to be licensed soon, and will be subject to new draft AML Regulations under consideration. - Recommendation: authorities/BMA should consider a review of the financial system to ascertain any other FIs that should be covered by the AML/CFT regime (e.g., possible non-consumer based financial leasing operations, including through structured financing operations). ### Guidelines for Financial Institutions (c. 25.1) and supervisory authority - The BMA states it has no authority to issue guidelines on AML/CFT and has not issued any to assist FIs in complying with AML/CFT obligations.12 - The BMA is a member of the National Anti-Money Laundering Committee which issued non-mandatory AML Guidance Notes in 1998 (Amended in 2004) to provide practical guidance to FIs. - Assessment: current Guidance Notes are outdated, lack clarity in instances, and contain provisions which, if strictly followed, may dilute implementation effectiveness and create ML/FT vulnerabilities (e.g., exemptions on customer identification for insurance and investment business sectors). - No guidance has been issued specifically on CFT issues, including pursuant to para. 1(6) of Schedule 1 of the Anti-Terrorism (Financial and Other Measures) Act, 2004 which states that a court “must consider whether he followed any relevant guidance ...” for failure to report knowledge or suspicion of FT. - Neither POCA nor the AML Regulations provide an explicit mandate or power to the BMA or any other supervisory body to monitor and enforce AML/CFT compliance. - Proposed legislative amendment (Proceeds of Crime Amendment Act 2007) would amend the Bermuda Monetary Authority Act (Section 3(1)) to include as a principal object: - “to monitor compliance with the reporting and other obligations of regulated persons under the Proceeds of Crime Act 1997, regulations and orders made thereunder, and the Anti-Terrorism (Financial and Other Measures) Act 2004, regulations and orders made thereunder; and in this paragraph “regulated person” means a person that is licensed or registered by the Authority under any enactment” *Source: _cr08105 - 437. (excerpt)* ### 460. This provision, if enacted, will provide a legal basis for the BMA to monitor ### _cr08105 - 460. This provision, if enacted, will provide a legal basis for the BMA to monitor ### Legal basis and scope of AML/CFT monitoring - The proposed provision, if enacted, "will provide a legal basis for the BMA to monitor compliance with the AML/CFT requirements but would not cover the power to enforce and sanction for breaches of the AML/CFT requirements per se." - Section 3 (1)(b) and Section 20A of the BMA Act, and various financial regulatory laws, "provide broad powers to the BMA to supervise, regulate and inspect FIs." - The amendment appears to "clarify or add more specificity to the supervisory powers already in existence but as noted could limit its application to a monitoring function only." ### Coverage and limitation across sectors - The enabling powers in the BMA Act for supervision and inspection "only relate to FIs other than insurers," where "financial institution" and "institution" are defined under Section 1 and listed under the Third Schedule to the Act. - Consequently, "the BMA’s supervisory powers under the BMA Act, including for AML/CFT issues would not extend to the insurance sector." - The insurance sector supervision and BMA powers are discussed under the Insurance Act; the BMA Act may not cover insurance institutions "in part because this sector was not brought under the supervision of the BMA until recently." ### Authority to conduct AML/CFT inspections (c. 29.2) - BMA Act: Section 3(b), (bc) and (f) constitute principal objectives: - 3(b) "to supervise, regulate and inspect any FI which operates in or from within Bermuda;" - (bc) "to assist with the detection and prevention of financial crime;" - (f) "to perform such function as may be necessary to fulfill such principal objects." - Section 1 defines "financial crime" to include dealing with the proceeds of crime under the POCA. - Section 3(3) states that in its supervisory, regulatory and inspection functions, the BMA "shall have regard to the need for FIs to be alert to the risks of financial crime and to the consequent need to have appropriate arrangements in place to monitor and control such risks." - Taken together, these provisions "provide the enabling power for the BMA to play an active and important role in AML/CFT supervision for those FIs under its supervision." - Supervision and enforcement do not "provide a clear and explicit link to e.g. the specific requirements under the AML Regulations." ### Delegation and Regulations - Section 2 enables the BMA "to perform such functions as are assigned to it by the BMA Act or any other Act and Regulation made thereunder." To date, "neither the POCA nor the Regulations have assigned such functions." - Part IVA states FIs covered by the Act shall be subject "UNDER THIS ACT (BMA ACT) OR THE REGUALTIONS MADE THERUNDER" — ambiguity exists whether this limits supervision to matters in the BMA Act and its Regulations or extends to other financial regulatory laws. "This needs to be clarified." - Section 21 (1A) allows the Minister of Finance to delegate to the BMA, "powers for the purpose of prevention and detection of financial crime." The mission was "not informed that any such powers have been delegated." ### Developments for specific entities - In January 2007, the Money Services Business Regulations were enacted bringing money remittance, bureaus de change, debit and credit card issuing firms, and electronic and internet payment services under direct BMA supervision. - Prior to 2007, only one money remittance firm existed and ceased operations in 2002. - The BMA has in practice relied on cooperation from entities rather than routinely using legal powers to conduct onsite inspections. ### Powers to compel production of records (c. 29.3 & 29.3.1) - BMA Act: - Section 22 provides general power to require information. - Section 22(1)(b) and Section 22(4) specifically relate to information from financial institutions (excludes insurance entities per the Act definition). - Sections 30A–30D provide for production of information to comply with foreign regulatory assistance requests. - "Adequate sanctioning powers are provided in the Act for failure to comply with such requirements." - Banks and Deposit Companies Act 1999: - Section 39 and 40 allow the BMA to obtain information and documents; Sections 42–45 apply to investigations. - "There are no limitations on the types of records to be obtained which can include accounts and information relating to suspicious transaction reporting." - Insurance Act 1978: - Section 29 and 30 provide similar powers to obtain information and documents from insurers. - Section 51B empowers the BMA to require information/documents to assist foreign regulatory authorities; these provisions "fill a gap in the BMA Act" for insurers. - Investment Business Act 2003: - Sections 45–48 empower the BMA to obtain information and documents; Sections 49–52 for investigations. - Investment Funds Act 2006: - Sections 60–68 enable production of information and documents for BMA functions and investigations. - Credit Union Act 1982: - Section 29 requires production of information and records for special examinations; not clear if this covers AML/CFT, though "in practice the BMA addresses such issues during its onsite visits." - Money Service Business Regulations 2007: - The BMA relies on its authority under the BMA Act to require production of information and documents for supervision and inspections of MSBs. ### Powers of enforcement and sanction (c. 29.4) - Absent further amendments, "there are no provisions that would empower the BMA to enforce and sanction for non-compliance specifically with the AML/CFT requirements." - The BMA’s administrative sanctioning powers exist under various financial regulatory laws and "could enable it to take into account compliance with AML/CFT legal obligations in ascertaining whether an FI is conducting its affairs in a prudent manner." - The Banks and Deposit Companies Act is "the only law that does not explicitly extend prudent conduct requirements to compliance with other laws, beyond this Act." - Possible authority to apply sanctions includes directions, restrictions on business, and license revocation where minimum licensing criteria/prudent conduct requirements are breached. ### Recommendations and options identified - Make prudent conduct requirements consistent across all relevant financial laws to include the AML/CFT laws. - Consider making a specific reference in the prudent conduct requirements to AML/CFT legislation. - Authorities should consider including in AML/CFT legislation or another enforceable instrument "the authority for BMA to use its existing supervisory, enforcement and administrative sanctioning powers for purposes of compliance with the AML/CFT obligations." - Consider including in regulatory laws a provision that failure to observe AML(/CFT) Guidance Notes or comply with codes of conduct "may be taken into account by the BMA in the enforcement of non-compliance with these requirements." - A similar provision exists in the Insurance Act under paragraph 4 (2) of the Schedule: "the ‘Authority shall take into account any failure by the registered person to comply with the provisions of this Act, any other provisions of law and code of conduct.’" - Consider extending similar Guidance Notes provisions across regulatory laws where appropriate. ### Sector-specific enforcement powers summary - Banks and deposit companies: - Sections 17 and 18 permit restrictions on licenses and revocation; Second Schedule sets minimum licensing criteria and allows enforcement for failure to conduct business in a prudent manner. - The Second Schedule's record-keeping and systems-of-control requirements relate to banking law but not explicitly to AML/CFT. - Insurance: - Section 32 grants intervention powers including issuing directions; Schedule allows taking into account failure to comply with "this Act, any other provisions of law and code of conduct" when assessing prudent conduct. - Section 41 allows cancellation of insurers' registration. - Securities/investments: - Investment Business Act Sections 20 and 21 provide powers to restrict and revoke licenses. - Investment Funds Act Sections 27, 30, 51 and 52 provide powers to issue directions and revoke licenses; Schedules allow taking into account compliance with other laws. - Credit unions: - Sections 21 and 22 allow remedial action and cancellation/suspension of registration; no explicit prudent conduct requirements to establish AML/CFT enforcement basis. - Money Services Business: - Under the Money Services Business Regulations 2007, the BMA can issue directions, impose restrictions on business, remove directors/officers/controllers, and revoke licenses if minimum licensing criteria are not met; prudent conduct requirements include compliance with these Regulations and other provisions of law. ### Observed practice and enforcement history - The BMA "has not used legal powers to conduct onsite inspections" for banks; banks "cooperated fully" when inspections occurred. - "There have been no cases where formal sanctions have been applied to FIs with respect to AML/CFT issues except one case where formal procedures were initiated." *Source: _cr08105 - 460. This provision, if enacted, will provide a legal basis for the BMA to monitor (IMF mission report excerpt)* ### 478. Availability of Effective, Proportionate & Dissuasive Sanctions (c. 17.1): In general, ### _cr08105 - 478. Availability of Effective, Proportionate & Dissuasive Sanctions (c. 17.1): In general, ### Availability and sufficiency of sanctions - Bermudian law and regulation provide a range of criminal, civil and administrative sanctions that apply to natural and legal persons, including [regulated institutions] for failure to comply with AML/CFT laws. [Other than for TSPs, DNFBP are not covered by AML/CFT laws, and therefore there are no administrative sanctions that would apply to them.] - A major concern: criminal money penalties under Bermudian law typically range from $20,000 to $200,000. - Specific low fines of concern: - Prejudicing an investigation under Section 42 of POCA carries a fine of $10,000. - Administrative penalties imposed by Customs range up to $30,000. - Observed consequence: the existing range of criminal fines may be viewed simply as a cost of doing business by larger, globally active financial players in Bermuda. - Two additional sanctioning powers recommended for the BMA: - Civil money penalties (lower standard of proof would apply). - Conservatorship powers (temporary administration). ### Designation of authorities and scope - Designated sanctioning authorities: - Bermuda Monetary Authority (BMA) — with respect to regulated institutions. - Collector of Customs — with respect to transportation of cash and negotiable instruments. - Although no explicit reference to AML/CFT violations exists in the regulatory laws or regulations, BMA officials state BMA has legal authority to impose sanctions for any violation of law under applicable regulatory acts (with an exception: the Banks and Deposit Companies Act restricts application to that Act only in Section 4(c)(8) of the Second Schedule). ### Sanctioning of directors and senior management - Regulatory laws contain provisions to sanction directors and senior management. Example (Section 56(1) of the Bank Act): - “Where an offence under this Act committed by a company is proved to have been committed with the consent or connivance of, or to be attributable to neglect on the part of, any director, senior executive, secretary or other similar officer of the company, or any person who was purporting to act in any such capacity, he, as well as the company, shall be guilty of that offence and be liable to be proceeded against and punished accordingly unless such person shows that he took all reasonable steps to avoid the commission of an offence.” - Similar provisions cited: Sections 22A(2) and 33(3) of the BMA Act; Section 83 of the Investment Business Act; Section 73 of the Investment Funds Act; Section 18 of the MSB Regulations; Section 53 of the Trust Act. - For ML offenses: Section 56 of POCA and paragraph 8(4) of the POCA Regulations apply Section 56 to offences under the Regulations. ### Range of BMA sanctions and observed practice - Sanctions BMA may impose include: - Non-binding letters requesting remedial action. - Orders to comply with instructions or directions. - Removal of control parties, directors and officers. - Revocation of license. - Referral to law enforcement for criminal prosecution. - Two key sanctions missing and recommended for inclusion in legislation: - Civil money fines or penalties. - Conservatorship or temporary administration powers. - Reported practice: according to BMA officials, no binding sanction has ever been imposed on a financial institution for a violation or deficiency relating to AML/CFT requirements. ### Supervisory resourcing, integrity, training and statistics (c. 30.x) - Resources and staffing: - BMA is an integrated and operationally independent regulator with sufficient financial resources for general supervision of FIs. - BMA may need significant staff increases to develop an onsite inspection program across all supervised sectors. - Staff enhancement and additional AML/CFT training are necessary to enable effective supervision of large cross-border FIs and consolidated AML/CFT supervision. - A systemic ML/FT vulnerability and risk assessment of the financial sector (notably insurance and investment services) is recommended to support supervisory development and resource allocation. - Integrity: - BMA maintains a high professional and skilled cadre of staff subject to strict confidentiality restrictions and rules under financial regulatory laws. - Training: - AML supervision expertise stronger in banking sector; more limited in other sectors. - Some staff have undergone or are undergoing AML/CFT-specific training; training should continue and be expanded. - BMA appears to have sufficient financial resources to implement more rigorous training. - Statistics and information gathering: - BMA could strengthen information gathering and statistics to support risk-based supervision. - Suggested improvements include better capture of volume and source of life and investment based insurance business, and non-resident business data for deposit taking and investment services. - A review of data capture and analysis would support a more focused off-site surveillance regime complementing onsite work. ### Recommendations (selected, numbered by source) - R.17: - Enact two additional sanctioning powers for the BMA: civil money penalties and conservatorship powers. - Consider substantially increasing the range of criminal fines. - Rec. 23: - Develop and implement both offsite and onsite risk-based AML/CFT supervision programs; prioritize full-scope inspections for higher ML/FT risk sectors/institutions including insurance. - Expand scope of onsite reviews to assess adequacy of formal policies and Board/senior management commitment. - Develop and implement consolidated supervision framework for AML/CFT compliance beyond banking; focus on parent/operating holding companies with significant overseas operations and group-wide risk management, compliance and audit functions. - Enhance onsite inspections to focus on high-risk activities (wire transfers, CDD on ultimate beneficiary clients, reliance on intermediaries/introducers). - Enhance review of SAR reporting systems and consider external auditors’ work on AML/CFT controls. - Review effectiveness of supervisory processes for enforcement action and strengthen licensing practices reflecting group-wide fit and proper concerns. - Review licensing procedures for ultimate beneficiaries and applicant declaration consistency with license type. - Expedite licensing/registration for money services firms and review Section 20AA provisions regarding agents/subagents and client money holding periods. - Conduct systemic review to identify other financial activities covered by FATF Recommendations occurring in or from Bermuda on a regular commercial basis. - Rec. 25: - Review/update Guidance Notes for completeness and relevance; remove inappropriate exemptions or simplifications in customer due diligence. - Rec. 29: - Consider extending definition of covered FIs and supervisory powers under the BMA Act to the insurance sector. - Establish explicit mandate for BMA to monitor, enforce and sanction AML/CFT obligations of FIs; review adequacy of proposed Bill to amend POCA/BMA Act to ensure clear, complete mandate. - Specify clear powers in the Credit Union Act for BMA delegated supervision/inspection including AML/CFT. - Extend Banks and Deposit Companies Act prudent conduct/minimum licensing criteria to cover AML/CFT compliance. - Include legislative power for BMA to enforce AML/CFT requirements, including administrative measures and sanctions as in regulatory laws. - Clarify in proposed Bill that BMA’s AML/CFT supervision includes monitoring, enforcement and sanctions powers. - Rec. 30: - Enhance AML/CFT training for BMA staff covering internal controls, CDD, SARs filings, recordkeeping, and MLRO qualifications/operations; prioritize insurance and investment business/mutual fund sectors. - Enhance staff capacity for comprehensive AML/CFT supervision, including effective consolidated supervision as home or host supervisor. - Rec. 32: - Improve statistics to capture AML/CFT-relevant information (e.g., non-resident deposits and clients; insurance: life and/or annuity/investment premium/policies). ### Compliance ratings and key factors (3.10.3) - R.17 — PC: - Although BMA has a wide range of sanctions powers, formal sanctions have never been imposed on an FI for AML/CFT violations. - Missing sanctions: civil money fines and conservatorship powers. - Money penalties that may be imposed by Customs are much too low. - Fines under POCA for summary convictions and certain indictable convictions are much too low. - R.23 — NC: - Inadequate AML supervision of FIs, particularly non-banking sectors; no CFT supervision. - Onsite AML supervision only commenced in 2007 for insurance sector; mutual fund administrators still to be licensed and supervised for AML/CFT. - Limited scope of AML onsite inspections (institutions and review areas). - AML Regulations do not assign AML/CFT supervisory, enforcement and sanctioning authority to the BMA. - Insufficient consolidated AML/CFT supervision, especially non-banking; insufficient use of external auditors’ work. - Insufficient AML/CFT staff capacity and training. - Need to enhance licensing criteria/procedures and account for group-wide fit and proper concerns. - Until December 2006/January 2007, no framework for licensing/registering money services business; licensing/supervision still to be implemented. - No review conducted to determine whether other FATF-covered FIs not currently subject to AML regime (e.g., financial leasing on a commercial scale) should be licensed/registered. - R.25 — PC: - Guidance Notes inadequate: do not adequately describe ML and FT techniques, do not cover CFT, are outdated and limited in scope. - Among DNFBPs, only trust service providers are covered by the Guidance Notes. - No FIU procedures in place for providing feedback to FIs. - R.29 — PC: - No explicit mandate in POCA and AML Regulations for a supervisory body to monitor, enforce and sanction for AML (no CFT application); unclear application of regulatory powers. - Need to include clear AML/CFT enforcement and sanctioning powers in BMA Act and regulatory laws. - Credit Union Act should grant clear BMA powers to supervise/conduct onsite inspections including AML/CFT compliance. - Banks and Deposit Companies Act does not extend prudent conduct/licensing requirements to AML/CFT compliance. *Source: _cr08105 - 478. Availability of Effective, Proportionate & Dissuasive Sanctions (c. 17.1): In general* ### 3.11 Money or value transfer services (SR.VI) ### 3.11 Money or value transfer services (SR.VI) ### 3.11.1 Description and Analysis - Legal Framework - By amendment to the Bermuda Monetary Authority Act, effective Dec 27 2006, the money service business became a distinct line of business subject to licensing and regulation by the BMA. (C. SR VI.1) - Under Section 20 AA (1) of the Act, activities covered include: money transmission, currency exchange, check cashing, internet payments, issuing or redeeming travelers checks, issuing or redeeming credit or debit cards, or otherwise providing means of electronic payments. - The Act allows a twelve month transition period; at the time of the mission the BMA was reviewing license applications from a handful of applicants. - Commercial banks are exempt from the requirement to obtain a license to offer money services. - Designation of Registration or Licensing Authority (c. VI.1) - Money Services Business Regulations 2007 were issued by the Minister of Finance on January 16, 2007. - Regulations prohibit offering money services without a license and enumerate minimum licensing criteria (fit and proper, prudent conduct). - Regulations identify specific offences subject to sanction and give BMA authority to issue directions to protect the interests of clients. (C. SR VI.1) - As institutions licensed by the BMA and subject to its supervision (C. SR VI.3), money service businesses are required to conduct their affairs in a prudent manner under the schedule to the Regulations. - Under the Minimum Criteria for Licensing Schedule, Section 2 (2) requires that the company “comply with the provisions of these regulations and other provisions of law.” - Money services businesses are subject to the Proceeds of Crime Act and attendant Regulations and preventive measures regime. (C. VI.2) - Section 5.0 of the Bermuda Monetary Authority: Money Services Business Regulations 2006: Information for Prospective Applicants and Guidance Notes (promulgated in January 2007) state: “As a licensed institution, a money service business is also required to comply with the Proceeds of Crime Act 1997 and the Proceeds of Crime (Money Laundering) Regulations 1998. As such, it must be constantly vigilant in deterring criminals from making use of its services for the purpose of ML and terrorist financing.” - The status of these regulations/guidance notes is unclear; the issuance appears to be non-binding guidance notes since only the Minister has authority to issue binding regulations. - Application of FATF Recommendations (applying R.4-11, 13-15 & 21-23, & SRI-IX)(c. VI.2) - In January 2007 the POC Regulations 1998 were amended to cover licensed money service businesses. - It is expected that the preventive regime to be applied to money services business (encompassing R.4-11, 13-15 & 21-23, & SRI-IX)(c. VI.2) will be the same as described and analyzed in Section 4 above for FIs. - Since the regime for money service providers is very new and no firms have yet been licensed, there is no basis in experience to evaluate effective implementation or supervision. - Monitoring of Value Transfer Service Operators (c. VI.3) - Until very recently money transfer business was regulated indirectly by requiring money transfer services to operate through a bank or other depository institution to obtain foreign exchange authorization for international transfers. - One franchised money remitter conducted such service in association with a licensed deposit-taking company; that money remittance service ceased operations in 2002. - Subsequently, the only authorized money transfer services available were those offered by banks for their customers. - Authorities are aware of only a single unregulated, informal money transfer operator who was recently active in Bermuda; the operator aggregated small payments from a local expatriate community into a local bank account and then made wire transfers abroad; that account was closed when the bank became aware of the misuse of the account. - The party offering informal remittance services is aware of the new licensing requirements but has not applied for a license; authorities are satisfied that the individual’s former activities have been discontinued. - List of Agents (c. VI.4) - Money Service Business Regulations (2006/2007) allow non-bank money service businesses to be licensed with capacity to offer money transfer services; licensees will be supervised by the BMA and subject to the POC Regulations. - The Regulations have no provisions requiring each licensed operator to maintain a current list of its agents and to make this list available to the BMA. - Sanctions (applying c. 17.1-17.4 in R.17)(c. VI.5) - As of the time of the mission, supervisory arrangements were still being put in place and no money service business licenses had yet been approved. - Licenses were expected to be approved in the near future, including authorization for one firm to act as agent for an international money remittance firm. - The Regulations grant the BMA substantially the same powers to sanction money services businesses as it has to sanction any other licensed FI, including directions which can include removal of controlling parties, removal of directors and senior executives, imposition of conservatorship, and restriction or revocation of licenses. (C. SR VI.5) - (See Section 3.10 for analysis of the BMA authority to sanction.) - Additional Element – Applying Best Practices Paper for SR VI (c. VI.6) - Bermuda adopted a policy of requiring all money transmission services to be conducted through a licensed financial institution. - Licenses will be granted under the Money Service Business Regulations of January 2007, and the POC Regulations have been extended to cover such business. - Informal money transfer systems are not permitted. - The legal framework generally complies with FATF requirements, except for the requirement to maintain a list of agents. - Arrangements for BMA to supervise for AML/CFT compliance suffer from the same gaps and weaknesses noted in Section 3 above. - Since the regime for money service business is new and untested, there is no basis for evaluating effective implementation. ### 3.11.2 Recommendations and Comments - Licensed money transfer services should be required to maintain a list of their agents and to make this list available to the authorities. - Since the new legal regime for money service business is untested, there is no basis for evaluating effective implementation. ### 3.11.3 Compliance with Special Recommendation VI - Rating: SR.VI — PC - Summary of factors underlying rating: - Laws and regulations have been put in place but licenses have not yet been granted and effective implementation has not yet been tested. *Source: _cr08105 - 3.11 Money or value transfer services (SR.VI)* ### 514. Real Estate Agents. All real estate agents and salesmen are required to be licensed under the ### _cr08105 - 514. Real Estate Agents. All real estate agents and salesmen are required to be licensed under the ### Real estate agents — legal framework and licensing - All real estate agents and salesmen are required to be licensed under the Real Estate Agents Act 1976. - Licensing procedures impose general standards on who may be involved in the sector and enable the Minister of Finance to take action to deal with abuse. - The Minister has authority to make additional regulations as required. - Licenses are valid for one year and are renewable annually by the Minister on the advice of the Real Estate Advisory Board. - The Registrar of Companies has authority under Section 11 of the Companies Act to require any information he may require to assess the proper conduct of business. - All agents must submit to the Registrar of Companies an annual report by the agents’ auditors. ### AML/CFT coverage and Customer Due Diligence (CDD) for real estate agents - As of the time of the mission, real estate agents were not subject to the POC Regulations 1998 requiring an AML/CFT program covering: (a) identification procedures, (b) record-keeping procedures, (c) internal reporting programs, and (d) training procedures. - As a matter of customary business practice, real estate agents did not appear to adopt CDD and recordkeeping procedures akin to those expected under FATF Rec. 12. - The government is considering extending the scope of the POC Regulations to cover other designated non-financial businesses to be classified as Regulated Dealers which will include real estate agents. - Limiting AML/CFT requirements for real estate agents to transactions in cash above a threshold limit would not satisfy the FATF Recommendations. - C 12.1b requires that real estate agents should comply with the CDD rule when they are involved in transactions for a client concerning the purchase and sale of real estate, whether or not the transaction is conducted in cash. ### Dealers in precious metals and stones (jewelers) - Retail jeweler stores sell high value goods like Rolex watches and diamond rings. - There is no regular market for precious stones or metals on the island; jeweler inventories are limited and used to fabricate items for customers. - Jewelers do not typically buy precious stones or metal from retail customers nor sell individual stones or bullion to retail customers, although such transactions are not precluded. - Jeweler purchases in cash as high as $15,000 are described as "very exceptional." - Jewelers are not specifically regulated and are not subject to the POC Regulations. - The government is considering extending POC Regulations to cover designated non-financial businesses classified as Regulated Dealers, covering persons who accept high value cash payments above a threshold level. - No formal proposal had been tabled as of the time of the mission. ### CDD measures for DNFBPs and supervisory coverage (applying R.5, R.6, R.8–11, c.12.1–12.2) - Of Bermuda DNFBPs, only trust service business (TSB) is subject to CDD and recordkeeping requirements and supervised for compliance; requirements for TSBs are the same as those for FIs. - The BMA has a well-structured and documented program for supervising customer identification measures by TSBs, focusing on protection of client interests and regulatory compliance. - On-site visits to TSBs: - Carried out annually and normally last two days. - Include intensive discussions with officials responsible for key controls and relevant business lines. - Include testing procedures by examining a sample of customer files. - BMA staff assigned to trust supervision is limited but well trained and experienced; key officers have prior experience in the trust business. - Oversight for compliance with CDD in the trust sector appears to be effectively implemented; the control environment appears strong. - As of the time of the mission, lawyers, accountants, company service providers, real estate agents and dealers in precious metals and stones were not subject to mandatory obligations under POC Regulations 1998 to have AML/CFT programs covering: (a) identification, (b) record-keeping, (c) internal reporting programs (including arrangements for an MLRO to report to a police officer or the FIU), and (d) training. - No associated arrangements were in place for effective compliance monitoring of AML/CFT programs for these DNFBPs. - Plans were relatively advanced to bring amendments to POCA and to the POC Regulations 1998 to impose AML/CFT program obligations on lawyers, accountants and CSPs. - The proposed amendment to POCA (adopted as law on June 22, 2007, subsequent to the mission) with respect to AML/CFT preventive measures for lawyers and accountants is specified more narrowly than called for under FATF Rec. 12. - Current plans do not cover all professional accountants. - Plans under development to introduce AML/CFT compliance monitoring and oversight for DNFBPs are less advanced; SRO arrangements are proposed for professional legal advisors and public accountants but legal and operational modalities had not been fleshed out. ### Recommendations and policy actions (section 4.1.2) - Amend POCA and the POC Regulations 1998 to require lawyers, accountants, company service providers, dealers in precious metals and stones, including jewelers, and real estate agents to implement AML/CFT programs covering: - (a) CDD - (b) record-keeping - (c) internal reporting programs (to include reporting by an MLRO to the FIU) - (d) training - For lawyers and accountants, the AML/CFT program obligation should apply either when they plan for or when they carry out for their client the transactions enumerated in Rec. 12. Consideration should be given to extending the AML/CFT program obligations for accountants to all of their activities. - Given evidence that local drug dealers have made investments in the local property market, and the requirements of C 12.1, AML/CFT program requirements for real estate dealers should cover all real estate transactions, not just those carried out in cash. - Consideration should be given to requiring that all real estate transactions be settled by bank transfer. - Any SRO arrangements established for monitoring and oversight of AML/CFT program compliance should include adequate powers for the designated supervisor to review the policies and procedures and records of supervised parties as well as powers to effectively enforce compliance. - All high value dealers, specifically dealers in precious metals and precious stones, including jewelers, engaging in cash transactions with customers of $15,000 or more should be subject to the AML/CFT preventive measures regime. - An awareness campaign should be undertaken to familiarize DNFBPs with their responsibilities and obligations under any new AML/CFT laws or regulations. ### Compliance status summary for Recommendation 12 - R.12 — NC - With the exception of trust service providers, none of the other relevant DNFBPs are subject to CDD and Recordkeeping requirements nor are these other DNFBPs subject to AML/CFT oversight arrangements. ### Suspicious transaction reporting (R.16) — legal framework and practice - All DNFBPs are subject to the general provisions of POCA with respect to the obligation of all citizens to file SARs. - Under Section 46 (2) (a) and (b) of POCA, any person is subject to a general requirement to file an SAR when: - (a) “he knows or suspects that another person is engaged in ML which relates to any proceeds of drug trafficking;” failure to disclose is an offence when, and - (b) “the information, or other matter, on which that knowledge or suspicion is based came to his attention in the course of his trade, profession, business or employment.” - Section 46 (3) suspends this general obligation where a professional legal adviser has “information or other matter which has come to him in privileged circumstances.” - The defense for the legal profession for failure to file ML-related SARs under Section 46(6) of POCA and for FT-related SARs under Section 9(6) and Schedule 1, Part 1, paragraph 1(5)(a) of the ATFA based on legal privilege does not contain an explicit exclusion from privilege for communications by and with attorneys engaged by a client in a commercial transaction, as required by Rec. 16. - The defense relating to ML-related SARs under POCA and FT-related SARs under ATFA covers information obtained in privileged circumstances arising from the provision of legal advice, whether or not such advice has been given in the course of legal proceedings. - Both laws include provisions to exclude legal privilege where advice is sought to further criminal purposes (see Section 46(6) last paragraph of POCA; Section 9(7) first sentence and Schedule 1, Part 1, paragraph 1(10) of the ATFA). - Two sections of POCA limit the scope of the anti-tipping off provision for members of the legal profession: - Section 47(3)(a) exempts tipping-off by a lawyer to a client with respect to ongoing investigations as long as the tipping-off occurs within the context of legal advice to the client. - Section 47(3)(b) exempts tipping-off by a lawyer to any person in connection with any legal proceedings and for the purpose of those proceedings. - Members of the Bermudian bar indicate an obligation for a lawyer to disclose any material information possessed by them to their client as part of the lawyer’s duty to effectively represent the client, including information that would otherwise fall under the tipping-off offense; this provision is described as overly broad and an alternative should be found that would protect confidentiality of SAR information. ### DNFBP SAR reporting practice and supervision - Among Bermuda DNFBPs, only TSBs are subject to formal regulation for compliance with AML/CFT obligations and supervision by the BMA. - TSBs are required to have AML/CFT compliance programs including monitoring for suspicious activities, internal training and reporting regimes. - Four SARs have been filed by TSBs over the past 4 years. - As of the time of the mission, no other DNFBPs were subject to POC Regulations 1998 nor were there supervisory arrangements for monitoring and ensuring compliance by these DNFBPs with SAR reporting obligations. - Reporting of suspicious activities by other DNFBPs is rare; no SAR has ever been filed by a lawyer acting as such. - Official statistics show that over the past four years 23 SARs have been reported by unregulated entities but it is not indicated whether these reports were filed by DNFBPs (other than TSBs) or other businesses or individuals. - Proposals to extend AML/CFT obligations to lawyers, accountants, CSPs, dealers in precious metals and stones, and real estate agents will require introducing supervisory regimes to ensure compliance with SAR filing obligations; various oversight arrangements were under consideration but modalities had not been settled as of the mission. ### Recommendations and comments on SAR reporting (section 4.2.2) - Amend POCA to ensure that SAR reporting requirement conforms to the applicable FATF Recommendations, including requirements for legal professionals. - Authorities should take additional measures, including issuance of regulations and guidance, to ensure that DNFBP, including lawyers, file SARs when appropriate. - Limit the provisions with respect to tipping off by lawyers; find an alternative that allows professional obligations to be dealt with while protecting the confidentiality of SAR information. - Bring all DNFBPs under the preventive measures regime called for in POC Regulations 1998; mandatory measures should include requirements to have effective systems and controls to monitor transactions for suspicions and to ensure that suspicious activities are reported. - Any AML/CFT supervisory regime introduced for DNFBPs should include powers for the supervisor to ensure effective implementation of SAR reporting requirements. ### Compliance status summary for Recommendation 16 - R.16 — NC - With the exception of trust service providers, none of the other relevant DNFBPs are subject to oversight with respect to reporting obligations and the regime is not effectively implemented. ### Regulation, supervision and monitoring (R.24–25) - Casinos (C24.1): Not Applicable — gaming is prohibited in Bermuda and there are no casinos; enforcement actions taken to ensure gambling on cruise ships is not conducted while in Bermuda waters. - Trust service businesses (C24.2): TSBs are subject to POC Regulations 1998 and supervised by the BMA; AML/CFT regulatory regime applied to TSBs is substantially the same as that for other FIs. - Monitoring systems for TSBs: - BMA has a well-structured, documented program; off-site monitoring and on-site visits focus on AML/CFT considerations such as CDD, internal controls, and record keeping. - On-site visits to TSBs are carried out annually on a 3-year rolling program; visits normally last two days and include testing a sample of files. - BMA supervision staff for TSBs is limited but well trained and experienced. - AML/CFT oversight of the trust sector appears to be effectively implemented and the control environment strong. - Other DNFBPs: - Amendments to POCA were before Parliament (adopted as law subsequent to the mission) and draft revisions to the POC Regulations 1998 were under consideration to bring lawyers and accountants under AML/CFT preventive measures obligations. - Arrangements for compliance monitoring and enforcement were under discussion but no specific proposals had been put forward as of the mission. - Expectation that SRO arrangements will be established with the Bermuda Bar responsible for lawyers and the Institute of Chartered Accountants of Bermuda (ICAB) responsible for accountants. - Both associations have statutory status, powers to discipline members, and experience in oversight, but legal and structural modifications would be necessary for full and effective supervisory and enforcement powers. - The Bar and ICAB appeared receptive to taking on responsibility but recognized additional resources and authority would be required. *Source: _cr08105 - 514. Real Estate Agents. All real estate agents and salesmen are required to be licensed under the* ### 538. A specific issue to be resolved is whether the SRO membership will include all those lawyers ### _cr08105 - 538. A specific issue to be resolved is whether the SRO membership will include all those lawyers ### DNFBPs: scope, supervision, and guidance - Paragraphs 538–541 summarize issues on designation and supervision of DNFBPs: - Most lawyers that the FATF Recommendations expect to be under AML/CFT obligations would also be members of the Bar. - Most members of the ICAB are not believed to engage in activities expected by FATF to be covered by AML/CFT obligations. - Many activities of professional accountants expected by FATF to be covered by AML/CFT obligations are carried out by professional accountants (e.g., business consultants) who are not public accountants and who need not be members of ICAB. - Draft revisions to the POC Regulations under consideration would bring corporate services providers (CSPs) under the AML/CFT regime by defining them as FIs, subject to supervision by the BMA; modalities for making this arrangement effective have not yet been developed by BMA. - The government does not expect to require CSPs to be licensed, unlike all other FIs; absent a licensing framework, authorities and BMA will need specialized legal and operational arrangements to ensure AML/CFT supervision of CSPs is properly structured and fully enforceable. - Supervisory arrangements for jewelers and real estate agents have yet to be developed. - The National Anti-Money Laundering Committee has issued Guidance Notes on the Preventions of ML summarizing standards expected of all regulated institutions; at the time of the mission trust service providers were the only DNFBPs formally subject to AML/CFT obligations. - Recommendations and comments (Section 4.3.2): - When lawyers, accountants, company service providers, real estate agents, jewelers and high value dealers are brought under the AML/CFT preventive regime, ensure that effective supervisory arrangements are established for each sector, including adequate powers for the supervisors to monitor and sanction, and adequate resources to carry out the supervisory function. - Ensure that the scope of activities of professional lawyers and accountants that is subject to AML/CFT obligations and to supervision conforms to the requirements of Rec. 24. - Updated guidance should be issued relevant all DNFBPs. - Compliance with Recommendations 24 & 25 (Section 4.3.3): - R.24 NC - With the exception of trust service providers, no competent authority has been designated with responsibility for monitoring and ensuring compliance with AML/CFT requirements of other relevant DNFBPs. - R.25 NC - The Guidance Notes do not provide adequate descriptions of ML and FT techniques, do not cover CFT, are outdated, and are limited in scope. - Among DNFBPs, only trust service providers are covered by the Guidance Notes. - No procedures are in place for providing feedback from FIUs. ### Other non-financial businesses and professions & modern-secure transaction techniques (R.20) - Legal and supervisory scope (Paragraphs 542–544): - Under the Investment Businesses Act 2003, investment advisers are required to be licensed by the BMA as investment service providers; investment service providers are defined as FIs and are subject to the POC Regulations 1998. The BMA supervises investment advisers for compliance with the POC Regulations 1998. - No other non-designated non-financial businesses and professions have been brought under the AML/CFT regime for preventive measures. - The obligation to file SARs applies more widely than just FIs and DNFBPs: under Section 46 (2) (b) the disclosure requirement applies to anyone who has a knowledge or suspicion that another person is engaged in ML relating to drug trafficking. - Under Section 49 (3) of the POCA 1997, the Minister of Finance has broad authority to make regulations related to AML/CFT, including authority to bring various specified businesses and professions under the AML/CFT preventive measures regime. - Consideration was being given to applying the AML/CFT framework to all high value dealers but no specific plans had been put forward. - Modernization of transactions (Paragraphs 545–546): - The Electronic Transactions Act objectives include facilitation of electronic transactions, removal of uncertainties regarding written requirements, promotion of public confidence in electronic transactions, and promotion of legal and business development necessary to implement electronic transactions securely. - The Bermuda Monetary Authority Act was amended in 2006 (effective January 2007) to authorize establishment of independent money services business under regulations (Money Services Business Regulations 2007). Permitted money service businesses include money transmission services, providing means of electronic payment and intermediating means of payment over the internet. - Introduction of these services on a wider basis and at lower cost than currently available through the banking system has the potential to reduce the use of cash and reliance on informal money transmission services among the un-banked population. Applications to be licensed to offer these services are now before the BMA. - Recommendation (Section 4.4.2): - It would be desirable to bring all high value dealers under the AML/CFT regime. - Compliance with Recommendation 20 (Section 4.4.3): - R.20 C ### Legal persons — beneficial ownership, transparency, and corporate supervision (R.33) - Company incorporation and vetting (Paragraphs 547–551): - The Companies Act 1981 and the Exchange Control Act 1972 impose requirements to identify beneficial owners of companies; any application for incorporation must include identification of beneficial owners and controllers (typically done by a CSP provider). - Upon application for incorporation, the BMA is required to independently vet the chain of ownership and identify beneficial owners, directors and principal officers prior to the Registrar of Companies approving registration. - Non-resident owners are required to be vetted and beneficial owners identified whenever there are transfers of equity securities to or from persons who are non-residents, with the BMA independently vetting such non-resident owners. - Companies are required to maintain a registered office in Bermuda and that office is required to allow public access to shareholder information during specified office hours. - Companies formed under laws of another country who carry on business in Bermuda are required to obtain a permit issued by the Minister of Finance under Section 134 of the Companies Act 1981; permission requires a full vetting of beneficial ownership by the BMA. A register of permits is maintained by the Registrar of Companies (within the Ministry of Finance). - Section 53 of the Companies Act 1981: “It shall not be lawful for any company to issue bearer shares.” - Access to ownership information (Paragraphs 550, 552): - Beneficial ownership information developed by the BMA is confidential and is maintained by it on behalf of the Minister of Finance; such information is available to Bermuda law enforcement authorities and, through established gateways, to overseas authorities. Members of the public do not have access to such BMA information but do have access to ownership information at companies' registered offices. - Under Section 62 every company is required to maintain a registered office in Bermuda. Under Section 65 every company must maintain a register of its members (shareholders), including identification details, at its registered office. Under Section 66 members of the public must have access to the register of members for two or more hours each work day, at no charge. - Compliance with Recommendation 33 (Section 5.1.3): - R.33 C ### Legal arrangements — trusts, trustees, and access to beneficial ownership (R.34) - Trusts legal framework and regulation (Paragraphs 553–556): - Bermuda follows common law for trusts; the Trustee Act 1975 compiles common law as amended by Parliament. The Trustee Act 1975 provides general provisions for trusts and duties and powers of trustees; the duty to know the identity of beneficiaries, settlors or protectors is based on common law; there is no express provision under the Trustee Act 1975. There is no general requirement for trusts to be registered. - Trust services business is a regulated activity under the Trusts (Regulation of Trust Business) Act 2001, which requires that all persons who hold themselves out as carrying on the business of offering services as a trustee must be licensed; to date all trust business licensees are corporate entities; no individuals have applied for a license. - Trustees of foreign trusts carrying on business in Bermuda fall under the Trusts (Regulation of Trust Business) Act 2001 and are regulated under the POC Regulations with similar obligations regarding identity of settlors, beneficiaries and protectors. - Where companies are owned by trusts, the persons authorized to incorporate the companies of a trust must submit at the time of incorporation to the BMA information about the trust, in particular the identity of settlors and beneficiaries. - Powers and confidentiality (Paragraphs 557–562): - TSBs are subject to the POC Regulations 1998 and are regulated as FIs by the BMA; licensing requires controllers of TSBs to be fit and proper persons at authorization and on an ongoing basis, with statutory considerations focusing on fraud, dishonesty, deceitful, oppressive or otherwise improper behavior. - The Trusts Act 2001 grants the BMA broad powers to obtain information held by TSBs: Section 36 (power to obtain information and reports), Section 37 (power to require production of documents), Section 38 (right of entry to obtain information and documents). - Sections 48–50 address restrictions on disclosure of non-public information received under the Act; confidentiality does not restrict the BMA or other authorities in discharging their duties nor sharing information with other authorities, including overseas authorities, through established gateways. - The confidentiality restrictions do not appear to cause transparency issues for parties subject to the POC Regulations 1998: FIs and other designated professionals undertaking mandatory CDD on a trust request information on beneficiaries or settlors from the trustee; either the trustee obtains consent and provides the information or the transaction is declined. - The situation is less clear for DNFBPs not yet brought under POCA obligations; for example, some real estate agents state trustees are frequently reluctant to disclose beneficial ownership of property held in trust. - No specific measures are in place to facilitate access by FIs to beneficial ownership and control information to allow them to more easily verify customer identification data. - Compliance with Recommendation 34 (Section 5.2.3): - R.34 C ### Non-profit organisations (SR.VIII) - Legal framework and registration (Paragraphs 563–564): - Under the Charities Act 1978, every charitable organization which seeks to raise money from the public must register with the Registrar-General. Registrations require completion of an application listing officers and directors, stating the object of the charity, explaining how funds are to be raised and applied, and including a statement of financial information. - The Act creates a Charities Commissioners of Bermuda Committee to oversee charitable organizations; Commissioners review applications considering character and reputation of individuals connected to the organization and declared objectives. Once satisfied, the application is submitted to the Registrar for registration. - Registered charities are required to submit annual statements of account, which are reviewed by the Commissioners; Commissioners have authority to request audited financial statements if deemed desirable. Failure to comply with annual accounts requirements is grounds for revocation of registration. The Registrar can revoke registration if the Commissioners judge the organization is no longer fit and proper. Evidence of serious infractions would be referred to the AG. - Information filed with the Registrar by charities may be reviewed by the public during normal working hours; in practice information on charities is not compiled in a manner that makes it readily accessible. - Review, outreach, oversight, and information (Paragraphs 565–573): - The authorities have not undertaken any systematic review of the non-profit sector with respect to its potential vulnerability to terrorist financing. Recent consideration of revising the Charities Act focused on making distinctions among casual charities and more substantial activities. - No systematic outreach has been undertaken to raise awareness of potential vulnerabilities of charitable organizations to terrorist abuse; awareness is low. There is better awareness of ML risks. - Mission contacts thought the vulnerability of the Bermuda NPO sector to ML and FT risk is low, in part because of the structure of the charitable sector. Most funds raised in Bermuda are used in Bermuda; some charitable funds are raised abroad (mainly in the United States) but are limited. A portion of charitable funds are used to assist poor countries or for disaster relief, but amounts seem limited and specifically targeted. - Ongoing oversight of charities is relatively light: the Charities Commissioners are volunteers with no budget, no dedicated staff or offices; maintenance of up-to-date files by the Registrar is hampered by limited staff resources. Nevertheless, compliance with registration requirements appears to be good. - Information on objectives and identities of directors and principal officers is required to be submitted to the Registrar and the public has access to these filings. - Commissioners and the Registrar have powers to cancel registration for non-compliance with financial reporting requirements or if the organization is no longer fit and proper; serious issues are referred to the Attorney General. - Charitable organisations are registered and such information is available to competent authorities. - There are no formal requirements on the form in which charitable organizations must compile records of their transactions, nor are there any required minimum record holding periods. - No specific measures have been taken by the authorities to ensure they can effectively investigate and gather information on NPOs. - No specific points of contact or procedures have been established to respond to international requests for information regarding particular NPOs suspected of terrorist financing or other terrorist support; given Bermuda’s small size, other established law enforcement gateways are considered adequate. - Section heading for follow-on material: - 5.3.2 Recommendations and Comments (text not included in the provided content) *Content derived from paragraphs 538–573 of the supplied IMF document.* ### 574. The authorities should undertake a review of laws and regulations related to NPOs to ensure ### _cr08105 - 574. The authorities should undertake a review of laws and regulations related to NPOs to ensure ### Non-profit organizations (NPOs) and Special Recommendation VIII (SR.VIII) - Finding: "The authorities should undertake a review of laws and regulations related to NPOs to ensure that they cannot be misused for financing of terrorism." (para. 574) - Finding: "Recordkeeping requirement should be established in line with c. SR VIII 3.4." (para. 575) - Finding: "The authorities should implement measures to ensure that they can effectively investigate and gather information on NPOs, as called for in C. SR VIII.4" (para. 576) - Rating: SR.VIII — PC - Factors underlying rating: - "The authorities have not undertaken a review of laws and regulations related to non-profit organizations to ensure that they cannot be misused for financing terrorism." - "Recordkeeping requirements and investigative procedures are not consistent with FATF standards." ### National cooperation and coordination (Recommendation 31, R.31) - Legal framework: - National Anti-ML Committee (NAMLC) established under Section 49(1) of POCA with responsibilities: (a) advising the Minister of Finance in relation to the detection and prevention of ML, (b) issuing from time to time guidance as to compliance, and (c) advising the Minister of Finance as to the participation of Bermuda in the international effort against ML. (para. 577) - Mechanisms and practice: - NAMLC issues guidance notes, provides a contact point for coordination, and is responsible for developing Bermuda AML/CFT policy. (para. 578) - Ongoing initiatives include draft revisions to the 1998 Guidance Notes, implementation of the 2002 FATF Special Recommendations related to wire transfers, implementation of the 2001 Basel Committee Paper on Customer Due Diligence for Banks, and monitoring the 2003 revision of the FATF Recommendations regarding DNFBPs. Progress has been slow. (para. 578) - Communication between the FIU and other law enforcement (Customs, the DPP, the Attorney General) is limited. (para. 579) - BMA as integrated supervisor: communication and cooperation among functional financial supervisors is fully effective; there are no regular mechanisms for coordination between the BMA and the FIU or between the BMA and law enforcement. (para. 580) - Consultation between competent authorities and regulated institutions is ad hoc; no systematic mechanisms for regular consultations. (para. 581) - Statistics (applying R.32): - A range of statistics exists but "little use is made of such information in reviewing the effectiveness of the regime." "There is no system for regular reviews of the regime." (para. 582) - The FIU maintains statistics on SARs, including breakdowns by type of FI, DNFBP and other reporting categories; some analysis of SAR patterns is undertaken and disseminated. (para. 583) - Limited data on cross-border transportation of cash; there is no CTR reporting requirement or collection of statistics on international wire transfers. (para. 583) - "The limited number of investigations, prosecutions, and property freezes does not lend itself to statistical analysis." (para. 584) - Information on mutual legal assistance, international requests for cooperation, and extradition is incomplete; "No data is available on formal requests to the FIU for assistance or whether such assistance was granted." (para. 585) - Statistics provided on supervisory on-site examinations of FIs and trust companies include AML/CFT reviews; BMA has powers to sanction but "there have been virtually no formal sanctions for AML/CFT purposes." (para. 586) - Recommendations and comments: - "A national AML/CFT co-coordinator should be appointed and the policy development role of NAMLC should be energized." - "Systematic mechanisms should be put in place for co-ordination among and between all AML/CFT agencies. These mechanisms could include assigned duties to individuals for coordination, regularly scheduled meetings, and distribution of contact lists." - "Statistical systems should be updated and maintained in line with the recommendations in Rec. 32." - Compliance with R.31: - Rating: R.31 — PC - Factors underlying rating: - "The policy development and coordination functions of NAMLC are not sufficiently robust to keep up with a heavy agenda of unfinished initiatives." - "Coordination and cooperation among agencies is ad hoc and inconsistent." ### The Conventions and UN Special Resolutions (Recommendation 35 & SR.I) - Legal framework: As a Crown dependency, Bermuda relies on the UK to extend to it provisions from relevant international conventions, treaties and UNSC resolutions; mission did not assess compliance with conventions and UNSC resolutions not encompassed by the FATF 40+9. (para. opening of 6.2.1) - Ratification/extension status: - Vienna Convention extended to Bermuda on February 8, 1995 (UK ratified June 8, 1991). (para. 587) - Palermo Convention has not been extended to Bermuda. (para. 587) - 1999 UN International Convention for the Suppression of the Financing of Terrorism has not been extended to Bermuda. (para. 588) - Implementation notes: - Vienna Convention largely implemented through POCA and other laws; Part III of the Criminal Justice (International Co-Operation) (Bermuda) Act 1994 implements the Vienna Convention domestically; Proceeds of Crime Act 1997 criminalizes money laundering. (para. 589) - Although the SFT Convention has not been extended to Bermuda, the ATFA largely implements it, with certain exceptions noted in Rec. 13. (para. 590) - Palermo Convention largely implemented through PACE, POCA, and the Criminal Code. (para. 591) - UNSCR 1373 implemented by the UK’s Terrorism (United Nations Measures) (Overseas Territories) Order 2001, 2001 Statutory Instrument No. 3366, which applies to Bermuda. (para. 592) - UNSCR 1267 and successor resolutions implemented by the UK’s Al-Qaida and Taliban (UN Measures) (Overseas Territories) Order 2002, 2002 Statutory Instrument No. 112. (para. 593) - Authorities report "there have been no freezing orders in Bermuda with respect to FT." (para. 594) - Recommendation: - "Bermuda should request that the SFT Convention be extended to it by the UK." (6.2.2) - Compliance ratings: - R.35 — PC ("The SFT and Palermo Conventions have not been extended to Bermuda.") - SR.I — PC ("The SFT Convention has not been extended to Bermuda, but Bermuda has implemented UNSCRs 1267, 1373 and successor resolutions by UN Order 2001 and the Al-Qaida and Taliban (UN Measures) (Overseas Territories) Order 2002, both UK Statutory Instruments that apply to its Overseas Territories, including Bermuda.") ### Mutual Legal Assistance (Recommendations 36–38, SR.V) - Legal framework: - Criminal Justice (International Co-Operation) (Bermuda) Act (CJICBA) provides the Attorney General (AG) authority to assist other jurisdictions with requests for evidence required for use overseas; AG may make requests for assistance from other jurisdictions; AG may execute a request pursuant to POCA where appropriate. Extradition Act 1989 (UK law) applies to Bermuda as extended via the Extradition (Overseas Territories) Order 2002. (para. 596) - Scope of assistance (c. 36.1): - CJICBA does not require the offense for which assistance is sought to be an offense under domestic law; AG must be satisfied that an offense has been committed or there are reasonable grounds for suspecting an offense. (para. 597) - Bermuda can provide mutual legal assistance in: - Obtaining evidence (including statements) under Section 6; - Transfer of a Bermudian prisoner to give evidence or assist investigations overseas under Section 7; - Obtaining an article or thing, by production order or search warrant under Section 7; - Restraining assets, based on a Bermuda restraint order under Section 28 of POCA as read with Section 6 of the CJICBA; - Effecting service of judicial documents under Section 3 of CJICBA; - Facilitating the voluntary appearance of persons to provide information and/or testimony to requesting country under Section 6; - Facilitating transmittal of documents and records to requesting country under Section 6, as read with Schedule 1, paragraph 4. (para. 598) - Timeliness and conditions: - No set timeframes for responding to requests; "According to the authorities, all formal requests are dealt with expeditiously." (para. 599) - CJICBA does not specifically provide for cooperation in investigations, but law enforcement (in particular the FIU) regularly co-operate on an agency-to-agency basis; PACE appears to provide powers to Bermuda Police Service to collaborate with foreign counterparts. No specific statutory constraints or unreasonable/unduly restrictive conditions on providing mutual legal assistance, subject to AG satisfaction regarding the offense. (para. 600) - Efficiency and powers: - Process: AG reviews requests under Section 6(1) CJICBA; if valid, foreign authorities are informed, request executed under CJICBA, and applications made to the Supreme Court for production orders or search warrants under Sections 37 and 39 of POCA. Process described as reasonable given relatively few requests. (para. 601) - Fiscal offences: Under Section 6(3) CJICBA, fiscal-offence requests accepted if treaty exists or AG is satisfied offence would be same or similar in Bermuda. (para. 602) - Confidentiality/secrecy: Requests may not be refused on grounds of confidentiality restrictions under Bermudian law; financial secrecy/confidentiality are based in part on common law and statute. (para. 603) - Competent authorities (FIU and AG) can apply to the Supreme Court for production orders and search warrants when executing requests, and under Sections 9(1) and 9(3) of CJICBA the AG may provide for enforcement of foreign confiscation and forfeiture orders. (para. 604) - Memoranda of understanding: FIU has MOUs with foreign competent authorities for joint investigations of high profile crimes; jurisdiction with best chance of successful prosecution will take the lead. (para. 605) - Counterpart-to-counterpart requests require formal judicial process; such requests accepted only if required procedures are followed. (para. 606) - Application to SR.V (terrorist financing): - Paragraphs relating to c. 36.1–36.6 apply equally to mutual legal assistance relating to terrorist financing offenses; CJICBA does not require the offense be an offense under domestic law; AG must be satisfied an offense has been committed or reasonable grounds exist; no treaties in place for fiscal offences at this time; no set timeframes; law enforcement can cooperate agency-to-agency. (paras. 607–610) *Italic: IMF country report text (excerpts) as provided in the source content.* ### 611. The competent authorities, namely the FIU and the Attorney General, are able to apply for ### _cr08105 - 611. The competent authorities, namely the FIU and the Attorney General, are able to apply for ### Mutual Legal Assistance (MLA) — powers, procedures, and scope - The competent authorities, namely the FIU and the Attorney General, are able to apply for production orders and search warrants when executing requests for mutual legal assistance provided the request is a valid one (see discussion of c.36.1 and 36.3). - Under Section 9(1) and 9(3) of the CJICBA, the Attorney General may provide for the enforcement of foreign confiscation and forfeiture orders. - There are no set timeframes for responding to requests; the nature of the request will affect/dictate the length of time required to execute the request. According to the authorities, all formal requests are dealt with as expeditiously as possible. ### Special Recommendation V — FIU cooperation and counterpart-to-counterpart requests - The FIU has the ability to enter into memoranda of understanding with foreign competent authorities for specific investigations which provide for joint investigations of terrorist financing offenses. To date, the FIU has not done so. - Counterpart-to-counterpart requests require a formal judicial process; the FIU and the Attorney-General are able to apply for production orders and search warrants when executing such requests provided the request is valid. Counterpart-to-counterpart requests will only be accepted if the required procedures are followed. ### Dual criminality, extradition, and applicability to terrorism-related requests - Under Section 6(2) of the CJICBA, mutual legal assistance is rendered in the absence of dual criminality in Bermuda except with respect to requests relating to fiscal offenses. For fiscal offenses, the Attorney General may proceed pursuant to an MLA treaty unless he or she determines that dual criminality has been met. The offense must be an offense under the laws of the requesting country. - Provisions under the CJICBA allowing mutual legal assistance also apply to requests related to terrorist offenses. - The regime for the enforcement of foreign confiscation orders applies equally to requests of courts of designated jurisdictions in connection with provisional measures, forfeiture and confiscation proceedings relating to the financing of terrorism, terrorist acts and terrorist organizations. - Terrorist financing and other terrorism-related offenses fall under the definition of ‘relevant offence’ in Section 3 of the POCA. The arrangements under Section 9 have not been tested to date as there has been no known identified evidence of terrorist financing in Bermuda. ### Timeliness, provisional measures, and property of corresponding value - There are no specific procedures that facilitate expeditious action or establish precise timelines for responding to MLA requests from foreign countries with respect to identifying, freezing, seizing or confiscating proceeds of crime or instrumentalities (c. 38.1). - Confiscation under Bermuda’s legislation does not target specific assets; the court specifies the amount to be recovered representing property that has been laundered or proceeds from crime. The same provisions in POCA and the MDA are available with respect to requests for freezing, seizing or confiscating assets at the request of foreign authorities (c. 38.2). ### Coordination, external confiscation orders, and asset sharing - Under Sections 9(1)(b) and 9(2) of the CJICBA, the Attorney General may provide for the enforcement in Bermuda of confiscation and forfeiture upon requests by foreign entities in connection with foreign criminal proceedings. However, there are no arrangements for coordinating seizure and confiscation actions with other countries (c. 38.3). - External confiscation orders may be enforced in Bermuda by the Supreme Court under Section 53 of the POCA, which provides for the application of confiscation orders made by a court of a country or territory designated in the Proceeds of Crime (Designated Countries and Territories) Order 1998. Section 53(4) of POCA defines ‘external confiscation order’. - Sections 54 and 55 of the POCA establish procedures for registering an external confiscation order at the Supreme Court and its enforcement. Under Section 54(1) of POCA the Court may register an external confiscation order if satisfied that: - the order is in force and not subject to appeal; - the person affected by the order received notice of the proceedings in sufficient time to enable a defense; and - it is of the opinion that enforcing the order in Bermuda would not be contrary to the interests of justice. - The absence of explicit statutory provisions concerning confiscation of instrumentalities of an offense would also limit the scope of external confiscation requests. - Section 55A of the POCA establishes a Confiscated Assets Fund (CAF) which can receive proceeds of criminal conduct recovered under a confiscation order under the POCA or a forfeiture order under the MDA, as well as money paid to the government by a foreign jurisdiction in respect of confiscated assets whether under a treaty or arrangement providing for mutual assistance in criminal matters or otherwise. - Money from the CAF may be disbursed at the direction of the Minister of Finance, upon consultation with NAMLC, for the investigation of suspected cases of drug trafficking, terrorist financing and money laundering; to meet the expenses of the NAMLC; and for remuneration and expenses of a receiver appointed under the POCA or the ATFA, among other specified purposes. - The money paid into the CAF may be shared with other jurisdictions at the direction of the Minister of Finance, including for satisfying an obligation of the government to a foreign jurisdiction. However, no confiscated assets have been shared in recent times. According to FIU records, a confiscation order was granted by the Crown in 2001 but the funds have not been collected; no explanation was provided. Consequently, the CAF has not yet received or disbursed any shared funds. ### Statistics on MLA and external assistance - Bermuda has made no mutual legal assistance requests in the last five years and has granted all 31 requests received from other countries. - Statistics of what formal requests for assistance have been received, and either granted or refused, are maintained by the AG’s Chambers. - The CFATF Secretariat sent out a request to its members and other countries; responses indicate that there is a general level of satisfaction with Bermuda’s provision of mutual legal assistance. ### Extradition (R.37, 39, SR.V) — framework and limitations - Dual criminality is required in the case of extradition requests and is interpreted broadly in Bermuda: the courts must be satisfied that the underlying conduct abroad would constitute an offence in Bermuda even if called by a different name in the requesting country. - The extradition framework in Bermuda is provided by the UK’s Extradition Act 1989, as extended via the Extradition (Overseas Territories) Order 2002. - The Extradition Act 1989 defines "extradition crimes" as conduct which if it occurred in the UK would constitute an offence punishable for a term of 12 months or any greater punishment and which is so punishable under the laws of the country in which the conduct was committed [Extradition Act 1989, Section 2(1)]. In Bermuda this extends to the principal offences under the POCA and the ATFA as the minimum penalty requirement is met. - Extradition for these offences would be permissible under the Extradition Act 1989 to other UK overseas territories, Commonwealth countries designated by an Order, and such countries that have extradition arrangements with the UK government that have been extended to Bermuda. Specifically, the extended extradition treaties are with the United States of America and Finland. - Extradition for any offense is not available for any other jurisdiction. Therefore, extradition will not be available in respect of ML where this offense is not listed as an extraditable offense under an arrangement with the UK government. - The authorities reported that there have been no extradition proceedings for ML or FT to date. ### Legal restrictions and procedures relevant to extradition - Legal restrictions to extradition exist where: - The offences are of a political character. - The subject is serving a term of imprisonment or is awaiting trial for criminal offences in Bermuda. - There are no provisions of law in the requesting country affording a fugitive opportunity to return to requested country before being tried for another offence committed before his extradition. - Extradition of Bermudian citizens is possible under Bermudian legislation; there are no provisions that preclude the extradition of nationals. - Section 14 and Paragraph 9 of the Schedule I of the Extradition Act 1989, as well as provisions in relevant treaties, allow for a simplified procedure whereby the subject of extradition may waive his/her rights to formal extradition and enable a quicker process of surrender to the requesting country. - There are no specific measures or procedures to expedite extradition requests and proceedings relating to ML to be handled without undue delay. However, nothing in Bermudian legislation precludes the direct involvement of the Governor to expedite the process of an extradition request. ### Other forms of international cooperation (R.40 & SR.V) - Bermudian legislation permits a wide range of international cooperation by the law enforcement authorities and supervisors. - There are no specific measures or procedures to expedite cooperation with foreign counterparts’ requests and proceedings relating to ML or FT, but in practice the authorities make every effort to provide whatever assistance is required to be handled without undue delay. - Gateways for exchange of information: - The BMA Act (for all regulated FIs except insurance licensees) and Insurance Act (for insurance entities) each have gateways that permit information to flow through BMA to its foreign counterparts (see Sections 30A–30D of the BMA Act, 53(1)(b) and 54(2) of the Banks and Deposit Companies Act 1999 and Section 51A–51D of the Insurance Act). - Such laws also have provisions allowing FIs to disclose confidential information “with a view to the institution of, or otherwise for the purpose of, criminal proceedings, whether under this Act or otherwise.” (See Sections 54(4)(b) and 55(2)(b) of the Banks and Deposit Companies Act.) - The Police/FIU may share information for intelligence purposes directly on an agency-to-agency basis. The FIU compiles relevant statistics, including where it has assisted overseas law enforcement and other competent authorities with information for intelligence purposes. - The FIU exchanges information consistent with the Egmont Principles of Information Exchange, exchanges with comparable law enforcement agencies, and has signed MOUs with 12 jurisdictions and expects to have one more signed in the near future. ### Recommendations and comments - To the extent that Bermuda were to receive increasing numbers of requests from foreign authorities, it will be necessary for the authorities to review the resource requirements needed to ensure that such requests are acted upon expeditiously (para. 627). - The authorities should consider a streamlined process for dealing with extradition requests (6.4.2 Recommendations and Comments). ### Compliance ratings and identified shortcomings - R.36: LC - There are no specific procedures facilitating expeditious action or establishing precise timelines for response to MLA requests. - R.37: LC (in the table) and later R.37: C (in section 6.4.3); identified factor: Extradition assistance available only to limited number of jurisdictions. - R.38: LC - No specific procedures facilitating expeditious action or establishing precise timelines for responding to MLA requests by foreign countries with respect to identifying, freezing, seizing or confiscating proceeds of crime or instrumentalities. - No statutory provision for external confiscation requests relating to instrumentalities. - No arrangements for coordinating seizure and confiscation actions with other countries. - SR.V: LC - There are no specific procedures facilitating expeditious action or establishing precise timelines for response to MLA requests. - R.39: LC - There are no specific procedures for expediting extradition requests. - Concerns regarding undue delays due to the undefined structure of the request process. - R.37 (in 6.4.3): C - SR.V (in 6.4.3): C *Source: _cr08105 - 611. The competent authorities, namely the FIU and the Attorney General, are able to apply for (IMF country report content).* ### 642. Making Inquiries on Behalf of Foreign Counterparts (c. 40.4): Under Section 6 of the ### 642. Making Inquiries on Behalf of Foreign Counterparts (c. 40.4): Under Section 6 of the CJICBA, the Attorney General may direct local authorities to obtain evidence in Bermuda in connection with criminal proceedings that have been instituted, or a criminal investigation that is being carried on, in that country or territory. ### FIU powers and inquiries - The FIU is authorized, in the exercise of general police powers, to make inquiries on behalf of foreign counterparts and may search its own databases or law enforcement databases (paragraph 643). - A court order is required for the FIU to approach FIs for information other than publicly available information (paragraph 643). - For exchange of information with non-counterparts, unless information sought is publicly available, the FIU must obtain a court order and follow formal due process (paragraph 649). - Provision of information to the FIU by other competent authorities pursuant to a request from a foreign FIU requires a court order and formal due process (paragraph 650). ### Conducting investigations and international cooperation - Bermudian law enforcement authorities, including the FIU, have conducted joint investigations with foreign counterparts; however, a court order may be needed if evidence is being gathered (paragraph 644). - The mission did not identify unduly restrictive conditions for the exchange of information (paragraph 645). - Under Section 6(3) of the CJICBA, requests for mutual legal assistance in respect of a fiscal offence will be accepted if there is a treaty in place between Bermuda and the requesting country or if the Attorney General is satisfied that the offence would be an offence of the same or a similar nature had it occurred in Bermuda (paragraph 646). - Regulatory gateways allow provision of information to foreign authorities despite secrecy/confidentiality laws; example: Section 54(2) of the Banks and Deposit Companies Act 1999 (paragraph 647). - International cooperation under SR V applies criteria in c. 40.1–40.9 for R. 40, c. V.5, and c. 40.10–40.11 in R. 40, c. V.9 (paragraphs 651–652). ### Safeguards, confidentiality, and dissemination - Newly amended Section 58(4) of the POCA imposes strict confidentiality requirements with an explicit gateway enabling the Bermuda Police and FIA to disseminate information in any case that would allow them to discharge their statutory functions (paragraph 648). - Sections 18 and 21 of the FIA Act impose strict confidentiality provisions on the new FIA (paragraph 648). ### Statistics on requests for information and assistance (applying R.32) - 2003 – Enquiries made agency to agency direct (50), MLA type requests (0) (paragraph 653). - 2004 – Enquiries made agency to agency direct (49), MLA type requests (5) (paragraph 653). - 2005 – Enquiries made agency to agency direct (39), MLA type requests (6) (paragraph 653). - 2006 – Enquiries made agency to agency direct (46), MLA type requests (8) (paragraph 653). ### Ratings summary (selected) - R.40 C (paragraph 6.5.3 summary table). - SR.V C (paragraph 6.5.3 summary table). - R.30 PC (section 7.1 heading and rating summary). - Key factors underlying R.30 PC: - The existing FIU does not have sufficient qualified personnel to take on its current responsibilities, and to provide continuity in the transition to the new FIA. - The existing FIU does not have a liaison officer named to facilitate the transition from the existing FIU to the FIA, nor does it have adequate staff available to train their successors. - The DPP’s office has too many open positions and inadequate efforts have been made to retain professional staff. - Inadequate prioritization of investigations and prosecutions of AML/CFT cases by law enforcement authorities, and inadequate staffing relating thereto. - Training is inadequate at all agencies and at all levels in AML/CFT issues, typologies, analysis, international standards, fundamentals of investigating and prosecuting white collar crime, managing complex cases, and criminal procedure. - The FIU is not adequately funded, staffed and provided with technical resources, particularly forensic accounting expertise. - Number of positions allocated to the FIU is insufficient; police officers assigned to the unit are routinely called on for other police duties. - The DPP’s office is not adequately staffed nor provided with technical resources for AML/CFT cases. - Staff levels and training of financial supervisors are not adequate for Bermuda’s financial sector size, scope, sophistication and cross-border operations (section 7.1 bullets). - R.32 PC (section 7.1 heading and rating summary). - Key factors underlying R.32 PC: - Although several gaps exist, a useful range of statistics is maintained on SAR reports, ML and FT investigations and confiscations. - Information on MLA and international cooperation is incomplete. Some data is available on supervisory examinations. - Little use is made of available statistics and information to review the effectiveness of AML/CFT systems on a regular basis. ### Other AML/CFT issues and recommendations highlighted - The Suppression of the Financing of Terrorism (SFT) and Palermo Conventions have not been extended to Bermuda by the United Kingdom; remedying this situation should be done without delay (paragraph 654). - Bermuda lacks a declaration or disclosure system to detect physical cross-border transportation of cash and bearer instruments; authorities have plans to implement such a system, which should: - Meet international standards, - Cover both incoming and outgoing transportation, - Include authority to confiscate for false declarations or failure to declare (paragraph 655). ### Contextual findings from Table 1 (selected findings relevant to information exchange and institutional capacity) - Legal/institutional deficiencies and operational constraints cited across the assessment include: - Limited specialized financial analysis capacity at the FIU and no specific legal provision establishing the FIU as the national centre for receiving and processing SARs (Recommendation 26: LC). - Very low number of prosecutions reflecting low priority given to ML and FT by the Police Service (Recommendation 27: LC). - Inadequate AML supervision of FIs, particularly non-banking sectors, and no CFT supervision; AML onsite supervision only commenced in 2007 for the insurance sector; mutual fund administrators still to be licensed and supervised for AML/CFT (Recommendation 23: NC). - Guidance Notes do not provide adequate descriptions of FT techniques, do not cover CFT, are outdated and limited in scope; no procedures in place for providing feedback to FIUs (Recommendation 25: PC). - Weaknesses in CDD, PEP treatment, correspondent banking, new technologies, third-party reliance, recordkeeping, unusual transactions monitoring, DNFBP coverage, SAR filing requirements and protections, internal controls, sanctions, and group-wide supervision are enumerated in the Table 1 summary (Table 1 entries). *Source: Extracted text from the provided IMF assessment content unit.* ### 30. Resources, integrity, and ### 30. Resources, integrity, and training ### Major findings — FIU, law enforcement, and prosecutorial capacity - The existing FIU does not have sufficient qualified personnel to take on its current responsibilities, and to provide continuity in the transition to the new FIA. - The existing FIU does not have a liaison officer named to facilitate the transition from the existing FIU to the FIA, nor does it have adequate staff available to train their successors. - The FIU is not adequately funded, staffed and provided with technical resources, particularly in terms of technical expertise such as forensic accounting. - The number of positions allocated to the FIU is insufficient, and the fact that police officers assigned to the unit are routinely called on for other police duties further limits available resources. - The funding allocated to the FIU annually for training purposes is insufficient. - Efforts should be made to attract qualified personnel to the FIU, and to provide continuity in the transition to the new FIA. ### Major findings — DPP, prosecution, and police priorities - The DPP’s office has too many open positions and inadequate efforts have been made to retain professional staff, regardless whether they are Bermudian or non-Bermudian, staff or contract employees. - There is an inadequate prioritization of investigations and prosecutions of AML/CFT cases by the Police Commissioner, AG and DPP. - The authorities should make greater efforts to follow up on signs and traces of ML and to initiate non-SAR triggered investigations. - There has only been one prosecution of ML in the last five years and limited numbers of ML investigations. ### Major findings — training and technical expertise - Training is inadequate at all agencies and at all levels not only in AML/CFT issues including typologies, analysis and international standards, but also in fundamentals such as investigating and prosecuting white collar crime cases, managing complex cases, and criminal procedure. - Sufficient resources should be made available for training of DPP, Customs and Police staff. - Assessor training courses offered by CFATF, the IMF and the World Bank should be considered as a means of developing AML/CFT expertise. - The FIA should be adequately funded, staffed and provided with technical resources, particularly in terms of technical expertise such as forensic accounting. ### Major findings — financial supervision (BMA) and sectoral capacity - Staff levels and training of financial supervisors are not adequate for the AML supervision of a financial sector of the size, scope, sophistication and cross-border operations such as that of Bermuda. - The BMA should enhance its staff capacity to undertake more comprehensive AML/CFT supervision, especially for the insurance and investment business/mutual fund sectors, and to conduct effective consolidated supervision. - Enhance training for BMA staff to facilitate the identification of deficiencies relating to AML/CFT requirements for FIs, including, but not limited to internal controls, CDD, SARs filings, recordkeeping, MLRO qualifications and operations. ### National cooperation and statistics - The policy development and coordination functions of NAMLC are not sufficiently robust to keep up with a heavy agenda of unfinished initiatives. - Coordination and cooperation among agencies is ad hoc and inconsistent. - Inadequate statistics for offsite and onsite preparation e.g. risk factors, non-resident business. - Although there are several gaps, a useful range of statistics is maintained on SARs, ML and FT investigations, and confiscations. - Little use is made of available statistics and information to review the effectiveness of AML/CFT systems on a regular basis. - Information on mutual legal assistance, international requests for co-operation, and extradition is incomplete. No data is available on formal requests to the FIU for assistance or whether such assistance was granted. Some data is available on supervisory examinations. ### International cooperation and mutual legal assistance - The SFT and Palermo Conventions have not been extended to Bermuda. - There are no specific procedures facilitating expeditious action be taken or establishing precise timelines for response to MLA requests. - There are no specific procedures facilitating expeditious action or establishing precise timelines for responding to MLA by foreign countries with respect to identifying, freezing, seizing or confiscating proceeds of crime or instrumentalities of ML, FT or other predicate offenses. - There is not statutory provision for external confiscation requests relating to instrumentalities. - There are no arrangements for coordinating seizure and confiscation actions with other countries. - Concerns regarding undue delays due to the undefined structure of the request process for extradition. ### Findings on FATF Special Recommendations - SR.I: The SFT Convention has not been extended to Bermuda, but Bermuda has implemented UNSCRs 1267, 1373 and successor resolutions by UN Order 2001 and the Al-Qaida and Taliban (UN Measures) (Overseas Territories) Order 2002, both UK Statutory Instruments that apply to its Overseas Territories, including Bermuda. (PC) - SR.II: The definition of terrorism does not have a reference to the acts covered by the nine conventions referred to in the SFT Convention, and it does not contain a reference to acts taken against international organizations. There is no reference in the relevant legislation to the financing of terrorist organizations. There is no reference in the relevant legislation to extra-territorial offenses relating to terrorist organizations. (PC) - SR.III: No specific guidance has been issued to the regulated sector concerning its affirmative obligation to implement measures with respect to the UNSCR list. There are no specific procedures for delisting or unfreezing. (LC) - SR.IV: Current law does not require SARs for funds linked to terrorist organizations. No FT-related SARs have been filed. (PC) - SR.VI: Laws and regulations have been put in place but licenses have not yet been granted and effective implementation has not yet been tested. (PC) - SR.VII: No recordkeeping requirements for full originator information. The threshold for CDD and full originator recordkeeping requirement is US$10,000, significantly above the FATF level of $1,000. No provisions for originator information to be included and retained in domestic wire transfers. No provisions that require intermediary and beneficiary FIs in a wire transfer payment chain to transmit originator information. No requirements for risk-based procedures for wire transfers not accompanied by complete originator information. Neither the Regulations nor the Guidance Notes (Appendix E) include the lack of such information wire transfers as a basis for deciding if a transaction is suspicious. No systems to review and sanction for compliance with wire transfer requirements under SRVII. (NC) - SR.VIII: The authorities have not undertaken a review of laws and regulations related to non-profit organizations to ensure that they cannot be misused for financing terrorism. Recordkeeping requirements and investigative procedures are not consistent with FATF standards. (PC) - SR.IX: No disclosure or declaration system for either incoming or outgoing transportation of currency is in place. The scale of civil and criminal money fines is not sufficiently dissuasive. Domestic cooperation on customs issues is insufficient. Information-sharing between Customs and other law enforcement authorities is inadequate. No procedure to notify other customs agencies of search and detention reports relating to precious metals other than gold, as well as to precious stones. (NC) ### Recommended actions — priority items (selected, as presented) - Ensure that the new FIA is established and becomes operational, and provide sufficient staffing levels at the existing Police FIU to enable an increased number of ML/FT-related investigations. - Ensure continuation of the experience and skill in financial investigations in the Commercial Crime Department. - The authorities should make greater efforts to follow up on signs and traces of ML and to initiate non-SAR triggered investigations. - Investigating and prosecuting ML/FT cases should be made a priority by law enforcement authorities, with sufficient resources allocated reflecting that priority. - Sufficient resources should be made available for training of DPP, Customs and Police staff. - A liaison officer should be named and existing FIU staff should train their successors in order to facilitate the transition from the FIU to the FIA. - The number of open positions in the DPP’s office should be remedied, and efforts made to retain professional staff. - Training should be increased at all agencies and at all levels not only in AML/CFT issues including typologies, analysis and international standards, but also in fundamentals such as investigating and prosecuting white collar crime cases, managing complex cases, and criminal procedure. - The FIA should be adequately funded, staffed and provided with technical resources, particularly in terms of technical expertise such as forensic accounting. - Explicitly provide in legislation for the confiscation of property which constitutes instrumentalities intended for use in the commission of ML or other non-drug trafficking predicate offenses. - Explicitly provide in legislation that, for the purposes of confiscation of the benefits of ML offenses, the proceeds that are the basis of the offense may include any payments received by the defendant at any time in connection with the ML offense carried out by him or by another person. - Procedures for delisting requests and the unfreezing of funds should be developed and published. - Guidance should be issued to the regulated sector concerning affirmative obligations to freeze assets of persons listed by the UNSCR 1267 Committee and the EU; these obligations should include incorporating the information into AML/CFT compliance programs, and reporting to authorities on any transactions that may be connected to terrorist financing. - Enhance training for BMA staff to facilitate the identification of deficiencies relating to AML/CFT requirements for FIs, including, but not limited to internal controls, CDD, SARs filings, recordkeeping, MLRO qualifications and operations. - The BMA should enhance its staff capacity to undertake more comprehensive AML/CFT supervision, especially for the insurance and investment business/mutual fund sectors, and to conduct effective consolidated supervision. *Source: _cr08105 - 30. Resources, integrity, and training* ### 3. Preventive Measures–Financial ### 3. Preventive Measures–Financial Institutions ### Risk of ML or terrorist financing - Conduct a systemic review of ML/FT risks, particularly in the financial (and DNFBP) sectors, including in the life, annuity/investment, and captive components of the insurance sector. ### Customer due diligence, including enhanced or reduced measures (R.5–8) - Establish in the Regulations or in other enforceable instrument (Other Enforceable Means) all of the applicable requirements under FATF Recommendations 5–8. The current Regulations are limited and the Guidance Notes are not enforceable. - Amend the Regulations to cover all of the relevant financial activities covered by the FATF Recommendations, particularly life insurance. - Extend the regulatory regime for FIs to explicitly cover CFT issues. - Extend the CDD requirements beyond customer identification. - Require CDD in all cases (business relationships and one-off transactions) where there is knowledge or suspicion of ML/FT and not only in cases of one-off transactions; clarify that the threshold for one-off transactions does not apply when there is suspicion. This requirement should also include reporting of suspicion when an FI cannot obtain the required identification/CDD information under Rec. 5.15 and 5.16. - Reduce the minimum CDD threshold for wire transfers to the equivalent of US/BD$1,000. - Extend the CDD requirements to cases where there is doubt as to the veracity or adequacy of previously obtained information; update information for “grandfathered accounts”. - Reg. 4(4) could more explicitly establish the requirement to identify and obtain CDD information on underlying beneficiaries, including for legal persons and arrangements. - Review customer identification exemptions in the Guidance Notes for consistency with the Regulations and FATF Rec. 5, 8, and 9. - Review wording of Guidance Notes 129, 130, 139, 140 and 140 (insurance and investment services) and GNs 131, 132 and 133 (investment services) to ensure they do not create practical limitations of CDD; review in context of timing of verification for Rec. 5.13 and 5.14. - Establish CDD requirements that include the purpose and nature of business relationships (and significant one-off transactions). - Require FIs to conduct enhanced monitoring for higher risk business and regular updating of customer profile information; conduct enhanced CDD for higher risk customers, business relationships and transactions. - Require enhanced CDD for higher risk customers, business relationships or transactions in either in the POCA, Regulations or other enforceable means. - Review exemptions/simplifications in the Regulations and Guidance Notes to ensure they are justified on the basis of proven (documented) low risk; allow lower exemptions/simplifications only where customer information is publicly available or there are adequate checks and controls and clients are not other regulated FIs. - Limit simplified CDD to non-resident customers from countries that have effectively implemented the FATF Recommendations. - Do not allow exemptions or reduced CDD measures when there is suspicion of ML/FT. - Remove the general exemption in Guidance Note 50 on the timing for verification when payment is to be made from “other account”. - Require FIs to expedite the conduct of CDD and update client documentation for “grandfathered” customers; note Regulations were issued in 1998 (about 9.5 years ago) and slow progress in updating such information creates a significant vulnerability. - Require FIs to conduct enhanced CDD for PEPs. - Require FIs to conduct enhanced CDD with respect to correspondent banking and similar relationships. - Require FIs to address risks associated with non-face to face business relationships or transactions, and to implement measures to prevent misuse of technological developments that could facilitate ML/FT. ### Third parties and introduced business (R.9) - Require FIs to immediately obtain CDD information from acceptable third parties when relying on their CDD. - When relying on CDD conducted by third parties, require FIs to satisfy themselves that the requisite CDD documentation has been obtained by such third parties and that it will be made available to the FIs promptly on request. - Periodically review the adequacy of the basis on which FIs rely on the CDD of other third parties whether in Bermuda or in other countries, with respect to their supervision for AML/CFT purposes, and implementation of the FATF Recommendations by countries where the third parties are located. - Make explicit that where reliance on others for certain aspects of CDD is allowed, the ultimate responsibility lies with the FI. ### Financial institution secrecy or confidentiality (R.4) - (No specific bullets provided beyond context in source) ### Record keeping and wire transfer rules (R.10 & SR.VII) - Include in all the Schedules for minimum licensing criteria of the financial regulatory laws a recordkeeping requirement to comply with the AML/CFT legislation, not only for purposes of the regulatory laws. - Consider rewording Reg. 5(4) to make it more consistent with Guidance Note 95 to state that the retention period in cases of an investigation would be longer than the minimum five-year period specified; clarify what constitutes the “outcome of the investigation”. - Revise Guidance Notes (G97) to ensure retention of transaction records are not limited to securities and investments and apply to non-securities related business, e.g. banking and insurance transactions. - Require that FIs satisfy themselves that they can obtain records promptly on request from third parties on which reliance is placed for CDD. - Reduce the minimum recordkeeping threshold to the equivalent of US$1,000, and specify that full originator information should be obtained and retained for the minimum period in accordance with SRVII. - Ensure Regulations, Guidance Notes, examination procedures and general oversight of FIs includes compliance with wire transfer requirements as set out under all the essential criteria of SRVII. - Include lack of complete originator information as a basis for determining whether a suspicious activity report is filed with the FIU. ### Monitoring of transactions and relationships (R.11 & 21) - Introduce in law, regulations or OEMs a requirement to monitor, examine and record information on complex, unusually large, or unusual patterns of transactions that have no apparent economic or lawful purpose. - Require FIs to pay special attention, examine and record business relationships/transactions with persons from or in countries which do not sufficiently apply the FATF Recommendations, and implement a system to identify such countries. ### Suspicious transaction reports and other reporting (R.13, 14, 19, 25, & SR.IV) - Amend ATFA to require FT-related SARs for funds linked to terrorist organizations. - Amend AFTA and POCA to provide explicit protection for those who are required to file SARs based on FT. - Amend POCA to provide explicit protection from criminal liability resulting from a SAR filing. - Amend POCA to provide for tipping-off offense that explicitly covers the fact of or any information about a SAR filing and the contents therein. - Amend POCA to limit the scope of the exemption from tipping off by lawyers in a manner consistent with R.14 and R.16. - Formalize procedures for providing feedback on SARs. - Enhance training for identification of FT-related transactions. - Develop guidance for FIs and DNFBP relating to latest industry-specific typologies and additional preventative measures. ### Cross Border Declaration or disclosure (SR IX) - Adopt the declaration system now being considered by the authorities. - Cover outgoing transportation of currency by the declaration system, and not just incoming as currently planned. - Amend relevant laws to substantially increase the scale of civil money fines and criminal penalties for customs violations. - Enhance domestic cooperation on customs issues. - Ensure sufficient information-sharing between Customs and other law enforcement authorities. - Amend the Revenue Act to provide clear legal authority, as now exists in POCA, to charge directors and officers who have connived with the corporation with an offense. - Consider (1) amending the relevant laws to provide the Customs Department with explicit legal authority to seize, detain, and confiscate currency in the event of a false declaration and (2) developing a procedure to notify other customs agencies of search and detention reports relating to precious metals other than gold, as well as to precious stones. ### Internal controls, compliance, audit and foreign branches (R.15 & 22) - Extend the procedures requirements to the full range CDD and recordkeeping requirements, and require formulation of AML/CFT policies, compliance and controls; consider specifying that control systems requirements in financial regulatory laws apply to AML/CFT. - Expand the role of the AML/CFT compliance function beyond suspicious activity reporting and include a requirement for an independent internal audit function that covers AML/CFT. - Extend training requirements beyond those “relevant employees” defined in the Regulations to others who can play a role in implementing and monitoring compliance. - Include employee screening requirements in the AML Regulations to complement fit and proper requirements for senior officials of FIs. - Include in the Regulations an obligation for FIs to implement AML/CFT measures in overseas branches and subsidiaries. - Require FIs to inform the Bermudian authorities when their overseas operations cannot observe appropriate AML/CFT measures. ### Shell banks (R.18) - Consider incorporating an explicit prohibition on the licensing of shell banks or requiring in the licensing criteria that licensees maintain a significant presence and mind and management in Bermuda, consistent with the Basel Paper on shell and parallel banks. ### The supervisory and oversight system–competent authorities and SROs - Enact legislation for civil money penalties and conservatorship powers to be applied by the BMA. - Fines under POCA with respect to summary convictions and certain convictions on indictment should be raised. - Develop and implement both an offsite and onsite supervision program for AML/CFT that is risk-based, prioritizing full scope inspections for sectors and institutions that present higher ML/FT risk, including insurance. - Expand scope of onsite reviews to focus on adequacy of formal policies and demonstrated commitment of the Board of Directors and senior management. - Develop and implement framework for consolidated supervision for AML/CFT compliance beyond banking, prioritizing FIs that are parent and operating holding companies with significant operations overseas; focus on group-wide risk management, compliance and audit functions. - Enhance onsite inspections program focusing on high risk activities and relationships, especially wire transfers, CDD on ultimate beneficiary clients, and controls involving intermediaries or introducers. - Enhance review of sufficiency and quality of SAR reporting systems and take fuller account of external auditors’ work in reviewing AML/CFT control environment. - Review effectiveness of overall supervisory process for applying enforcement action for AML/CFT related breaches. - Review and strengthen licensing practices to reflect concerns of other group members and enforce ongoing fit and proper criteria. - Review licensing procedures to ensure full requirements for ultimate beneficiaries of proposed licensees are established; ensure signed applicant declaration forms relating to competence and probity are consistent with license type. - Expedite licensing/registration process for money services firm(s) and provisions under Section 20AA of the BMA Act and Regulations, to ascertain adequacy of provisions relating to agents/subagents and operations such as minimum holding period of client money. - Conduct a systemic review to ascertain whether other financial activities covered by the FATF Recommendation are taking place in or from within Bermuda on a regular commercial basis. - Review/update the Guidance Notes for completeness and relevance; remove inappropriate exemptions or simplifications in customer due diligence. - Consider extending the definition of covered financial institutions and supervisory powers under the BMA Act to the insurance sector for consistency with other sectors. - Establish an explicit mandate for the BMA to monitor, enforce and sanction for compliance with the AML/CFT obligations of FIs and review adequacy of the proposed Bill to amend the POCA/BMA Act to ensure it provides a clear and complete mandate. - Specify clear powers in the Credit Union Act that the BMA, under delegated authority, can supervise and inspect these FIs, including AML/CFT compliance. - Extend in the Bank and Deposit Companies Act prudent conduct/minimum licensing criteria to compliance with other laws so as to cover AML/CFT legislation. - Include specific power for the BMA to enforce compliance with AML/CFT requirements, including administrative measures and sanctions. - Consider clarifying in the proposed Bill to amend the BMA Act that BMA’s AML/CFT supervision includes monitoring as well as enforcement and sanctions. ### Rec. 30 and capacity building - Enhance training for BMA staff to facilitate identification of deficiencies relating to AML/CFT requirements for FIs, including internal controls, CDD, SARs filings, recordkeeping, MLRO qualifications and operations. - Enhance BMA staff capacity to undertake more comprehensive AML/CFT supervision, including effective consolidated supervision whether as home or host supervisor. - Prioritize specialization and focus on insurance and investment business/mutual fund sectors if resources limited. ### Other: Rec. 32 - Improve statistics to capture information to assist in AML/CFT supervision, e.g. deposit-taking FIs: non-resident deposits and clients; Insurance: life and/or annuity/investment premium/policies, etc. ### Money value transfer services (SR.VI) - Require licensed money transfer services to maintain a list of their agents and make this list available to the authorities. - Note that the new legal regime for money service business is untested; no basis for evaluating effective implementation. --- ### 4. Preventive Measures–Nonfinancial Businesses and Professions ### Customer due diligence and record-keeping (R.12) - Amend POCA and the POC Regulations 1998 to require lawyers, accountants, company service providers, dealers in precious metals and stones, including jewelers, and real estate agents to implement AML/CFT programs covering: (a) CDD (b) record-keeping, (c) internal reporting programs (to include reporting by an MLRO to the FIU), and (d) training. - For lawyers and accountants, the AML/CFT program obligation should apply either when they plan for or when they carry out for their client the transactions enumerated in Rec. 12. Consider extending the AML/CFT program obligations for accountants to all of their activities. - Given evidence that local drug dealers have made investments in the local property market, AML/CFT program requirements for real estate dealers should cover all real estate transactions, not just those carried out in cash; consider requiring that all real estate transactions be settled by bank transfer. - Any SRO arrangements for monitoring and oversight should include adequate powers for the designated supervisor to review policies, procedures and records and powers to effectively enforce compliance. - All high value dealers, specifically dealers in precious metals and precious stones, including jewelers, engaging in cash transactions with customers of $15,000 or more should be subject to the AML/CFT preventive measures regime. - Undertake an awareness campaign to familiarize DNFBPs with responsibilities and obligations under any new AML/CFT laws or regulations. ### Suspicious transaction reporting (R.16) - Amend POCA to ensure SAR reporting requirement conforms to the applicable FATF Recs., including requirements for legal professionals. - Authorities should take additional measures, including issuance of regulations and guidance, to ensure DNFBP, including lawyers, file SARs when appropriate. - Revise relevant legislation with respect to tipping off by lawyers, to protect the confidentiality of SAR information. - Bring all DNFBPs under the preventive measures regime called for in POC Regulations 1998; mandatory measures should include effective systems and controls to monitor transactions for suspicions and ensure suspicious activities are reported. - Any AML/CFT supervisory regime introduced for DNFBPs should include powers for the supervisor to ensure effective implementation of SAR reporting requirements. ### Regulation, supervision, monitoring, and sanctions (R.17, 24, & 25) - Enact civil money penalties for the BMA. - Substantially increase fines under POCA with respect to summary convictions and certain convictions on indictment. - When lawyers, accountants, company service providers, real estate agents, jewelers and high value dealers are brought under the AML/CFT preventive regime, ensure effective supervisory arrangements for each sector with powers to monitor and sanction and adequate resources. - Ensure scope of activities of professional lawyers and accountants subject to AML/CFT obligations and supervision conforms to Rec. 24. - Issue updated guidance relevant to all DNFBPs. ### Other designated non-financial businesses and professions (R.20) - It would be desirable to bring all high value dealers under the AML/CFT regime. *Source: 3. Preventive Measures–Financial Institutions and 4. Preventive Measures–Nonfinancial Businesses and Professions (content unit: _cr08105 - 3. Preventive Measures–Financial).* ### 5. Legal Persons and ### 5. Legal Persons and Arrangements & Non-profit Organizations ### Legal Persons–Access to beneficial ownership and control information (R.33) - (No specific bulleted findings provided in source text for this subsection.) ### Legal Arrangements–Access to beneficial ownership and control information (R.34) - (No specific bulleted findings provided in source text for this subsection.) ### Non-profit organizations (SR.VIII) - The authorities should undertake a review of laws and regulations related to non-profit organizations to ensure that they cannot be misused for financing of terrorism. - Recordkeeping requirement should be established in line with C. SR VIII 3.4. - The authorities should implement measures to ensure that they can effectively investigate and gather information on NPOs, as called for in C. SR VIII.4 ### 6. National and International Cooperation ### National cooperation and coordination (R.31 & 32) - A national AML/CFT coordinator should be appointed and the policy development role of NAMLC should be energized. - Systematic mechanisms should be put in place for coordination among and between all AML/CFT agencies and departments. These mechanisms could include assigned duties to individuals for coordination, regularly scheduled meetings and distribution of contact lists. - Statistical systems should be updated and maintained in line with the recommendations in R.32. ### The Conventions and UN Special Resolutions (R.35 & SR.I) - Request that the UK extend the SFT and Palermo Conventions to Bermuda. ### Mutual Legal Assistance (R.36, 37, 38, SR.V & 32) - Amend relevant statute to provide for external confiscation requests relating to instrumentalities used in a commission of an ML, FT or other predicate offense. - Arrangements for coordinating seizure and confiscation actions with other countries should be formalized. - Improve collection of information on mutual legal assistance and international requests for co-operation. ### Extradition (R. 39, 37, SR.V & R.32) - Consider developing procedures facilitating expeditious action be taken or establishing precise timelines for response to MLA requests, including for extradition. - Review resources available at AGC and Police/FIU to ensure that MLA requests are acted upon in as efficient a manner as possible. - Improve collection of information on extradition requests ### Other Forms of Cooperation (R.40, SR.V & R.32) - Improve collection of data on formal requests to the FIU for assistance, including type of request and whether such assistance was granted. - Consideration should be given to developing procedures facilitating expeditious action or establishing precise guidelines for response to requests for cooperation. ### 7. Other Issues ### Other relevant AML/CFT measures or issues - Integrate use of available statistics and information in reviewing the effectiveness of AML/CFT systems on a regular basis. ### Table 3. Authorities’ Response to the Assessment — Key points - The Government of Bermuda is committed to completing the process of updating Bermuda’s anti-money laundering and combating the financing of terrorism (AML/CFT) regime to reflect the most recent developments in financial crime and the revised international standards from the Financial Action Task Force on Money Laundering (FATF). - Bermuda authorities welcome the IMF assessment and note assessors’ recognition of the robustness of arrangements developed and applied in Bermuda and substantial steps already taken to reflect the revised FATF recommendations. - The Government intends to use the recommendations to provide a roadmap for enhancements to the AML/CFT regime in both public and private sectors; some changes are already in place, many are at an advanced stage, and others are under further consultation and risk-prioritized implementation. ### Notable changes highlighted for 2007 - Three important laws were approved by the Bermuda Legislature in June 2007: amendments to the Proceeds of Crime Act, the Criminal Justice International Cooperation Act, and a new Financial Intelligence Agency Act, providing for the establishment of a new autonomous administrative body that will function as a clearing house for SARs. Implementation and effective application of this new legislation will address a number of the specific recommendations made by the assessors for enhancement of Bermuda’s AML/CFT legal framework. - Revised Regulations under the POCA were at an advanced stage of development at the time of the assessment visit. These modified Regulations were intended to implement significant aspects of the revised FATF Recommendations required to be undertaken by financial institutions and Designated Non-Financial Businesses and Professions through legislation or other enforceable means. Currently these Regulations are being further enhanced with a view to achieving an even greater measure of compliance with the final assessors’ recommendations. - Authorities have approved the establishment of a National AML/CFT Coordinator to supplement the National Anti-money Laundering Committee, reflecting an important recommendation of the assessors to ensure the most effective liaison between all relevant agencies and provide enhanced impetus to efforts. - The Government of Bermuda has developed a detailed Plan of Action to address outstanding issues in this critical area. Additional private and public sector reforms when fully implemented will ensure that Bermuda’s financial sector meets its obligations while maintaining Bermuda’s competitive position in the provision of premier financial services to the global community. *Source: _cr08105 - 5. Legal Persons and* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08105.pdf_