By Heidi-Lynn Sutton – Regulator, Nevis Island Administration
The Federation of St. Kitts and Nevis has always been at the forefront of transparency issues, having joined the Global Forum Joint Ad Hoc Group on Accounts (JAHGA) in 2003, a group of OECD and non-OECD countries who developed the JAHGA Paper Enabling Effective Exchange of Information: Availability and Reliability Standard in 2005.
This outlined common standards that should be implemented by all participating jurisdictions to facilitate effective exchange of information, particularly in relation to the maintenance and access to reliable accounting records. These accounting transparency standards now form part of the Global Forum’s terms of reference to monitor and review progress towards transparency and exchange of information on request for tax purposes.
St. Kitts and Nevis was also an active member of the OECD Global Forum’s Sub-Group on Level Playing Field Issues which was established in or around 2003 to ensure that the high standards of transparency and exchange of information were developed in a way that was fair and equitable for all Global Forum members.
The Federation formally joined the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes in 2009. The Global Forum is recognised as the main international organisation with competence to assess and monitor countries’ compliance with the international standards of transparency and exchange of information for tax purposes.
As part of its commitment to adhere to highest of international standards, St. Kitts and Nevis actively participated as original members of the Peer Review Group during the period 2011 to 2014. The Group is responsible for carrying out in-depth monitoring and peer review of the implementation of the standards.
In 2014, the Phase 2 Peer Review Report of St. Kitts and Nevis’ exchange of information practices was published. A largely compliant rating was assigned following a robust and comprehensive period of assessment. The Federation recently underwent its second-round peer review assessment and obtained an overall rating of largely compliant. This means that St. Kitts and Nevis is in compliance with the international standards.
The report was approved at the Peer Review Meeting on 10 to 13 September 2018 and was adopted by the Global Forum on 12 October 2018. The Federation’s legal, administrative and regulatory frameworks were assessed against the Global Forum’s 2016 Terms of Reference as they relate to the handling of exchange of information on requests during the period 1 July 2014 to 30 June 2017. St. Kitts and Nevis received a rating of compliant for eight elements and largely compliant for two elements. It should be noted that the report confirmed the following:
■ The availability of ownership information was confirmed in St. Kitts and Nevis’ exchange of information practice
■ A regulated business is required to keep updated beneficial owner information.
In addition, regulated businesses are required to ensure that documents, data or information under identification procedures are kept up to date and relevant by conducting reviews of existing records, including cases where inconsistencies are discovered
■ The Companies Ordinance, Nevis Business Corporation Ordinance and the Nevis Limited Liability Company Ordinance contain adequate enforcement provisions applicable in cases of failure to keep ownership information as required under the law. Applicable sanctions span from monetary fines and administrative measures, such as prohibition of activity and termination of the legal entity
■ Regulated businesses, including service providers, are prohibited from opening or operating financial services products held in fictitious names, as well as operating anonymous accounts
■ The proportion of service providers subject to AML/CFT inspections is high in comparison to the other types of regulated businesses that are reviewed. On average, 20 service providers are reviewed each year, which means that each service provider should be examined at least once every five years. Those service providers reviewed by the Financial Services Regulatory Commission (FSRC) Nevis branch during the review period, are responsible for 97 per cent of the IBCs and LLCs registered with the Registrar in Nevis. The frequency of these on-site visits seems to be adequate to ensure compliance with legal obligations as required under the standard. Also, the FSRC has taken significant action against those licensees that fail to comply with their obligations
■ The supervision of anti-money laundering and combatting the financing of terrorism (AML/CFT) obligations is adequate to ensure banks’ compliance with their CDD obligations in line with the standard. The FSRC carries out off-site and on-site inspections covering a significant number of banks annually and applies a variety of enforcement measures in cases where deficiencies are identified.
■ During the review period, St. Kitts and Nevis received 14 requests for banking information, including requests for beneficial ownership information. St. Kitts and Nevis was able to fully respond to all of these requests
It is against this backdrop that members of the public should read with extreme caution the article by Oliver Bullough in the international edition of The Guardian newspaper on 12 July 2018. The excessively verbose piece contains countless unsubstantiated claims, misinformation and innuendos and, in my opinion, discredits and undermines the considerable progress St. Kitts and Nevis has made to ensure that the Federation complies with the highest of international standards. We would like the desire to publish sensational articles to be replaced with the desire to issue fact-based, balanced and well-researched pieces.
This two-part article will summarise the legal, regulatory and administrative frameworks governing AML/CFT requirements and transparency and exchange of information for tax purposes in Nevis.
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 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 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 under 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 entities in Nevis that 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.
“As part of its commitment to adhere to highest of international standards, St. Kitts and Nevis actively participated as original members of the Peer Review Group during the period 2011 to 2014”
As regards to the island of Nevis’ ongoing efforts to maintain its reputation as a responsible and well-regulated jurisdiction, in 2014 the Nevis branch of the FSRC strengthened its risk-based regulatory oversight of all regulated entities. In May 2015 the branch adopted a risk-based supervision (RBS) framework, which is applicable to both off-site and on-site examination of said regulated entities. The RBS framework includes the identification and assessment of risks and the quality of risk management oversight provided by compliance, internal audit, external audit, risk management, senior management and the board.
Comprehensive on-site examinations of regulated entities in Nevis are conducted pursuant to 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 Nevis branch of the FSRC 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 the requisite know your customer (KYC) documents are obtained, maintained and up-to-date for all beneficial owners.
The branch has also implemented procedures to ensure that only fit and proper persons hold directorship, shareholding and senior management positions in regulated entities. The licensing renewal process has been streamlined to ensure that fitness and propriety assessments were also performed where changes in key personnel have been observed. The timelines for processing licensing applications and procedures for conducting compliance audits were issued by the regulator.
Guidelines for the appointment of the compliance officer/reporting officer were also adopted by the FSRC and have been implemented by the Nevis branch and compliance/reporting officers are also subject to a renewal process at the start of each year.
The author of The Guardian piece has been informed of these developments and correspondence was sent to him reiterating Nevis’ position on the said issues, corroborated with links to press releases, international reports, media sources, legislation and administrative practices.
For the period February 2014 to September 2018, the FSRC-Nevis Branch conducted 114 full-scope and follow-up on-site examinations in accordance with its RBS framework and on-site examination procedures. The branch also undertook enforcement actions in 49 instances. Said actions included the issuance of warning letters, suspension or revocation notices and the granting of restricted licences.
Further, during the period February 2014 to September 2018, the FSRC-Nevis Branch received 96 requests for information from regulatory, law enforcement and government agencies. All requests were responded to in a timely manner. These actions demonstrate Nevis’ commitment to maintaining its status as a reputable and well-regulated jurisdiction.
About the Author:
The Nevis Financial Services Regulation and Supervision Department is the Nevis Branch of the Financial Services Regulatory Commission and is the agency responsible for authorising and licensing companies or persons to conduct financial services business and for monitoring regulated financial services activities to safeguard the public against any illegal and or unauthorised financial services business operating within or from Nevis. Through the Corporate Registry, the Nevis Branch of the Financial Services Regulatory Commission is also responsible for the registration of all international companies, for the formation of trusts and foundations and international insurance companies.
Our mission is to promote good governance and accountability in a strong regulatory environment, aimed at protecting and strengthening the reputation and viability of the Nevis Financial Services Industry.