​US State Department attack on Nevis ‘unfounded and misleading’

CHARLESTOWN, Nevis — In a press statement on Friday, Heidi-Lynn Sutton, the financial services regulator in the Nevis Island Administration (NIA), refuted as “unfounded and misleading” claims made by the US State Department that “financial oversight in Nevis remains problematic due to the federation allowing the creation of anonymous accounts, strong bank secrecy laws, and overall lack of transparency of beneficial ownership of legal entities.”
The recently published State Department’s 2017 International Narcotics Control Strategy Report (INCSR) further stated that “the ambiguous regulatory framework regarding customer due diligence makes Nevis a desirable location for criminals to conceal proceeds”.
According to Sutton, the INCSR “delivers an attack on Nevis with allegations that are unfounded and misleading,” pointing out that measures have been in place since 2009 to mitigate money laundering and terrorist financing risks/threats to the financial services industry in Nevis.
“Therefore, we are of the view that there are adequate measures in place to monitor compliance with AML/CFT legislation,” the statement said, noting in particular, “the claim that there are strong bank secrecy laws in place is baseless… [and] the claim that St Kitts and Nevis allows the creation of anonymous accounts is erroneous.”
The INCSR was sharply critical of Eastern Caribbean islands in general for failing to curb drug trafficking and money laundering.
According to the report, the Eastern Caribbean hosts abundant transshipment points for illicit narcotics, primarily from Venezuela destined for North American, European and domestic Caribbean markets. However, no evidence was provided or any sources given for these assertions, which are in fact contradicted by other US government data, including radar maps:
The unsubstantiated allegations in the report drew an immediate response from the government of Antigua and Barbuda rejecting such claims in their entirety.
The NIA has now published the following similarly detailed rejection of the claims made in the INCSR:
Regulatory framework regarding customer due diligence
The Anti-Money Laundering Regulations, 2011 (AMLR), Anti-Terrorism (Prevention of Terrorist Financing) Regulations, 2011 (ATR) and the Financial Services Implementation of Industry Standards Regulations 2011 (FSIISR) with appending Guidance Notes require all regulated entities to identify, verify, obtain, maintain and monitor beneficial owners of legal persons. The legislation is enforced by both of the St. Kitts and Nevis Branches of the Financial Services Regulatory Commission (FSRC).
The FSRC is the ultimate regulatory body for financial services and for anti-money laundering and countering the financing of terrorism (AML/CFT) for St Kitts and Nevis. It was established by the Financial Services Regulatory Commission Act which was passed by the National Assembly on 20 October 2009. The FSRC monitors compliance by regulated persons and entities with the Proceeds of Crime Act, the Anti-Terrorism Act and such other Acts, regulations, codes or guidelines relating to money laundering or the financing of terrorism.
The above legislative and regulatory frameworks apply to all regulated persons and entities in Nevis which conduct fiduciary and financial services business in the following areas: the registration of international companies, the formation of trusts, the establishment of multiform foundations, international insurance companies, money services businesses, mutual funds, credit unions, international banks and the provision of citizenship by investment services.
It is impossible to claim that there is limited amount of information on the exact number of financial entities in the Federation as the Eastern Caribbean Central Bank and both Branches of the FSRC publish on their respective websites, the names, addresses and contact details of regulated entities under their supervision. Specifically in respect to Nevis, such information can be found on the Nevis Branch’s website.
As at December 31, 2016 the regulated entities supervised by Nevis Branch are as follows: insurance managers (18), money services businesses (3), international banks (1), registered agents (55), international insurance brokers (5) and international insurance companies (340).
The FSRC – Nevis Branch adopted a Risk-based Supervision (RBS) Framework in May 2015, which is applicable to both off-site and on-site examination of regulated entities. The IMF through CARTAC was instrumental in providing the necessary training and expertise to develop the RBS Framework for the FSRC – Nevis Branch. Through this partnership, CARTAC also provided technical assistance to assist the Branch in the conduct of an on-site examination of the sole licensed international bank in Nevis.
The RBS Framework includes the identification of and the assessment of risks, the quality of risk management oversight provided by compliance, internal audit, external audit, risk management, senior management and the board. A CARTAC consultant visited the Nevis Branch on 7 November 2016 to conduct a review of the RBS Framework implementation and the Branch was commended for the progress made in ensuring that important components of the framework were applied and the desired results were achieved. A summary of the framework can be accessed here.
Comprehensive on-site examinations of regulated entities in Nevis are conducted pursuant to section 4(2)(g) of the Financial Services Regulatory Commission Act, Cap 21.10 (FSRC Act) to ensure that the Act and enactments specified in Schedule 1 to the Act are being complied with and that the regulated entity is in a sound financial position and is managing its business in a prudent manner.
During an on-site examination, examiners from the FSRC – Nevis Branch will determine, among other things, whether there are appropriate policies and procedures established to ensure compliance with AML/CFT legislation and identify risk appropriately.
In order to achieve this, examiners will review all relevant customer files of the regulated entity as well as the citizenship by investment applications to ensure that adequate Know Your Customer (KYC) documents are obtained, maintained and up-to-date.
For the period January 2014 to December 2016, the FSRC – Nevis Branch conducted 53 full scope and follow-up on-site examinations in accordance with its RBS framework and on-site examination procedures. Compliance reports for all on-site examinations have been prepared by staff of the Branch, approved by the FSRC Board of Commissioners and disseminated to the board of directors and senior management of all assessed regulated entities. The entities are also advised of any corrective actions that should be implemented within stipulated timeframes.
Subject to section 40 of the FSRC Act and section 4(3) of the FSIISR, the Branch also undertook enforcement actions in 37 instances. Such actions included the issuing of warning letters, suspension or revocation notices and the granting of restricted licences. In 2017, the Nevis Branch intends to conduct 27 full scope and follow-up on-site examinations and it is on target to fulfil that mandate.
Statistics showing the number of on-site examinations that were conducted and enforcement actions undertaken by the FSRC – Nevis Branch are publicly available in the December editions of monthly Newsletters.
In 2017, the FSRC – Nevis Branch has also been successful in hosting its annual AML/CFT Awareness and Training Workshop for 12 consecutive years, a feat that no other jurisdiction in the OECS has achieved. This year saw the largest number of participants ever recorded with a total of 199 attendees from all regulated sectors. The continual increase in attendance is indicative of the importance that is placed on the fight against money laundering and terrorism financing. A press release was issued by the Branch.
Anonymous accounts
Section 69 of the Financial Services Implementation of Industry Standards Regulations 2011 specifically states that anonymously operated accounts are not allowed and that regulated businesses shall pay special attention to all complex, unusual large transactions or unusual patterns of transactions that have no apparent or visible economic or lawful purpose. They are required to examine the background and purpose of such transactions and to record their findings in writing and to keep such findings available. The claim that St Kitts and Nevis allows the creation of anonymous accounts is therefore erroneous.
Bank secrecy laws
Confidentiality provisions in both the Nevis International Banking Ordinance 2014 and the Banking Act 2015 are supported by the Confidential Relationships Act, Cap 21.02. This is the same level of protection given in all other jurisdictions that allow financial institutions to operate. However, confidential information from banks can be disclosed in connection with a request for information under an exchange of information agreement (TIEA or DTC) or in pursuance of a regulatory or criminal investigation. Therefore, the claim that there are strong bank secrecy laws in place is baseless.
The sole reference to the St Kitts and Nevis’ Third Round 2009 CFATF Mutual Evaluation Report without citing the subsequent follow-up reports is also disingenuous. In November 2014, the CFATF XL Plenary recognised that St. Kitts and Nevis had made significant progress in addressing the deficiencies in the 2009 Mutual Evaluation Report and therefore could exit the follow-up process. St Kitts and Nevis’ 9th Follow-Up Report contains a detailed description and analysis of the actions taken to rectify the deficiencies highlighted in the 2009 Report. Therefore, the public should be informed that in assessing St. Kitts and Nevis’ compliance with the FATF Recommendations, the 9th Follow-Up Report MUST be taken into account.
Furthermore, the Federation of St Kitts and Nevis’ Global Forum Phase 2 Peer Review Assessment was published in 2014 in which a rating of “Largely Compliant” was assigned. The rating is comparable with those achieved by countries such as Bermuda, Cayman Islands, Guernsey, United Kingdom and the United States. This demonstrates St. Kitts and Nevis’ high level of commitment and progress towards the implementation of the international standard of transparency and exchange of information. Copies of the CFATF Follow-Up Report and the Global Forum report can be accessed here.