The sanctions regime in the British Virgin Islands

Introduction

This guide provides a summary of the British Virgin Islands (BVI) sanctions regime and why it is more important than ever for relevant persons to comply with their obligations. Relevant persons under the BVI anti-money laundering regime (including trust company services providers and financial institutions) need to continually ensure that they comply with their regulatory obligations, both to ensure regulatory compliance and to protect their reputation and mitigate the risk of their businesses being used for the purpose of financial crime.

Compliance with sanctions continues to be one of the priority themes for the BVI Financial Services Commission (the FSC) in its inspection cycles. Therefore, all BVI financial services licensees should ensure that they have robust policies and procedures in place (including in relation to targeted financial sanctions), commensurate with the risks posed by their business, and that those policies and procedures are implemented in practice. This will demonstrate effective implementation of controls and reduce the risk of any breach, leading to potential enforcement action and penalties.

What are sanctions?

Sanctions are measures that are put in place with the aim of maintaining international peace and security. They are also implemented to prevent terrorist and proliferation financing by seeking to prevent funds or other assets from being made available, directly or indirectly, for the benefit of designated persons and entities. These measures come in many forms, including travel bans, import and export restrictions and embargoes, diplomatic measures, shipping and financial sanctions. Over the last few years, we have seen a continually intensifying programme of sanctions by, among others, the UK, the US and the United Nations (UN) with the most active regime being in relation to Russian sanctions.

The BVI financial sanctions framework

The BVI is a British Overseas Territory and, as such, the financial sanctions in force in the BVI are essentially the same as those in force in the UK.

The UN imposes financial sanctions via UN Security Council resolutions. The UK implements the UN sanctions, and its own financial sanctions, via a combination of primary and secondary legislation. In the UK, the Foreign, Commonwealth & Development Office is responsible for the UK’s international sanctions policy, including the sanctions regimes and designations¹. The UK Foreign, Commonwealth & Development Office maintains the consolidated UK list of individuals, entities and ships designated under the Sanctions and Anti-Money Laundering Act 2018 (the UK Sanctions List²). An entity that is owned or controlled³ by a designated person is subject to the same sanctions as the designated person themselves.

UK sanctions are extended to the BVI as a British Overseas Territory, with certain modifications, by Overseas Territories Orders in Council (Sanctions Orders) made by the UK Privy Council. The Sanctions Orders in force in the BVI can be found on both the BVI Financial Investigation Agency (FIA) and the FSC websites. Domestic legislation also provides for the BVI to identify and suggest persons for designation through the Governor of the BVI, although there have been no such designations to date.

In the BVI, the Governor is the competent authority responsible for enforcing international sanctions under both the domestic and the UK frameworks, and for ensuring the implementation of financial sanctions measures. The Financial Sanctions Guidelines⁴, issued by the Governor’s Office, provide further details to assist those persons responsible for ensuring compliance with financial sanctions in meeting their obligations. The Governor has delegated certain powers and functions to the Attorney General for the purposes of implementing and monitoring compliance with sanctions applicable in the BVI. The sanctions unit established within the Attorney General’s chambers (the Sanctions Unit) executes these delegated powers and functions and is responsible for compliance reporting associated with sanctions regimes in force in the BVI.

Who is subject to financial sanctions?

UK and UN financial sanctions

In the BVI, UK financial sanctions (implementing both UN and domestic UK sanctions regimes) apply to:

• any person in the BVI;
• any person who is a British citizen, a British Overseas Territories citizen, a British subject, a British National (Overseas) or a British protected person who is ordinarily resident in the BVI;
• a body incorporated or constituted under the laws of the BVI;
• any person onboard a ship or aircraft that is registered in the BVI;
• all persons within the BVI, the territorial sea of the UK and all UK citizens worldwide; and
• all individuals and legal entities in, or undertaking activities within, the BVI who must comply with UN and UK financial sanctions that are in force in the BVI.

EU and US financial sanctions

EU financial sanctions are not directly applicable to BVI entities but, as with the UK/BVI sanctions legislation, apply to EU nationals wherever they are located and to persons conducting business in the EU.

US financial sanctions are not legally binding in the BVI. However, financial sanctions imposed in the US by the Office of Foreign Assets Control (OFAC) of the US Treasury Department are often considered due to close commercial ties and correspondent banking relationships with US entities, and the reputational implications for the territory. Therefore, even if an institution is not operating or incorporated in the US, OFAC sanctions may still apply and should be taken into consideration where the institution conducts business with US persons or entities.

Local legal advice may also be needed (eg, in relation to any notification to be made to OFAC or in relation to an EU member state).

Who is responsible for ensuring compliance with financial sanctions?

The following are responsible for ensuring compliance:

• an entity registered, incorporated or constituted under BVI laws and supervised by the FSC (this will include all trust company services providers/registered agents and financial institutions);
• an entity registered, incorporated or constituted under BVI laws and supervised by the FIA (this will include all non-profit organisations and designated non-financial businesses and professions); and
• any person onboard a ship or aircraft that is registered in the BVI,

(collectively, Relevant Persons).

Relevant Persons are prohibited from making any funds, economic resources, other assets or financial or other related services available, directly or indirectly, wholly or jointly, for the benefit of:

• designated persons and/or entities;
• entities owned, held or controlled, directly or indirectly, by designated persons or entities; and
• persons and/or entities acting on behalf of, or at the direction of, designated persons or entities, unless licensed, authorised or otherwise notified in accordance with the relevant UN Security Council resolutions.

AMLTF Code obligations

Under the Anti-Money Laundering and Terrorist Financing Code of Practice, Revised Edition 2020 (as amended, the AMLTF Code), Relevant Persons must ensure that their risk-based policies, procedures and systems are adequate and appropriate to determine if their existing and potential new customers are subject to any of the sanctions regimes that apply in the BVI. In particular, Relevant Persons should:

• Review on an ongoing basis whether their existing sanctions compliance mechanisms are effective in promptly mitigating and prohibiting financial sanctions evasions⁵ by designated persons, Russian elites and enablers⁶;
• Check that their ongoing due diligence/customer screening systems are able to detect where a customer (including its beneficial owner(s)) has become subject to applicable sanctions⁷ (eg, by monitoring and screening against the UK Sanctions List and notices and information published on the UK Government⁸, FSC⁹ and FIA’s¹⁰ websites). Relevant Persons may also wish to have measures in place to monitor for situations where individuals and legal persons have been listed on other sanctions lists such as OFAC and EU;
• Comply with their reporting provisions (eg, failing to make a report where there has been a breach of financial sanctions, or failing to submit a report in the proper form, is an offence¹¹. An individual failing to report a suspicious activity/transaction report (SAR)¹² may be liable to a penalty of up to US$80,000¹³).

What do Relevant Persons need to do?

If a Relevant Person’s systems and checks show a customer (including its beneficial owner(s)) is a designated person subject to an applicable sanctions regime, or where a Relevant Person suspects that it is dealing with a designated person using techniques in order to evade sanctions in breach of Sanctions Orders, they must:

• Check if they maintain any accounts or hold any funds or economic resources for the designated person and, if so, freeze them;
• Cease dealing with the accounts, funds and/or economic resources, or making them available (directly or indirectly), to the designated person unless licensed by the Governor (either under a general licence¹⁴ or a specific licence) to do so under the applicable sanctions regime;
• Report any findings and relevant information, including:
  • filing a Compliance Reporting Form (CRF) in the prescribed form with the Governor’s Office (eg, for asset freezes and suspected breaches of sanctions under the applicable sanctions regime)¹⁵;
  • filing a report in the prescribed form with the Sanctions Unit for assets held by entities which are, or are owned/controlled by, a designated person;
  • filing a SAR with the FIA (eg, if there is a suspicion of criminal conduct such as an attempt to circumvent applicable financial sanctions or as otherwise may be required under the Counter-Terrorism Act, 2021 (as amended, the CTA)) and reporting to the FIA in relation to the holding of an asset of a designated person or entity¹⁶; and
  • if carrying out an activity or transaction in reliance of a licence:
    • reporting the details required under the provisions of the relevant licence to the Governor’s Office in the prescribed form; and
    • keeping complete and accurate records for at least six years of such activity carried out.

Where the designed person is no longer subject to an applicable sanctions regime (and the Relevant Person should ensure that it has verified that this is the case), the Relevant Person should notify the FIA and the FSC that it proposes to unfreeze the relevant accounts, funds and/or economic resources and unfreeze them (if no objection or contrary instruction is received).

Consequences of breaches of financial sanctions

Contravening or circumventing a sanction is a serious criminal offence which includes the following penalties:

• on summary conviction, up to 6 months’ imprisonment, or a fine of the US$ equivalent of £5,000, or both; and
• on conviction on indictment, up to 7 years’ imprisonment, or a fine, or both.

In addition, vicarious liability provisions apply where an offence is committed by a body corporate with the consent, connivance or neglect of a director or officer, or any person purporting to act in such capacity.

Other penalties may also be applicable; for example, a person who contravenes a provision under the AMLTF Code commits an offence and is liable on summary conviction to a fine of up to US$200,000 or up to 3 years’ imprisonment, or both.¹⁷ The FSC may also impose administrative penalties on Relevant Persons of up to US$100,000 per breach for non-compliance with the provisions of the AMLTF Code.

How can we help?

Mourant has a wealth of experience in assisting clients in complying with the various aspects of their sanctions obligations. Our services include:

• identifying whether an entity is owned or controlled by a designated person to determine if it is in scope of the sanctions regime;
• providing guidance on, and assisting with, reporting obligations to the applicable authorities, including in relation to SARs and CRFs;
• preparing, reviewing and updating sanctions policies and procedures, including compliance, screening and monitoring;
• assisting with reporting under general licences to the applicable authorities;
• advising funds, their administrators and directors on the freezing of assets (where required), investor communications and the approach in relation to minority investors;
• conducting an audit of effectiveness of sanctions screening systems (including timing of screening, ongoing monitoring of customers and steps taken to freeze assets without delay once a designated person has been identified);
• assisting with preparation for a regulatory inspection; and
• assisting with any remediation exercise following a regulatory inspection by the FSC and/or on an ongoing basis.

Contacts

A full list of contacts specialising in regulatory law can be found here.