Digitalization of AML laws in BVI

By Mirza Manraj and Philip Graham, Harneys
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There is a saying that “time and tide wait for no man”, and the same is true for the ever-changing ecosystem of the financial services industry – you simply cannot stop the wheels of commerce from turning. And when they turn, the surrounding legal framework must keep pace and embrace the evolving environment as fast as it is practically able to

Mirza-Manraj-harneys-law-business-legal
Mirza Manraj
Counsel, Investment Funds and Regulatory
Harneys in Hong Kong
Tel: +852 5806 7895
Email: mirza.manraj@harneys.com

Given the speed at which market conditions demand that business must be transacted today, financial technology and e-commerce are paramount in ensuring that clients receive the desired result within the required timeframe. In this regard, British Virgin Islands (BVI) corporate vehicles are very popular due to their flexibility and practical application.

BVI companies have been used for a broad range of purposes in the past 35 years, and the one constant denominator throughout that time is the fact that legislation in the BVI has kept pace with worldwide legal evolution, and still remains at the forefront of modern day transactions.

One area in which the BVI has always sought to take a market leading position is the prevention of anti-money laundering and terrorist financing. Part of this is due to BVI’s status as a British Overseas Territory, and part is a result of the proactive approach of the domestic government to international initiatives.

In an era where the smartphones many of us carry in our pockets are more powerful than the computers of the 1990s, the BVI has correspondingly improved processes in this specific area to ensure they match the advanced capabilities in the digital space. This article explores some of the key ways in which the law has recently evolved to keep pace with technology.

Electronic verification now feasible

Philip Graham Partner and Head of BVI Investment, Funds and Regulatory Harneys in the British Virgin Islands
Philip Graham
Partner and Head of BVI Investment, Funds and Regulatory
Harneys in the British Virgin Islands
Tel: +1 284 852 4325
Email: philip.graham@harneys.com

The BVI’s Anti-Money Laundering and Terrorist Financing Code of Practice 2008 (AML code) was amended in 2018 to allow registered agents (RAs) in the BVI who are licensed to incorporate BVI companies to utilise various forms of digital verification of customers, and to receive electronic documents instead of traditional “wet ink” documents. This amendment has revolutionised the way that traditional client due diligence (CDD) is performed and represents a positive step by the BVI’s Financial Services Commission towards embracing the new wave of e-business and the practicalities of the modern age.

Reliance on third parties

The updated legal position under the AML code not only allows entities to use electronic and digital means to verify the identity of their client, but also to engage and rely on the data provided by third parties who carry out formalised verification processes. This has enabled RAs to engage reputable third-party providers to set up electronic applications (e-Apps) that allow for faster collection and processing of CDD. To effectively outsource this function, RAs need to be satisfied that the third party:

  • Is independent from the RA itself, and from the customer to whom the verification relates;
  • Utilises a wide range of sources, including positive information sources, negative information sources and alert data sources;
  • Has transparent processes that can be reviewed and assessed by the RA;
  • Has not been convicted of a criminal offence or sanctioned for breach of data, or providing misleading data; and
  • Obtains and stores information that is sufficiently extensive, accurate and reliable.

As a part of this engagement, RAs will need to record the steps taken when engaging with the third-party provider, including the approval of the third party’s policies and procedures and confirmation that the third party is satisfying all of the legislative conditions necessary for the provision of the service, both in their jurisdiction of domicile as well as pursuant to the AML code. Where the third party is engaged on a long-term basis, the business will need to be reviewed by the RA once every three years.

Even though a third party may be engaged and meet all of the criteria as set out in the AML code, it should be noted that where electronic or digital verification does not make any significant discovery in relation to the underlying client that could have otherwise been accessible by reasonable (and more traditional) efforts, then the responsibility lies with the RA to remedy that breach.

Alternatives to certified documents

Traditionally, the AML code has prescribed that RAs must follow very specific guidelines around reliance on copies of documents, including certain fixed statutory requirements such as particular certification language and detailed information on the certifier (depending on the type of document). Having electronic or digital verification in place has allowed for some flexibility and practicality in this area, which was previously a very time consuming element of CDD.

Now, a long-form certified copy of a document such as a passport or utility bill will no longer be required from a customer using an e-App or an electronic portal, unless of course there is some doubt as to the authenticity of the electronic copy, or if the electronic report returns a particular factor that will mean the RA has to conduct enhanced due diligence upon that particular individual. Where such a concern exists, or where the RA does not have access to such software, the AML code still allows for the traditional method to be used.

Non-face-to-face business relationships

Another recent welcome change to the AML code was the revised position in relation to non-face-to-face business relationships. Where an RA uses electronic methods to verify who the customer is, as opposed to face-to-face verification, there is no need to apply any enhanced checks unless there is some doubt as to who the customer is, or there is a possibility of a high-risk element being involved.

This will be very familiar to those who have crossed international borders of late, whereupon entering countries they are often cleared through an automated computerised system that verifies who the passenger is, and that their documents are valid, as opposed to face-to-face contact with an officer at border security. The system is highly efficient and user friendly, and affords the RA a faster processing and turnaround time so as to deliver results in real time to customers.

Adoption of these amendments

The adoption of these user friendly and highly modernised laws in the BVI represents a firm commitment to acknowledging and embracing the use of technology in the financial services sector, which is in turn supported by a solid and focused regulatory legal framework. Enabling RAs and other firms to offer customers access to such products on devices such as their smartphones is critical to ensuring that the BVI remains the domicile of choice in international business and finance.

The adoption of these new policies and procedures into the AML code has been hugely welcomed and embraced by RAs and the private sector at large in the BVI, who treasure the foresight that its public sector has shown to demonstrate that the BVI is once again a cutting-edge jurisdiction in this area of law and regulation.

Mirza Manraj is a counsel, investment funds and regulatory at Harneys in Hong Kong and Philip Graham is a partner and head of BVI investment, funds and regulatory at Harneys in the British Virgin Islands. They can be contacted at mirza.manraj@harneys.com and philip.graham@harneys.com

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