ISLE OF MAN
Summary

Sanctions

None

FAFT AML Deficient

No

Higher Risk Areas

US Dept of State Money Laundering assessment

Offshore Finance Centre

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

The Isle of Man is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

 

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in The Isle of Man was undertaken by the Financial Action Task Force (FATF) in 2009. According to that Evaluation, the Isle of Man was deemed Compliant for 10 and Largely Compliant for 25 of the FATF 40 Recommendations.

 

Key Findings from latest Mutual Evaluation Report (2016):

The coordination of anti-money laundering/countering the financing of terrorism (“AML/CFT”) policies in the IoM is a strong point. The AML/CFT Strategic Group, assisted by the AML/CFT Technical Group, takes the lead in this area and has been extremely active in promoting sound AML/CFT policies and bringing about significant reforms. The Strategic Group was at the time of the on-site visit overseeing the implementation of an action plan based on the findings of the NRA. It is expected that the action plan, once completed, will result in significant improvements across many areas within the IoM’s AML/CFT regime.

As a result of the National Risk Assessment (“NRA”) completed in 2015, the authorities have a thorough understanding of where the money laundering (“ML”) and financing of terrorism (“FT”) vulnerabilities lie within the national institutional and legal framework. They are also aware of which sectors are most vulnerable to ML/FT, both through years of experience in supervision and a reasonably comprehensive assessment, conducted as part of the NRA process, of the products, services and customers present in the IoM.

While the authorities are aware that the ML/FT threats are mainly external, their understanding of threats may be incomplete due to (a) the limited aggregated data available on the volume and destination of outgoing and incoming flows of funds in the financial sector and (b) the absence of aggregated data on where the beneficial owners of assets managed or funds held in the IoM are from or which countries those funds are coming from. The absence of this data creates challenges in determining whether any flows leaving the IoM could potentially be linked to FT, terrorist groups or individual terrorists in other countries, especially in high-risk jurisdictions.

Financial intelligence generated by the financial intelligence unit (“FIU”) has been used successfully by the Financial Crime Unit of the IoM Constabulary (“FCU”) to develop evidence and trace criminal proceeds in some significant ML cases. However, other than those few cases, the FIU conducted limited in-depth analysis and, as a result, the intelligence products of the FIU only occasionally added significant value. The intelligence chain appears to be hampered by the low quality of suspicious activity reports (“SARs”) received from reporting entities and the absence of reports on suspicions identified at the borders from the Customs and Excise Division (“CED”).

The authorities have been successful in prosecuting and achieving convictions for all types of ML, including self-laundering, third party ML and stand-alone ML. However, the number of convictions achieved is modest and the results do not reflect the risk-profile of the IoM. In the period under review, there were no domestically-initiated ML cases involving foreign predicate offences. Very few parallel financial investigations have been conducted. The FCU does not appear to take a proactive approach to identify, initiate and prioritise ML cases focusing on more complex cases, involving potential abuse of or by the IoM financial sector where property is the proceeds of foreign predicates. This also has an effect on the confiscation of proceeds of crime, since they are not identified through financial investigations and restrained at a very early stage. The overall value of property restrained and confiscated remains extremely low.

The authorities have not, to date, detected any potential cases of FT and therefore have not had the opportunity to demonstrate the effective investigation and prosecution of FT. This may be partly explained by the lack of awareness and proactive approach in relation to potential suspicions of FT. A number of cases were noted where potential FT activities should have been at least considered for investigation, especially in relation to FT SARs, matches with United Nations Security Council Resolutions (“UNSCRs”) and one mutual legal assistance (“MLA”) request. There is no local dedicated anti-terrorism unit although training has been provided to some police officers.

The IoM provides constructive and timely MLA, especially with respect to requests for restraint orders. Informal cooperation is conducted effectively to a large extent. The authorities regularly seek assistance from the United Kingdom (“UK”), although much less frequently from other countries.

Financial institutions (“FIs”) and designated non-financial businesses and professions (“DNFBPs”) assess ML/FT risk at business level, apply a risk-based approach to CDD and generally demonstrate knowledge of AML/CFT requirements. However, the evaluators are of the opinion that there is insufficient understanding of risks where FIs operate relationships for intermediary customers and where use is made of customer due diligence (“CDD”) information presented by third parties that have collected this information in turn from other parties (“information chains”). It is not clear that this inherent risk is being mitigated. Overall, the number of customers assessed as presenting a higher risk appears low compared to risks inherent in the IoM. There is no comprehensive requirement to have an independent audit function (in relation to certain FIs and DNFPBs) to test the AML/CFT system.

Compliance by FIs and DNFBPs with AML/CFT requirements is actively supervised by the Financial Services Authority (“IOMFSA”) and the Gambling Supervision Commission (“GSC”). However, the current legislative framework for supervising compliance by DNFBPs (except trust and corporate service providers (“TCSPs”) and online gambling operators, which have been subject to supervision for a number of years) is still very new as is the application of a risk-based approach by the GSC. Furthermore, the IOMFSA does not routinely collect statistics and information that allow it to fully consider ML/TF risk in the financial sector as a whole and at sector level. Nor has the risk that arises from the use made by banks of CDD information provided through chains of introductions received sufficient attention from the IOMFSA. There has been over reliance in the past by the IOMFSA on the use of remediation plans to address AML/CFT issues, though steps have been taken to address this issue.

Measures to prevent the misuse of legal persons and legal arrangements for ML and TF are based around the IOMFSA’s long-standing regulation and supervision of TCSPs (which, unlike in many other countries, is not limited to AML/CFT compliance). However, it is common for TCSPs not to meet their customer (or beneficial owner(s) thereof) and to use professional intermediaries to collect (and certify) CDD information; and so there is an increased inherent risk that they may be provided with incomplete or false information.

Measures do not extend to all trusts governed by IoM law. The authorities have not considered cases where legal persons and trusts established under IoM law have been used to disguise ownership or to launder the proceeds of crime.

Risks and General Situation

The IoM is an international financial centre. The national income accounts for the year 2013/14 show that financial services (banking, insurance, other finance and business services, legal and accounting services, and corporate services) account for 37.8% of its gross domestic product (“GDP”) of GBP 4.32 billion1. However, online gambling has now replaced insurance as the largest economic sector on the IoM, with a 16.7% share of GDP, and information and communication technology and online gambling were the main drivers of growth during the year, growing by 58% and 30% respectively in real terms.

The NRA acknowledges that since much of the financial business is conducted on a non-faceto-face basis via intermediaries, the potential for proceeds of crime/funds related to ML/FT flowing into or through the IoM is medium-high. The ML threat is mainly external. Business generated outside the IoM is considered by the authorities to present the greatest source of threat. This is due to the volumes generated by non-resident customers and the type of non-resident customers that are targeted by service providers, such as high net worth individuals, which could include politically exposed persons (“PEPs”). The NRA identifies that as the largest financial partner for the IoM, the UK is by far the most frequently reported jurisdiction in terms of SARs. Corruption, tax evasion and fraud are thought to be the most likely external threats to the IoM. Domestic ML threats are less significant. The authorities have conducted an assessment of FT risk and concluded that the risk is medium-low. This conclusion is based on an assessment of a comprehensive set of factors. However, the assessment of the FT threat appears to be missing an important element, i.e. an assessment of the flows leaving the IoM, which could potentially be linked to the financing of terrorism, terrorist groups or individual terrorists in other countries, especially in high-risk jurisdictions.

The sectors which are considered to be most vulnerable to ML/FT are the trust and corporate services, banking, insurance and online gambling. Most customers of TCSPs are non-resident and many have a high net worth. Structures established for customers can also be complex and can be established for trading purposes, which adds to both complexity and risk. Banks may place reliance on CDD measures applied by TCSPs and other professional intermediaries and business is often referred by introducers. The online gambling and life insurance sectors are considered to be vulnerable to ML/FT due to their size, rather than due to any inherent features of the business that increase vulnerability. Given that the IoM is a centre for the creation of legal persons and trusts for non-resident persons, the potential for abuse may be greater. However, the IoM has taken measures to mitigate this risk. For instance, TCSPs, which manage a large majority of legal persons and trusts set up in the IoM, are subject to full regulatory control and supervisory visits have been conducted since 2000 in respect of Corporate Service Providers and 2005 in the case of Trust Service Providers.

 

US Department of State Money Laundering assessment (INCSR)

The Isle of Man was deemed a Jurisdiction of Primary Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR).

Key Findings from the report are as follows: -

Perceived Risks:

Isle of Man (IOM) is a British crown dependency, and while it has its own parliament, government, and laws, the UK remains responsible for its defense and international representation. Offshore banking, manufacturing, and tourism are key sectors of the economy, and the government has actively encouraged the diversification of its economy, offering incentives to high-technology companies and financial institutions that locate on the island. Consequently, it now hosts a wide range of sectors including aviation and maritime services, clean-tech and bio-tech, creative industries, e-business and e-gaming, high-tech manufacturing and tourism.

Its large and sophisticated financial center is potentially vulnerable to money laundering. Most of the illicit funds in the IOM are from fraud schemes and narcotics trafficking in other jurisdictions, including the UK. Predicate offenses to charge money laundering are minimal within the jurisdiction; however, there is concern over value-added tax crimes and the growing risk of cybercrime in its various forms, including identity theft and internet abuse.

 

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SANCTIONS

There are no international sanctions currently in force against this country.

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

N/A

World Governance Indicator – Control of Corruption

N/A

 

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INVESTMENT CLIMATE

Offshore banking, manufacturing, and tourism are key sectors of the economy. The government offers low taxes and other incentives to high-technology companies and financial institutions to locate on the island; this has paid off in expanding employment opportunities in high-income industries. As a result, agriculture and fishing, once the mainstays of the economy, have declined in their contributions to GDP. The Isle of Man also attracts online gambling sites and the film industry. Trade is mostly with the UK. In January 2013, the Isle of Man signed a tax agreement with Guernsey and Jersey, in order to enable the islands' authorities to end tax avoidance and evasion. The Isle of Man enjoys free access to EU markets.

 

 

 

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