Back Matter
  • 1 https://isni.org/isni/0000000404811396, International Monetary Fund
  • | 2 https://isni.org/isni/0000000404811396, International Monetary Fund

Annex I. Criteria Defining Noncooperative Countries or Territories23

The criteria given below were used by the FATF in evaluating the offshore centers in 26 countries in 1999 and early 2000, as well as the additional reviews of OFCs undertaken in September 2000, and during 2001.

The criteria which were met24 most often relate to:

  • loopholes in financial regulation, particularly the lack of adequate rules for the licensing and creation of financial institutions (criterion 5). In this regard, shortcomings in background checks for managers and owners of financial institutions were also deemed relevant.

  • Excessive secrecy provisions regarding the financial institutions (criterion 10) and a lack of an efficient system for reporting suspicious transactions (criterion 11).

  • Inadequate means for identifying and making available relevant information related to financial institutions (criterion 15), such as identity of directors, which might restrict the ability of and institution to exercise due diligence; and Providing inadequate resources for addressing the problems of money laundering, in particular, insufficient resources (financial, human, or technical) to the administrative and judicial authorities to allow them to exercise their functions properly (criterion 23), and the lack of a centralized financial intelligence unit (FIU) that deals specifically with anti-money laundering controls and the enforcement of measures in place (criteria 25).

A. Loopholes in Financial Regulations

No or inadequate regulations and supervision of financial institutions

1. Absence or ineffective regulations and supervision for all financial institutions in a given country or territory, onshore or offshore, on an equivalent basis with respect to international standards applicable to money laundering.

Inadequate rules for the licensing and creation of financial institutions, including assessing the backgrounds of their managers and beneficial owners

2. Possibility for individuals or legal entities to operate a financial institution without authorization or registration or with very rudimentary requirements for authorization or registration.

3. Absence of measures to guard against holding of management functions and control or acquisition of a significant investment in financial institutions by criminals or their confederates.

Inadequate customer identification requirements for financial institutions

4. Existence of anonymous accounts or accounts in obviously fictitious names.

5. Lack of effective laws, regulations, agreements between supervisory authorities and financial institutions or self-regulatory agreements among financial institutions on identification by the financial institution of the client and beneficial owner of an account: no obligation to verify the identity of the client; no requirement to identify the beneficial owners where there are doubts as to whether the client is acting on his own behalf; no obligation to renew identification of the client or the beneficial owner when doubts appear as to their identity in the course of business relationships; no requirement for financial institutions to develop ongoing anti-money laundering training programs.

6. Lack of a legal or regulatory obligation for financial institutions or agreements between supervisory authorities and financial institutions or self-agreements among financial institutions to record and keep, for a reasonable and sufficient time (five years), documents connected with the identity of their clients, as well as records on national and international transactions.

7. Legal or practical obstacles to access by administrative and judicial authorities to information with respect to the identity of the holders or beneficial owners and information connected with the transactions recorded.

Excessive secrecy provisions regarding financial institutions

8. Secrecy provisions which can be invoked against, but not lifted by competent administrative authorities in the context of enquiries concerning money laundering.

9. Secrecy provisions that can be invoked against, but not lifted by judicial authorities in criminal investigations related to money laundering.

Lack of efficient suspicious transactions reporting system

10. Absence of an efficient mandatory system for reporting suspicious or unusual transactions to a competent authority, provided that such a system aims to detect and prosecute money laundering.

11. Lack of monitoring and criminal or administrative sanctions in respect to the obligation to report suspicious or unusual transactions.

B. Obstacles Raised by Other Regulatory Requirements

Inadequate commercial law requirements for registration of business and legal entities

12. Inadequate means for identifying, recording and making available relevant information related to legal and business entities (name, legal form, address, identity of directors, provisions regulating the power to bind the entity).

Lack of identification of the beneficial owner(s) of legal and business entities

13. Obstacles to identification by financial institutions of the beneficial owner(s) and directors/officers of a company or beneficiaries of legal or business entities.

14. Regulatory or other systems which allow financial institutions to carry out financial business where the beneficial owner(s) of transactions is unknown, or is represented by an intermediary who refuses to divulge that information, without informing the competent authorities.

C. Obstacles to International Cooperation

Obstacles to international cooperation by administrative authorities

15. Laws or regulations prohibiting international exchange of information between administrative anti-money laundering authorities or not granting clear gateways or subjecting exchange of information to unduly restrictive conditions.

16. Prohibiting relevant administrative authorities to conduct investigations or enquiries on behalf of, or for account of their foreign counterparts.

17. Obvious unwillingness to respond constructively to requests (e.g. failure to take the appropriate measures in due course, long delays in responding).

18. Restrictive practices in international cooperation against money laundering between supervisory authorities or between FIUs for the analysis and investigation of suspicious transactions, especially on the grounds that such transactions may relate to tax matters.

Obstacles to international cooperation by judicial authorities

19. Failure to criminalize laundering of the proceeds from serious crimes.

20. Laws or regulations prohibiting international exchange of information between judicial authorities (notably specific reservations to the anti-money laundering provisions of international agreements) or placing highly restrictive conditions on the exchange of information.

21. Obvious unwillingness to respond constructively to mutual legal assistance requests (e.g. failure to take the appropriate measures in due course, long delays in responding).

22. Refusal to provide judicial co-operation in cases involving offences recognized as such by the requested jurisdiction especially on the grounds that tax matters are involved.

D. Inadequate Resources for Preventing and Detecting Money Laundering Activities

Lack of resources in public and private sectors

23. Failure to provide the administrative and judicial authorities with the necessary financial, human or technical resources to exercise their functions or to conduct their investigations.

24. Inadequate or corrupt professional staff in either governmental, judicial or supervisory authorities or among those responsible for anti-money laundering compliance in the financial services industry.

Absence of a financial intelligence unit or of an equivalent mechanism

25. Lack of a centralized unit (i.e., a financial intelligence unit) or of an equivalent mechanism for the collection, analysis and dissemination of suspicious transactions information to competent authorities

Annex II. FATF Criteria for Defining Noncooperative Countries

(Unless indicated otherwise, countries were listed as of June 2000)

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Removed from the list of NCCTs as of June 2001.

Added to the list of Noncooperative Countries and Territories in September 200 I.

Added to the list of Noncooperative Countries and Territories in June 2001.

Annex III. Case Studies of English-speaking Caribbean Countries and Territories

Barbados

The offshore sector has grown significantly in recent years. Licensed offshore entities increased from about 2,900 in 1994 to over 6,600 in 1999, (Table 1). Factors ranging from favorable tax and regulatory regimes, to political stability, modern infrastructure and skilled labor force have contributed to the growth of this sector. Majority of offshore entities comprise international business companies (IBCs) and foreign sales companies (FSCs). There are about 45 offshore banks. Offshore banks are exempt from exchange controls and taxation is limited. Government revenue arises from a license fee and taxes on profits. The Minister of Finance has the power to issue, revoke licenses and provide guarantees regarding future taxes. Exempt insurance and management companies are governed by the Exempt Insurance Act, under the Supervisor of Insurance.

Regulatory issues

Offshore banks were initially regulated by the Offshore Banking Act of 1980, and then the International Banking Act, 2000. The new Act contains a number of improvements, including the powers by the CBB to conduct on site inspections without a court license. It requires offshore banks to publish annual audited statements. The new Act seeks convergence of prudential regulation and supervision with onshore banks. Anti-money laundering legislation was adopted in 1999, requiring banks to establish the true identity of customers, keep records for at least five years of transactions and report such suspected transactions to the authorities. IBCs are governed by the International Business Companies Act.

Table 1.

Barbados: Number of Active Offshore Entities, 1994–99

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Sources: Lybek (2000), and Central Bank of Barbados, and Supervisor of Insurance.
The Bahamas

The Bahamas has one of the largest offshore sectors in the region. The financial sector contributed about 15 percent to GDP in 2000. The majority of offshore entities take the form of international business companies, which mainly consist of mutual funds and trust funds. The Bahamas is ranked among the top 5 in the world in terms of quantity and value of mutual funds managed, and by 2000 there were over 700 mutual funds, with assets under management totaling US$100 billion.

Table (2) shows the size of the offshore sector in The Bahamas. The total number of international business companies increased from about 28,493 in 1994 to 117,520 in 2000. The number of offshore banks has remained at the same level, around 410, perhaps reflecting a saturation in this segment of the market.

In terms of economic contribution, offshore expenditure amounted to about 2.5 percent of GDP, with salaries and administrative contributing to the bulk of national expenditure. The offshore sector employed about 950 people, at the end of 2000. The offshore sector is governed by a series of Acts, including the Central Bank of The Bahamas Act, 2000, the Banks and Trust Companies Regulation Act 2000, the Financial and Corporate Service Providers Act 2000 the Financial Intelligence Unit Act, 2000, the Proceeds of Crime Act, 2000, and the Financial Transactions Act.

Table 2:

Bahamas: Offshore sector, 1994–2000

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Sources: Central Bank of The Bahamas; and Fund staff estimates.
St. Lucia

The offshore sector was established following the passing of the following Acts in November 1999 and the sector is at its infancy. As of September 2000, there were 2 international insurance companies, 8 service providers, and 61 IBCs. Presently one foreign bank has been granted the license to operate as an offshore bank. St. Lucia has been placed in the third group of the Financial Stability Forum’s list of off shore centers. This comprises jurisdictions with low quality of supervision, and/or being noncooperative with onshore supervisors, and with little or no attempt to adhere to international standards. Other OECS countries listed in Group 3, include Anguilla, Antigua and Barbuda, St. Kitts and Nevis, and St. Vincent and the Grenadines.

The director of financial supervision in the ministry of international business is responsible for the supervision of offshore banks. Offshore banks are required to submit audited reports on a regular basis. Although the director of financial services responsible for offshore companies may request to inspect the books of IBCs and offshore banks, no explicit requirement relating to “on-site” inspection is present in the legislation.

The following Acts govern the offshore sector; the International Business Companies Act, (governing the establishment of IBCs); the International Trust Act, (details the regulations for the establishment of trusts and estates); the Registered Agents and Trustee Licensing Act, (sets the licensing requirement); the International Mutual Funds Act (governing mutual funds) and the International Insurance and Reinsurance Act (covers offshore insurance). The Money Laundering (Prevention and Control) Act was enacted to combat illicit transactions.

Antigua and Barbuda
Size and economic impact of the offshore sector

Antigua and Barbuda has approximately 8,000 international business companies (IBC), 22 offshore banks and 77 internet gaming companies at end-2001. The Free Trade Processing Zone (FTPZ), a statutory body responsible for licensing internet gaming companies, derived about EC$6.5 million in 1997 and 1998 from license fees. The offshore sector generates substantial revenues to the government through license and registration fees, totaling 3.8 percent and 3.4 percent of current revenues in 1997 and 1998 respectively. The sector is estimated to employ some 2,500 people.

Supervisory and regulatory framework

The enabling legislation that facilitated the beginning of the OFC was the International Business Company (IBC) Act of 1982. Under this Act offshore companies were exempt from taxes on income, capital gains and inheritance and from reserve requirements or exchange controls. During the mid-1990s, the jurisdiction was subject to international pressure alleging instances of money laundering. These reports arose in part because the IBC Act conferred anonymity on principal owners and shareholders through the issuance of bearer shares. Furthermore, bank secrecy laws prohibited the disclosure of financial information unless there were unequivocal infractions of the laws of Antigua and Barbuda.

The authorities instituted a number of amendments to strengthen supervision and enforcement. The Money Laundering Prevention Act of 1996 (MLPA) was promulgated in 1998 to prevent and deter money-laundering activity. The IBC Act was also amended in 1998 to create the International Financial Sector Authority (IFSA)—later renamed the International Financial Sector Regulatory Authority (IFSRA), and the Office of National Drug and Money Laundering Control Policy (ONDMLCP) to separate regulatory and enforcement functions. The amendments strengthened the oversight of offshore operations through increasing minimum capital requirements, annual inspections, know your customer policies and requiring all bank directors to be natural persons. Additional amendments were made to the IBC Act in August 2001 that required registered agents to know their customers. All offshore banks are now required to have a physical presence on the jurisdiction.

British Virgin Islands
Size and economic impact of the offshore sector

Offshore financial services along with tourism are the two principal sectors of the British Virgin Islands (BVI) economy. Government derived 52 percent (US$96.7 million) of its revenue from license fees in 1999. IBCs incorporation is the main product offered and by end-2001 there were over 314,000 representing 45 percent share of the global market. The BVI also offers other financial services, particularly in the areas of banking, insurance, trusts and mutual funds. The sector is estimated to employ around 940 persons.

At end-2001 there were 2,013 mutual funds. The Financial Services Department (FSD) does not report fund size, as there is no requirement to do so. There are over 300 captive insurance companies and 59 credit life reinsurance captives. There are no offshore banks and the jurisdiction does not actively encourage applications for licenses.

Supervisory and regulatory framework

The critical legislation that has propelled the growth of the offshore industry is the IBC Act of 1984. Since then, a number of additional Acts were passed. These include the Trustee Amendment Act of 1993, Insurance Act of 1994, and the Mutual Funds Act of 1995. A legislative and regulatory regime for mutual funds was established in 1998. The responsibility for licensing, regulation and supervision of financial activities in the BVI is vested in the governor in council and the minister of finance. The governor in council is responsible for all licensing decisions relating to regulated firms and public mutual funds public funds while the minister of finance licenses nonpublic funds. The day-to-day regulation of offshore financial business is undertaken by the FSD.

The Financial Stability Forum (FSF) and Financial Action Task Force (FATF) regarded the BVI as “committed to implementing solid legislation and regulatory measures against money laundering.” A recent independent assessment by the accounting firm KPMG viewed the FSD “to be a well-run regulator with a strong commitment to achieving international standards.” One shortcoming was cited and this was the apparent conflict of the governor being both responsible for licensing and enforcement.

Bermuda
Size and economic impact of the offshore sector

Bermuda offshore sector specializes in insurance services. Bermuda dominates the global captive insurance market with gross annual premiums of US$27 billion and total assets of US$115 billion. The Bermuda market is primarily comprised of captive and reinsurance business rather than being a significant retail market. As at end-1998 there were 134 long-term international life insurance, 18 domestic insurance, 1,293 captive and reinsures and 12 reinsures specializing in property catastrophe.

Supervisory and regulatory framework

The Bermuda Monetary Authority (BMA) that is operationally independent of government and supervises both offshore and onshore activity. The exceptions in independence are with respect to trust service providers where formal licensing powers is conducted by the minister of finance. This procedure will soon be amended. The other is with regard to the registrar of insurance who operates from within the ministry of finance. The BMA currently has five operating divisions which cover investment business, deposit taking institutions and trust companies, authorization and compliance, policy, research and statistics, and administration.

The legislation governing the offshore sector includes the Insurance Act (1978) (covering the registration and licensing of insurance companies); the Insurance Accounts Regulations (1980) (governing financial statements); the Insurance Returns and Solvency Regulations (1980) (covering general business and long-term business solvency margins); the Life Act (1978) (governing the rules in the life industry); and the Non-Resident Insurance Undertakings Act (1978) (which permits nonresident insurance companies to transact domestic business within Bermuda). The FATF viewed Bermuda to be effective in its supervision and regulation of financial institutions including an efficient mandatory system for reporting, monitoring and sanctioning for noncompliance in reporting suspicious transactions.

Cayman Islands25
Size and economic impact of the offshore sector

The Cayman Islands has specialized in offshore banking making it one of the world’s largest banking centers. Currently, there are in excess of450 banks from 65 countries with an asset base of US$671 billion at end-2000. Forty-three of the world’s top 50 banks have a branch or locally incorporated subsidiary. There are two categories of banks type A and B. Category A licensees can conduct domestic banking business and offshore business; and Category B licensees can only conduct offshore business. There are currently 31 Category A banks and 430 Category B license holders. Of the 430 category B license holders 51 have established physical presence in the jurisdiction.

The Cayman Islands have grown as a center for insurance and are now the second largest captive insurance center in the world with 502 captive insurance companies, largely from the U.S. market. Mutual funds are also important product offered by the jurisdiction. There were 2,298 regulated mutual funds as at March 2000, being 603 administered, 1,654 registered and 41 licensed schemes. Trusts and limited partnerships play an important role in the diversity of products offered by this OFC.

Supervisory and regulatory framework

The Cayman Islands Monetary Authority (CIMA) formed in 1996 is responsible for the supervision of banks, trust companies, mutual funds, mutual fund administrators, insurance and company managers. The Banks and Trust Companies Regulations Law (1996)—later superceded by the Bank and Trust Companies Law (2000) formed the basis of the development of this OFC as an international banking center. The FATF listed the Cayman Islands as an uncooperative jurisdiction in June 2000 with respect to customer identification and the mandatory reporting of suspicious transactions. It met in full, thirteen of the 25 recommendations introduced by the FATF February 2000 and 4 partially.

The Cayman Islands Legislative Assembly passed a number of legislation in 2000 to bring the anti-money laundering legislation into compliance. These were the Monetary Authority (Amendment) (International Co-operations) Law Act, the Banks and Trust Companies (Amendment) (Access to Information) Law, the Companies Management (Amendment) (Access to Information) Law Act, and the Proceeds of Criminal Conduct (Amendment) Money Laundering Regulations Law Act.

Dominica
Size and economic impact of the offshore sector

The offshore sector in Dominica was established around its economic citizenship program. The sector commenced in 1996 and by end-2000 there were 570 economic citizens, 7 offshore banks, 6,596 IBCs, 20 internet gaming companies, 2 exempt trust, 4 exempt insurance and 2 management companies. The sector currently employs 100 persons. Revenue from the sector rose from ECS4.6 million (0.7 percent current revenue) in 1996, to EC$10 million (1.7 percent current revenue) at end-1997, but gradually declined since then to $5.2 million (0.7 percent current revenue) by end-2000. The government between 1996–2000 has collected almost EC$40 million in revenue.

Supervisory and regulatory framework

The offshore sector is based on the Offshore Banking Act and the IBC Acts of 1996, the Exempt Insurance and the Exempt Trust Acts of 1997, and the re-engineered Economic Citizenship Program. The sector is supervised and regulated by the International Business Unit (IBU) based in the Ministry of Finance. The FSF placed Dominica in a group of 25 offshore centers that are “generally perceived as having a low quality of supervision.” Inadequate staffing prevents the effective supervision of the entire offshore sector although the IBUs surveillance alerted authorities to the insolvency of the largest offshore bank. Supervision of offshore banks was assigned to the Eastern Caribbean Central Bank (ECCB) in 2000.

St. Kitts and Nevis
Size and economic impact of the offshore sector

St. Kitts and Nevis comprise two separate jurisdictions from a legal and regulatory standpoint. In St. Kitts, legislation is at the federal level that regulates financial services with both residents and nonresidents while the constitutional arrangement has permitted Nevis to enact local legislation designed to facilitate development of the offshore sector. By end-2001 Nevis accounted for the majority of IBCs (22,450) incorporated in both jurisdictions. There exists one offshore bank, over 2,000 exempt trusts and 3,000 limited liability companies. Revenue from offshore licenses has risen from EC$4.2 million (1.9 percent current revenue) in 1997 to EC$6.3 million (2.5 percent current revenue) by end-1999. There is one offshore bank that is a subsidiary of an indigenous bank. The sector currently employs approximately 100 people.

Supervisory and regulatory framework

The offshore sector is regulated and supervised by the directorate of financial services within the Ministry of Finance. Legislation modeled on those of the Channel Islands—The Companies Act, Limited Partnerships Act and the Trust Act of 1996 and 1997 regulate offshore activity in both islands. Although the Proceeds of Crime Act (1993) is applicable in both jurisdictions, money laundering is only punishable by law if it relates to the proceeds from narcotics trafficking. Nevis, however has several ordinances that govern offshore activity. These include: the Nevis Business Corporation Ordinance (1984), the Nevis International Exempt Trust Ordinance (1994), the Nevis Liability Company Ordinance (1995) and the Nevis Offshore Banking Ordinance (1996). The following laws were enacted in 2001 to strengthen the regulatory framework: the Companies Amendment Act No. 14; the Anti-Money Laundering Amendment Regulations No. 36; the Nevis Business Corporation Amendment Ordinance No. 3; and the Nevis Offshore Banking Amendment Ordinance No. 4.

St. Kitts and Nevis was classified by the FSF and FATF in 2000 as an offshore center with major weaknesses in supervision. This jurisdiction was deemed to be unsupervised with no procedures in place to prevent money laundering. Nonrequirement of identification for operators of a bank, strict secrecy laws, obstacles to customer identification, and the lack of international cooperation with respect to mutual legal assistance in the case of trusts, were cited.

Additional financial advisories issued by the United States and Canada with respect to money laundering laws prompted the authorities to address weaknesses in their regulatory and supervisory framework. In November 2000, a Financial Services Commission Act was passed to establish a commission as the ultimate regulatory body for financial services. In early 2001, a Financial Intelligence Unit (FIU) was established to analyze suspicious activity and initiate inquiries into suspected money laundering. The FATF recognized progress made in strengthening supervision and regulation and will review the situation in June 2002.

Grenada
Size and economic impact of the offshore sector

The sector commenced in 1997 and currently has 3,400 IBCs, 44 offshore banks, and 11 trust companies as of end-2001. The sector is estimated to employ 300 people and contributed EC$7.4 million (1.2 percent of GDP) in fees to central government.

Supervisory and regulatory framework

The development of the offshore financial sector commenced in 1997 with the enactment of The International Insurance Act, 1996, The Companies Act, 1996, The Offshore Banking Act, 1996, The International Trusts Act, 1996 and the International Companies Act, 1996. The IBC Act was however amended in 2001 to require registration and the declaration of beneficial ownership of bearer shares. Until January 2000 the Offshore Services Division of the Ministry of Finance was responsible for all aspects of the sector. However, with the collapse of First International Bank of Grenada (FIBG) an offshore bank in mid-2000, the Grenada Financial Services Authority (GIFSA) was established. GIFSA is responsible for supervising and regulating the sector. Promotion activities were vested in the Grenada Industrial and Development Corporation (GIDC). GIFSA has since revoked the licenses of 17 banks, commenced an audit of all banks by Price Waterhouse Coopers, and tightened due diligence in the issuance of licenses. The latter are now conducted by a private sector firm outside the jurisdiction.

Table 3.

Existing Laws Governing the Offshore Sector

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Sources: International Financial Sector Authority, Antigua and Barbuda; Ministry of Finance, Dominica; Nevis Financial Services Department; KPMG, Review of Financial Regulation in Caribbean Overseas Territories and Bermuda, October 2000; Offshore Financial Authority (OFA), St. Vincent and the Grenadines; and Fund staff estimates.

References

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1

The authors are, respectively, Senior Economist, Caribbean I Division and Economist, Mexico/Latin Caribbean Division, in the Western Hemisphere Department and Economist in Division 8, Asia and Pacific Department. The authors have benefited from comments of the members of the Caribbean I and II Divisions of WHD, Gopal Yadav, and of Manuel Vasquéz and Mary Zephirin of the Monetary Affairs and Exchange Department. The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the IMF

2

Tourism can become an invasive activity and, in this case, preservation of the main attractions for tourism may require putting limits on both the development of infrastructure and the number of tourists.

3

Higgins, J. Kevin, 2000, “Offshore Financial Services: An Introduction,” The Eastern Caribbean Banker, Vol. 2 (July), pp. 7–8.

4

The East Caribbean Currency Union membership is comprised of Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines, and two British dependent territories, Anguilla and Montserrat.

5

op.cit. Higgins, J. Kevin.

6

Doyle, Michelle and Anthony Johnson, 1999, “Does Offshore Business Mean Onshore Economic Gains,” Central Bank of Barbados, Working Papers.

7

Bannister, Tina, 2000, “Offshore Financial Services: An Overview,” The Eastern Caribbean Banker, Vol. 2 (September), pp. 10–12.

9

CARICOM is a regional group of Caribbean countries that includes, Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Haiti, Jamaica, Montserrat, St. Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago. The group seeks greater economic cooperation through the formation of a single market and economy.

10

The FSF, established by the G-7, was convened in April 1999 and operates under the auspices of the Bank for International Settlements (BIS). The FATF is an inter-governmental body initially established by the G-7 in 1989 (but now has the full OECD as its membership) with the responsibility of examining money laundering techniques and trends, reviewing actions already taken at national and international levels, and setting out additional measures to be taken to combat money laundering.

11

These recommendations were revised in 1996 to take into account changes in money laundering trends; for details on the recommendations, see “Financial Action Task Force on Money Laundering, The Forty Recommendations”, at www.oecd.org/fatf.

12

“Enhancing Contributions to Combating Money Laundering: Policy Paper,” Annex II, prepared by the IMF and the World Bank, April 26, 2001.

13

See Annex I for the list of criteria used. For member countries, the FATF evaluated their offshore sectors on the basis of the 40 recommendations.

14

Grenada was added to the NCCT list in September 2001.

15

Meeting a criterion indicated a shortcoming in the relevant country being evaluated. For each criterion that the FATF judged met by a country, a value of one was given; if the FATF judged that the country “partially” met a criterion, a value of 0.5 was given. In this way we could analyze which criteria were met most often as well as determine which countries had the most shortcomings in addressing issues of money laundering.

17

Reuters World Service, “Crime-Laundering-Caymans, June 22, 2001.

18

In July 2001 the United Kingdom lifted its advisory, citing significant progress made by the authorities to address shortcomings in the offshore sector. In August 2001 the United States also lifted its advisory citing the enactment of new laws and the beginning of effective implementation.

19

The Cayman Islands is ranked behind Hong Kong SAR, London, New York, and Tokyo, with an estimated US$750 million under management of its financial institutions, according to Cayman banking officials.

20

The BVI was the only territory with an estimate of total fees paid to both central government and registered agents. Total fees were approximately three times that collected by the central government.

21

In this section, all references to revenue are to central government current revenue, unless otherwise stated.

22

One approach used in the measurement of traditional commercial banking output that may be of interest is the value-added approach, which explicitly uses all operating costs, such as labor and capital to model inputs (see Berger and Humphrey (1990)). This method was partially applied to make a crude assessment of the contribution of the OFCs to the respective economies, with the value-added or income defined value as:

Value added = gross output - Intermediate consumption = operating surplus + employee compensation + depreciation

In the Caribbean region, the scope of measuring the contributions, or value-added, of the OFC to the economy encompasses fees paid to government and registered agents, rental of office space, wages paid to local workers, utilities and other ancillary services (the income approach).

23

Source: Report of the FATF, February 2000.

24

Meeting a criterion indicated a shortcoming in the relevant country being evaluated. For each criterion that the FATF judged met by a country, a value of one was given; if the FATF judged that the country “partially” met a criterion, a value of 0.5 was given. In this way we could analyze which criteria were met most often as well as determine which countries had the most shortcomings in addressing issues of money laundering.

25

This section on the Cayman Islands draws from the KPMG study on British Dependent Territories.

Caribbean offshore Financial Centers: Past, Present, and Possibilities for the Future
Author: Ms. Esther C Suss, Mr. Oral Williams, and Mr. Chandima Mendis