THE ASSESSMENT OF BERMUDA’SNATIONAL MONEY LAUNDERING

AND TERRORIST FINANCING RISKReport

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Table of Contents Foreword ....................................................................................................................................................... 4

Executive Summary ................................................................................................................................... 5

Chapter 1: Introduction and Context ............................................................................................................. 7RelevantFATFrequirements............................................................................................................................................7Bermuda’sGeographicalContext.....................................................................................................................................8Bermuda’sPoliticalandJuridicalContext.........................................................................................................................8Bermuda’sEconomicandSocialContext..........................................................................................................................8

Chapter 2: Bermuda’s AML/ATF Legislative Framework and Key Agencies ............................................... 10LegislativeFramework...................................................................................................................................................10

CoreLegislation.................................................................................................................................................10AdditionalLegislation........................................................................................................................................12

KeyAML/ATFAgencies..................................................................................................................................................13TheNationalAnti-MoneyLaunderingCommittee............................................................................................14andtheOfficeofNAMLC...................................................................................................................................14TheAttorneyGeneral’sChambers(AGC)..........................................................................................................14BermudaCasinoGamingCommission(BCGC)..................................................................................................14BermudaMonetaryAuthority(BMA)................................................................................................................15BermudaPoliceService(BPS)............................................................................................................................15TheDepartmentofCustoms(Customs)............................................................................................................15TheDepartmentofPublicProsecutions(DPP)..................................................................................................16FinancialIntelligenceAgency(FIA)....................................................................................................................16TheMinistryofFinance(MoF)..........................................................................................................................16TheMinistryofLegalAffairs(MoLA).................................................................................................................16TheRegistryGeneral(RG).................................................................................................................................17RegistrarofCompanies(RoC)...........................................................................................................................17TheSuperintendentofRealEstate(SoRE)........................................................................................................17TheBarristersandAccountantsAML/ATFBoard(Board).................................................................................17

Chapter 3: Bermuda’s AML/ATF Operational Framework .......................................................................... 19A. RegulationandSupervision...................................................................................................................................19Table1:TheRegulatedSectors......................................................................................................................................19

TheBermudaMonetaryAuthority'sSupervisoryFramework...........................................................................20AssessmentofML/TFrisksandcontrols...........................................................................................................20LicensingandAuthorisations............................................................................................................................20RegulationandInformation..............................................................................................................................21Off-siteandOn-siteSupervision.......................................................................................................................21Enforcement......................................................................................................................................................21MonitoringandReporting.................................................................................................................................22

TheFinancialIntelligenceAgency’sSupervisoryApproach.............................................................................................22OutreachandTraining.......................................................................................................................................22GuidanceandCommunication..........................................................................................................................22SupervisionandOversight.................................................................................................................................22RiskAssessment................................................................................................................................................23

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TheSuperintendentofRealEstate’sSupervisoryApproach...........................................................................................23LicensingFramework.........................................................................................................................................23RiskAssessment................................................................................................................................................24LegislativeandPolicyInterpretation.................................................................................................................24ReportingEntityAssistance...............................................................................................................................24Risk-BasedMonitoringandInspectionProgramme..........................................................................................24EnforcementofCompliance..............................................................................................................................24

TheBarristersandAccountantsAML/ATFBoard’sSupervisoryApproach.....................................................................24OutreachandTraining.......................................................................................................................................24OversightandSupervision.................................................................................................................................25LegislationandGuidance..................................................................................................................................25LiaisonwithOtherRelevantBodies..................................................................................................................25RiskAssessment................................................................................................................................................25

OversightofCharities....................................................................................................................................................26OutreachandTraining.......................................................................................................................................26RiskAssessment................................................................................................................................................26OversightandMonitoring.................................................................................................................................26AddressingNon-Compliance.............................................................................................................................26

B. TransparencyandBeneficialOwnership................................................................................................................26C. InternationalCooperation.....................................................................................................................................28

ASSESSMENT OF INHERENT MONEY LAUNDERING RISKS ............................................................................. 30

Chapter 4: Methodology for the Money Laundering Risk Assessment ....................................................... 30GeneralMethodologyandKeyTerms............................................................................................................................30TheRiskAssessmentTool..............................................................................................................................................31

Chapter 5: Bermuda’s National Money Laundering Threats ....................................................................... 32Introduction..................................................................................................................................................................32ScopeandProcess.........................................................................................................................................................32PredicateOffensesthatGenerateProceedsofCrime.....................................................................................................34

a)High-threatpredicatecrimes........................................................................................................................34b)Medium-highthreatpredicatecrimes..........................................................................................................37c)Medium-threatpredicatecrimes..................................................................................................................38d)Low-threatpredicates...................................................................................................................................38

Originoftheproceedsofcrime......................................................................................................................................39a)Domestic.......................................................................................................................................................39b)Foreignjurisdictions......................................................................................................................................39c)Bothdomesticandforeign............................................................................................................................39d)Originnotidentified......................................................................................................................................39

Cross-borderThreatAnalysis.........................................................................................................................................40SummaryofSector-SpecificAnalysisofMoneyLaunderingThreats...............................................................................41Conclusion.....................................................................................................................................................................41

Chapter 6: The Banking Sector .................................................................................................................... 43

Chapter 7: The Insurance Sector .................................................................................................................. 47

Chapter 8: The Securities Sector .................................................................................................................. 51

Chapter 9: Money Service Businesses (MSBs) ............................................................................................. 58

Chapter 10: Bermuda Stock Exchange (BSX) .............................................................................................. 60

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Chapter 11: Trust Service Providers (TSPs) ................................................................................................. 62

Chapter 12: Corporate ServicesProviders (CSPs) ........................................................................................ 65

Chapter 13: The Legal Sector ...................................................................................................................... 68

Chapter 14: The Accounting Sector ............................................................................................................. 71

Chapter 15: The Real Estate Sector ............................................................................................................. 74

Chapter 16: Dealers in High-Value Goods ................................................................................................... 76

Chapter 17: Dealers in Precious Metals and Stones .................................................................................... 78

Chapter 18: The Betting Sector ................................................................................................................... 80

Chapter 19: The Casino Gaming Sector ....................................................................................................... 82

TERRORIST FINANCING RISK ASSESSMENT ................................................................................................... 85

Chapter 20: Terrorist Financing ................................................................................................................... 85Introductionandoverview............................................................................................................................................85

Chapter 21: Terrorist Financing Risk Assessment ....................................................................................... 89TerroristFinancingThreat..............................................................................................................................................90DirectionofFunds.........................................................................................................................................................91SectoralAnalysisofTerroristFinancingRisk..................................................................................................................94

Chapter 22: Conclusion ............................................................................................................................... 99InherentMoneyLaunderingRiskFindings......................................................................................................................99

NationalThreats................................................................................................................................................99InherentMoney-LaunderingRiskattheSectoralLevel....................................................................................99

TerroristFinancingRiskAssessment............................................................................................................................101ConductingtheSecondIterationoftheNationalMoneyLaunderingRiskAssessmentonMoneyLaundering..............102SubsequentEvents......................................................................................................................................................102

Appendix A. Glossary ........................................................................................................................... 104

Appendix B. The World Bank Tool ....................................................................................................... 107AssessmentofMoneyLaunderingRisk........................................................................................................................107AssessmentofTerroristFinancingRisk........................................................................................................................109

Appendix C. International Typologies used as part of Terrorist Financing Risk Assessment .............. 111

Disclaimer:ThisreportisproducedbytheNationalAnti-MoneyLaunderingCommittee.AlthoughthetoolsusedaretheWorldBankModelsforNationalRiskAssessmentsonMoneyLaunderingandTerroristFinancing,theWorldBankdidnotparticipateinthisassessment,norprovideanyinputintotheanalysisorconclusionsarrivedat.

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Foreword Bermuda has taken proactive and positive steps to achieve its reputation as a leading international financialcentre, committed to quality and integrity. As part of that, Bermuda has established a strong and robustregulatoryregimetocombatmoneylaunderingandthefinancingofterrorismandproliferation,thatiscompliantwith the international standards. Wehavecontinuallyandproactively taken steps toassessandenhanceourframeworkandtoplaya leadingrole intheglobal fighttocombatmoney launderingandterrorist financing. Inordertomaintainandenhancethisglobalreputation,asacountryweareawarethatwemustcomprehensivelyexamineoureconomic,legalandregulatoryenvironments,tobestunderstandtherisksweface.Thatallowsusto formulate appropriate policies and strategies to address these risks and to place resourceswhere they canhavethegreatest impacttocombatthescourgeofcriminality.Bermudaisnotwillingtobeusedasahomeforcriminalactivityorahidingplaceforillicitproceeds,fromeitherdomesticorforeignsources.

ThisiswhyIampleasedtopublishthisReportonBermuda’snationalinherentmoneylaunderingrisksandontherelevantterroristfinancingrisks.Themoneylaunderingriskassessment,undertakenin2017isBermuda’ssecondrisk assessment of money laundering, and was a follow-up to the national money laundering risk assessmentcarried out in 2013. The terrorist financing risk assessment was conducted in 2016 and was Bermuda’s firstanalysisoftheserisks.Theseassessmentsweredoneinaccordancewiththeinternationalstandardsestablishedby the Financial Action Task Force. The objectivewas to better identify, assess and understand themoneylaunderingandterroristfinancingriskstowhichBermudaisexposed,givenouruniqueeconomicandgeographiccontext,sothatwecanensureappropriateactionisbeingtakentoeffectivelymitigateandmanagetherisks.

Theworkcarriedout involvedallofBermuda’scompetentandsupervisoryauthoritiesthathaveresponsibilitiesforBermuda’santi-moneylaunderingandanti-terroristfinancingregime.TheinitiativehadthefullsupportoftheCabinetand theseniorpublic serviceexecutives,whoprovided thenecessary foundational support to facilitatethe work. The private sector, who play an important front-line role in this fight, provided necessary data,perspectiveandinsighttofacilitateamorecomprehensiveandcredibleanalysisofthefactorsthatarerelevanttothe determination of risk. I am grateful for the professionalism and commitment that those involved havedemonstratedtoensurethattheseinitiativesweresuccessfullycompleted.

The outcomes of these risk assessments provide valuable information to stakeholders in the Government,supervisoryauthorities,andthoseintheprivatesector,tosupporttheireffortstoaddressthechallengestheyface in tackling these illicit flows. It is also a tool for the Cabinet to assist in theirwork to ensure strong andsustainable growth of the economy and opportunities for all. The results of these national assessments havealready been consideredby Cabinet and theAction Plan, derived from the findings, has been approved and isalreadybeingimplemented.

ThisGovernmentisdeterminedtocontinuallydemonstrateBermuda’slong-standingcommitmenttoeffectivelyprotectingitsbordersandaddressingthesenefariouscrimesIamconfidentthatbyappropriatelyrespondingtotheserisks,andwithcontinuedcooperationandsynergybetweenthepublicandprivatesectors,wewillensurethatourregimecontinuestobeeffectiveinaddressingthesetypesofcriminalactivityandthatBermudaremainsagreatplacetoconductlegitimateandqualitybusiness.

TheHon.E.DavidBurt,JP,MP

PremierofBermudaandMinisterofFinance

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Executive Summary Alljurisdictionsmustuniteintheglobalbattleagainstmoneylaundering,terroristfinancingandthefinancingofproliferation. The Government of Bermuda has continually expressed and demonstrated its commitment tomaintaininga robustandeffective regimetocombat these risks thatmeets international standards. But theseriskscanbenebulousandthelandscapeinwhichcriminalsoperatecanshift,sojurisdictionsmustremainvigilantandkeeptheirstandardsup-to-date.

TheGovernmentofBermudaperformeditsfirstnationalmoneylaundering(ML)riskassessmentin2013,whichwas followed in 2016 with an assessment of its terrorist financing (TF) risk. In 2017, a wide-reaching,comprehensiveupdate to the2013ML risk assessmentwas conducted. These threenational risk assessmentshaveprovidedanimportantbasisforcontinuedstrengtheningofBermuda’sframeworktocombatMLandTF.

ThisreportcontainskeyinformationontheinherentMLrisksresultingfromthe2017analysisanddocumentstheunderstandingofBermuda’snationalTF risk. Inaddition toproviding informationaboutBermuda’s threatandvulnerability profile, this report will highlight the factors that contribute to the strength and effectiveness ofBermuda’sAMLframework,aswellasprovidinginformationonstepsbeingtakentofurtherenhancetheregime.

Inthe2017MLassessment,Bermuda’soverallthreatratingformoneylaunderingwasplacedatmedium-high(ascomparedtomediumin2013). Thisthreatratingdoesnotreflectachangeinthenationalsituation,butratherreflects a better understanding and more effective analysis of the threats that exist, owing to morecomprehensiveinformationandstatisticsandthegreaterlevelofexperienceandexpertise.

Foreign crimes, such as fraud, corruption, market manipulation/insider trading, international tax crimes andforeignbriberyandcorruption,aswellasdrugtrafficking in thedomestic landscapewereassessedtohavethehighestMLthreat.ThepotentialscaleofmoneylaunderingthatcanbederivedfromtheseoffenceshasadirectimpactonBermuda's financial institutionsandother intermediarysectors thatprovideservices to internationalclients.

Forthefirsttime,thenationalriskassessmentexercisein2017producedfindingsontheMLriskforkeysectorsoftheeconomy.Amoney-launderingthreatrankingwasproducedforeachofthesesectors,thenadeterminationwas made about the inherent money-laundering risk for these sectors, taking into account the findings oninherentvulnerability. Basedonthesectoral threatsandthe inherentMLvulnerabilityassessment, thesectorswith the highestML inherent risk are: banking; securities; trust service providers (TSP); and corporate serviceproviders (CSPs). The sectorswithmedium-highML inherent risk are: legal, insurance (long-term direct); andmoneyservicesbusinesses(MSBs),whiledealersinpreciousmetals;realestate;betting;andgamingaremediumrisk. TheBermudaStockExchange(BSX);accountantsanddealersinhigh-valuegoodshaveamedium-lowMLinherentrisk.Inaddition,itshouldbenotedthatthecasinogamingsectorwasgivenalowthreatratingastherearecurrentlynocasinosoperatinginBermuda.

Therewasnoevidenceof terrorismor terrorist financinghaving takenplace inBermuda, so theassessmentofsectoralvulnerabilitywasbasedonpotentialrisk.Formostsectors,asexpected,thesectoralTFvulnerabilitywasdeemedtobeeitherlowormedium-lowwithonlythenot-for-profitsectorassessedatamediumrating.

TokeeptheAnti-MoneyLaundering/Anti-TerroristFinancing(AML/ATF)threatandvulnerabilitylevelsincheck—and to reduce them—the Government of Bermuda has imposed extensive requirements for controls acrossvarious sectors. In the private sector, the implementation of those controls is at different stages. FinancialsectorsthathavebeensubjecttoAMLobligationsandsupervisionforanextendedperiodoftime,generallyhavegreaterawarenessandunderstandingofAMLmatters.

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GivenBermuda’scommitment tosafeguarding its financial systemfromabusebycriminalelements,keyactionitems have been given a high priority to ensure the continued effectiveness of the AML/ATF framework. Anumber of legislative, institutional and operational changes have already been implemented and the work isongoing. Along with the significant work done in prior years, a national strategy and action plan, formallydocumentedin2016,hasalreadyshownapositiveimpactandcontinuestobereviewedandupdated.Theresultsoftheseriskassessmentscontinuetobe incorporated intothatever-evolvingplan. Governmentandotherkeynon-governmentinstitutionsarealsoassessingtheresultsoftheworkdoneandareappropriatelyupdatingandimplementing theiractionplans. Practically, thismeans that intelligenceand lawenforcementshould focusonfinancial crimes stemming fromthe financial services sectorandsupervisors should focuson those sectorsandentitiesthathavethemostprominentvulnerabilities.

It is important for the private sector to review the results of these risk assessments and ensure that theirAML/ATFactivitiesappropriatelyreflecttherequiredrisk-basedapproach.AML/ATFeffortsshouldbefocusedonthosethreatsandvulnerabilitiesthataremostrelevanttoeachsector.

With continued diligence and hard work, Bermuda can continue its international commitment to effectivelycombatmoneylaundering,terroristfinancingandthefinancingofproliferation.

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Chapter 1: Introduction and Context The Government of Bermuda is determined to continually improve its understanding of ML and TF risk inBermuda.TheGovernmentofBermudaalsocontinuouslystrivestostrengthenandimproveBermuda’sAML/ATFframeworkandtodesignpoliciesandstrategiestoeffectivelymitigatetherisks.However,acountry’sexposureto,andabilitytocombat,MLandTFareframedbytheuniquecontextofthejurisdiction,thefeaturesofwhichmustbeconsideredwhenanalysingtheserisks.Relevantrequirementsinthisregardandguidanceisprovidedbythe Financial Action Task Force (FATF) in relation to these matters, which were taken into account in theseassessments.

Competentandsupervisoryauthoritieshavebeenactivelyinvolvedintheassessmentsthatarethesubjectofthisreport,andinacoordinatedandcollaborativeway,havecarriedouttherequiredanalysis.Thishasenabledthemto further theirknowledgeandunderstandingofBermuda’sMLandTFrisksandhavetherelevant informationrequiredtoplaytheirparttofurtherstrengthenourregimeandensurethatappropriaterisk-basedprogrammesarebeingeffectivelyimplemented.

Industry has also played a key role in these assessments and have provided critical input into the process. Inrelation to dissemination of the results to industry, information sessions have been held by the relevantsupervisory authorities and written documentation provided on the relevant threats and vulnerabilities. Thisreport,whichhighlights theresultsof theMLandTFriskassessmentsdonebyBermudatodate, is thereforeafurtherstepinensuringthatfinancial institutions(FIs)andDesignatedNon-FinancialBusinessesandProfessions(DNFBPs) are fully aware of this important information to assist in their own risk assessments and thedevelopmentofappropriaterisk-basedprogrammes.

Relevant FATF requirements Theacknowledged international standardsetter forAML/ATFmatters is theFinancialActionTaskForce (FATF).ItsRecommendationsandassociatedMethodologysetouttherequirementsfortheframeworkandmechanismsthat jurisdictions—alongwith their relevant public and private sector agencies—must have in place to combatmoneylaundering,proliferationandterroristfinancing.

FATFRecommendation1states,inpart:

Countriesshouldidentify,assess,andunderstandthemoneylaunderingandterroristfinancingrisksforthecountry,andshouldtakeaction,includingdesignatinganauthorityormechanismto coordinate actions to assess risks, and apply resources, aimed at ensuring the risks aremitigated effectively. Based on that assessment, countries should apply a Risk-BasedApproach (RBA) to ensure that measures to prevent or mitigate money laundering andterrorist financing are commensuratewith the risks identified. This approach should be anessentialfoundationtoefficientallocationofresourcesacrosstheanti-moneylaunderingandcounteringthefinancingofterrorism(AML/CFT)regimeandtheimplementationofriskbasedmeasuresthroughouttheFATFRecommendations.

TechnicalComplianceCriteria1.4oftheFATFMethodologyrequiresthat“Countriesshouldhavemechanismstoprovideinformationontheresultsoftheriskassessment(s)toallrelevantcompetentauthorities,self-regulatorybodies(SRBs),financialinstitutionsandDNFBPs.”

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Under the characteristics of an effective system, the FATF’s EffectivenessMethodology states that “A countryproperlyidentifies,assessesandunderstandsitsmoneylaunderingandterroristfinancingrisks,andco-ordinatesdomestically to put in place actions to mitigate these risks. This includes the involvement of competentauthoritiesandotherrelevantauthorities;usingawiderangeofreliableinformationsources.”

Bermuda’s Geographical Context BermudacomprisestheBermudasorSomers Islands,anarchipelagoofsome150 islands intheAtlanticOcean,about570nauticalmiles southeastofNorthCarolina in theUSA. Tenof the islandsare linkedbybridgesandcausewaystoformtheprincipalmainland.Bermudacoversanareaofapproximately21squaremiles,issome22mileslongandrarelymorethanonemilewideandhas60milesofcoastline.ItsprincipalmunicipalareasaretheCityofHamilton(thecapital)andtheTownofSt.George. Bermudais lessthantwohoursflyingtimefromkeynortheasternNorthAmericancitiesandtherearegoodairlineserviceprovidingdirectaccesstotheUnitedStatesof America (USA), United Kingdom (UK) and Canada. Since Bermuda has no direct gateways to any othercountries,allpassengersflyingtoBermudaoncommercialflightsmusttransitthroughmajorcitiesintheUSA,UKor Canada. Because of its location,most cruise ships come from ports in theUSA, but there are occasionallyvesselsthatcomefromUKports.

Bermuda’s Political and Juridical Context BermudaistheUnitedKingdom’soldestoverseasterritorywithinternalself-government,anditexercisesahighdegreeofcontroloveritsownaffairs,exceptfordefence,internalsecurity,andinternationalaffairs.

TheHeadofStateistheBritishmonarch,whoserepresentativeinBermudaistheGovernor.Theprincipalbodiesthatconstitutethepoliticaldecision-makingprocessinBermudaaretheCabinetandtheLegislativebranch,whichiscomprisedoftheHouseofAssemblyandtheSenate.TheHouseofAssemblyhas36memberselectedfrom36constituencies,representingthepublic’svoteduringtheGeneralElection. Theparty inpower istheonewhichholds the majority of the seats in the House of Assembly; and the leader of that party serves as Premier ofBermuda.TheSenate,orUpperHouse,has11membersandisanappointedbody.Fivemembersareappointedon the advice of the Premier, three on the advice of theOpposition leader, and three by the Governor. TheSenatedoesnothaveanypowertovetooramendanylegislativeproposalspresentedbytheHouseandcanonlydefertheproposalforuptoaperiodofoneyear.

The Premier is formally appointed by the Governor and nominates the Cabinet Ministers and designates theportfoliosforwhichtheyareeachresponsible.TheGovernmentiscurrentlycomprisedof11ministriesincludingtheCabinetOfficewithresponsibilityforGovernmentReform.TheCabinetMinistersareeachresponsiblefortheoperationsandstrategyoftheirparticularMinistryandareaccountabletotheLegislature.Generalelectionsareheldatmosteveryfiveyears,withthemostrecentbeingheldonJuly18,2017.

Bermuda’slegalsystemisbasedontheUKmodel,consistingofcodifiedlegislationandEnglishcommonlaw.ThecourtsystemismadeupofMagistrateCourts,theSupremeCourt,alocalCourtofAppeal,withfinalappealtothePrivyCouncilintheUnitedKingdom.Bermudaalsohasalong-establishedandtransparentlegalsystemaswellasanextensive,well-qualifiedsupportsystemoflegalprofessionals.

Bermuda’s Economic and Social Context Bermuda’seconomyisbasedprimarilyoninternationalfinancialservicesandtourism,bothofwhichrepresenteda significant portion of Bermuda’s 2016 nominal GDP of BD $6.1 billion, or real GDP of BD $4.6 billion. TheBermudadollarispeggedtotheUSdollaratafixedexchangerateofUS$1.00=BD$1.00(par).

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Bermudahasfourlicensedbanks,allservingdomesticandinternationalclients.Bermuda’scorporateregistryhasapproximately16,000registeredlegalentities,andapproximately1,300oftheseareAML/ATFregulatedFIs.

According to the 2016 Population andHousing Census Report. Bermuda had a population of 63,779, ofwhich19,332 residents are foreign born and 9,506 are foreign born workers. The population of foreignworkers isdrawn from a large number of countries,with theUK, Canada, theUSA, Azores/Portugal, Asian countries andCaribbeannationsaccountingforthelargestpercentage.

Theofficial languageisEnglish,andBermudahasahighstandardofeducation,coupledwithhighliteracyrates.Thereisfreecompulsoryeducationingovernmentschoolsforstudentsagedbetween5through18.About87%of theadultpopulationhasgraduated fromsecondary school, anda significantproportionof secondary-schoolgraduatesgoontohighereducation,eitherinBermudaoroverseas.

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Chapter 2: Bermuda’s AML/ATF Legislative Framework and Key Agencies Legislative Framework Bermudahasacomprehensivesuiteoflegislationtocombatmoneylaunderingandthefinancingofterrorismandproliferation.

Core Legislation KeylawsinrelationtoAML/ATFinclude:

i. ProceedsofCrimeAct1997(POCA)–ThisActestablishesthecriminaloffencesofmoneylaundering,setsthelegalframeworkforconfiscatingproceedsofcrimeandconfersinvestigativepoweronthepolice.TheAct also confers expansive information-gathering powers to the police relating to investigations andcontains provisions empowering the courts to make confiscation orders, forfeiture orders and freezingorders and to impose other penalties. It contains the provisions relating to filing of Suspicious ActivityReports (SARs) and provides the legislative basis for regulations to impose requirements on specifiedFinancial Institutions (FIs) and Designated Non-Financial Businesses and Professions (DNFBPs) forpreventivemeasuresinrelationtoAML/ATFmatters.ItalsocontainsthelegislativebasisfortheMinisterresponsible for Justice to give directions in relation to matters that have significant ML/TF risk. Itestablishes the National Anti-Money Laundering Committee (NAMLC) and establishes the civil recoveryregimewhichprovides for theEnforcementAuthority to recover funds thatare theproceedsofcriminalconduct.

ii. Anti-Terrorism (FinancialandotherMeasures)Act2004 (ATFA)– ThisAct criminalises the financingof

terrorism and establishes a series of offences relating to involvement in arrangements for facilitating,raisingorusingfundsforterrorismpurposes. TheActalsoconfers informationgatheringpowersonthepoliceandempowersthecourtstomakeordersandimposepenaltiesinrelationtoinvestigationsrelatingtoterrorismoffences.ItalsocontainsrelevantprovisionsinrelationtoTFandProliferationFinancing(PF)mattersthatappropriatelymirrorthoserelatingtoMLthatarecontainedinPOCA.

iii. ProceedsofCrime(Anti-MoneyLaunderingandAnti-TerroristFinancing)Regulations2008(Regulations)

– This legislationwas established in accordance with POCA and ATFA. The regulations prescribe thepreventivemeasures tobe takenbyAML/ATF regulatedFIsand regulatedNon-FinancialBusinessesandProfessions(DNFBPs).

iv. ProceedsofCrime(Anti-MoneyLaunderingandAnti-TerroristFinancingSupervisionandEnforcement)

Act 2008 (SEA) – This Act establishes the supervisory framework whereby supervisory authorities arerequired to monitor certain persons and take measures to secure compliance by such persons withregulations made under the Proceeds of Crime Act 1997 and the Anti-Terrorism (Financial and OtherMeasures)Act2004. TheresponsibilitiesandpowersofsupervisoryauthoritiesareprescribedaswellasthecivilpenaltiesforbreachoftheRegulations.

v. CriminalCodeAct1904–ThisActcriminalisesawiderangeofoffences,whichcomprisethemajorityof

thepredicateoffencesformoneylaundering;andestablishestheframeworkforcharge,prosecutionandsentencingofalloffenders.

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vi. MisuseofDrugsAct1972–ThisActcriminalisesawiderangeofdrugtraffickingoffencesandprovidesadditionalpolicepowersforinvestigatingsuchoffencesincludingforfeitureorders.

vii. BriberyAct2016–TheBriberyActamalgamatesallbriberyoffences,includingbriberyofaforeignpublicofficial.TheActalsoprescribestheprocedureforreporting,prosecutionandpenalties.

viii. RevenueAct1898–ThisActprovidestheregulatoryregimeforCustomsandconfersappropriatepowersontheCollectorofCustoms.

ix. CompaniesAct1981–ThisActprovidestheframeworkfortheincorporation,registration,andwinding-upofcompanies. Other legislationwhich relate to theestablishmentandoperationofother typesof legalentities in Bermuda include the Partnership Act 1902; the Limited Partnership Act 1883; the ExemptedPartnershipsAct1992;theOverseasPartnershipsAct1995;theLimitedLiabilityCompanyAct2016;andtheSegregatedAccountsCompaniesAct2000.TheseActsarereinforcedandsupportedbytheRegistrarofCompanies (ComplianceMeasures)Act2017,whichconferspowerson theRegistrarofCompanies tobetterprovideforinspectionof,andcomplianceby,certainentitiesthatareregisteredinBermuda.

x. Exchange Control Act 1972 – This Act provides the regulatory framework for exchange controls andincludes provisions that allow for the vetting of beneficial owners. This Act and the Exchange ControlRegulations1973are importantcomponentsofBermuda’s long-standinghistoryofknowingandvettingthekeyplayersbehindcompaniesregisteredinBermuda.

xi. CharitiesAct 2014 –TheCharitiesAct imposesa registration framework for charitiesandestablishesarisk-based supervisory framework for registered charities, to ensure compliance with regulations thatprescribe the AML/ATF obligations on charities: the Charities (Anti-Money Laundering, Anti-TerroristFinancingandReporting)Regulations2014.

xii. Criminal Justice (International Co-operation) (Bermuda) Act 1994 – This legislation establishes the

framework to enable Bermuda to provide legal assistance, evidence and othermaterial support, to co-operatewithothercountries in the investigationandprosecutionofcriminaloffencesandthedetentionandrecoveryofcriminalproceeds.

xiii. InternationalCooperation (Tax InformationExchangeAgreements)Act2005 –ThisActmakesgeneralprovision for the implementation of tax information exchange agreements entered into by theGovernmentofBermuda,asauthorisedbytheGovernmentoftheUnitedKingdom,withotherjurisdictionsand to enable the Minister of Finance to provide assistance to the competent authorities of suchjurisdictionsundersuchagreements.

xiv. InternationalSanctionsAct2003–TheSanctionsActallowstheMinisterresponsibleforlegislativeaffairsto make the necessary regulations for the international sanctions regime. Other relevant Sanctionsrelatedlegislationinclude:• InternationalSanctionsRegulations2013–TheseRegulations,whoselegislativebasisisderivedfrom

the International Sanctions Act, provide the mechanism for Overseas Territories Orders forinternationalsanctionsmeasures(UnitedNationsandothers)tobebroughtintoforceinBermuda.

• International Sanctions Notice 2017 – This Notice confers powers by any provision to any of theOrderslistedinSchedule1totheInternationalSanctionsRegulations2013tomaintainandpublishalistofdesignatedorlistedpersonsconstitutingthetargetoffinancialsanctionsandalistofrestrictedgoods.

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Additional Legislation Inadditiontotheabovecorelegislation,theframeworkformonitoringandenforcingcomplianceisstrengthenedbymeasurescontainedintheprimaryActsestablishingthesupervisoryauthoritieswhichincludethe:

i. Bermuda Monetary Authority Act 1969 – This Act established the Bermuda Monetary Authority andprovides itspowers for,amongother things, the regulationand supervisionof financial institutionsandthepreventionoffinancialcrime.

ii. Casino Gaming Act 2014 – This legislation provides for integrated resorts, to allow casino gaming, to

establishaBermudaCasinoGamingCommissionand toestablishaProblemGamingCouncil toaddressproblemgambling.

iii. FinancialIntelligenceAgencyAct2007–ThisActestablishedthenationalFinancialIntelligenceUnit(FIU)as an independent, autonomous agency to receive reports of suspicious transactions from regulatedfinancial institutions and other persons and to collate, analyse and, as appropriate, disseminateinformationtolawenforcementandothercompetentauthoritiesforinvestigationorotheraction.

iv. RealEstateBrokers’LicensingAct2017–ThisActprovidesfortheoperationofalicensingregimefortheRealEstateindustryandestablishesthesupervisoryframework.

v. Bermuda Bar Act 1974 and Chartered Professional Accountant of Bermuda Act 1973 – These Actscontain provisions relevant to the establishment and operation of the Barristers and AccountantsAML/ATFBoardandtheoversightofpersonsinthelegalandaccountingsectors.

Inaddition,thesuiteofregulatory legislationcanalsobeusedaspartoftheAML/ATFframeworkand includesthefollowingpiecesoflegislation:

• BanksandDepositCompaniesAct1999• CorporateServiceProviderBusinessAct2012• InsuranceAct1978• InvestmentBusinessAct2003• InvestmentFundsAct2006• MoneyServicesBusinessAct2016• Trusts(RegulationofTrustBusiness)Act2001

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Key AML/ATF Agencies TheGovernmentofBermudahas,bystatuteordelegation,designated the followingagencies toplaya leadingroletoaddressAML/ATFmatters:

Agency PrimaryrolewithintheAML/ATFregimeNationalAnti-MoneyLaunderingCommittee(NAMLC)

§ AML/ATFadvisoryandcoordinatingbody§ The Office of NAMLC acts as secretariat for NAMLC and plays a key role in relation to

coordinationanddevelopmentofthenationalpolicies,frameworkandprogramme.

AttorneyGeneral’sChambers(AGC)

§ Centralauthority–MutualLegalAssistance§ Civilassetrecovery

TheBermudaCasinoGamingCommission(BCGC)

§ Supervisoryauthorityforcasinogaming§ Inprogress–tobecomethesupervisoryauthorityforbetting

BermudaMonetaryAuthority(BMA)

§ Supervisoryauthorityforfinancialsector§ Responsibilities in relation to vetting and retaining information on beneficial ownership of

legalpersonsBermudaPoliceService(BPS)

§ Criminalinvestigations

TheDepartmentofCustoms(Customs)

§ Immigrationandcustomscontrolatallportsofentry

TheDepartmentofPublicProsecutions(DPP)

§ Criminalprosecutions§ Confiscation/forfeiture(convictionbased)

FinancialIntelligenceAgency(FIA)

§ ReceiptofSuspiciousActivityReports(SAR)andanalysisanddisseminationofSARsandotherfinancialintelligence

§ Supervisorfordealersinpreciousmetalsandstonesandotherhigh-valuedealersTheMinistryofFinance(MoF)

§ Authorityforexchangeoftaxinformation§ Domestictaxauthority§ MinisterappointsNAMLCChair

TheMinistryofLegalAffairs(MoLA)

§ MinisterwithkeyresponsibilitiesunderPOCA,SEAandATFA§ Inprogress–tobecomethedelegatedauthorityfortargetedfinancialsanctions

TheRegistryGeneral(RG)

§ SupervisoryAuthorityforCharities§ Registrarofbirths,deathsandmarriages

TheRegistrarofCompanies(RoC)

§ Registrationandregulationoflegalentities(companyregistry)

TheSuperintendentofRealEstate(SoRE)

§ SupervisoryAuthorityforrealestatebrokersandagents

TheBarristersandAccountantsAML/ATFBoard(Board)

§ SupervisoryAuthorityforindependentprofessionals–lawyersandaccountants

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The National Anti-Money Laundering Committee and the Office of NAMLC NAMLCwasestablishedbySection49ofPOCA1997andadvisesGovernmentMinistersonAML/ATFmatters.Itsroleisdefinedasfollows:

• AdvisingGovernmentMinistersinrelationto:o thedetectionandpreventionofML/TFandthefinancingofproliferation;o the development of a national plan of action to include recommendations on effective

mechanisms to enable competent authorities in Bermuda to collaborate with each otherconcerningthedevelopmentandimplementationofpoliciesandactivitiestocombatML/TFandthefinancingofproliferation.

• Advising the Government Ministers about Bermuda’s participation in the international effort againstML/TFandthefinancingofproliferation,includingthedevelopmentofpolicies.

NAMLC consists of a Chair, appointed by the Minister of Finance, and the heads of all of the competentauthoritiesthatareprimarily involvedinAML/ATFmatters. Throughregularmeetingsofthecommitteeanditsworking groups, NAMLC works to ensure that AML/ATF matters are appropriately addressed and facilitatescoordination, collaboration and cooperation. There are three permanent working groups established: theLegislativeandPolicyWorkingGroup,theSupervisoryForumandtheOperationalWorkingGroup.Inaddition,aSanctions Working Group has been established to address key matters in relation to the development andimplementationoftargetedfinancialsanctions.

TheOffice of theNAMLC is the Secretariat for NAMLC andworkswithNAMLC agencies and other entities toensure that the mandate of NAMLC is effectively carried out. It plays a key role, on behalf of NAMLC, incoordinating Bermuda’s AML/ATF national andmulti-agency activities, including national risk assessments anddevelopmentofnationalpolicies.

The Attorney General’s Chambers (AGC) TheAGC,onbehalfof theAttorneyGeneral,actsasthe legaladvisortotheGovernmentand is responsible formutuallegalassistanceinrespondingtoforeignrequestsforformalassistanceincriminalmatters.TheAGCalsodealswithrequests(onbehalfoftheDPP)toothercountriestoassistBermudainML/TFcriminalmatters.

TheAGC,onbehalfoftheAttorneyGeneralandMinisterofLegalAffairs,alsoplaysakeyroleinrelationtocivilrecoveryofassetsdeemedtobetheproceedsofcriminalconduct.

Bermuda Casino Gaming Commission (BCGC) TheBCGCwasestablishedin2015,bytheCasinoGamingAct2014,toregulatecasinosinBermuda.TheBCGChasdevelopedfivekeyprincipleswhichoutlinetherequirementsforacasinotobeestablishedinBermuda.Theseare:suitability;accountability;integrity;collectabilityofpaymentsandprotectionofthevulnerable.

Although no casinos are currently in operation in Bermuda, the BCGC has issued two provisional licences.However, entities holding such provisional licences are not able to offer gaming services to the public until acomprehensive assessment of the suitability of relevant persons and entities is undertaken and an operatinglicence has been issued. BCGC has done considerable work in relation to the development of its AML/ATFframework. Further regulations to theCasinoGamingAct2014willbeenacted toprovidedirection tocasinosandtheiroperatorsoninternalcontrolrequirements,policiesandproceduresnecessarytomanageML/TFrisks.

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Bermuda Monetary Authority (BMA) TheBMAwasestablishedbytheBermudaMonetaryAuthorityAct1969asthesolefinancialservicesregulatorybodyinBermuda.Inadditiontothecorefinancialsectorsofbanking,insuranceandinvestments,theBMAalsosupervisespersonslicensedtoconducttrustbusiness,suchasTrustserviceServiceProviders(TSPs)andentitieslicensed to conduct Corporate Service Providerbusiness (CSPs)in Bermuda. The BMAis also responsible forsupervisingfinancialentitiesinordertocombatMLandenforceATFmeasuresinBermuda.ThroughitsroleasamemberofNAMLC,theBMAadvisestheGovernmentonsupervisoryandregulatorymattersrelatingtofinancialentitiesinordertoensurethatrobustAML/ATFlegislationisinforcetoeffectivelycarryoutits statutory mandate and to meet domestic and international standards and best practices. Further, whereappropriate,theBMAdevelopsandissuesAML/ATFGuidanceNotestothesectorsthatitregulates.The BMA —an independent authority—regulates the followingfinancial entities in accordance with itspowersunderBermuda’sAMF/ATFframework:

• Banks

• CreditUnion

• SecuritiesCompanies(investmentbusinesses,investmentfundsandfundadministrators)

• Insurance:long-termbusinessinsurers(i.e.,lifeandnon-lifeinsurers),insurancemanagersandinsuranceintermediaries(brokers,salesmenandagents)

• MoneyServiceBusinesses

• TrustServiceProviders

• CorporateServiceProviders

TheBMAalsohasa statutoryrole in the company incorporationprocessinBermuda, including, asappropriate,vettingtheapplicationsandkeepingtheregistryofbeneficialownersoflegalentitiesonbehalfoftheMinisterofFinance.

Bermuda Police Service (BPS) TheBPSisresponsibleforinvestigatingcrimes.TheOrganisedandEconomicCrimeteamdealswithoffencesofML/TFandwithassociatedpredicateoffences.ThePOCAplacesresponsibilitiesontheBPStoinvestigate,traceandconfiscatetheproceedsofcriminalconduct.

TheBPS’sAML/ATFpolicyobjectivesareto:• ensure that financial investigationsbecome the cornerstoneof allmajorproceeds-generating cases

andTFcases• identifyproceedsofcrime,traceassets,andinitiateassetconfiscationmeasures,andusetemporary

measuressuchasfreezing/seizing,andrestraintpowerswhenappropriate• initiateMLinvestigationswhenappropriate• uncoverfinancialandeconomicstructures,disrupttransnationalnetworks,andgatherknowledgeon

crimepatterns

The Department of Customs (Customs) TheDepartmentofCustoms isunderthecontrolof theMinisterofFinancebut issubject tothedirectionsandinstructionsoftheMinisterofNationalSecurityinrelationtoimportandexportprohibitions.

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CustomswasestablishedundertheCustomsDepartmentAct1952. Customshasbordercontrolandprotectionresponsibilities,thekeypowersofwhicharecontainedintheRevenueAct1898Inrelationtotheprocessingofincoming passengers, customs officers carry out the primary traveler screening process for theDepartment ofImmigration.TheDepartment’smainresponsibilitiesare:

• facilitationoflegitimatetrade• assessmentandcollectionofdutyrevenue• interdictionofdrugsandothercontrabandandtheproceedsofcrimeatourborders

The Department of Public Prosecutions (DPP) TheDepartmentofPublicProsecutions isresponsibleforpublicprosecutions,confiscationandconviction-basedforfeitureofassets. DPPprosecutescriminaloffences, including in relationtoMLandTF,andadvises theBPS,GovernmentdepartmentsandtheCriminalInjuriesCompensationBoard.

Financial Intelligence Agency (FIA) TheFIAwasestablishedbytheFinancialIntelligenceAgencyAct2007toactasanindependentagencyauthorisedto receive,gather, store,analyseanddisseminate informationrelating toML,suspectedproceedsofcrimeandpotential financing of terrorism received in the form of Suspicious Activity Reports (SARs). The reporting ofsuspicious transactions requirements (Section 46 of the Proceeds of Crime Act 1997 (POCA)) and tipping offprovisions (Section 47 of POCA) apply equally to all persons during the course of their business, trade orprofession.TheFIAhastheauthoritytosharerelevantinformationwiththeBPS,otherdomesticcompetentandsupervisoryauthoritiesandforeignfinancialintelligenceunits.

TheFIAisalsothesupervisoryauthorityfordealersinpreciousmetalsandstonesandotherhighvaluedealersinspecifiedretailsectors.

The Ministry of Finance (MoF) TheMoF supervises the economyof Bermuda andhas overall responsibility for providing a framework for thefinancial management and control of Government activities and finances. The Treaty Management andAdministrationUnitwithintheMoFactsastheauthorityfortheexchangeoftaxinformationandtheOfficeoftheTaxCommissioner,whichhasresponsibilityfordomestictaxmatters,isalsoadepartmentwithinthisMinistry.

The Ministry of Legal Affairs (MoLA) TheMoLAhasadministrativeresponsibilityfortheAttorneyGeneral’sChambers,Judiciary,DepartmentofCourtServices,DPPandLegalAidOffice.TheDepartmenthasoverallresponsibilityforupholdingtheconstitutionandlegalsystemofBermuda,providinglegalservicestogetherwiththeefficientdeliveryandaccessibilityof justice.MoLA works closely with the Governor and Government House in relation to international sanctions and PFmatters.TheMinisterhaskeyresponsibilitiesandpowersinrelationtoAML/ATFmattersunderPOCA,ATFAandSEA. AllGuidanceNotes issuedbysupervisorybodiesaresubject toapprovalbytheMinister. Inaddition, theMinistercanissuedirectionstoregulatedfinancialinstitutionsinrelationtospecifiedmattersinvolvinghighML,TForPFrisk.MattersrelatedtotheissuingofregulationsprescribingpreventivemeasuresforthepreventionanddetectionofMLandTF,alsofallwithinthepurviewoftheMinister.

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The Registry General (RG) The RG became the supervisory authority for charities under the Charities Act 2014. The applicable AMLrequirementsaredetailedundertheCharitiesAML/ATFregulationsandasrequiredunderFATF,allowsforaTF-focused, risk-based approach, both in relation to the requirements imposed and to the monitoring andenforcementofcompliance.ThisagencyispartoftheMinistryofHomeAffairs.

Registrar of Companies (RoC) TheRoCwasestablishedin1970andsupervisesallregisteredentities(i.e.companies,partnerships,andLimitedLiabilityCompanies(LLCs))formedunderthefollowingoperativeActs:

• CompaniesAct1981• PartnershipAct1902• LimitedPartnershipAct1883• ExemptedPartnershipsAct1992• OverseasPartnershipsAct1995• LimitedLiabilityCompanyAct2016• SegregatedAccountsCompaniesAct2000

TheComplianceMeasuresAct2017grantstheRoCadditionalpowerandresponsibilitiesinrelationtomonitoringand enforcing compliance with legislation that applies to establishing and operating legal entities registeredand/oroperatinginorfromBermuda.TheRoCisalsoresponsiblefor:

• revenuecollection• providingpubliclysearchablerecordsofregisteredentities• companyinvestigationsandcomplaintresolution• companywinding-ups/strikeoffs• handlingcertainbankruptciesandliquidations

The Superintendent of Real Estate (SoRE) The SoRE was designated under SEA as the supervisory authority for the Real Estate sector in Bermuda inSeptember 2016. At the same time, the sector was brought into scope under the AML/ATF framework.AdditionalpowersandresponsibilitiesinrelationtoAML/ATFsupervisionofthesectorarecontainedintheRealEstate Brokers’ Licensing Act 2017. This Act contains the applicable licensing requirements, including those inrelationto“fitandproper”criteriatowhichthesectorissubject,aswellasarangeofenforcementmeasuresfornon-compliancewithrelevantlegislation.

The Barristers and Accountants AML/ATF Board (Board) TheBarristers andAccountantsAML/ATFBoard (the Board) is a self-regulatory body established jointly by thelegal and accounting sectors on the basis of their having similar professional codes, client bases and workproducts.TheBoardwasthenestablishedinlawunderSection25AoftheBermudaBarAct1974andSection8AoftheCharteredProfessionalAccountantsofBermuda(CPA)Act1973.EffectiveAugust10,2012,theBoardwasdesignatedasasupervisoryauthoritybyorderoftheresponsibleMinister,issuedunderSection4oftheProceedsofCrime(Anti-MoneyLaunderingandAnti-TerroristFinancingSupervisionandEnforcement)Act2008(SEA).

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TheBoardisresponsibleforsupervisingRegulatedProfessionalFirms(RPFs)forcompliancewiththeobligationsundertheAML/ATFRegulations. RPFsisdefinedtobringintoscopeaccountingfirmswhoaremembersofCPABermudaandlegalfirmswhichadviseclientsinconnectionwithspecifiedactivities.AstheBoardisnotagovernmentagencyorapublicauthority, it isnotamemberofNAMLC. Itdoeshowever,work closely with the NAMLC agencies, in addressing matters relevant to the effective development andimplementation of the regime. It is a member of the NAMLC Supervisory Forum and actively participates innationalinitiatives.

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Chapter 3: Bermuda’s AML/ATF Operational Framework A. Regulation and Supervision As highlighted previously, the Proceeds of Crime (Supervision and Enforcement) Act provides the legislativeunderpinning for the AML/ATF supervisory framework for regulated financial institutions and non-financialbusinessandprofessionalsasdefinedintheRegulations.ThesupervisorybodiesthatderivetheirauthorityfromtheprovisionsdetailedinSEAaretheBMA,theFIA,theSoREandtheBoard.ThissectionprovidesinformationontheapproachthattheseagenciestakeformonitoringandenforcementofcompliancewiththerelevantAML/ATFrequirements.

Thetablebelowprovidesinformationonthenatureandsizeoftheregulatedsector.

Table 1: The Regulated Sectors

Sector NumberofRegulatedEntitiesinSector

(asatDec.31,2017)

Banking(incl.creditunion)

5

Securities 892

Insurance 1485

MoneyServiceBusinesses 2

Gaming 0

Betting 2

RealEstate 53

Dealersinpreciousmetalsandstones 2

Accountants 5

Lawyers 23

High-valuedealers(Car,boat,motorcycleandantiquedealers;and

auctioneers)

0

TrustServiceProviders 28

CorporateServiceProviders 62

Otherfinancials(BermudaStockExchange)

1

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The Bermuda Monetary Authority's Supervisory Framework TheBMAisresponsibleforlicensingandsupervisingwithregardtobothfinancialstability(i.e.prudentialmatters)andconduct-relatedissues(includingAML/ATF)andsettingouttheAML/ATFcontrolobligationsforthesectorsitsupervises. Its supervisory frameworkprovidesa comprehensive risk-basedapproach toAML/ATF supervisionacross thosesectors and entities it regulates. The BMA uses the FATF Recommendations and guidance1 as the basis fordeveloping this risk-based supervisory framework and is committed to continuous engagement with FATFdirectioninordertomaintainacredibledeterrenttoML/TFwithinitsscopeofresponsibilities.

TheBMA’sAML/ATFsupervisoryframeworkcomprisesthefollowingcomponents:

1. AssessmentofML/TFrisksandcontrols–toinformplanning2. Licensingandauthorisations–toeffectmarketentrycontrols3. Regulationandinformation–toguideandinformregulationandregulatedFIs4. Offsiteandonsitesupervision–toassessthequalityofcontrolsforregulatedFIs5. Enforcement–toproportionatelyaddressbreachesofrequirements6. Monitoringandreporting–toensureongoingeffectivenessofsupervisoryactionsoncompliance

Assessment of ML/TF risks and controls TheBMAconducts,orprovidesinputto,ML/TFriskandcontrolassessmentsatthenational,sectoralandentitylevel. Eachoftheseriskassessmentsisusedtoinformandcross-calibratetheoverallresults. ThisensuresthattheBMA,andotherrelevantcompetentauthorities inBermuda,haveaconsistent,currentandholisticviewofML/TFrisks.

The BMA develops its understanding of theML/TF risks facing sectors under its supervision by conducting anannualriskassessmentatbothsectorandentitylevels,usingdatacallsandquestionnaires.Theriskassessmentsarestructuredinthreestages:understandingtheinherentriskwithinasector;assessingtheeffectivenessoftheML/TFcontrols inplace;andestimating the levelof residual risk in thatsector. This riskassessment isusedtoinform the Risk-Based Approach (RBA) to AML/ATF supervision across all stages of the AML/ATF supervisorylifecycle.Astheprocessisrepeatedinaniterativecycleofriskassessmentandsupervisoryactivities,theBMA’sunderstandingofresidualriskiscontinuallydeepenedandrefined.Theresultsoftheseriskassessmentsinformsthe annual calendar of supervisory activities and requirements, including the development of the BMA’ssupervisionstrategies,prioritiesandresourcing.

Licensing and Authorisations A key component of the BMA’s RBA to supervision relies on robust market entry controls. This is achievedthroughtheBMA’slicensingprocess.TheBMAplaysakey“gatekeeper”roleinvettingbeneficialownersforallcompaniesoperating inBermuda,toaddresstheriskofcriminalsortheirassociates fromholding(orbeingthebeneficial owner of) a significant or controlling interest, or performing a management function, in a financialinstitution.Themarketentrycontrolsforfinancialinstitutionsarebasedaroundthedeterminationofbeneficialownership, assessmentof fit andproper shareholder controllers, andgrantingof licensingor registration. The

12012revisedFATFRecommendationsandFATFGuidanceforaRisk-basedApproach“EffectivesupervisionandenforcementbyAML/CFTsupervisorsofthefinancialsectorandlawenforcement”,October2015

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BMA places emphasis—through its licence and registration application process—on ensuring that Bermudamaintainsquality-over-quantityofapprovedfinancialinstitutions.

Each of the various regulatory Acts administered by the BMA describes the legislative requirements for thelicensing or registration of the respective FIs. All local or overseas FIs (including non-resident insurancecompanies) are subject to these Acts and are required to apply for and receive a licence, registration orexemption,orwhereapplicable,registeranexemptionwiththeBMAbeforetheyareabletoconductbusinessinBermuda.

ThelicensingprocessinBermudaforFIsconsistsofthreestages:

1. Incorporation:theBMAconductsvettingaspartoftheincorporationprocess,whichincludesareviewoftheshareholdingandbeneficialownershipoftheproposedcompanyaswellastheirsuitability,consideringanyriskstotheBermudaeconomy.

2. Licence: this includes anassessmentof controllers—in relation to “fit andproper” criteria,the business plan and governance arrangements,whichwould include proposed AML/ATFpoliciesandproceduresaswellasthesourceoffunds.

3. Ongoing Monitoring: the BMA conducts ongoing monitoring of minimum licence criteria,assesseschangesinbeneficialownershipandcontrollerinformationandtermsofthelicence.

Regulation and Information TheBMAprovidesrelevantinputtoNAMLCand,asappropriate,toCabinetonAML/ATF-relateditems.TheBMAisalsoresponsibleforprovidingcomprehensiveguidancetoindustryon(i)howtheAML/ATFregulationswillbeapplied;(ii)theexpectationsoftheBMAforindividualsectorcompliancewiththeregulationsandprocesses,and(iii)enhancingoverallunderstandingofAML/ATFmatters, includingAML/TFrisks. TheBMAhasimplementedaprogrammeofindustryoutreachandcommunicationsthatensuresregularupdatesonthesetopicsandpromotesacollaborativedialoguewithindustry.

Off-site and On-site Supervision TheBMAemploysarisk-basedapproachtoon-siteandoff-sitesupervisionactivitiesappropriatetothe levelofML/TF risk of each supervised sector and their component FIs. TheBMA’s risk-based framework forAML/ATFsupervision isunderpinnedby the riskprofilesofeachsectorandof theircomponent institutions,asdescribedabove.ThesupervisoryplanisrevisedandimplementedbytheBMAonanannualbasis. Theresultsof theNRAandtheBMA’sannualsectoral riskassessmentsprovidethemain input forsectoral riskprofilingandsupervisionplanning. ThisenablestheBMAtoconductmacrosectoralanalysisofriskthatcanbeused to prioritise higher-risk sectors for enhanced supervision. Within each sector, the results of the BMA’sentity-level riskassessment isusedto identifyentitieswithhigher-riskprofiles forenhancedsupervision, takingintoaccounttheriskprofileofthesectorstowhichtheybelong.ThereportsarisingfromsupervisoryreviewsarecommunicatedtotheFIconcerned,andaformalprogrammeoffollow-upisimplementedtoensurethatmattersareaddressedinanappropriateandtimelymanner.Ifseriousdeficiencies in an FI’s AML/ATF regime are uncovered or remediation deadlines are missed, the RFI may bereferredtoforenforcementaction.

Enforcement The BMA exercises its powers of enforcement to fulfil its function as a supervisor and regulator of financialinstitutions inBermuda, todemonstrate its commitment toadhering to international standardsand to fostera

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faircommercialenvironmentinBermuda.TheBMAwilltakeactioninaccordancewiththeprinciplessetoutinitsEnforcement Guide, which include exercising powers in a fair, consistent and proportionate manner. A keyguidingprincipleisthattheAuthoritywillapplyenforcementsanctionsthataredissuasiveandproportionatetoallofthesurroundingcircumstances,includingrisk.

Enforcement actions are specifically intended to address and alleviate failures of compliance or breaches ofregulations, and to mark them with dissuasive outcomes. Where the nature of the breach is of sufficientseriousness, enforcement measures or—as is more typically the case—a combination of remediation andenforcementmeasuresmaybe required. During theperiod coveredby the risk assessment, theBMAused itspowerstolevycivilfines,issuepublicandprivatesanctionsandtakeotherregulatoryactionasrequired.

Monitoring and Reporting TheBMAcarriesoutongoingmonitoringoftheeffectsofthesupervisoryprocess, as it is importanttoensurethatBMA’s supervision is improving thecomplianceof theFIs. Thesteadily increasingnumbersofSARs isoneindicatorofenhancedcomplianceintheprivatesector,demonstratinganunderstandingofthekeydriver..

The Financial Intelligence Agency’s Supervisory Approach AmendmentsmadetotheSEA,whichcameintoeffectonDecember1,2016,designatedtheFinancialIntelligenceAgencyasthesupervisoryauthorityfordealersinhigh-valuegoods(DiHVG,whichincludejewellerydealers;car,boatandmotorcycledealers;preciousmetalandstonedealers;antiquedealersandauctioneers). DiHVGwerebrought into scope of theProceeds of Crime (Anti-Money Laundering andAnti-Terrorist Financing) Regulations2008(Regulations),subjecttotherequirementthattheyberegisteredwiththeFIAiftheyintendtocarryoutcashtransactionsequaltooraboveBD$7,500,ortheequivalentinanyothercurrency.RegisteredDiHVGmustalsofile Cash TransactionReports (CTRs)with the FIAwhenever they carry cash transactions equal to or above BD$7,500.EntitiesthatfallwithinthedefinitionofDiHVGthatarenotregisteredwiththeFIAarenotauthorisedtoacceptcashabovethisthreshold.

Outreach and Training HavinganeffectiveprogrammeofoutreachandtrainingisakeyaspectoftheFIA’ssupervisoryprogramme.Priortotheregimebeingbroughtintoeffect,theFIAconductedgrouptrainingsessionsadvisingthesectorofthescopeandeffectoftheforthcomingrequirements.Inaddition,targetedoutreachtoalldealersinpreciousmetalsandstones(andjewellers)wasundertakentoensureallsuchdealerswereawareoftheobligationsbeingimposedonthesector. TargetedoutreachwasalsoconductedtootherDiHVGwhowereknowntohavepreviouslycarriedout large cash-based transactions. This programme of outreach and training is an ongoing and importantcomponentoftheFIA’ssupervisoryapproach.

Guidance and Communication TheFIAissuedGuidanceNotestotheDealersinHigh-ValueGoodssectoronDecember1,2016.Inaddition,thereis ongoing communication with the entities in the sector on matters that are relevant to their AML/ATFcompliance.PersonsfromindustrywereinvolvedintheMLriskassessmentandcommunicationoftheresultsoftheNRAarepartofthe2018plan.

Supervision and Oversight Attheendof2017thereweretwobusinessesregisteredwiththeFIA.Aspartoftheimplementationofitsnewregime, the FIA conducted 16 visits to potential registrants for theDiHVG regime. During these visits, the FIAexplainedthenewregimeandallpotentialregistrantswerealsogivenaregistrationpackage.

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All personswho submitted applications for registrationwere subject to a fit and proper assessment, and onlyapplicants,whichmettherequirementswereconsideredforregistration.Thisprocessisseenasanintegralpartofthesupervisoryprogramme.

TheFIAcompletedthefirstroundofon-sitevisitstoregisteredbusinessesbyDecember2017andthefindingsofthese on-site visits were provided to the registered DiHVGs along with timelines given for remediation ofidentifieddeficiencies.Thespecifiedtimelineswereinfluencedbythenature,scopeandassessedimpactofthegaps. Giventhesmallnumberofregistrants,thecurrentplanisforannualvisits,but it is intendedthatamorerisk-basedapproachwillbedevelopedandimplemented.

Ensuring that unregistered entities are not breaching the requirements is another core feature of the FIA’ssupervisoryprogramme.Requestsforinformationweresenttofiveunregisteredjewellerydealerstodeterminethelevelofcashreceivedin2017andtheinformationreceivedhasbeenassessed.Follow-upactioninrelationtothesematters,includingapplyingenforcementmeasures,asnecessary,willcontinuetobeanongoingpartoftheFIA’sprogramme.

Risk Assessment TheFIArecognisesthe importanceofensuringthatthere isagoodunderstandingoftherisks inthesectorandthatthisinformationiskeptuptodate.Therefore,theFIAhasmorerecentlysurveyedeveryknownbusinessinthe sector to collect additional information that it reasonably requires to carry out its supervisory functions.Thesedata-gatheringexerciseswillbeconductedonaregularbasisandtheinformationwillbeusedtoinformtheFIA’ssupervisoryapproachandunderstandingofrisks.

The Superintendent of Real Estate’s Supervisory Approach TheSuperintendentofRealEstatehasadoptedacomprehensiveapproachtorealestatesectorsupervisionwithactivities ranging from education to inspection and corrective action. The supervisory framework includes alltoolsandfunctionsthatwillhelpachievethehighestlevelofcompliancewithinthesector.

The Superintendent of Real Estate has implemented a risk-based approach to supervision that allows for theappropriate focus of resources on high-risk entities. The six key functions that form the basis of theSuperintendent’srisk-basedsupervisoryframeworkare:

• licensing• riskassessment• legislativeandpolicyinterpretation• reportingentityassistance• monitoringandinspections• correctiveactions/enforcement

Thegoal is toachievehigh levelsof cooperationandcompliance, tocontribute toaneffectivesystemthatwillminimise the potential for abuse by those involved in ML/TF activities and also to reduce the need forenforcementactions.

Licensing Framework An updated licensing framework has now been established in legislation that includes fit and properrequirements.Onthebasisoftheserequirements,newlicenceswereissued,effective1December2017.

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Risk Assessment SoREhasconductedariskassessmentofthesectorandidentifiedtheinformationgaps.Inthisregard,anassessmentmatrixwasdevelopedandusedtoupdatetherequiredstatisticalreturn.ThisreturnwascompletedandsubmittedbyallbrokersandhasbeensubjectedtoreviewbytheteamoftheSoRE.

Legislative and Policy Interpretation TheSoREhasissuedGuidanceNotestoprovidefurtherclarificationontherequirementsintherelevantActsandregulations. The team is also implementing coordinationmechanisms to ensure that its legislative and policyinterpretation is consistentwithotherAML/ATF supervisory agencies, to theextentdeemedappropriate giventhenatureandscopeofthesector.

Reporting Entity Assistance ThedevelopmentandcirculationofGuidanceNotes,asnotedabove,hasbeenakeyinitiativeinthisregard.Inaddition, a number of outreach sessions have been held and an agreed strategy and action plan has beenimplementedtoensurethatthereisanongoingprogrammetobuildawarenessandunderstandingofAML/ATFmatters,includinginrelationtoML/TFrisks.

Risk-Based Monitoring and Inspection Programme Theteamhascompleteditsdesk-basedreviewofbrokers’AML/ATFpoliciesandproceduresandhasbeguntheimplementationofitson-siteinspectionprogramme.Theresultsofthesereviewswillbeusedtoaddressissuesofnon-compliance, identifycompliancetrendsandallowforthedevelopmentandimplementationofstrategiestoaddresscommondeficiencies.

Enforcement of Compliance The SoRE has developed policies and procedures to promote and enforce compliance and intends to conductannualreviewsoftheimpactofcorrectiveactiontoenhancethesupervisoryprogramme.

The Superintendent of Real Estate also has the goal of strengthening stakeholder relationships by activelyparticipating in theAML/ATFSupervisory Forum (withother supervisory agencies) and theNAMLCOperationalWorkingGroup;andbycollaboratingwiththeBermudaChamberofCommerce–RealEstateDivisiononoutreachtoindustry.

The Barristers and Accountants AML/ATF Board’s Supervisory Approach Outreach and Training OutreachandtrainingarekeyactivitiesforthesupervisoryprogrammeoftheBoard.Followingthedesignationofthe Board as the supervisory authority for entities in the legal and accounting sector, Guidance Notes weredevelopedforeachsectorandpublishedin2012,withtrainingandoutreachdeliveredtothesectorsthereafter.Training and outreach to RPFs and to the professional community in these sectors continue to be held on anongoingbasistoensurethattheknowledgeandunderstandingofAML/ATFmattersarecontinuallystrengthened.Information relating to the national and sectoral risks has been disseminated to allow formore effective riskanalysisbyregulatedentities.

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Oversight and Supervision Toensurethatentitiescompliedwiththerequirementstoregister,discussionswereheldwithfirmsregardingthenature and scope of their activities. RPFswere required to provide their policy and proceduresmanuals, andabouttheiractivitiesandthenatureoftheirbusinesses.

TheBoardthenconducteddesk-basedreviews involvinganalysisof therequested information,whichwas thenusedasthebasisforonsitereviewsonalltheRPFs.Prioritisationoftheseinspectionswasdoneonthebasisofthe deemed risks arising from the desk-based review. The result of these inspections was a programme ofremediation and ongoing monitoring to address issues of non-compliance. The Board has developed anenforcementplan,buttodatenoactionhasbeendeemednecessary,asfirmshavebeenresponsivetotakingtherequiredactionsbasedontheidentifiedgaps.Workiscurrentlyongoingtoenhancetherisk-basedapproachtosupervision.

Legislation and Guidance Asnotedpreviously,GuidanceNoteswereissuedfortheLegalandAccountingsectorsin2012.Thisguidancehasbeensubjecttocomprehensivereviewandupdating,inlinewithchangesinthelegislativeframework.

The Board continues to review its legislative framework and to recommend changes to enhance it. Theworkcurrentlybeingdoneinthisregardwillallowformoreeffectiveassessmentofactivitiesbeingundertakenbyallfirms,willstrengthentheentrycontrolsandwillprovideawiderrangeofsanctionsthatcanbeappliedfornon-compliance.

Liaison with Other Relevant Bodies Given the concurrent supervisionof theBoard in relation toRPFsand theBMA in relation toCSPsandTSPs incommonownershipwithsuchRPFs,theBoardandtheBMAhavesignedaMemorandumofUnderstanding(MoU)in relation to formalising an effective relation for cooperation and collaboration. Protocols in relation to thatMoU are also being developed to ensure appropriate, entity-risk-specific group internal controls, with thestandardtobeappliedwhereanRPFworksjointlywithitsaffiliatedCSPorTSP.

The Board meets with the Bar Council and CPA to hold informational meetings, to distribute importantannouncementsanddocumentsand to communicatedisciplinary concerns. There is alsoongoingandpositivecommunicationwiththeoversightcommitteesoftheseentitiesinrelationtoproposedlegislativeandframeworkchangeswhichrequirethesupportofthesponsoringagencies.

Risk Assessment TheBoardhasalsotakenstepstostrengthenitsunderstandingandassessmentofthenature,scopeandriskofthebusinessundertakenbytheregulatedsectorsthroughdatacallsinvolvingdetailswhichinclude:

• therisksofthefirm• thenatureofthebusiness• clients• transactionamounts• servicesprovided• geographicaldetailsoftheclients

Inaddition,theBoardhasreviewedtherespectiverisk-assessmentssuppliedbytheRPFs.Theanalysisoftheriskassessments is considered to be a vital component of the supervisory regime, in keeping with a risk-basedcomplianceprogramme.

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Oversight of Charities Consistent with FATF requirements, the primary focus in relation to charities is their potential abuse as amechanism for the financingof terrorism. Anupdated framework for oversight of charitieswas introduced in2014 to bring the requirements for and oversight of Bermuda’s charitable sector into compliance with FATFstandards.TheActappointedtheRegistrarGeneralasthesupervisoryauthorityforcharities,aswellasimposedaregistrationframeworkforcharitiestoensurecompliancewiththeAML/ATFregulations. Theframeworkwasamendedin2016inresponsetoupdatesintheFATFstandards.

Outreach and Training TheRegistryGeneralhasissuedGuidanceNotesforcharitiesoncompliancewiththeAML/ATLRegulations,whichare available online on theGovernment of Bermudawebsite. Also, the RegistryGeneral conducts training forcharities’ compliance officers on a quarterly basis, which is designed to enhance the knowledge andunderstandingofthesectorofAML/ATFmatters.

Risk Assessment Adesktopreviewwasconductedattheendof2017toevaluatetheriskprofileofregisteredcharities.Thecriteriausedforassessingcharities’riskprofilesincluded:

• thecharities’volumeofactivities• international/cross-border activities (foreign sources of funding or where a charity had overseas

branches,orwasitselfabranchofanoverseasentity)• exposure to countries and regions that are vulnerable to terrorism (including, but not limited to,

terrorismknowntobeassociatedwithreligiousextremism)

Thesefactorswereusedtocreateariskmatrixforassigningariskprofiletoeveryregisteredcharity.TheRegistryGeneralintendstoconductannualriskreviewsofregisteredcharitiescommencinginJuly2018,toidentifytrendsinthecharitablesectorusingthesamecriteriaasthe2017desktopreviewandassignariskratingtoallcharities.

Oversight and Monitoring TheRegistryGeneralhasimplementedasupervisoryprogrammeforcharities,consistentwithitsML/TFrisk.Highriskcharitiesarenowsubjecttoon-sitevisitstoassesscompliancewiththerequirements,whichareintendedtobeconductedonaregularbasis.

Addressing Non-Compliance Attheendof2017,theRGcommencedacompliancereviewofallregisteredcharitiestoidentifynon-compliantcharitiessothatappropriateactioncanbetaken.Asaresultofthecompliancereview,severalcharitiesthatweredormant have deregistered, and it is anticipated that several more charities may be forced to close as aconsequence. Also, civil penalties have been imposed on five charities for non-compliance (failure to submitannualreportsandfinancialstatementswithinthespecifiedtimeline).

B. Transparency and Beneficial Ownership Bermudahasa long-standingbeneficialownership frameworkthatrequiresall legalpersonstoberegistered inthe company registry and regulated financial institutions to have their beneficial owners (based primarily on

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votingshares)vettedbytheBMA.Thiscontrolmechanismhasallowedforafocusonqualityofapplicants,andthusBermudahasapproximately16,000registeredcompanies.

The BMA also vets changes in beneficial ownership of all regulated financial institutions andmost other legalpersonswith foreign ownershipwho representmore than two-thirds of registered persons. Shareholders andcontrollersofallregulatedfinancialinstitutionsarerequiredtofileandappropriatelyupdatebeneficialownershipinformationwiththeBMA,whichtheBMAmonitors.ThisincludesinformationaboutcontrollersaspertheFATFdefinitionofbeneficialowners.Additionally,allregulatedinstitutionsmustcarryoutcustomerduediligenceonallbeneficialownersoftheirclients.ThiscoversahighpercentageoftheentitiesformedinBermuda,includinglegalarrangements.Thisinformationmustberetainedbyregulatedentities.

Bermuda’s long-standing and comprehensive beneficial ownership framework has resulted in Bermuda beingrecognised as a leader in this area. However, therewere some gaps identified in the framework as part of arecentself-assessmentexercisethathavebeenaddressedthroughrecentchangestothe legislativeframework.ThedefinitionofbeneficialownershipinrelationtotheincorporationprocessandongoingvettingbytheBMAinthatarea,hasnowbeenspecificallyexpandedto includethoseexercisingcontrolofa legalpersonorentitybyothermeans.Further,amendmentshavebeenmadetorequirecompaniestoknowtheirbeneficialownersandensurethattherelevantinformationisavailableinrespectofalltypesoflegalpersons.TheCompaniesAct1981,the Limited Liability CompaniesAct 2016, and thePartnershipActs havebeen amended to require companies,LLCs,andpartnerships formedunderthoserespectiveActstoobtain,holdandfilethebeneficialownersofthelegal person with a central register. Requirements relating to the filing of subsequent changes in beneficialownershipwiththeBMAhavenowbeenexpandedtoincludechangesinvolvingresidentpersons.TherequiredinformationtobeobtainedandfiledspecificallymirrorstheFATFdefinitionofbeneficialowners.

CSPshavealsonowbeenlicensedbytheBMAand,accordingtotheirrecords,about75%oftheentitiesformedon the registerwill be serviced by licensed CSPs and the information on beneficial ownerswill be retained inBermuda.

AdedicatedcomplianceunithasbeenestablishedwithintheRegistrarofCompaniesandaproactiveprogrammeof compliancemonitoring against requirementswithin the relevant legislation relating to legal persons, is nowongoing.Furthermore,thereisactiveliaisonandcollaborationbetweentheBMAandtheRoCtoachievethegoalofeffectiveandefficientoversightinthisregard.

BermudawasrecentlyassessedandratedlargelycompliantoverallundertheTaxTransparencyandInformationExchange Peer Review Assessment that was concluded by the Organization for Economic Co-operation andDevelopment(OECD)in2017.TheOECDconductspeerreviewsofitsmemberjurisdictions’abilitytocooperatewithothertaxadministrations.Effectiveexchangeofinformationrequiresthatjurisdictionsensureinformationisavailable, that it can be obtained by the tax authorities and that there aremechanisms in place allowing forexchange of that information. The Assessment report indicated that Bermuda exchanged different types ofinformation (ownership, accounting, insurance and banking), including information held in a fiduciary capacityduring the period under review. It was also concluded that there were no limitations found in Bermuda’sinstrumentsandpeershadnot raisedany issues in this respect. Thishighlights thatBermuda is recognisedashavingastrongframeworkinrelationtotaxtransparency.

Consistent with our commitment to being a leader in relation to international agreements for exchange ofinformationfortaxpurposes,Bermudahasundertakenthefollowing:

• joinedtheOECDInclusiveFrameworkonBaseErosionandProfitShifting(BEPS);

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• implemented the OECD Country-by-Country (CBC) automatic exchange of information regime bycollectingfromMultinationalEnterprisesheadquarteredinBermudatheir2016fiscalyearinformationbyDecember31,2017toexchangewithCBCpartnercountriesbyJune2018;and

• signed a bilateral CBC automatic exchange of information competent authority agreement with theUnitedKingdomofGreatBritainandNorthernIrelandandtheUSA

BermudaalsobecameanearlyadoptertoautomaticallyexchangetheOECDCommonReportingStandard(CRS)information;andwasamongthecountriesthatsignedthemultilateralcompetentauthorityagreement(MCAA)forCRSinBerlininOctober2014andsubsequentlyexchanged2016yearCRSinformation.

Bermudahasalsosignedmorethan40bilateralTaxInformationExchangeAgreements(TIEAs)andhasjoinedtheJointCouncil of Europe-OECDMultilateral ConventiononMutualAdministrativeAssistance in TaxMatters (theConvention), inwhichBermuda’sparticipationenteredintoforceandeffectonMarch1,2014. Thisagreementimmediatelyestablishedataxinformationexchangerelationshipwithmorethan110countries.

Bermuda’s total portfolio of approximately 16,000 registered legal entities highlights the ongoing commitmentthathasbeenmadetoattractingqualityoverquantityandthis—coupledwiththedemonstratedcommitmenttotransparency—reinforces the objective that Bermuda will continually strive to be a good place to do goodbusiness,butnotaplacetohide“bad”business.

C. International Cooperation The Government of Bermuda is committed to cooperating with other countries and with regional andinternational organisations to combatML/TF. Bermuda’s relevant authorities have, as appropriate, developedstrong links with their international counterparts and are active in regional and international bodies, whereAML/ATFmattersareaddressed. Gatewayprovisionsintherequiredlegislationensurethatinformationcanbeappropriatelysharedwithcounterpartsinotherjurisdictions.

Through theMutual Legal Assistance Treaty (MLAT) process and the various tax treaties and agreements thatBermudahasbecomeasignatoryto,Bermuda isabletobothprovideandrequest informationtoassistorgainassistance from overseas authorities in investigations and even, through appropriate mechanisms, in theprosecutionofrelevantcrimes.

ThroughtheextensivenetworkoffinancialintelligenceunitsthatarepartoftheEgmontGroup,theFIAisactivelyinvolvedinexchangingfinancialintelligence.Inaddition,throughrelationshipswithintheCaribbeanActionTaskForce(CFATF)andothersuchbodies,theFIAisabletohaveandutiliseinformation-sharingagreementswithnon-Egmont FIUs. The BPS interacts on a regular basis with foreign agencies, including the UK’s National CrimeAgency, theFBIandothersuchbodies. Customscooperateswithallcustomscounterpartsworld-widethroughtheWorldCustomsOrganization(WCO)andregionallythroughtheCaribbeanCustomsLawEnforcementCouncil(CCLEC).Theyalsoworkcloselywiththefollowing:theUnitedStatesCustomsBorderProtection,whichhasapre-clearanceunitinBermuda;theCanadaBorderServicesAgencyLiaisonOfficer,whoisstationedinNewYorkandmeets with Bermuda on a regular basis; and the UK Border Force; and the National Crime Agency (NCA).AgreementhasnowbeenreachedfortheRegional IntelligenceLiaisonOfficer (RILO)post forCCLECtooperateout of Bermuda. The RILO will work closely with Bermuda’s Joint Intelligence Unit as well as the regionalCaribbeanCustomsDepartmentstocommunicateanddisseminateallaspectsof intelligencethroughtheCCLECOrganisation.

The sectors supervised by the BMA have a significant impact on Bermuda’s economy. The BMA is activelyinvolved in international standard-settingbodies suchas the InternationalAssociationof InsuranceSupervisors(IAIS),theInternationalOrganizationofSecuritiesCommissions(IOSCO),andtheGroupofInternationalFinancial

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CentreSupervisors(GIFCS)aswellashavingstronglinkswithsupervisorybodiesinkeyfinancialcentressuchasthe United States’ Securities and Exchange Commission (SEC), the UK’s Financial Conduct Authority (FCA) andPrudentialRegulatoryAuthority(PRA)andtheEuropeanInsuranceandOccupationalPensionsAuthority(EIOPA).TheBMAhostorattendsupervisorycollegesinrelationtotheoversightofentitiesthathaveglobaloperations.Through this and other mechanisms, the BMA and other supervisors as appropriate ensure that there iscoordinated engagement, where necessary, to strengthen the effectiveness of the regulatory and AML/ATFframework,fromadomesticandinternationalperspective.

Bermudaisactively involved intheCaribbeanActionTaskForce(CFATF)and,throughmembership inthatbody,hasbeenabletoplayaroleeveninFATFmatters.Inthisregard,BermudachairedajointCFATF/FATFtypologyreportonMoneyLaunderingUsingTrustandCompanyServiceProviders,whichwaspublishedinOctober2010.Bermudawillcontinue itsstrongandactivesupportofglobalandregional initiatives inthefightagainstML,TFandPFactivities.

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ASSESSMENT OF INHERENT MONEY LAUNDERING RISKS

Chapter 4: Methodology for the Money Laundering Risk Assessment General Methodology and Key Terms The2017NationalRiskAssessmentonMoneyLaundering(the2017NRA)beganinApril2017andwasledbytheNational Anti-Money Laundering Committee (NAMLC), with the support and sanction of the Cabinet and CivilServiceExecutive.TheentireprojectwascoordinatedbytheOfficeofNAMLC,whichprovidessecretariatservicestoNAMLC. Onededicatedhigh-levelcoordinatorwasappointedtomanagetheNRA,andan internationalAMLexpert was engaged as a consultant to provide technical guidance and support throughout the project.Participantsintheworkinggroupsincludedpersonsfromrelevantgovernmentagencies,supervisoryauthoritiesand representatives fromtheprivate sector. Persons involved in this initiativehadawide rangeofexperienceandexpertise,whichallowedforcomprehensivediscussionandanalysis.

This NRA, similar to the one undertaken in 2013, is premised on the notion that money-laundering risk is afunctionofmoney launderingthreat,vulnerabilityandconsequence. Thisprocessattemptsto identify,analyseand understand money-laundering risks and serves as a first step in addressing them. Performing a riskassessmentinvolvesmakingjudgmentsaboutthreats,vulnerabilitiesandconsequences.ThesekeyconceptsareexplainedbytheFATFasfollows2:

Moneylaundering:Theprocessisusedbycriminalstoconcealordisguisetheoriginofcriminalproceedstomakethemappearasiftheyoriginatedfromlegitimatesources.

Threats: These are the predicate crimes that are associated with money laundering. In some cases, specificcrimes are associated with specific money laundering methods. Crimes and criminal activity that generateproceeds that canbe launderedmakeup the “threat environment.” Understanding the threat environment isessentialtounderstandingthevulnerabilitiesthatcreatemoneylaunderingopportunities,andtounderstandingtheresidualrisks.

Vulnerability: Vulnerabilities facilitate or create the opportunity for money laundering. This comprises thosethingsthatcanbeexploitedbythepredicatecrimesorthatmaysupportorfacilitatetheseactivities.Theseareweaknessesinherentinaspecificfinancialsectororproduct;oraweaknessinthelaws,regulation,supervision,orenforcement framework; or thesemay reflect the unique circumstanceswhen it is difficult to distinguish legalfromillegalactivity.

Consequence: Consequence refers to the impact or harm thatmoney launderingmay cause and includes theeffectoftheunderlyingcriminalactivityonfinancialsystemsandinstitutions,aswellastheeconomyandsocietymoregenerally.Theconsequencesofmoneylaunderingmaybeshortorlongtermandalsorelatetopopulations,

2FATFGuidance:NationalMoneyLaunderingandTerroristFinancingRiskAssessment,February2013

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specificcommunities,thebusinessenvironment,ornationalor international interests,aswellasthereputationandattractivenessofacountry’sfinancialsector.3

The Risk Assessment Tool The World Bank’s risk assessment model was used in this project to allow parity and to make accuratecomparisonsto2013,whenithadalsobeenused.Itshouldbenotedthat,althoughthetoolusedwasdesignedby theWorld Bank, they took no part in this assessment and provided no technical input or guidance in theanalysisconductedortheconclusionsdrawn.

TheWorldBankModelidentifiedsevenkeyareastoassess,asfollows:

i. Module1:Nationalmoneylaunderingthreatii. Module2:Nationalvulnerabilityiii. Module3:Banking/creditunionsectorvulnerabilityiv. Module4:Securitiessectorvulnerabilityv. Module5:Insurancesectorvulnerabilityvi. Module6:Otherfinancialsectorsvulnerability,namely,moneyservicebusinessesandtheBermudaStock

Exchangevii. Module 7: Non-financial sectors vulnerability, namely designated non-financial businesses and

professions(DNFBPs)andothers,suchas:• trustserviceproviders• corporateserviceproviders• casinogamingandthebettingsector• realestatedealers• dealersinpreciousmetalsandstones• lawyersandaccountants• dealers and auctioneers specialising in high-value goods like cars, boats, bikes and antiques

Module1,whichevaluatesthenationalthreats,requirestheWorkingGrouptodetermineasubjectiverankingoftheMLthreatfromthevariouspredicateoffences.Italsorequirestherankingofthemoneylaunderingthreattoeachsector,aswellastheidentificationandrankingofthecross-borderthreat.Uponrankingallofthesethreats,theusermustdetermineasinglenationalthreatrank.

Forthevulnerabilityassessment(Modules2=7)keyfeaturesofthenationalorsectoralAML/ATFframework,orthe products offered by each sector, were assessed and a quantitative rating assigned. These ratings wereultimatelytranslatedbythetoolintotherelevantvulnerabilityratings.

AdditionalinformationonthetoolisprovidedinAppendixB

3Itshouldbenoted,however,thatgiventhechallengesindeterminingorestimatingtheconsequencesofML,countriescanopttofocustheirrisk-assessmenteffortsprimarilyonachievingacomprehensiveunderstandingoftheirmoneylaunderingthreatsandvulnerabilities–whichiswhatBermudahasdone.

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Chapter 5: Bermuda’s National Money Laundering Threats Introduction Asasmallislandjurisdictionwithapopulationofapproximately64,000people,Bermudaboastsarelativelylowcrime rate, a high standard of living and high respect for law and order amongst themajority of its residentpopulation.

Quarterlyreportsoncrimestatistics,producedbytheBPS,indicateageneraldownwardtrendinallcrimesduringtheeight-monthperiodoflate2016andearly2017.

In2016,atotalof3,587offenceswerereportedtothepolice,spanningthreecategories:

• crimesagainsttheperson,suchasmurder,robbery,assaults,offencesagainstchildrenandallformsofsexualoffences:740reports(includingsevenmurdersandonecaseofmanslaughter)

• crimesagainstproperty,whichincludesthefts,fraudandburglary:2,428reports• crimesagainstthecommunity,whichincludesdrugtrafficking:419reports

Graveoffencessuchasmurder forhire,kidnappingorotherseriousoffencesagainst thepersoncommittedforfinancial rewardarenotcommon inBermuda. Accordingto local lawenforcement, thevastmajorityofcrimesagainst property reported to the police are considered opportunist crimes of low financial value—the averagevalueoflossforsuchcrimesisintheregionofBD$500—andveryrarelydothesecrimesinvolveviolenceagainstindividuals.

DrugtraffickingoccursinBermudaandBermuda’shighcostoflivingmakesitaprofitablecrime,eventhoughthemarket is small and finite. Because the island is anenddestination,Bermudaescapesmuchof the criminalityassociatedwith highly organised crime syndicates, which is often seen in jurisdictions that participate in drugproductionandtransshipment.

As the national investigative and prosecuting authorities, the Bermuda Police Service and the Department ofPublicProsecutionsregularlyandsuccessfullyinvestigateandprosecutecriminalsforalltypesofcrimesreportedto,anddetectedby,thePolice.TheoperationoftheadministrationofjusticeandthefunctioningoftheCourtsinBermuda,fromthelowesttothehighest,arehighlyvisibleandtheresultsofcriminalcasesareroutinelyreportedinlocalprintandelectronicmedia.ThisvisibilityofthelawatworkcontributestothehighdegreeofrespectforlawandorderwhichisthenorminBermuda.

Scope and Process Bermuda’snationalmoneylaunderingthreatwasassessedbyaworkinggroupcomprisedofrepresentativesfromall of the competent and relevant authorities in Bermuda, including law enforcement, prosecutorial, tax andsupervisoryauthorities. AppropriatesupportwasalsoobtainedfromotherGovernmentagencieswithrelevantinformationorknowledge,includingtheDepartmentofStatistics,theDepartmentofImmigration,theMaritimeDepartment(alsocalledtheMaritimeAuthority),andtheCybercrimeDepartment.

This threat assessmentprimarily aims todetermine theamountofproceeds fromcrime that criminals launderthroughBermuda’s financialandnon-financialsectors. Thataim is impededbya lackofnationalknowledgeof

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the criminal environmentwhich arises from imperfect rates of detectionof crime and the inherently secretivenatureofcriminalactivity.

Taking these factors into account, the working group utilised Module 1 of the World Bank’s national riskassessmenttool,whichrequirestheuseofquantitativeevidenceofcrimeandcriminalproceeds;butwhichalsofacilitatesasubjectiveanalysisofthemoneylaunderingthreat,basedonestimatesoftheundetectedproceedsderivedfromcrime.

Themodulemade it possible to estimate amonetary or qualitative understanding of the value that criminalsderivefromandthroughcrimeinBermudaandthevalueofproceedsofcrimeexportedtoBermudafromabroad.Tomakethisdetermination,theworkinggroup:

• consideredcrimesthattypicallyunderliemoneylaunderingactivities(called“predicateoffences”)• determinedorestimatedthenumberofincidencesofeachofthesepredicateoffences• triedtoascertaintheaveragevaluegeneratedbyanindividualoffence.

Each predicate offence was then assigned amoney laundering threat ranking of Low,Medium-Low,Medium,Medium-HighorHigh.

Inordertorankthemoneylaunderingthreat,theworkinggroupsetbenchmarkstoensureconsistencyofrankingacrossallsectors.Forthemostpart(butnotexclusively),domesticcrimerepresentsalowermonetaryvalueandistypicallyseenasalowthreat.However,theinternationalproceedsofcrimelaunderedinBermudawilltypicallyrepresentlargeamountsandconsequentlyareahighthreat.

Thebenchmarkswereestablishedasfollows:

Rating BD$Amountbasedonthreeyearperiod

High +10million

Medium-High +1million

Medium +100,000

Medium-Low +50,000

Low under50,000

Incarryingout thiswork, theworkinggroupconsidered the full rangeofpredicateoffencesas requiredby theFinancialActionTaskForce(FATF),whiletakingaccountofanypeculiaritiesinBermuda’scriminallawsandotherrealitiesinBermuda.

Tothisend,theworkinggroupgathereddatafromtheperiodJanuary2013toDecember2016todetermine:

• thenumbersofcasesreported/detected,investigatedandprosecutedforeachoffence,includingmoneylaundering

• thenumbersofintelligencedisseminationsprovidedtolawenforcement• thevalueofpropertyseizedorfrozen• thevalueofpropertyconfiscatedthroughcriminalorcivilprocesses• acase-by-casecatalogueofthemoneylaunderingcasesandthecivilassetrecoverycasesthatwerebased

onsuspectedmoneylaundering

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ByconsideringthisdatainthecontextoftheoriginofthecrimesthatgiverisetomoneylaunderinginBermudaandwhichsectorsintheeconomyfeaturedmostprominently,theworkinggroupwasabletodevelopanopiniononwhetherthesourceofBermuda’smoneylaunderingthreatisinternational,domesticoramixofthetwo.Thegroup also identifiedwhich sectors aremost impacted by themoney laundering threat, or that play themostpivotalrolesinmoneylaunderinginBermuda.

The working group also identified the eight countries and one region that featured most prominently orfrequently in trade in goods and services with Bermuda to perform a cross-border analysis based on foreigninvestment and the cross-border aspects of criminal cases. These statistics provide the basis on which theworking group forms opinions about the international nature, scope and direction of the money launderingthreat.

Predicate Offenses that Generate Proceeds of Crime Thereare23categoriesofoffencesthatarethetypicalpredicatestomoneylaundering. Basedontheanalysis,theworkinggroupconcludedthatofthese,thepredicateoffencesthatposethehighestMLthreat inBermudawere drug trafficking (with a domestic and external component) and from primarily external sources - fraud,insider trading/marketmanipulation, tax crimes and corruption/bribery. It should be noted that the fact thatthesepredicates arehighML threats isnotnecessarilydissimilar towhatwouldbe the situation inotherpeerjurisdictions.

Aside from thepredicates ratedashigh, theotherpredicateoffencesof notewere commercial smuggling anddomestictaxcrime,whichwereratedasmedium-highformoneylaundering.ThirteenotherpredicateoffenceswereassessedtorepresentalowthreatformoneylaunderinginBermuda,withonlyarmstraffickingbeingratedasmedium-low. Itshouldalsobenotedhowever,thatthethreatofmoneylaunderingfrompredicateoffencesthatcouldnotbe identified (unspecifiedpredicateoffences)wasdetermined tobemedium,given thevalueofmoneylaunderingcaseswhichfitthisprofile.

a) High-threat predicate crimes These findings are based on statistical evidence of investigated and prosecuted cases, and on the value ofproceedsshowntohavebeengenerated,deducedfromtheamountofproceedsconfiscated.Thereisadegreeofestimatehere,too,assomeoftheproceedsfromthosecrimesgoundetected.Theseestimatesarebasedonlawenforcement’sunderstandingofcrime-detectionlevels.

I. Drug trafficking

AlloffencesundertheMisuseofDrugsAct1972wereconsidered,rangingfrompurelydomesticdrugtrafficking—seenatthelevelofthestreetdealer—todrugtraffickingwithaninternationalcomponent,namely,importationandconspiracytoimport.

To a significant extent, drugs sold inBermudaare imported fromelsewhere,whichmeans thatBermuda is anend-user destination for drugs. Drugs that arrive in Bermuda are destined for the local market and not forrepackaging and transshipment.4 Another salient factor is that the street value of drugs in Bermuda issignificantlyhigherthaninothercountries,sothereisgenerallyafairlysignificantspreadbetweenthepurchasevalueofthedrugpurchasedatimportandtheretailvalueofthedrugwithinBermuda.

4Thisistobedistinguishedfromthetransitinnarcoticspredicate,whichwasconsideredseparatelyfromthedrugtraffickingoffences,asthosedrugsareon-boardvesselsthattransitthroughBermuda’sportswithouteverbeinglandedinBermuda.

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Law enforcement authorities, supported by annual reports produced by the Department of National DrugControl,5 have concluded that the annual average value of the drug market in Bermuda is approximately BD$25,000,000.Thisestimateisbasedonanestimateddetectionratebylawenforcementatthebordersof20%.Over the period 2013–2016, law enforcement detected 1,356 drug trafficking cases through drug seizures,resulting in 364 cases being prosecuted, with convictions resulting in 326 of those cases. Proceeds of crimeconfiscated from the drug trafficking cases that were prosecuted amounted to approximately BD $264,000,representingapproximately50%ofthepropertyseizedorrestrainedinthosecases.

Duringthatsameperiod(2013–2016),51money launderingcaseswere investigatedwheredrugtraffickingwasthepredicate, resulting in10casesbeingprosecuted,withconvictions resulting inall thosecases. Fromthesecases, proceeds of crime amounting to approximately BD $2.4 million were confiscated, representingapproximatelytwo-thirdsofthepropertyoriginallyseizedorrestrainedinconnectionwiththemoneylaunderingcases.

THREATLEVEL:Drugtraffickingisstillassessedtobeahighthreatformoneylaundering,bothasaresultoftheproceedsconfiscatedindrugtraffickingandmoneylaunderingcasesandoftheannualestimateofthevalueofthedrugmarketinBermuda.

Thisrankingremainsunchangedsincethe2013NationalRiskAssessment,thoughthenumbersofdrugseizureshavedeclinedsince2013.Thisreductionwaspartiallyattributedtothenormalebbsandflowsinseizureswithina small jurisdiction, butmostly to unusually large drug seizureswhich took place in 2011,whichwas the yearexaminedinthe2013review.

II. Fraud

MeasuringfraudinBermudaismoredifficultthanmeasuringdrugtrafficking,giventhefactthatlawenforcementonlyrecordedcompositestatisticscoveringarangeofdeception-basedoffencesundertheCriminalCode1907.Fraud, forgery, deception and counterfeiting currency areall consideredwithin this single categoryof offence,anddataforeachoffencecannotbeseparated.

During the review period, police detected or investigated 1,216 instances of these offences, resulting in 104prosecutionsand86convictions.Therewerenoseizuresorrestraintofpropertyinrelationtoanyofthesecases,asthelawenforcementandprosecutorialexperiencewiththesedomesticcasesshowedthattheyweregenerallylowvalue,withthevalueofpropertydefraudedamountingtoanaverageofBD$5,000orless.

Althoughtherewere48disseminationsfromtheFIAtolawenforcementrelatingtosuspectedfraudoccurringinBermuda, none of these were money laundering cases. Law enforcement estimates that only about 50% ofdomestic fraud cases are reported. Based on the BD $5,000 average seen in the actual reported cases, it isestimatedthatthevalueoftheundetectedproceedsofcrimeresultingfromtheunreportedcrimewouldamounttoapproximatelyBD$12,000,000.

Notwithstanding this estimated figure, law enforcement experience in the actual reported cases suggests thatmoneylaunderingactivityresultingfromfraudwithinBermudawouldbeextremelyminimal,giventhelowvalueofindividualcases.

However, therewere fivecivil recoveryactionsundertakenbyBermuda’sAttorneyGeneral’sChambers,arisingfrom investigations of money laundering based on suspected fraud, in circumstances where no criminalprosecutioninBermudawaspossible.ThesecasesallinvolvedfraudoccurringoutsideofBermuda,withpartof

5Adepartmentofgovernmentthatprovidesdrugabuseprevention,treatmentandrehabilitationservices;andperformsresearchanddevelopsdrugpolicyforBermuda.

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thesuspectedproceedsfoundinBermuda.Fromthesefivecases,approximatelyBD$406,000wasconfiscated,derived from property valued at over BD $15,000,000 that was frozen or seized. The estimated undetectedproceedsinBermudaderivedfromforeignfraudislikelytoexceedBD$20,000,000overthatperiodbasedontheexperience from these five civil recovery caseswhen viewed in the context of over 22mutual legal assistancecasesinvolvingforeignfraudandsuspectedmoneylaundering.

THREATLEVEL: In lightofthesefactors, fraudstill representsaHIGHTHREATofmoney laundering inBermuda.Internationalfraud,whileprobablyrepresentingasignificantlyfewernumberofcasesthandomesticfraud,posesamoresignificantthreat formoney launderingbecauseofthemuchhighervalueofproceeds involvedandtheactualuseofthefinancialsysteminBermudatolaunderthoseproceeds.Thisrankingremainsunchangedsincethe2013NationalRiskAssessment,although,asnoted,in2013therewerenoseparatestatisticsavailableonthevalueofdomesticfraudin2013,andnostatisticsontheroleplayedbyforeignfraudintheBermudianeconomiclandscape.

III. International tax crimes

Therewerenocasesleadingtoaprosecutionformoneylaunderingduringtheperiodinquestion.TherewasonlyonepotentialcasedetectedandfourdisseminationsfromtheFIAtolawenforcementinvolvingpossibleforeigntax crime. During thisperiod, foreign taxevasionof income/profit-based taxeswasnotapredicate formoneylaunderinginBermuda.

However, there were two civil asset recovery cases undertaken during this period, involving fraud andinternational tax evasion leading to property valued in excess of BD $6 million being frozen, and to theconfiscation—in one case—of approximately BD $2.8million of the proceeds (the other case is still pending).Overall,itisestimatedthattheundetectedproceedsofforeigntaxcrimesinBermudawouldlikelyexceedBD$10million.

THREAT LEVEL: International tax crimes were assessed to represent a high threat of money laundering inBermuda.In2013,itwasrankedasmediumastherewasnostatisticalinformationavailableonthemoneyvalueoftheproceedsofthispredicate.

IV. Market manipulation and insider trading

Duringthereviewperiod,31requestswerereceivedbythefinancialservicesregulatorfromforeigncounterpartsconcerningcriminalinvestigationsintheirjurisdictionsrelatingtomarketmanipulationandinsidertrading.TherewasalsoasingledisseminationfromtheFIAandonecivilrecoverycaseconnectedtothispredicate.Theamountof proceeds seized and subsequently confiscated in that civil recovery case amounted to approximately BD$53,000.

BecausetheinvestigationsintotheseactivitiesoccurredoutsideofBermuda,noinformationwasprovidedaboutthe value of proceeds involved in the cases. Nevertheless, the usual nature of these offences when criminalactionistakenforsuchoffencesoverseas,thebenefitusuallyrangesinthemillionsandinmanycases,hundredsofmillionsofdollars.

There is no specific evidence to suggest that Bermuda is the destination for a significant proportion of suchproceeds.However,itisestimatedthatthevalueofproceedsthatmightbepresentinBermuda,associatedwiththe31requestsinquestion,couldwellexceedBD$10million,asitwasconsideredthattheproceedsconfiscatedfromthelonecivilrecoverycasewasnotindicativeofthetrendforthispredicate.

THREAT LEVEL: Market manipulation and insider trading taking place overseas was therefore assessed torepresentahighthreatofmoneylaunderinginBermuda.In2013,thethreatlevelformarketmanipulationwas

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considered to be medium. Although the statistical information available since that time has only marginallyimproved, there is a deeper understanding of the nature of the crime that enables a better estimation of thethreatposedtoaninternationalfinancialservicejurisdictionsuchasBermuda.

V. Corruption/bribery

Duringthereviewperiod,thereweretwocivilrecoverycasesbasedonforeigncorruption/fraud,resultinginoverBD $5.2 million in funds being confiscated. It was estimated that the value of property involved in pendinginvestigations and to date undetected from overseas sources could exceed BD $10,000,000. In addition, fivemattersrelatedtopotentialcorruption/briberywerereferredbyaCommissionofInquiryforinvestigation,whicharestillunderinvestigationatthetimeofwriting.

THREATLEVEL:Consideringtheevidenceavailable,corruption/briberywasassessedtobeahighthreatofmoneylaunderinginBermuda,withtheprimaryfactorbeingtheactivitiesinthisareaoccurringoutsideofBermuda.Asnotedlaterinthischapter,thereislittleactualevidenceinrelationtodomesticmoneylaunderinginthisregard.In2013this threatwasratedasmediumastherewereno investigationsand lessspecific informationavailablefromforeignsources.

b) Medium-high threat predicate crimes I. Commercial smuggling

Although individualsoccasionallybringgoods intoBermudawithoutdeclaring themtoavoidpayingduties, themoney-laundering threat posed by this kind of activity is negligible. The working group focused solely onsmuggling of commercial goods into the island, which is believed to occur in more significant numbers andrepresents higher value. The statistics provided by the Customs Department relate to actions taken for suchcommercialsmugglingusingpowersundertheRevenueAct1898,ratherthanundercriminallaws.

Duringthereviewperiod,theCustomsDepartmentdetectedandinvestigated67casesofcommercialsmugglingrepresentingapproximatelyBD$1.3millionofseizedproperty.TheCustomsDepartmentestimatesthatuptoBD$5millionworthofcommercialgoodsareillegallyimportedintoBermudaandnotdetectedbyCustoms.

THREATLEVEL:Commercial smugglingofgoods intoBermudawasassessedasamedium-highthreatofmoneylaundering in Bermuda. In 2013, this predicatewas considered a low threat, as no statistical informationwasprovidedbecausethefocuswasoncriminalinvestigationsandprosecutions.Thischangeisnotseentorepresentaspike incommercialsmugglingsince2013,onlythatthesourceof informationutilised inthisassessmentwasnotconsideredin2013.

II. Domestic tax crimes

TheOfficeoftheTaxCommissionerprovidedinformationondelinquenttaxpayers,againstwhomcriminalactioncouldbetakeninrelationtopayrolltaxes.Yetinmostcases,thetaxauthoritypursuedthetaxpayerthroughcivilremediestorecoupthelosttaxrevenue.

Overthereviewperiod,41casesweresuccessfullypursuedandBD$1,561,079.14intaxescollected.Inthatsameperiod,taxauthoritiesidentifiedorreferred646casestotheDebtEnforcementUnitforactiontobetaken—someofwhichweresettledbeforecivilactioncouldbetaken.

Determiningtheratingforthispredicatewasdifficult,giventhelackofcriminalinvestigationorprosecutionandthe understanding that in many types of tax delinquency cases, criminal action is not always a reasonableresponse.Itwasalsodifficulttodeterminewhatcriteriatousetodecidewhatthemoneylaunderingimplications

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were for failure to pay payroll tax. Clear cases can be made for potential money laundering in payroll taxdelinquencywhereemployerscollect/deductpayrolltaxfromemployees’salarybutfailstopaytheseovertothetaxauthority.However,thedatarelatingtohowmanysuchcaseswereidentifiedorpursuedduringtheperiodunderreviewwasnotavailable.

THREATLEVEL:Basedon theactualnumbersprovided fordebtcollection fromdelinquent taxpayers,domestictaxcrimewasassessedtobeamedium-highthreatformoneylaunderinginBermuda.Thisthreatratingin2013wasrankedaslowin2013,basedonthelimitedinformationprovidedatthetime.

c) Medium-threat predicate crimes Therewere twomoney launderingcases investigatedandprosecuted forwhichconvictionswereachieved,butwherenopredicateoffencewasidentified.ThetotaloftheproceedsseizedorconfiscatedfromthesetwocasesamountedtoapproximatelyBD$843,000.Withoutknowingthepredicate,itisimpossibletoestimatethevalueofundetectedproceedsinthesecrimes.

THREAT LEVEL: This type of case is not useful for analyzing threat but based on proceeds alone would beconsideredmediumthreat.

d) Low-threat predicates Ofthe226categoriesofpredicateoffencesanalysed,10wereassessedtobealowthreatofmoneylaunderinginBermuda.Theseinclude:

• allviolentcrimesandcrimesagainsttheperson7,eitherbecauseofthelownumbersforsuchoffencesorbecausethereisnoassociatedfinancialgainforsuchcrimesinBermuda

• acquisitive crimes (including robbery, theft, handling of stolen goods), because the average value ofpropertygainedbycriminalsisaroundBD$500,basedon8,206reports

• other offences, such as domestic market manipulation/insider trading, piracy of goods and extortion,becausetherewerenoreportedincidentsduringthereviewperiod

• environmentalcrime,becausethethreecasesbroughttothecourtsduringthereviewperiodrelatedtocommercialfisheriesoffencesinvolvinglowvalues

Transitinnarcoticswasanewcategorythathadnotbeenconsideredin2013.Inthe28casesinwhichnarcoticstransitingthroughBermuda’sportsweredetected,allweredestinedforotherjurisdictions.Althoughthevalueofnarcotics in such cases was likely to be relatively high and Bermuda’s “clean port” status was being takenadvantageofbytheoffendersinquestion,themoneylaunderingthreattoBermudafromtransitinnarcoticswasnon-existent.

6OrganisedcrimeisnotaspecificpredicateoffenseinBermuda.7Kidnapping&illegalrestraint;Murder&GrievousBodilyHarm;SexualExploitation(includingallsexualoffences,includingthoseagainstchildren);TraffickinginHumanBeings.

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Origin of the proceeds of crime Itwas determined that international sources have a significant impact onmoney laundering in Bermuda. Thepredicate offences thatwere rated as high andmedium-high threats tomoney laundering helped solidify thisview.

a) Domestic Basedonthecriteriausedinthisassessment,themoneylaunderingthreatfromdomesticcrimeswasdeterminedtobehigh,primarilybecauseofdomesticdrugtrafficking(estimatedtohaveavalueinexcessofBD$25million).Drugtraffickingfeaturesbothdomestic-onlyand jointdomestic/foreignelements: thedrugtrade inBermuda iswholly dependent on imported drugs, but the actual proceeds-generating activity takes place wholly withinBermuda. Thisaspectofthedrugtradehasthegreatest immediateimpactonthemoneylaunderingthreat,astheactualtraffickingofdrugswithinBermudageneratestheproceeds,whicharethenlaunderedwithinBermudaandpartiallysentoutsideofBermudaforlaunderingoverseas.

Corruption/briberyanddomestictaxcrimearealsorelevant,butitshouldbehighlightedthatthereislittleactualevidenceofdomesticmoneylaunderingfromthesesources.

b) Foreign jurisdictions Themoneylaunderingthreatfrompredicateoffencescommittedoverseasisalsoassessedashigh,asgiventhenature of our economy, it is likely that that proceeds from such offenceswill be found in Bermuda’s financialindustry.Theoffencesthatareconsideredtobesourcesofsuchfundsincludeinternationalfraud,internationaltaxcrime,foreigncorruption/briberyandmarketmanipulation/insidertrading(international).ItislikelythattheestimatedundetectedproceedsofcrimefromtheseoffenceswouldexceedBD$10million.

c) Both domestic and foreign Dual-jurisdiction criminalitywas determined to bemedium-high formoney laundering,primarily in relation todrugtraffickinginvolvingtheimportationofdrugs,orconspiracytoimportdrugs.Themoneylaunderingimpactof this crime is, however, significantly less than with domestic drug trafficking; narcotics experts within lawenforcement indicate that themark-upondrugs imported intoBermuda is significant,but thespread fromthemarkupisnotrealizeduntilthedrugsaresoldonthestreetsinBermuda.

Forinstance,thewholesalepriceofcocainepurchasedforimportationintoBermudaisBD$4,000perkilo,whichbecomesBD$250,000perkilowhensoldonthestreets.Thismeansthatevenafterthewholesalepriceandanyassociatedcommission feespaid tomiddlemendrugsuppliersoutsideofBermuda, themajorityof the realizedproceeds from domestic trafficking remain in Bermuda. Extrapolating from law enforcement experience withcashseizuresattheborders,andknowledgeofcurrencyconversionpractices,expertshaveconcludedthat,oftheestimatedBD$25millionrepresentedbythedomesticdrugtradeforalldrugsannually,onlyaboutBD$5to$6millionissentoutofBermudatopayforeignsuppliersandmiddlemen.

d) Origin not identifiedTherewerenotypesofoffences inwhichtheoriginofthecriminalitythatpotentiallywouldgiverisetomoneylaunderingwould not be known. Therefore, thiswas rated as representing a lowmoney laundering threat toBermuda.

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Cross-border Threat Analysis Bermudahasanumberofeconomictouchpointsandahighfrequencyof internationalcooperation incriminalmatters and financial intelligence with many countries, but more commonality and cooperation with eightcountries and one region in particular. For the purposes of examining the cross-border impact of themoneylaunderingthreat,theworkinggroupexaminedBermuda’srelationshipwith:

• UnitedStatesofAmerica• UnitedKingdom• Canada• theCaribbean8• Germany• Netherlands• Switzerland• France• Mexico

TheDepartmentofStatisticsprovided:

• country-by-country data on the inflows and outflows relating to the trade in goods for major tradingpartners(theUSA,UKandCanada)

• aggregateregionaldataontheinflowsandoutflowsfortradeinservices• aggregateestimatesontheinflowsofforeigndirectinvestment

Inaddition,theBermudaMonetaryAuthorityprovideddataonportfolioinvestmentsonaper-countrybasis.

Through the informationprovided, theworking groupwas able to conclude that Bermuda’smoney launderingthreatflowedinbothdirectionsinrelationtotheUSA,Canada,UKandtheCaribbean,withtheoutgoingmoneylaundering threat arisingas a resultof theneed topay foreigndrugdealers fordrugs imported intoBermuda.Thisanalysiswasalsosupportedbythetwo-waydirectionoftheinternationalcooperationrequestsinrelationtothosecountriesandaround theCaribbean region. However, in relation toGermany,Netherlands, Switzerland,FranceandMexico,themoneylaunderingthreatwasconsideredtobeonlylikelytobeincoming.The data provided on portfolio investments confirmed expectations that the United States, followed by theUnited Kingdom and Canada, were the main sources of, and destinations for, the majority of Bermuda’sinvestment flows. The working group concluded that regionalised remittance data strongly suggests that theinflowoffundsintoBermudaisconsistentwiththeoriginofBermuda’sinternationalbusinessclientbase.

THREATLEVEL:Basedonthedataavailable,theworkinggroupidentifiedthemoneylaunderingthreatfromtheseeightcountriesandtheCaribbeanregionasmedium. Nocross-borderanalysisofthisnaturewasconducted inthe2013NRA.

8GiventhenatureofdrugtraffickinginBermudaandtheroleoftheCaribbeanregionindrugtraffickingintheAmericas,theWorkingGroupwasoftheopinionthatdisaggregatingCaribbeancountriesinthisanalysiswouldnotcoverthefullscaleoftheproblem.Accordingly,itwasagreedthatusingtheregioninthiscasewasjustifiable.

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Summary of Sector-Specific Analysis of Money Laundering Threats Todeterminewhichsectorswereathighestriskofmoney-launderingthreats, theworkinggroupconsideredallavailable statistical data and factual details about the actual cases. Intelligence was gleaned from FIAdisseminations,whichwerebasedonsuspiciousactivityreportsfiledwiththeFIA,toaidthisanalysis.However,beforeanyconclusionscanbedrawnastothemoney launderingthreattothesectors,otherfactorshadtobeconsidered, such as the size of each sector in the economy and the estimated amount of undetectedmoneylaunderingactivitiesineachsector.

Bermuda’s inherent exposure to money laundering predominantly arises from its economy being largelysupportedby international financial business. Accordingly, the sectorsdetermined tohave ahighexposure tomoneylaunderingthreatsfromforeignpredicatesare:

a. thebankingsector,whichismorelikelytobeexposedtoallmoneylaunderingthreatsintheentireeconomy

b. thesecuritiessectorc. corporateserviceprovidersd. the TSP sector, which has significant property under management and services a largely

internationalclientbase

Thesectorsintheeconomydeterminedtohaveamedium-highexposuretomoneylaunderingare:

a. themoneyservicebusinessessector,whichisconsideredtopotentiallyhaveahighexposuretothethreatposedbydomesticdrugtrafficking

b. insurance (long-term direct) sector, but more specifically, annuities products derived from thatsector

c. lawyers,astheyservicedomesticandinternationalclientele(thoughonalesserscale)inrealestateservicesandinternationalclientsseekingagatewayintoBermuda’sfinancialsector

Additionalinformationonthethreatsatthesectorallevelisprovidedlaterinthereport,inthesectionsthatprovidetheassessmentofrisksforeachsector.

Conclusion In assessing the factors that contribute toBermuda’smoney laundering threat, theworkinggroupwasable todrawconclusionsaboutthegeneralnatureofmoneylaunderingrisksinBermuda.Bermuda’smoneylaunderingthreatisprimarilyderivedfromarelativelysmallnumberofpotentialpredicatesources.TheoriginofthemoneylaunderingthreattoBermudaisprimarilyinternational,asseenfromthenatureofpredicatecrimesthatunderpinit.Theexceptiontothattrendisdrugtrafficking,whereBermuda’sstatusasanend-userdestinationinthedrugtradehasdomesticimplications.Recentmattersrelatedtocorruptionarestillunderinvestigation,soprovidenoconcreteevidenceofasignificantlevelofdomesticlaunderingderivedfromcorruptionwithinBermuda.

In2013,duringthelastnationalreviewofthethreatsfrommoneylaundering,thethreattoBermudawasrankedasmedium.The2017assessmentisbothmorecomprehensiveand,basedonstrongerdataandonthebasisofmoredetailedanalysis,thethreatwasratedmedium-high. Ifthesesametechniquesandinformationhadbeenavailable in 2013, it is the view that the previous working group would likely not have come to the sameconclusion.

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Although drug trafficking remains a high threat for money laundering in Bermuda, foreign crimes pose astatisticallymore significant threat ofmoney laundering to Bermuda’s financial system. The financial servicessector and its supporting sectors aremost likely to be affected by these threats that originate from overseas.Giventhenatureandsizeofthesesectors,there ispotential forsignificantadverseeffecttothesectorsandtotheeconomyofBermudaasawhole.

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Chapter 6: The Banking Sector

AML/ATF Supervisory Authority – Bermuda Monetary Authority

Introduction

Bermuda’sbankingsectorconsistsoffivedeposit-takingentities—fourbanksandacreditunion—withtotalincomeofBD$795MMforthesectorin2016constituting13%ofnationalGDP.

Attheendof2016,bankshadtotalassetsofBD$23billion.Themajorityofthecustomersandaccounts– but not value – arewithin retail banking. About 93% (87% in dollar value) of the deposit accountholders reside inBermudaandabout96% (87% indollar value)of the loanaccountholders reside inBermuda.

Banks in Bermuda offer a sophisticated variety of financial products and services to awide range ofclients.ForthepurposesofthisMLriskassessment,Bermuda’sbankingsectorisdividedintothreesub-sectors:

• retailandbusinessbankingforlocalresidents• corporateandtransactionbankingmostlyforinternationalcompaniesdomiciledinBermuda• wealthmanagementandprivatebankingservicesforhigh-net-worthindividuals

In addition to meeting the banking needs of the resident population, Bermuda’s banks extend theirservices to the international business sector with investment trustee and financial managementservices. As an example, Bermuda’s banks offer tailored corporate banking packages for the captiveinsurance market, combining cash management, letters of credit, treasury, custody and investmentservicestostreamlinetransactionsamongacaptive,itsparent,andinsurers.

Assessment of Sectoral ML Threats

Thebankingsectorfeaturesprominentlyinmoneylaunderinginvestigations.Duringthereviewperiod,therewere214moneylaunderinginvestigationsinvolvingthebankingsector,including11prosecutionswith10 convictionsandone civil asset recoveryaction. AlthoughonlyapproximatelyBD$340,000 inproceedswasconfiscatedinthosecases,noneofthesefundswereactuallyseizedfromthebanks,butratherwerecashseizuresmadeinconnectionwiththosecases.

ThemajorityofSuspiciousActivityReports(SARs)filedwiththeFIAduringtheperiodunderreviewwerefiledbybanks,andprimarilyinvolvedlow-valuecurrency-conversiontransactions,usuallyfromBermuda

SummaryFindings:

The Banking sector is assessed as having an inherently high risk to ML for two primaryreasons.Firstly,thesectorplaysacentralroleinBermuda’seconomicandfinancialactivity.Secondly,Bermuda’sbankshaveconsiderableexposuretointernationalbusinessesandplayavitalroleinthecross-bordertransferoffunds.

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DollarstoUSDollars. This, intheviewof lawenforcement, is typicalactivitytosupportthedomesticdrugtrade,andtoalesserextent,thedomesticfirearmstrade.

In thedrug trade, cash is theprimaryrevenuesourceandalso theprimarymeansofpayingoverseassuppliers, so the banking sector can be involved in converting local currency to US Dollars. TheexperiencesoflawenforcementandintelligenceauthoritiesinBermudastronglysuggestthatthissectorhasahigherdetectionrateforsuspiciousactivityconnectedtocash-basedmoneylaundering,asittakesplaceinfrontoftellersandthroughATMs.

The threatofmoney laundering from international taxcrimes, internationalmarketmanipulationandinsidertradingandinternationalfraudarealllikelytohaveanimpactonthebankingsector,specificallyinthecommercialbankingandpossiblyprivatewealthmanagementsegmentsofthebankingbusiness.Undetectedmoneylaunderinginthissectorcouldpotentiallybehigh,andgiventhescaleofthebankingsectorintheeconomyandthescaleofthemoneylaunderingthreatfromthesepredicates,themoneylaundering threat to the sector is also high. This is most true in the banking segments exposed tointernationalbusiness.

Analysis of Sector Inherent ML Vulnerabilities

Globally,bankingisgenerallyconsideredtobeexposedtoahighlevelofMLinherentrisk.Thisisduetothe sheer size and scope of its role in the financial sector, its high transaction volumes and broadcustomerbase,aswellas its complexand internationalnature,and theavailabilityofproductswhichcanbeabusedtoconcealillegaltransactions.Bankinginvolvesthefast,electronicmovementoffunds,the transfer of access rights to deposit accounts to third parties, and remote access—all attractivefeaturesforMLpurposes.

According to theFinancialActionTask Force (FATF),bankingproducts/services thatpose thegreatestriskofmoneylaunderingareprivatebanking,anonymoustransactions,remotebusinessrelationshipsortransactions,andpaymentreceivedfromunknownorun-associatedthirdparties9.

The customer segments that create the most vulnerability to ML are non-resident high-net-worthindividuals,managedcorporate/trustclientsandPoliticallyExposedPersons(PEPs).

(i) RetailandBusinessBanking

Inmost jurisdictions the retail andbusinessbanking is consideredvulnerable toMLdue to thebroadrangeofproductsoffered, the largenumberof clients involved, and thehigh transaction volume. Inparticular,paymentserviceactivitiescarriedoutbybankscanbevulnerabletolayeringandintegrationtechniquesusedbycriminalsforML.Unscrupulousthird-partypaymentserviceshavebeenassociatedwithmoneylaundering;asanexample,processingpaymentsforillegalgamblingsites.Cashtransactionthresholds set by thebank canbe circumventedby structuring the transaction, a common techniquewhichenablesthelaunderingofsubstantialvolumesofillegalproceeds.

Theretailandbusinessbankingsub-sectorinBermudahasaninherentMLriskofmedium-high.Around90%of all deposits aremade to twoof the island’sbanks. The fact that there are very fewdeposit-taking institutions in Bermuda—the four banks have 13 branches, and there is one credit union—

9FATF,SpecificRiskFactorsinLaunderingtheProceedsofCorruption,2012

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decreasesMLrisks10.ThebankingriskinBermudaisdrivenbythenumberofsmallbusinesses,asbanksaremorelikelytoapprovelargertransfersforbusinessesthanforindividuals.

Depositaccountsrepresentthehighestriskandchallengesformonitoringtransactions,becauseofthelargenumberofaccounts,theirsizeandtransactionactivity.MortgagesarealsovulnerabletoMLrisks,sincesignificantcriminalproceedscanbecleanedinasingletransaction.11ThesheersizeofBermuda’srealestatemarket (around17%ofGDP in2016),and themortgage lendingassociatedwith it,makesthissectorpotentiallyvulnerabletoabusebycriminals.However,therealestatemarketinBermudaisnotparticularlyactiveandismostlyrestrictedtoresidents,decreasingitsvulnerability.

AnotherproductwithhighpotentialofMLriskissafetydepositboxes.AlthoughFATFRecommendation12requiresadocumentofreliablepersonalidentificationtoopenasafetydepositbox,theownerisnotrequiredtodisclosethebox’scontents.12

(ii) CorporateandTransactionBanking

Fromaglobalperspective,corporateandtransactionbankingmayalsobevulnerabletoMLrisks,duetoitsinternationalnatureandthevolumeoftransactionsthatcomethroughBermuda.ProductssuchascorrespondentbankinghaveahigherinherentMLrisk,asthecorrespondentoftenhasaccesstolimitedinformation regarding the identity of the underlying parties, or the purpose of the transaction;corporateloansmaybeabusedforMLpurposesthroughtheuseofcollateralorminglingofdirtymoneyduring the pay-offs. Trade finance is also vulnerable to high ML risks as it often involves complextransactionswithmultipleparticipants, severalmanualandresource-intensiveprocessesanda lackoftransparency. Morecomplex launderingprocesseswithin thesub-sectormay includeusingcorporatevehiclestoconcealbeneficialownershipinformationandmayinvolveoverseasjurisdictions.

CorporateandtransactionbankinginBermudaisassessedtohaveahighinherentvulnerabilitytoML.The vulnerability of the sub-sector is driven by the significant number of international companiesdomiciled in Bermuda and the high volume of international transactions. Of all cross-bordertransactions,91%arebetweenBermudaandtheUS,CanadaandEurope.13CorporateloansposeoneofthehighestML risks. As of 201614, BD$2.3 billion in loanswereoutstanding and includedoperatingloans,allbusinessloans,workingcapitalandoverdrafts.

Although banks in Bermuda rely on correspondent banks overseas to complete and processinternational incoming and outgoing wire transfers, the overall amount of correspondent bankingprovided in Bermuda itself is low and does not contribute significantly to the overallML risk of thesector. Similarly,tradefinancerepresentsaverylowvolumeoftransactionsforBermudianbanks(BD$300millionin2016)15andthereforeisnotakeydriverofMLriskforthissub-sector.

(iii) WealthManagementandPrivateBanking

10S&P,BankingIndustryCountryRiskReportBermuda,201611FATF,SpecificRiskFactorsinLaunderingtheProceedsofCorruption,201212TheFederalDepartmentofFinanceinSwitzerlandpublishedareportdetailingtheML/TFrisksofsafetydepositboxesasanunlimitedmeansofstoragewithnorequirementforassettransparency.Approximately9,000banksafetydepositboxesarecurrentlyinuseinBermuda.13BMA,FinancialStabilityDepartmentData,201714Ibid15Ibid

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Globally,wealthandprivatebankingareconsideredtobeparticularlyvulnerabletoMLactivitybecauseitofferscomplexservicesandproductsembedded inacultureofconfidentiality. Privatebankingcanenable criminals to launder proceeds of crimes—such as bribery or corruption—through productstargetedathigh-net-worthindividualswithlargetransactionsandcomplicatedfinancialarrangements.Additionally, the reporting institution’sdesire for lucrativebusiness relationshipsmaymake itdifficultforcomplianceofficerstoconvincetheirboardstoturndowndubiouscustomers.16

Wealth management and private banking in Bermuda are deemed to have a high level of inherentvulnerability to ML as Bermuda’s wealth management and private banking sub-sector has apredominantlyinternationalclientbase.

Wealthmanagementproductshada total valueofBD$3.5billion in2016.17DepositsassociatedwithprivatebankingwereBD$1.0billionin201618. However,privatebankinginBermuda isconcentrated,with around 60% of private banking transactions undertaken by one entity.19 Deposit accounts aredeemedtohavethehighestMLriskinthissub-sector.Mutualfunds,securitiesandbrokerageproductsarealsoespeciallyvulnerabletoMLduetotheircomplexityandsignificantvalue.ThissectorhasahighvulnerabilitytoML.

(iv) ConsolidatedBankingSector

Acrossallsectors,depositaccountsareassessedtohavethehighestinherentvulnerabilitybecausethenumber of accounts, their volume and the inflows/outflows are the most significant. These factorsrepresentchallengesfortheconsistentexecutionoftransactionmonitoring.

Bermuda’s banks have considerable exposure to international businesses and play a vital role in thecross-bordertransferoffunds. Further,thesectorplaysamajorroleinBermuda’seconomicactivity.These factorsareseenasprimarycontributors to theoverallhighML inherentvulnerability rating forthesector.

Conclusion

TheassessedlevelofinherentMLvulnerabilityacrossthebankingsub-sectorscanbeseeninthetablebelow:Table 1: Overview Inherent Vulnerability of Banking and its sub-sectors

Sub-sectors of the banking sector Inherent vulnerability level

Retail and Business Banking Medium-High

Corporate and Transaction Banking High

Wealth Management and Private Banking High

Overall banking sector High

TheoverallinherentvulnerabilityinthebankingsectorishighandtheMLthreatisalsoconsideredhigh.Thebankingsector’soverallinherentMLriskisthereforehigh.

16FATF,SpecificRiskFactorsinLaunderingtheProceedsofCorruption,201217BMA,BankingandCreditUnionVulnerabilityReport,201718Ibid19Ibid

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Chapter 7: The Insurance Sector

AML/ATF Supervisory Authority – Bermuda Monetary Authority

Introduction

The insurance sector is the largest financial sub-sector in Bermuda and has significant internationalreach.Asof2016,theinsurancesector’sUS$632billioninassetsaccountedforapproximately72%ofthetotalassetsinthefinancialsectorinBermuda.Thesectoralsoaccountsforabout28%ofBermuda’stotalGDP.

Bermudahas1,224registeredinsuranceentities.Itisthethird-largestreinsurancecentreintheworld,as well as the largest captive domicile. Bermuda is also the leading jurisdiction for the issuance ofcatastrophebondsandtheleaderininsurance-linkedsecurities(ILS),issuing71%ofglobaloutstandingILScapacityin2016.

ForAML/ATFriskanalysispurposes,licensedinsuranceentitiesaregroupedintotwobroadcategories,dependingonthetypeofinsuranceactivitythattheyunderwrite:

The first group, long-term direct, is covered by the AML/ATF regulations and comprises long-terminsuranceentities(internationalanddomestic), insurancemanagersregisteredundersection10oftheInsuranceAct 1978, and any insurance broker registered under section 10 of the InsuranceAct 1978(onlyinsofarasheorsheactsasabrokerinconnectionwithlong-termbusinessotherthanreinsurancebusiness) fallingwithinparagraph(a)or (c)of thedefinitionof“long-termbusiness” insection1(1)oftheInsuranceAct1978).

The second group, general business and reinsurance,which is not AML/ATF regulated, includes long-term reinsurance, general business re/insurance entities, insurance brokers not connectedwith long-termbusiness, insuranceagentsandinsurancesalesmen.However,allentitiesarerequiredunderthePOCA Act to have AML/ATF policies and procedures in place for reporting suspicious activities onAML/ATFtotheFIA.

SummaryFindings:

The Insurance sector is assessed in two distinct groupings of “Long-Term Direct” and“Reinsurance – general and non-life insurance” reflecting the distinct susceptibilities toMLriskoftheunderlyingbusinessconductedbyeachgroup.

Long-termdirectinsurancehasamedium-highinherentrisk,drivenprimarilybythenatureoftheproductsofferedandthepredominantlyinternationalclientbaseserved.

Reinsurance–generalandnon-life insurancehasamedium-low inherentrisk. ThebaselinelowriskforthisbusinesswasraisedprimarilyduetothepresenceofcertainBermuda-specificproductswhichwereassessedtopresentarelativelyhigherriskofAML.

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Assessment of Sectoral ML Threats

Long-termdirectinsuranceposesthegreatestMLthreatwithintheinsurancesector.Duringthereviewperiod, there were 15 investigations involving this sector, though no criminal prosecutions orconvictions.However,therewerefivecivilassetrecoverycasesduringtheperiodunderreview,inwhichproperty amounting to approximately BD $13.3 million was frozen. So far, approximately BD $5.8millionhasbeenconfiscated.TheFIAmade24disseminationsarisingfromSuspiciousActivityReportsinwhichthissectorwasalsofeatured.Lawenforcementandintelligenceauthoritieshavenotedthat,overthe past four years, there has been an increase in reporting on the use of annuities for criminalpurposes.Notwithstandingthis,theWorkingGroupacknowledgedthatannuitiesrepresentarelativelysmallsegmentofthisspecificinsurancesector.TheMLthreattothelong-termdirectinsurancesectorisassessedasmedium-high.

Inthecaseofreinsurance,generalandnon-lifeinsurance,therewasnoevidencethattheinstitutionsorproductsinthissectorwereusedorcouldbeusedsuccessfullyinMLcases.TheMLthreatwasassessedtobelow.

Analysis of Sector Inherent ML Vulnerabilities

Theglobal insurance sector is recognisedas vulnerable tomoney laundering tovaryingdegrees. Thevulnerability arises from the possibility of weak controls and limited regulatory intelligence, whichenables criminals to conceal the proceeds of crimes. Specific indicators ofML include purchases oflarge, single-premium insurance policies, customers who assign policies just after inception andcustomerswho surrender high-valuepolicies early. It is globally recognised that life insurance (“long-term insurance” inBermuda) ismorevulnerable toML than thenon-life insurance (“generalbusinessinsurance”inBermuda)andreinsurancesector.Non-lifeinsuranceandreinsurancearenotparticularlyvulnerable toML risks. Insurancemanagers traditionally have had some vulnerability toML20. Globalinsuranceintermediaries(brokers,agentsandsalesmen)haveamoderatevulnerabilitytoML.

InBermuda,there/insurancesectorissplitacrossseveralsub-sectorsthatvaryinsize,levelofinherentvulnerabilityandextentofMLregulation. Thesub-sectorshavedifferentlevelsofvulnerabilitytoML.The majority of the sector’s Gross Written Premiums, around 99%, is held by general businessre/insuranceorlong-termre/insurancethatareperceivedashavingmedium-lowvulnerabilitytoML.

Long-Term Direct Insurance

(i) Long-TermInsurance–International

International long-terminsurancehasahighMLvulnerability inBermuda. This isprimarilybecauseofits international customer base, making it harder to carry out the necessary due diligence onpolicyholders.Internationallong-terminsurancecontributesaround99%ofalllong-terminsurers’GWPand primarily services global needs through insurance intermediaries. There is significant use ofintermediariesinthisspace,whichfacilitatesthedistributionofproductsglobally.

20FATF,MethodologyforAssessingTechnicalCompliancewiththeFATFRecommendationsandtheEffectivenessofAML/CFTSystems,2013

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It is consideredmore challenging for insurance companies to “know their customers”when they arefromoverseasoronlydealwiththeinsurerviaoneormoreintermediaries,makingitmoreattractiveformoney launderers. In these instances, the disconnected nature of the relationship may impedeverificationofacustomer’sidentityandsourceofwealth.

(ii) Long-TermInsurance–Domestic

Domesticlong-terminsurancehasmediuminherentMLvulnerabilityinBermuda.However,thesizeofthe sector is relatively small, transaction volume is low, and there are a small number of long-termpolicies.

Someofthechallengesfacedbyinsurancewithinternationalpresence,suchasdifficultywithCDDaremitigated by the domestic nature of its operations. In addition, themajority of products utilised byBermudianresidentsaremadelessriskybybeingsolddirectlyinsteadofthroughintermediaries.

Reinsurance – general and non-life insurance

(i) Long-TermReinsurance

The long-term reinsurance sub-sector in Bermuda has a medium-low ML risk and is currently notsupervised for AML/ATF compliance. The scale of the sub-sector, average transaction sizes and itsamountofinternationalbusinesscouldleaveitsusceptibletomoneylaundering.

However, therearenoknown instancesof reinsurancecompaniesbeingabusedormisused forML inBermuda,andtheBMAconsidersthesectortohavemedium-lowMLvulnerability.

(ii) GeneralBusinessRe/insurance

Generalbusinessre/insuranceinBermudahasmedium-lowinherentMLvulnerability.AlthoughtheMLvulnerability of general re/insurance is generally considered low, given the relatively large size anddiverseinternationalcustomerbase,theriskratingforBermudahasbeenassessedasmedium-low.

(iii) InsuranceManagers

BermudianInsuranceManagersareassessedtohaveamediuminherentvulnerabilitytoML.Insurancemanagers provide management services to a broad range of insurers, including long-term insurers,which are rated at higherML vulnerability. They can also play a crucial role in themanagement ofcaptives,commercialre/insurersandprovidingcorporateservices,actingasapointofcontactbetweentheregulatorandthemanagedentity. Inaddition, therearealsoanumberof insurancemanagers inBermudathatprovidea limitedsuiteofcorporateservicestotheirclientsundertheCorporateServiceProviderBusinessAct2012,includingadministrativeandsecretarialservices.

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(iv) InsuranceIntermediaries(Brokers,AgentsandSalesmen)

Insuranceintermediarieshavemedium-highinherentvulnerabilitytoMLinBermuda.Thatvulnerabilityisdrivenbythesignificantrolesthesecompanies/individualsplayintheinsurancesector,aswellasthesignificanceoftheproducttheyaredistributing.

Intermediariesalsoactasagatekeeper,whichcreatesalevelofMLexposuresincetheyarethedirectpoint of access between the customer and the sector. Furthermore, international client profiles, asignificantnumberofcross-bordertransactions,andPEPsinthecustomerbaseaddalevelofcomplexitytothesub-sectorandincreaseitsrisk.

Conclusion

TheassessedlevelofinherentMLvulnerabilityacrosstheinsurancesub-sectorscanbeseeninthetablebelow:Table 2: Overview of Inherent Vulnerability of Insurance and its Sub-sectors

Sub-sectors of the Insurance sector Number of licences

Inherent vulnerability level

AML/ATF regulated as of 2017

Long-term insurance – international 53 High Yes

Long-term insurance – domestic Medium Yes

Overall long-term insurance sub-sector 53 Medium-High Yes

Long-term reinsurance 111 Medium-Low No

General business re/insurance 1067 Medium-Low No

Insurance managers21 113 Medium Yes

Insurance intermediaries (brokers, agents and salesmen) 22

203 Medium-High Partially

Overall reinsurance – general and non-life insurance sub-sector

1,547 Medium-Low Partially

WithanassessedMLthreatofmedium-highandtheoverallinherentMLvulnerabilityratedasmedium-high,theoverallinherentriskforlong-termdirectinsuranceismedium-high.

Forgeneralbusinessinsurance,theMLthreatisdeemedtobelowandtheinherentMLvulnerabilityismediumlow,resultinginaninherentMLriskofmedium-low.

21Asat2016insurancemanagerswerepartiallyregulatedforAML/ATFpurposes,thiswasamendin2017tocapturetheentiresubsector.22Insurancebrokersregisteredundersection10oftheInsuranceAct1978(onlysofarastheyactasabrokerinconnectionwithlongtermbusinessotherthanreinsurancebusiness)arecoveredbytheAML/ATFregulations.

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Chapter 8: The Securities Sector

AML/ATF Supervisory Authority – Bermuda Monetary Authority

Introduction

Bermuda’ssecuritiessectoriswelldevelopedandoffersasophisticatedrangeofproducts.Thesectorcaterstoadiverse, internationalclientbasewithsubstantial foreignportfolioholdings. Thesecuritiessectorhasthefollowingsub-sectors:

(i) investmentbusinesses,whichincludeinvestmentmanagersandinvestmentbroker-dealers;(ii) fundadministrators;and(iii) investmentfunds.

Theinvestmentfundssub-sectorincludespooledinvestmentvehiclesstructuredeitherasmutualfundcompanies,unit trusts,partnershipsor limited liabilitycompanies. ThesefundscanapplytotheBMAforauthorisationasfunds,orforanexemptionorexclusionfromtheInvestmentsFundAct.

Bermudahas57licensedinvestmentbusinessesand31licensedfundadministrators.23Therewere890registered investment funds inBermuda in201524, including fundsdefinedasauthorised,excludedorexempted. Authorised funds include 312 authorised institutional funds, 7 authorised administeredfundsand160authorisedstandard funds.25Thesecuritiessector inBermuda isprimarily regulatedbytwopiecesoflegislation:theInvestmentFundAct(IFA)andtheInvestmentBusinessAct(IBA).

InDecember2015,investmentfundsinBermudahadatotalnetassetvalueofapproximatelyBD$144billion, representing 19% of the island’s total financial services sector assets26 and making securitiessecondonlytoinsuranceinBermuda’sfinancialindustry.

Assessment of Sectoral ML Threats

Therewere nine investigations inwhich the securities sectorwas featured. Although therewere nocriminal prosecutions or convictions involving the sector, there were in fact two civil asset recoverycases inwhichpropertyamounting toapproximatelyBD$5.2millionwas frozenand, inonecase,BD

23BMA,SecuritiesSectorVulnerabilityReport,201724Ibid25Ibid26Ibid

SummaryFindings:

The ML threat for the securities sector is high as the clients in this sector are primarilyinternational and there are high dollar values generallymanaged in the sector. The inherentvulnerabilityinallsegmentsofthissectorisdeemedtobemedium-high.

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$52,554.63wasconfiscated27.TheFIAhasalsoreportedthattheymade15disseminationstolocallawenforcementandforeigncounterparts,pertainingtothissector,thoughthemajorityofdisseminationsweretoforeignFIUs.

Suspicious activity reporting in the sector is relatively low. However, law enforcement and FIAexperiencegleanedfromthecivilassetrecoverycasesandrelevantmutuallegalassistancerequestsandothermatters,suggeststhatthemoneylaunderingthreattothissectorderivesfromthemarketingoffundsinforeignjurisdictionsbyforeignbrokers.

Althoughmanyforeign-basedfundsaremanagedbylocalfundadministrators,thethreatofMLtosuchfundsappearstocomemainlyfromforeigninvestors.Previousexperiencehasindicatedthatthethreatwas not identified on some occasions because of over-reliance on foreign third parties to introduceinvestors into the funds and to carry out the requisite due diligence. These funds generally involveextremely high dollar values and individual investments into some of these funds can range in themillions.Theattractivenessofoff-shorefundsasaninvestmentvehiclefortheproceedsofforeigntaxcrimes,internationalfraudorinternationalcorruptionisbelievedtobewell-established.

Themoneylaunderingthreattothesecuritiessectorishigh.

Analysis of Sector Inherent ML Vulnerabilities

Globally,theworldwidesecuritiesindustryisconsideredtohaveahighMLvulnerability.Securitiescanbeattractivevehiclesforcriminalsduetothecomplexstructureoftheproductsoffered.Theclientsareoftenhigh-net-worthindividualsand/orPEPs,whoareconsideredanelevatedriskforML.Inaddition,the large volumeof products tradedand the varietyof strategic investment approachesoffer uniqueopportunitiestodisguisesourcesoffunds.MLriskssignificantlyoutweighthoseposedbyTF.

Inmostsecuritiesmarkets,onlyintermediariesandadministratorscanengageinfinancialtransactions.Thereforea key consideration in theassessmentofML vulnerabilitiesof the sector is the gatekeeperroleof theseentities. Furthermore, thetraditionallyconfidentialnatureof fundstructuresmaymaketracing the source of wealth and the owner’s identity more difficult, since a fund offers a privateagreementbetweeninvestors,andtheidentityofinvestorsmaynotbeknownevenbytheintermediaryprovidingadministrativeservices.

FundAdministratorsprimarilymaintaininvestmentfundaccountsandprocesstheissue,conversionandredemption units of a fund, aswell as distributing fund dividends to participants. They are typicallyassociatedwithhighvulnerabilitytoMLrisks. Risksareprimarilydrivenbythescaleofactivity,clientprofileandsourceoffunds.Ingeneral,significantassetsandahighvolumeofcross-bordertransactions.

Globally,investmentfundshavemedium-highvulnerabilitytoML.Fundscanadoptvariouscomplicatedstructures,whichcanreadilybeusedforlayeringandintegrationofcriminallyobtainedfunds.28

FromtheBermuda-specificperspective,theanalysisofinherentvulnerabilitieswasconductedbasedonthevarioussub-sectors,asoutlinedbelow:

27Thesecondcaseisstillpendingcompletion.28InternationalMonetaryFund(IMF),Bermuda:DetailedAssessmentReportonAnti-MoneyLaunderingandCombatingtheFinancingofTerrorism,2008

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(i) InvestmentBusinesses The investment businesses sub-sector comprises investment managers, investment advisors/agents,custodians and investment broker-dealers. Overall, the inherent ML vulnerability of the investmentbusinesssub-sectorinBermudawasratedasmedium-high.

Investment managers have medium-high vulnerability to ML, largely in line with the global riskassessment.29Similarly,investmentbroker-dealershavemedium-highvulnerabilitytoMLinBermuda,inlinewiththeglobalriskassessment. Theriskposedbythe11 investmentbroker-dealers inBermuda,andoneentityfulfillingabroker-dealerrolejointwithinvestmentmanagementbusinessisprimarilyduetoclientprofileandglobalreachofthesecuritiessector30.

Total assets managed and administered by investment businesses are dominated by discretionaryinvestmentmanagement.

Thevulnerabilityofnon-discretionaryinvestmentmanagementisperceivedtoberelativelyhigherthanthediscretionary investmentmanagementduetotheclient-drivennatureoftherelationship inwhichinvestmentmanager primarily provides advice. The international nature of the funds and associatedinvestorsmaymakeithardertodeterminethesourceoffunds,whichincreasestheexposuretoML.

Of the 311 PEPs associated with investment business licences in 2015, approximately 70% weredomiciled outside Bermuda. Bermudian discretionary investment businesses are associated with alowernumberofPEPsamountingtojust15.31

(ii) FundAdministrators In Bermuda, the Fund Administrators’ sub-sector has a medium-high inherent vulnerability to ML,primarily due to the relatively high volume of cross-border transactions. In 2015, Bermuda-licensedFund Administrators administered 1,307 funds.32 In aggregate, BD $156 billion in assets underadministrationwas reportedby the 31 fund administrator licensees at the endof 2015.33Of the 479authorisedfundsin2015,56%wereadministeredbyBermudianfundadministratorswiththeremaining44%administeredbyaforeignentity.34

TheproportionofPoliticallyExposedPersons(PEPs)andhighnetworthindividualsassociatedwithfundadministratorsismoremodest.In2015,therewere155PEPsundertheremitofFundAdministrators;66associatedwithauthorisedfundsand89associatedwithotherfunds.35However,thevulnerabilityofthisclientbaseisheightenedbythegreaterportionofinternationalnatureofthesePEPsbeingforeignwithonly6%thatcurrentlyresideinBermuda.36ThismayincreaseexposuretoML.

29Ibid30Ibid31Ibid32BMA,AnnualReport201533Ibid34BMA,SecuritiesSectorVulnerabilityReport201735Ibid36BMA,SecuritiesSectorVulnerabilityReport,2017

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MostassetshandledbyFundAdministratorsaresourcedfrominvestorsoutsideBermuda.OfthefundsregulatedundertheIFA,26%ofauthorisedfundsweresourcedfromdomesticinvestors.37Similarly,forallotherfundcategories,only15%weresourceddomestically.38

(iii) InvestmentFunds In Bermuda, the investment funds sub-sector has a medium-high inherent vulnerability due to thecombination of its international nature and technical complexity. Investment funds in Bermuda arepooled investment vehicles structured either as mutual fund companies, unit trusts or partnershipfunds. Once incorporated, investmentfundscanapplytotheBMAtobecomeanauthorisedfund,anexemptfundoranexcludedfund.ExemptandexcludedfundsarerequiredtoregisterasanNLP(non-licensed person) before commencing business activities. Closed-ended funds are typically formed aslimitedpartnershipsorcompaniesincorporatedwithlimitedliability.

In2015,therewere890investmentfundsinBermuda39comprising:479authorisedfunds,174excludedand 148 exempt funds.40 Of the total 890 investment funds, 76 hold a segregated account companylicence.41 All exempt funds and excluded funds and exempted investment business in Bermuda fallunderthejurisdictionofNLPs,butasnotedlaterinthissectionarestillsubjecttoAML/ATFoversight.

TheclientprofilealsoincreasesthevulnerabilityoftheInvestmentFundssub-sectortoML;investorsinfundsare typicallyhighnetworth individualsand from foreign jurisdictions. A substantialnumberoffundsinBermudaareownedbyinvestorsthatarelocatedinternationally,whichcanmakeverificationofclientidentityandadequateCDDmoredifficult.Thelevelofpoliticalexposurethough,waslowasof2015, where of the 8,323 client base of authorised funds administered by the Bermuda licensedadministrator,only58wereforeignPEPs.OftheremainingfundsadministeredbythelicensedBermudafundadministrator,88wereforeignPEPsofthe2,487clientbase.42Thelayerofanonymityassociatedwithfundsaswellasahigher-riskclientprofilecompoundthevulnerabilitytoMLoffundsinBermuda.TheassessmentofinherentvulnerabilitiesacrossdifferentinvestmentfundtypesisoutlinedinTable4below.

Table 3: Overview of Inherent Vulnerability of Investment Funds and its types

Legalpersons&arrangementsofFunds

Numberofentities

Inherentvulnerabilitylevel

AML/ATFregulatedAsof2017

AuthorisedFunds 479 Medium-High Yes

Non-LicensedPersons(NLPs) 411 Medium-High Yes

Closed-endedFunds N/A Medium No

OverallFundssub-sector 890 Medium-High Partially

37Ibid38Ibid39Ibid40Ibid41Ibid42Ibid

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(a) AuthorisedFunds

ABermuda-formedcompany, trustorpartnership thatmeets thedefinitionof an investment fundasoutlinedby the IFAmust apply to theBMA for authorisation as a fundor, alternatively, apply to theAuthority for an exemption from the Act (see section 4 below for more detail on exemptions andexclusions). The IFArequires investment funds,whichdonotqualify forexemptionorexclusionfromregulationtobeclassifiedaseitherstandardfunds,institutionalfunds,administeredfundsorspecifiedjurisdictionfunds.

In2015,ofthe479authorisedfundsinBermuda,160werestandardfunds,312institutionalfunds,and7administeredfunds.43Halfoftheauthorisedfundsareadministeredbylicensedfundadministrators,and the restbyCSPs, investmentbusinesses,or foreignentities. Thegreatestvulnerability toML lieswithauthorisedfundsadministeredbyforeignentities.

Bermuda’s authorised funds are perceived as having a medium-high level of vulnerability to ML,primarily due to their client profile and global reach. Only 26% of investors in authorised funds areBermudian,withtherestdomiciledoverseas.44TheoverallnumberofPEPsisrelativelysmallbutmostof them are domiciled outside of Bermuda. The proportion of clients with high-risk profiles inconjunctionwiththeirinternationalreachaddsfurthercomplexitiestothedeterminationofownershipandthesourceoffunds,andaddstothefunds’MLexposure.

(b) Non-LicensedPersons(NLPs) NLPsareuniquetoBermudaandincludeallfinancial institutionswhicharenotalreadylicensedunderstatute (e.g. IFA or IBA) and which are exempt from the requirement to apply for a specific licence(underSection6&7oftheIFA,orSection13oftheIBA).Aninvestmentbusinessoraninvestmentfundwill qualify for exclusion or exemption from licensing if itmeets certain qualification standards, or isdeemedexemptbytheMinisterofFinance. However,althoughnotsubject totheprudential regime,theyarebroughtintoscopeundertheAML/ATFrequirements.

In2015,therewere411NLPs involved inthe investmentbusinessand investmentfundssub-sector inBermuda;ofwhich89werecategorisedasinvestmentbusinessNLPsand322categorisedasinvestmentfundNLPs.

InBermuda,NLPshavemedium-highvulnerabilitytoMLrisks,primarilyduetoclientprofile(involvinghigh-net-worthindividuals,PEPsandsophisticatedinvestors)andthesizeofinvestorassets.RegisteredNLPs often engagewith a substantial proportion of international PEPs, although the total number ofPEPsintheirclientbaseisnotlarge.AssuggestedbyFATF,thisclientprofilemayincreaseexposuretoML.

In2015,themajorityoftheassetsheldbyNLPswerefromoutsideofBermuda. Thatmaycomplicatethe identification of beneficial ownership or source of funds, increasing vulnerability of investmentbusinessNLPstoML.

43Ibid44Ibid

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Vulnerability is, however, somewhat limited by the legislation applying to exempted individuals. Forexample,pursuanttotheInvestmentBusiness(Exemption)Order2004,theIBApermitsexemptionsontwogrounds.Thefirstisthat,investmentservicescanonlybeprovidedtooneofeightclassesincludingsophisticated private investors, collective investment schemes approved by the BMA, high incomeprivate investors, and entitieswith total assets of not less than BD $5M,where such assets are heldsolelybycorporatebodies.45Underthesecondexemption,theinvestmentservicescannotbeprovidedtomorethan20individualsatatime.

Vulnerability is furtherconstrainedby the fact thatalthoughthe fundsmaybeexemptedorexcludedfromthe licensing requirementsunderSection6A&7of the IFA2006, theyare,asnotedpreviously,requiredtoregisterasNLPswiththeBMAforAML/ATFoversight. Furthermore, theseexemptedandexcludedfundsregisteredasNLPsarelikewisehighlyconcentratedintodiscretionaryfunds,whichhavelowervulnerabilitytoML.

(c) Closed-EndedFunds

Closed-ended funds are typically formed as limited partnerships or as companies incorporated withlimitedliability.

Investors in closed-ended fundsdonothave the right todemand redemptionof theirholdings in thefund, compared with open-ended funds, where investors can issue and redeem their participatingsharesonacontinuousbasis.

Closed-ended funds have medium vulnerability to ML risks. Vulnerability to ML is limited by theoperationalabilityofthesefunds,giventhattheycanonlyissueafixednumberofsharestoinvestors,andinvestors’unitsaretypicallyredeemedonlyattheendofaninvestmentperiod,factorswhichlimitpotentialforML.Furthermore,closed-endedfundswithshareslistedontheBermudaStockExchange(BSX)arelessvulnerabletoMLduetothepublicnatureofthetrade,andtherelativelymodestsizeoftheBSX.

Conclusion

TheassessedlevelofinherentMLvulnerabilityacrossthesecuritiessub-sectorscanbeseeninthetablebelow:

Table 4: Overview of Inherent Vulnerability of Securities and its sub-sectors

Sub-sectorsoftheSecuritiessector

Numberoflicences Inherentvulnerabilitylevel

AML/ATFregulatedasof2017

InvestmentBusinesses 57 Medium-High Yes

FundAdministrators 31 Medium-High Yes

InvestmentFunds 890 Medium-High Yes

OverallSecuritiesSector 978 Medium-High Yes

45BMA,InvestmentBusinessAct2003,Section13;InvestmentBusiness(Exemptions)Order2004

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InBermuda,thevulnerabilityofthesecuritiessectortoMLisassessedasmedium-high,primarilyduetointernationalinvolvementinthesectorandthedollarvolumesinvolved,counterbalancedbyarelativelysmallnumberofhighriskindividualsintheclientbase,andthroughinvestmentmanagerstypicallydealingwithalowvolumeofhighvaluecustomers.CombinedwiththethreatratingofHigh,theoverallinherentMLriskisdeemedtobehigh.

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Chapter 9: Money Service Businesses (MSBs)

AML/ATF Supervisory Authority – Bermuda Monetary Authority

Introduction

In 2016, the Money Service Businesses (MSBs) sector handled approximately BD $444 million intransactions.46 The core markets for Bermudian MSBs are tourists and Bermuda residents sendingmoneyoverseas.

ThetopjurisdictionsreceivingoutwardmoneytransfersfromMSBswerethePhilippines,Jamaica,USAandPortugal.

Outwardmoneytransfersconstitutedthegreatestnumberoftransactions.47

TheMoney ServiceBusinessAct 2016,which came into forceon January31, 2017, regulatesMSBs inBermudawitha licensing regime. PreviouslyMSBshadbeenregulatedunder theBermudaMonetaryAct1969.UnderSection2(2)ofthe2016Act,anMSBisbroadlydefined,encompassingawiderangeofservices, frommoney transmissions, chequecashing,payment services,andoperationofabureaudechange.

Assessment of Sectoral Threats

Thereareonly twoentitiesoperatingas licensedMSBs inBermuda. During theperiodunder review,therewere 46 investigations featuring thismoney remittance sector. Additionally, therewere threeprosecutionsforML,allofwhichresultedinconvictions,inwhichthissectorwasfeatured.TheFIAalsomade54disseminationstolawenforcementbasedonSARsfromthissector.

Lawenforcementareoftheviewthatthissector issusceptibletobeusedto laundertheproceedsofdrugtrafficking.ThissectorisresponsibleforasignificantnumberoftheSARsfiledwiththeFIA,despiteitssmallsize. Ontopofthis,theworkinggroupestimatedthatundetectedMLactivities inthesectorwere high. However, given the small size of the sector and its relatively low outflow figures forremittances,themoneylaunderingthreattothissectorismedium-high.

46BMA,MoneyServiceBusinessVulnerabilityReport,201747Ibid

SummaryofFindings:

TheMoneyServiceBusinesses sector isassessed tohaveamediumhigh inherent risk,drivenprimarily by the intrinsic characteristics of the products offered, the wide access to theproducts,thetransientnatureofthecustomerbaseandtheirexposuretocashtransactions.

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Analysis of Sector Inherent Vulnerabilities

Globally, MSBs typically have high inherent vulnerability to ML. Several characteristics of the MSBsector make it an attractive vehicle for all stages of the ML process: placement, layering, andintegration.Theprimarilycash-basednatureofthesectoristhemainfeatureincreasingitsvulnerabilitytoML,making it particularly vulnerable at theplacement stageof themoney launderingprocess. Inaddition,thevolumeandfrequencyoftransactionsaretypicallyhigh.

AlthoughtheMSBsectorprimarilyinvolvesdirectexchangesoffunds,itisalsocharacterisedbyone-offtransactionsandlessdiligentcustomeridentification,providingalevelofanonymitywithinthesector.Criminalsmay enlist third parties or false identities to prevent the tracking of funds, and this in turncompoundsthesector’svulnerabilitytoML.

In Bermuda, MSBs have been assessed to have a medium vulnerability to ML, primarily due to thelimited sizeof the sector. Comparedwithother sectors in the financial services area, the amountofmoney passing through the two MSBs is significantly smaller and has only a modest impact on thefinancialindustry.Globally,BermudahassignificantlyfewerMSBsthanmanyotherjurisdictions,whichreducesitsexposuretoML.

Nevertheless,MSBsofferawidelyaccessiblechannel throughwhichcriminalscanengage inML. Theuse of an MSB is perceived as easier than opening a bank account. The sector is also particularlyvulnerable to specificmoney-laundering risks related to theexchangeofBermudadollars into foreigncurrencies. Criminals can use Bermuda’s MSBs to transfer and exchange money through legitimatechannels,sendingitoverseas,whichcomplicatesthetracingofthefunds.

TheproductsofferedbythetwoMSBsinBermudaprimarilycoverthetransfer,guarantee,orexchangeofmoney. These servicesmost frequently involve the exchange of cash, which enhances theMSB’svulnerabilityduringtheplacementstageofML. Thetransient,one-off,natureof thecustomers inanMSBrelationshipdecreasesthetransparencyofthesectorandthereforemaybeparticularlyattractivetocriminals. However, theaverageoutgoingtransaction is lessthanBD$400,48which limitspotentialcriminalactivitytorelativelysmallamounts.

Conclusion

The level ofML vulnerabilities to theMSB financial sub-sector ismedium. Given the threat ratingofmediumhigh,theoverallinherentriskratingisalsomediumhigh.

48Ibid

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Chapter 10: Bermuda Stock Exchange (BSX)

AML/ATF Supervisory Authority – Bermuda Monetary Authority

Introduction

TheBermudaStockExchange(BSX)isarecognisedinvestmentexchangeundertheInvestmentBusinessAct2003andoperatesasaself-regulatoryorganization(SRO)subjecttoregulationbytheBermudaMonetaryAuthority.

Established in 1971, the BSX is relatively modest in size, but globally respected for its commerciallysensible listing requirements.49 It is a leading market for the listings of investment funds, debt,insurance-related securities, and small-to-medium enterprise companies. In 2016, the total tradingvolume was eight million shares with a corresponding value of USD $49 million.50 Total marketcapitalisationwasestimatedatUSD$344billion,ofwhichapproximatelyUSD$3billionrepresentedthedomesticmarket51.In2016,growthinnewsecuritylistingsacrossmostsectorsincludedarecord61newInsurance-LinkedSecurities(ILS)listingswithacapitalisationvalueofUSD$6.2billion.52

Assessment of Sectoral Threats

InthecaseoftheBermudaStockExchange(BSX),thebarrierstoentrytothissectoralsorepresentanimpedimenttoitsusefulnessasameansoffacilitatingmoneylaunderingresultinginalowthreatrating.

Analysis of Sector Inherent Vulnerabilities

Globally, a stock exchange is considered to have a medium-low vulnerability to ML. An exchangeprovidesapublicplatformforinvestmentbroker-dealerstobuyandsellsecurities.Securitiesissuedonastockexchange includestocks issuedby listedcompanies,unittrusts,bonds,andpooled investmentproducts. Thespeed inexecutingtransactionsonastockexchangeand itsglobalreachprovidesome

49BermudaStockExchange:BermudaStockExchange–UniquelyPositioned,201750BMA,AnnualReport,201651Ibid52Ibid

SummaryofFindings:

TheBermudaStockExchangeisassessedtohaveamediumlowinherentrisk,drivenprimarilyby the public nature and transparency of the BSX, its electronic trading, settlement anddepository platform coupled with its client profile of institutional clients, which are alllicensed entities and have been listed with a listing agent in a predominantly face-to-faceprocess.

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exposuretoML.However,thetransparencyrequiredforlistedentitiesandthepublic,regulatednatureofstockexchangesmakesthemlessattractivetocriminalswhotypicallyprefermoreopaquevehicles.

WithamarketcapitalisationofUSD$344billion,theBSXismanytimessmallerthantheNewYorkStockExchangeandtheLondonStockExchange,withtheirmarketcapitalisationofUSD$19.3trillionandUSD$7.9 trillion respectively. Furthermore, its stockmarket turnover ratio53 in 2015was 0.8%, comparedwiththeUSat165.2%andtheworldaverageof47.3%.54Thecomparativelylowstockmarketturnoverratiolimitsitspotentialtolaundermoneyandmakesitlessvulnerabletocriminalactivity.

Additionally,thepublicnatureandtransparencyoftheBSXisfurtherenhancedbyitselectronictrading,settlement and depository platform, which is licensed by NASDAQ OMX. This automated trading isspecifically designed to support secondarymarket trading and the settlement of sophisticated listedsecurities. The BSX is a full member of the World Federation of Exchanges and an affiliate of theInternational Organization of Securities Commissions. International cooperation as well as hightransparencyrequirementsimposedbypubliccompaniesandautomatedtransactionsdiminishthesub-sector’s exposure to ML. In addition, the client profile includes institutional clients, which are alllicensedentitiesandhavebeenlistedwitha listingagent inapredominantlyface-to-faceprocess. Allagentsinthissectorareregulatedinstitutions.Consequently,thevulnerabilityofthissectorisprimarilyduetothefrequencyofinternationaltransactions(>95%ofalltransactions)andrisksrelatedtoILS.

Conclusion

Inlinewithglobalriskassessments,theBSXwasassessedtohaveamedium-lowinherentvulnerabilitytoML. Combinedwith the threat ratingof low, the inherentML risk to this sector is assessed tobemedium-low.

53StockMarketTurnoverRatioofdomesticshares(%)isthevalueofdomesticsharestradeddividedbytheirmarketcapitalization.Thevalueisannualizedbymultiplyingthemonthlyaverageby12.Higherpercentageturnoverindicateshighershareliquidity.54WorldBank,Stockstraded,2016

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Chapter 11: Trust Service Providers (TSPs)

AML/ATF Supervisory Authority – Bermuda Monetary Authority

Introduction

Bermuda has been in the trust business for the past 50 years, developing a strong internationalreputation for forming trust structures. Bermuda’s main statute governing trustees carrying on trustbusinessistheTrusts(RegulationofTrustBusiness)Act2001(asamended).

Trustsareadministeredbytrustees,whohavethepowertomanage,employordisposeoftheassetsinaccordancewiththetermsofthetrustandthespecialdutiesimposeduponthembylaw.InBermuda,trustees can be licensed trust businesses, private trust companies, or individuals acting in a privatecapacity. Themarkethasanemphasisonofferingservicestodiscretionarytrusts for familiesofhigh-net-worthindividuals.

Asof2016,therewere28licensedtrustbusinessesinBermuda.ThenumberoftrustsmustbereportedtotheBMAbythoseTSPsthatarelicensedorapplyingforanexemptionfromlicensing.

Forthepurposesoftheriskassessment,theTSPsectorisdividedintothreesub-sectors:

• licensedtrustcompanies• privatetrustcompanies• privateindividualtrustees

Private trust companies are exempt from the licensing regime of the Trusts (Regulation of TrustBusiness)Act2001.Aswell,othertrusteesmaybeexemptiftheymeettherequirementsoftheTrusts(RegulationofTrustBusiness)ExemptionOrder2002.

Assessment of Sectoral Threats

Very few SARs have been filed by the trust sector, with only two investigations in which the sectorfeaturedobliquelyandnoprosecutionsorconvictionsassociatedwiththesector.Theportfolioofassetsmanagedbythetrustsectorisconsideredtobequitesizeableandtheclientbaseislargelyinternationalinnature.However,therearealsolocalclientswithinthissector,andtheMLthreatpresentedbylocal

SummaryFindings:

TheTrustServiceProviderssectorisassessedtohaveahighinherentMLrisk.Thisisduetotheglobalreachofthetrustsunderoperation,thehighvalueofassettransfers,andtheriskprofileofcustomers,whichincludeshigh-net-worthindividualsandPEPs,residentandnon-resident.

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clientswould be lower than that emanating from the international clients. Taking these factors intoconsideration,theMLthreatlevelisassessedashigh.

Analysis of Sector Inherent Vulnerabilities

Globally,trustserviceproviders(TSPs)havemedium-highvulnerabilitytoML.Theyareofteninvolvedintheestablishmentandadministrationoflegalpersonsandarrangementsandthereforeplayakeyroleinmanyjurisdictionsasgatekeepersforthefinancialsector.

Inrecentyears,anumberofstudieshaveexploredissuesrelatingtotheuseorabuseoflegalpersonsorarrangementsforillicitpurposes.TheFATFstatesthat,“whilstthemajorityoftruststructuresappeartobe established for legitimate purposes, it is clear from research that some trust structures are used,unwittingly or otherwise, to help facilitate the misuse of trust vehicles. Criminal organisations andindividualsmayuse trust structures to assistwith illicit activities by seekingprofessional services andadviceonthemostappropriatevehiclesorjurisdictionstousetofurthertheirill-intendedagendas.”55

(i) LicensedTrustCompanies

Thelicensedtrustcompaniessub-sectorinBermudahasbeenassessedtohavemedium-highinherentvulnerability to ML, which is consistent with the global assessment of vulnerability for this sector.Factors influencingthisratingincludetheglobalreachofthetrustsunderoperation,thehighvalueofassettransfersandtheriskprofileofcustomers,e.g.highnetworthindividualsandPEPs,bothresidentandoff-shore.It iscommonforatrusttobemanagedbyoneofBermuda’slicensedtrustcompanies,acting either alone or with one or more individual trustees. A licensed trust company can managemultiple trusts. Atpresent,Bermudahas28 licensedtrustcompanies,which include thoseownedbybanks,andlegalandaccountingfirms.

(ii) PrivateTrustCompanies

Theprivatetrustcompaniessub-sector isdeemedtohaveahigh inherentvulnerability toML. This ispartlybasedonthelackofinformationinthissub-sector,whichraisesitsvulnerabilityinlinewithFATFguidance.Itishowever,knownthatabouthalfoftheLicensedTrustBusinessesactasatrusteethatownshares of a Private Trust Company thereby giving a component of indirect application of AML/ATFobligations through the Licensed Trust Business. The limited oversight however, is insufficient todecreasethepotentiallyhighriskprofilesofPrivateTrustCompaniesgenerallybelievedtobesizeablewithalargelyinternationalclientprofile.

(iii) PrivateIndividualTrustees

InBermuda,theMLvulnerabilityoftheprivate individualtrusteessub-sectorhasbeenassessedtobepotentiallyhighduetothelackofdetailedinformationonthesubsector.

Individuals such as relatives, friends or advisers, can act as trustees provided they do not holdthemselvesoutascarryingonbusiness,inwhichcasetheyaresubjecttolicensingrequirements.Thereisnorestrictiononthetypesoftrustswhichcanbemanagedbysuchindividualtrustees. Thissub-sectorisperceivedtoberelativelysmall,withalargeproportionofbusinessactivityfocusedonBermudian real estate and the client base is largely domestic. This use of trusts for property is55FATF,MoneyLaunderingUsingTrustandCompanyServiceProviders,2010

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suspectedtohavegreatlydiminishedwiththeremovaloftheinheritancetaxontheprimaryresidence.Nevertheless, where there is a lack of detailed information of a sector it raises the risk profile, so aconservative approach has been adopted to provide the inherent vulnerability rating for Privateindividualtrustees.

Conclusion

The assessed level of inherentML vulnerability across the Trust Service Providers sub-sectors can beseeninthetablebelow:Table 5: Overview of Inherent Vulnerability of Trust Service Providers and its Sub-Sectors (2016 Data)*

Sub-sectorsofTrustServiceProviderssector

Numberoflicences

InherentVulnerabilityLevel

AML/ATFregulated

asof2017

LicensedTrustCompanies 28 MediumHigh Yes

PrivateTrustCompanies N/A High No

PrivateIndividualTrustees N/A High No

OverallTrustsector 28 High Partially

Withathreatassessmentofhigh,theoverallinherentriskisalsohigh.

*PrivateTrustCompaniesandPrivateIndividualTrusteesarenotlicensed.

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Chapter 12: Corporate Service Providers (CSPs)

AML/ATF Supervisory Authority – Bermuda Monetary Authority

Introduction

The CSP sector in Bermuda, similar to other jurisdictions, plays a significant role as a financialintermediary.

TheassessmentoftherisksintheCSPsectorisbasedonthecategoriesoflicensingundertheCorporateServiceProviderBusinessAct2012,asamended–unlimitedlicensesandlimitedlicenses. Inaddition,anassessmentofthoseentitieswhichcanbeexemptedfromlicensingisalsoundertaken.Atthetimethat the 2017 National Risk Assessmentwas being undertaken, therewere no CSPswhich had beenlicensedasthelegislativeandlicensingprocesswasstillbeingdeveloped.However,therewerealmost100applicationspendingin2017.Subsequently,licenseshavebeenissuedandthesupervisoryregimehasbeenimplemented.

MostBermudianCSPsareownedand/orcontrolledbyalimitednumberoflawfirms,accountingfirms,orregulatedfinancialinstitutions.Approximately60%oftheapplicationsforincorporationshavebeensubmittedbythefivelargestCSPs.

According to the data available in 2017, CSPs that have applied for a licence are administering andservicing 14,331 entities, representing 83% of all companies and partnerships formed in Bermuda(17,371).56 Asit isnotmandatoryforacompanytoutilizeaCSP,thisisasignificantpercentageofallBermuda companies and partnerships, illustrating the benefits that will be accrued to the AML/ATFoversightofsuchcompaniesandpartnershipsfollowingtheimplementationoftheCSPlicencingregime.

Assessment of Sectoral ML Threats

Duringtheassessmentperiod,thissectorwasfeaturedinoneongoinginvestigation,buttherewerenotyet any relevant prosecutions and no convictions. There were no disseminations from the FIA thatrelatedspecificallytothissectorandthefewSARsfiledbythissectorallcamefromoneentity.

56BMA,CorporateServiceProviderVulnerabilityReport,2017

SummaryFindings:

TheCorporateServiceProviderssectorisassessedtohaveahighinherentMLrisk,drivenbythegatekeeperfunctionplayedbyCSPsforinternationalclients,thecomplexityoftheinternationalfinancialtransactionsandthelargenumberofcompaniesbeingmanaged.

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ThissectorservesasoneofthemajorgatewaystoBermuda’sinternationalfinancialservicessectorandit is believed that the majority of its clients are international. The corporate and legal structuresfacilitatedbyCSPs,aswellastheotherservicesprovided,couldbeattractivetointernationalcriminalswhowishtoobscureownershipofproperty,evadeforeigntaxesorobscurethecriminaloriginsoftheproperty.

Inconsideringallkeyfactors,includingtheinternationalexperienceregardingtheuseofCSPsinmoneylaunderingschemestheoverallMLthreatwasratedashigh.

Analysis of Sector Inherent Vulnerabilities

Globally,CSPsaredeemedtohaveahighvulnerabilitytoMLrisks.OneofthekeyrisksisthatthesectormaybeusedtocreatefrontcompaniesandcomplexcorporatestructuresthatmayfacilitateML.CSPshavebeenfoundcomplicit insettingupcorporatevehiclesthatweremisusedformoneylaundering.57Similarly, international crime groups have enlisted CSPs as corporate structures used to open bankaccountsthatfacilitatedML-relatedcriminality.CSPshavealsobeenfoundtoactasnomineedirectorsof a largenumberof companies. In jurisdictionswhere theenforcementofdirectors’ roles and legalresponsibilitiesisweak,thishascreatedanopportunityforML.

(i) LimitedlicenceCSPs

Consistentwith theglobaldetermination, inBermuda, limited licenceCSPswereassessedashavingahighvulnerabilitytoML.DuringtheNRA,itwasassumedthatmostCSPsinBermudawouldbegranteda limited licence, which enables provision of all corporate services under the definition of corporateservice provider business. However, the final review of beneficial owners and, where applicable,controllersofallcliententitiesmuststillbeapprovedbytheBMA,atincorporationandpriortochangesto the share register being made.58 As of December 31, 2017 the BMA had issued 62 limited CSPlicences.

(ii) UnlimitedlicenceCSPs

It was determined that any CSP issued an unlimited licence would also be assessed to have a highinherentvulnerability toML. The risk levelof this sub-sector isdrivenby theextendedpowerof theCSPstoundertakethevettingofcompaniesundermanagementinplaceoftheBMA.Giventheclientprofileofsuchentitieswithitslargelyforeigncustomerbaseandthetypesofservicesthatareoffered,itisexpectedthattherewillbeahigherlevelofvulnerability.

(iii) ExemptCSPs

CSPscanbeexemptfromlicensinginBermudaiftheymeetoneofthefollowingcriteria:

(1) fund administrators providing registrar and transfer services limited to those activities itoverlapswithCSPactivity

(2) companiescarryingoncorporateserviceproviderbusinesswithmembersofitsgrouponly

57FATF,MoneyLaunderingUsingTrustandCompanyServiceProviders,Oct201058BMA,Ref2(2)(a)and2(2)(c)(vii)ofTheCorporateServiceProviderBusinessAct2012

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(3) companieswhoseCSPsactivitiesarerestrictedtoprovidingtheservicesofdirectorandthatareownedbyoneshareholdercontrollerwhoisthesoleemployeeofthecompany

(4) insurance managers who provide CSP services to licensed insurance companies or theparentcompaniesoflicensedinsurers

FundAdministratorsunder criterion1 and InsuranceManagersunder criterion4 are already licensedand supervised pursuant to the Investment Funds Act 2006 and InsuranceAct 1978, respectively andsubjecttoAML/ATFoversight.

CSPsprovidingservicestotheirgrouponly(criterion2)areperceivedashavingmediumvulnerabilitytoML,asareCSPsprovidingservicestocompanieswithoneemployee(criterion3)duetothesmallersizeofoperation.However,asthereisanintelligencegapwithrespecttothenumberofexemptedCSPsandnumberofCompaniestheyservice,theinherentriskofExemptedCSPsisrecognisedasmedium-high.

Conclusion

TheassessedlevelofinherentMLvulnerabilityacrossthecorporateserviceprovidersub-sectorscanbeseeninthetablebelow:Table 6: Overview Inherent Vulnerability of Corporate Service Providers and its sub-sectors

Sub-sectorsoftheCSPsector Numberoflicences

(asapplicationsin2017)*

InherentVulnerabilityLevel

AML/ATFregulated

asof2017

LimitedlicenceCSP 92 High Yes

UnlimitedlicenceCSP 4 High Yes

ExemptedCSP - Medium-High Partially

OverallCSPSector 96 High Partially

*Therewere62limitedCSPslicencesapprovedandnounlimitedCSPlicencesasatDecember31,2017.

TheinherentvulnerabilityofCSPsisdrivenbythecomplexityoftheinternationalfinancialtransactionsandthelargenumberofcompaniesbeingmanaged.

ThethreetypesofCSPsoperatinginBermudawereallperceivedashavinghighinherentvulnerabilitytoMLrisksespeciallyinlightoflimitedinformationavailableatthetimeoftheassessmentbecausetheyhavenotyetbeensubjecttoanapprovedlicenceandsupervisoryoversight.

WithanMLthreatassessmentofhighandaninherentvulnerabilityassessmentofhigh,theoverallinherentMLriskwasdeemedtobehigh.

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Chapter 13: The Legal Sector

AML/ATF Supervisor – Barristers and Accountants AML/ATF Board

Introduction

Bermuda’s legal sector includes 79 law firms registered with the Bermuda Bar Association (as ofDecember 2016). Twenty-three of these law firms registered with the Barristers and AccountantsAML/ATFBoardonthebasisthattheyprovidedserviceswhichare“specifiedactivities”59asdefinedintheProceedsofCrimeAct1997.

Of the 23 regulated professional firms, 19 provided services relating to “incorporation services,”meaning theyorganisedcontributions for thecreation,operationormanagementof companies, legalpersonsorarrangementsoraidedinthebuyingandsellingbusinessentities.

Uponfurtherreviewoftheservicesofferedbyregulatedprofessionalfirms,itbecameclearthatthese“incorporation services”werebeingprovidedunder theauspicesof a separate legal entityoutsideofthelawfirmtowhichtheAML/ATFBoard(hereafter“theBoard”)hassupervisoryremit.

Informationprovidedbythefirmshaveindicatedthat

• fivefirmshadclientstheyclassifiedasahighnetvalue• fivefirmshadclientsrankedbythefirmsashighrisk• fourfirmshadclientsrankedbythefirmsasmediumrisk

59 Section 49(5) of the Proceeds of Crime Act 1997 lists the ‘specified activities’, in respect of which whenconducting such activities legal advisors and others should be required to carry out the AML requirementsspecifiedinregulations.Specifiedactivitiesare(a)buyingandsellingrealproperty;(b)managingofclientmonies,securities and other assets; (c) management of bank, savings or securities accounts; (d) organisation ofcontributions for the creation, operation or management of companies; and (e) creation, operation ormanagementoflegalpersonsorarrangements,andbuyingandsellingbusinessentities.

SummaryFindings:

Themoneylaunderingthreattothelegalsectorismedium-high,basedontwobalancingfactors.ThesectorhascloseaffiliationswithasignificantsegmentoftheCSPsector(whichisahighthreat);butthemoneylaunderingthreattothesector’srealestatepracticeislower,giventhelegalbarrierstothepurchaseofBermudianrealestatebyforeigners.

The inherent vulnerability rating for the legal sector was medium-high due to the size oftransactionsfacilitatedbythelegalprofession,theprofession'sroleincreatingcomplexlegalstructuresthatcanprovideanonymity,theuseoftheprofessionintax-evasionschemes,thedifficultyinaccessingtransactionrecordsandtheuseofnon-face-to-facechannels.

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In addition to “incorporation services”, some firms also facilitate buying and selling real property.Eleven law firms conducted real estate transactions regarding purchases of real property; while tenfirms conducted real estate transactions regarding the sale of real property. The larger law firmsreportedthattheirclientbaseforrealpropertytransactionsincludedcorporationsandtrustclients,buttheseserviceswerebeingprovidedbythefirm’scorporateserviceprovideraffiliate.

Assessment of sectoral threats

There were eight investigations over the review period that featured lawyers, but only onedissemination to law enforcement from the FIA. The level of SAR reporting from law firms hastraditionallybeenlow.

Thissectorconsistently indicatesthatmostspecifiedactivities—forwhich lawyersaresupervised—arecarriedoutbytheCSPaffiliatesoftheirlawfirmsinsteadofbythelawpracticesthemselves.However,it was assessed that the demarcation lines between the law firm and its affiliated CSP appear to beblurred.

Lawyers also play a role in themajority of real estate sales and purchases, but the legal barriers topurchasingrealestateinBermudameanthereisalowerexposuretomoneylaunderingthreatsthroughthesetransactions,especiallycomparedtocorporateandclientfinancialservices.

OverallprimarilyduetotheinvolvementwithCSPactivities,thethreatlevelwasassessedatthesamelevelasfortheCSPsector;namely,medium-high.

Analysis of sectoral inherent vulnerabilities

The working group relied heavily upon the input of regulated professional firms and collected datathroughadatacallsurvey.Theinformationrequestedthroughthesurveyincludedtypesofcustomers,thenatureandscopeoftheservicesoffered,geographicrisks,anddeliverychannelrisks.Inadditiontothe survey, several group sessionswere heldwithmembers of the Bermuda Bar, andwith attorneysfromlocallawfirms,tocollectadditionalinput.Thisinformationwasthenusedinthedeterminationoftheinherentvulnerability.

Thekeyfactorsusedtodeterminetheinherentvulnerabilitiesofthelegalsectorswere:

• thesizeoftransactionsfacilitatedbylawyers• theirclientprofile• theabilitytocreateanonymitythroughcomplexlegalstructures• thedifficultyintracingtransactionsrecords• theexistenceofmoney-launderingtypologies• theuseoftheprofessionintaxevasionschemes• theuseofnon-facetofacechannels

Sizeoftransactions

The sizeof transactions facilitatedby the legalprofessionhasamedium-highvulnerability. The legalprofessionisinvolvedinmostrealestatetransactionsandlegalfirmscanbeinvolvedinthecreationofcomplex legal structures, both ofwhich are likely to involve highmonetary values, so the profession

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presentsanopportunity forsubstantialamountsofproceedsofcrimetobe laundered. Aspreviouslymentioned,membersof thisprofessionbelievethat thisvulnerability ismitigatedby the fact that themajority of activities related to the creation of legal entities and some real estate transactions areundertakenbythecorporateservicesaffiliatesofthelegalfirms.

Clientbase

Theprofession’sclientbasewasdeterminetobeoverallatamediumrisklevel,assomeoftheclientelearepolitically exposedpersons andhigh-net-worth individuals. Although there is apotential forhighriskclienteleinBermuda,itissuggestedthatCSPs(ratherthanlegalfirms)conductthebulkofspecifiedactivitieswithsuchclients. However,asnotedpreviously,thedistinctionbetweenlawfirmsandtheirwhollyowned/affiliatedCSPsisnotclearandthereisnotsufficientdatatoproperlyassesssomeofthecriteriainthisvariable.

Levelofcashactivity

The level of cash activity associated with the legal profession was determined to be low. All firmsreportedthattheyeitherhad“nocash”policiesinplaceorthattheyhavealowcashthresholdlimit.

Creationoflegalstructures

Lawyers can be retained to advise on the creation of complex legal structures. While the actualtransactionsareapparentlyconductedundertheaffiliateCSPandnotbythelawfirm,thelegaladvisoryserviceprovidedbythelawyerisacontributingfactorinhowthestructuresareestablished. It iswellknown internationally that the global legal profession has been identified in numerous moneylaundering typologies and tax evasion schemes, all related to the nature of the services provided.Finally,theconductofnon-face-to-facetransactionsiscommonplaceintheprofession,especiallygiventherangeofinternationalclientsservicedbytheprofessioninBermuda.

Takingallofthesefactorsintoaccount,theinherentMLvulnerabilitywasassessedasmedium-high.

Conclusion

The inherent sectoral risk rating for the legal sector is medium-high.When taking into account themedium-high threat rating attributed to the legal sector by the Threats Working Group and theinherentvulnerabilityratingofmediumhigh,theoverallinherentsectoralriskofmoneylaunderinginthelegalprofessionismedium-high.

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Chapter 14: The Accounting Sector

AML/ATF Supervisor – Barristers and Accountants AML/ATF Board

Introduction

As of December 2016, the accounting sector comprised six firms registered with the Barristers &AccountantsAML/ATFBoardasAccountingRegulatedProfessionalFirms.Inaddition,asof2016,therewere265membersintheCharteredProfessionalAccountantsofBermuda(CPABermuda).

Generally, these six regulatedprofessional firmsoffer services related to liquidationand receivership,advisorywork,audit,assuranceandtaxes.Onefirmdoesnotconduct“specifiedactivities”60asdefinedintheProceedsofCrimeAct1997. Fourfirmsconductveryfewspecifiedactivities,andtheseserviceswereonlyconductedaspartofbroaderliquidationservices.Themajorityofthetransactionsconnectedtotheliquidationswerecourt-appointedliquidations.OnefirmownsaCorporateServiceProvider(CSP)andaTrustCompany(bothofwhichareseparatelegalentities),whichconductspecifiedactivities.

Assessment of sectoral threats

Notwithstanding, the fact that some firms have CSP affiliates/subsidiaries, it was determined thatauditorsandaccountantsshouldbeassesseddifferentlyfromlawfirms.Overall,alowthreatratingwasgiventothissector.AfewSARshavebeenreceivedfromthissector,buttheseareprimarilydrivenfromtheirfindingsintheirauditpractice.Foraccountants,aprimaryfactorcontributingtotheirthreatratingis thefact thatthesix firmsthatmakeupthissectorareallaffiliatedwith international firmsandtheprimarybusinessofthesefirmsisauditing.Further,unlikelawfirms,thesebusinesseshaveveryclearfirewallsseparatingtheirauditbusinessfromthebusinessoftheirCSPaffiliates/subsidiaries.

60 Section 49(5) of the Proceeds of Crime Act 1997 lists the ‘specified activities’, in respect of which whenconducting such activities legal advisors and others should be required to carry out the AML requirementsspecifiedinregulations.Specifiedactivitiesare(a)buyingandsellingrealproperty;(b)managingofclientmonies,securities and other assets; (c) management of bank, savings or securities accounts; (d) organisation ofcontributions for the creation, operation or management of companies; and (e) creation, operation ormanagementoflegalpersonsorarrangements,andbuyingandsellingbusinessentities.

SummaryFindings:

MLthreatstotheaccountingsectorwererankedaslow.The accounting sector’s inherent vulnerabilities were rated asmedium. Varying findings inrelationtosome inherentvulnerabilitiesconnectedtothesizeofcorporatetransactions, theuserofagents,thepossibilitytocreatestructuresthatpermitanonymity,thepotentialforuseof the sector in tax evasion schemes and the possibility of conducting non-face-to-facetransactionshavecontributedtothisrating.

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Analysis of sectoral inherent ML vulnerabilities

ThisassessmentwascarriedoutusingInformationfromadatacallfromthefirmsanddiscussionswithrepresentatives from the firms and the sponsoringbody. Informationobtained through thedata callincludeddetailson:

• typesofcustomers• natureandscopeofservicesoffered• geographicrisks• deliverychannelrisks

The analysis was limited to accounting firms that undertake specified activities. Most of the firmsindicated that the majority of specified activities in which accountants prepare for, or carry out,transactions for their clients is conducted by affiliated CSPs, though these are separate legal entitiesfrom the accounting firms. This assessment did not examine auditing or bookkeeping activitiesundertakenbyaccountants,asthesearepartofthespecifiedactivitiesasdefinedbyFATF.

Total size of the business

TheworkinggroupassessedthatthesizeoftheaccountingbusinessinBermudawasmedium-low.Heretheassessmentwasfocusedonthetotalnumberofproviders,aswellastheturnoverortotalvalueoftransactionshandledwithinthesector.Oftheregisteredfirms,fewprovideserviceswithinthescopeof“specifiedactivities”andthemajorityoftheseareinfurtheranceof liquidationsandreceiverships. Assuch, it was determined that outside of liquidations and receiverships, the size of the transactionsconductedbyaccountantswithinregulatedprofessionalfirmsonbehalfoftheirclients,isnotsignificantcomparedtoothersectorssubjecttoAMLobligationsinBermuda.

Client base profile

Althoughthereisapotentialforhigh-riskclienteleinBermuda,theaccountingfirmsundersupervisionreported—basedon their riskassessments—smallnumbersofmediumorhigh-risk clients. Given thenatureof thebusinessactivitiescarriedoutbythe firms, itwasthereforeassessedtheclientbase forthissectorinBermudawasoverallatalowrisklevel.

Level of cash activity

The level of cash activity associated with the business/profession was assessed as low. All firmsreportedthattheyeitherhad“nocash”policiesinplaceorthattheyhadalowcashthresholdlimit.

Other factors

The working group determined that accountants could potentially be involved in the creation ofcomplex structures that provide anonymity; that in the international sphere accountants have beenidentified as playing key roles inmoney laundering typologies and tax evasion schemes; and that inBermuda they do provide services through non-face-to-face channels. By offering certain types ofservices,accountantscanberetainedonmattersthatcouldbringthemwithinthescopeofmainstream

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financial services—though most of these services are often offered under an affiliate CSP corporateentity.

Basedontheanalysis,theinherentvulnerabilitywasdeterminedtobemedium.

Conclusion

When taking into account the low threat rating attributed to the accounting sector by the ThreatsWorking Group and the inherent vulnerability rating of medium, the inherent sectoral risk wasdeterminedtobemedium.

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Chapter 15: The Real Estate Sector

AML/ATF Supervisory Authority – Superintendent of Real Estate

Introduction

RealEstatesalesrepresentapproximately5%ofBermuda’sGDPandwerevaluedatBD$271millionin2016.TheRealEstatesectorasawholewasthesecond-highestcontributortoGDP,contributing16.6%in201561,whichrepresentsBD$983millioninoutputcomparedtoBD$962millionin2014.

AsofJune30,2017,therealestatesectorwascomprisedofapproximately85licensedbrokersand250licensed agents. There are two large real estate firmsoperating on the islandwhoprovide full-scaleservices. The services include: residential and commercial real estate sales; land and valuationsurveying;propertymanagementandrentals.

Themajorityofrealestatefirmsaremedium-sizedorsmall,sole-proprietorshipoperatorsthatfocusonrentals and engage in residential and commercial sales. Real estate firms have a diverse clientele,includingtrustees,domesticandinternationalindividuals.ThepurchaseofrealestateinBermudaisnotacash-basedactivityandtherearefirmpoliciesrestrictingtheuseofcashforrealestatetransactions,aswellaslimitationsonforeignownership.Indeed,theBermudarealestatemarketissmallwithalimitedabilityforforeignerstopurchasepropertyduetostatutoryimmigrationcontrols.

Assessment of sectorial threats

Althoughrealestate istraditionallyaprimarytargetformoney laundering inmost jurisdictions,this isnotthecaseinBermuda.ThemostsignificantthreatformoneylaunderinginBermudaoriginatesfromforeignpredicates,anditisdifficultforforeignerstoentertheeconomythroughtherealestatesector.

Analysis of sectoral inherent vulnerabilities

Thescopeoftheanalysisisrestrictedtotransactionsinvolvingthebuyingandsellingofrealestate,asguided by the Financial Action Task Force recommendations, and therefore transactions involvingrentalsfalloutsideoftheassessmentanalysis.

Valueoftransactions61Includingresidentialandcommercialsales,rentalsandpropertymanagement,propertyvaluationsandotherrealestatesupportservices

SummaryFindings:

Real Estate agents represent a medium-low threat of money laundering to Bermuda. Theinherentrisksinvolvingthesector’sclientprofileisconsideredmedium-highduetothesizeofreal estate transactions, the inability to identify politically exposed persons and conductcustomerduediligenceonbeneficialownersoftransactionsinvolvingtrusts.

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Thevalueoftransactionspresentsamedium-highvulnerabilityfortherealestatesector.SalesofrealestatewasvaluedatBD$271millionin2016;althoughnotassizeableasthefinancialservicesindustry,theamountsinvolvedprovideanopportunityforlargesumsofmoneytobepotentiallylaundered.

Clientprofile

Because the real estate sector has among its clients Politically Exposed Persons (PEPs) and high-net-worth individuals, its client profile is rated as a medium risk. Although PEPs and high-net-worthindividualsformpartoftherealestatesectors’clientbase,realestatefirmsarenotcurrentlycapturingthistypeofclientinformationintheirrecords.

There is alsoadistinctionbetween local and internationalhigh-net-worth individuals. The localhigh-net-worthsegmentisconsideredlowrisk,asthereislowturnoverofpropertiesbylocalowners.Ontheother hand, international high-net-worth individuals purchasing property in Bermuda are regulatedthroughthelegalalienlicensingframeworkandarethesubjectsofpolicecriminalbackgroundchecks.On topof this, there are very limited introductions/referrals fromhigh-risk jurisdictions, as there is arequirementtoengagealocalprofessionalinbuyingandsellingrealestate.

Otherfactors

Otherinherentvulnerabilityfactorsinvolvetheanonymoususeoftheproduct,sincerealestatebrokersare generally not aware of the beneficial owners of transactions involving trusts—this information isretainedbylawyersandnotsharedwithbrokers.

ThemajorityofrealestatefirmssurveyedindicatedthattheyhavenosystemsinplacetosupportSARs,althoughmosthavesystemstocollateinformationoftheirclientsforthepurposeofdraftingSaleandPurchaseAgreementsandtoconfirmtitle.

Furthermore,mostbusinessesandstaffinthisindustryhavelimitedknowledgeaboutmoneylaunderingand,consequently,anti-moneylaundering.

Asaresultoftheanalysisofthevariousfactors,amedium-highMLvulnerabilityratingwasdetermined.

Conclusion

Therealestatesectorhasamedium-highratingforinherentMLvulnerabilitiesandamedium-lowratingforthreats,resultinginanoverallfinalMLinherentriskratingofmedium.

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Chapter 16: Dealers in High-Value Goods

AML/ATF Supervisory Authority – Financial Intelligence Agency

Introduction

Thissector iscomprisedofvariousdealers inhigh-valuegoods(DiHVG)inBermuda. High-valuegoodsdealers are defined as car, boat andmotorcycle dealers, antiquedealers and auctioneers. These arepure retail businesses, as there are no known wholesale importers or exporters in these sectors inBermuda.Thesectorcontributedlessthan1%totheGDPofBermudaduringtherelevantperiod.TheyearlyvalueforthissectorduringthereviewperiodwasintherangeofBD$30to44million.

Thelevelofcashactivityinthissector,inparticular,large-leveltransactions,isminimal.Therearelessthan 30 retailers operating in Bermuda and a low ratio of non-resident clients due to residencyrestrictionsonthelicensingofcarsandregistrationrequirementsfortheoperationofboatswithinthejurisdiction. The number of vehicles that can be licensed and operated for commercial purposes isstrictlymonitoredbytheDepartmentofTransportControl.It should be noted that this sector was not in scope of Bermuda’s AML/ATF regime for the periodcovered by the 2017National Risk Assessment as the sectorwas brought under the frameworkwitheffectfromDecember1,2016.Undertherequirements,onlypersonswhowishtotakemorethanBD$7,500incasharerequiredtoberegisteredwiththeFIA.Otherentitiesareexpectedtohaveprocessesandprocedurestoensuretheydonotexceedthatlimit.

Assessment of sectoral threats

There was no evidence that the institutions’ products in this sector were used or could be usedsuccessfullyformoneylaundering.Thereforealowthreatratingwasassigned.

Analysis of sectoral inherent vulnerability

Despite the somewhat disparate nature of the sector, all the sub-groups within this sector wereassessedandthefindingsaredeemedtorelatetoallsegmentsofthesector.

SummaryFindings:

Dealers in high-value goods represent a low threat of money laundering to Bermuda. Theinherent vulnerability rating of the sector was medium-low because of a low totalturnover/valueoftheretailersinthisgroup,andbecausetheirclientbasehasalowriskandalowlevelofcashactivityassociatedwiththeirbusinesses.

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Theinherentvulnerabilityofthissectorisassessedasmedium-low,basedonalowtotalturnover/valueofthebusiness,theclientbaseprofilehavingalowriskandalowlevelofcashactivityassociatedwiththebusinesses.Thesectorcontributedlessthan1%tothegrossdomesticproductofBermudaduringtherelevantperiodandisnotacash-intensivesector.

This sector has very little exposure to dealings with any corporate structures or legal entities, as itsclientelearealmostexclusivelyindividuals.Further,anytransactionswithcorporatestructuresorlegalentities are conducted via electronic transfers or bank drafts, but not cash. In addition, there is noindicationfromthesectorthattheir limiteddealingswithcorporatestructuresorlegalentitiesinvolveany foreign entities. Accordingly, beneficial ownership informationwould be easy to obtain if itwasrequired.

Conclusion

Taking into account the low threat rating attributed to high-value dealers sector and the inherentvulnerability rating ofmedium-low, the overall sectoralML riskwas determined to bemedium- low.

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Chapter 17: Dealers in Precious Metals and Stones

AML/ATF Supervisory Authority – Financial Intelligence Agency

Introduction

TheDealers inpreciousmetalsandstonessector inBermuda iscomprisedwhollyofretailbusinesses.There are no knownwholesale importers or exporters in Bermuda andmining activities donot exist.There are less than 30 retailers operating in this sector, and only one retailer offers loose stones forpurchaseonaregularbasis. Thereisa lowratioofnon-residentclients(seasonaltransactions)versusannualpurchasesbyresidents.Duringhightouristseason(May-October)salesofjewelleryincreaseduetotax-freestatusofmanyjewelleryitems.

The sector contributed less than 1% to the gross domestic product of Bermuda during the relevantperiod,withatotalannualvalueofbetweenBD$20and$25million.Thelevelofcashactivity,inparticularlargertransactions,withinthesectorisminimal.

Assessment of sectoral threats

Preciousmetals and stones arepotentially attractive to criminals as aneasily transportable sourceofvalue to remove criminal proceeds from Bermuda. However, in light of the low level of moneylaunderingdetectedinthissectorandtheestablishedtrendforcurrencyconversion(BDtoUSD)thisisnotconsideredtobeapreferredmethodfordrugtraffickersinBermuda.TherewasalsonoevidencetosupportthatcriminalproceedswerebeingbroughtintoBermudathroughpreciousmetalsandstones.Thethreatwasthereforeassessedaslow.

Analysis of sectoral inherent ML vulnerability

Theassessmentresultedinaninherentvulnerabilityratingofmedium,thoughitwasassessedtobeonthelowestendofamediumrating.

As most of the clientele is comprised of individual buyers, the sector has very little exposure tocorporate structures or legal entities, and what little transactions exist are conducted via electronictransfers and bank drafts rather than cash. There is no indication from the sector that their limited

SummaryFindings:

Dealersinpreviousmetalsandstonesrepresentamedium-lowthreatofmoneylaunderingtoBermuda.Asaresultofthelowlevelofcashactivityassociatedwiththesebusinesses,theinherentvulnerabilitylevelwasratedasmedium.

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dealingswithcorporatestructuresor legalentities involveanyforeignentities. Accordingly,beneficialownershipinformationwouldbeeasytoobtain,ifnecessary.

As with some other sectors, dealers in precious metals and stones were not within the scope ofBermuda’s AML/ATF preventative measures regime for period covered by the 2017 National RiskAssessment. The legislative provisions that bring Dealers in High Value Goods under the scope ofAML/ATF supervision came into effect as of December 1, 2016. These provisions apply to dealers inpreciousmetals and stones aswell, requiring registration to undertake cash transactions equal to oraboveBD$7,500ortheequivalentinanyothercurrency.

Conclusion

The inherent vulnerability rating for dealers in previous metals and stones is medium. Taking intoaccountthethreatsratingofmedium-low,suppliedbytheNationalThreatsWorkingGroup,thefinalsectoralMLriskratingisalsomedium.

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Chapter 18: The Betting Sector

AML/ATF Supervisory Authority – This sector does not fall under the AML/ATF regime (and is not required to be by FATF).

Introduction

Bermudaonlyhastwobettingoperators infour locations. Companiesandcorporationsarerestrictedfrombetting,andindividualsmustbetatalocalshop.

Bermuda’sbettingindustryoffersthefollowingproducts:

• internationalsportsbetting• lottery• onlineslotmachines

Basedonrevenuecollectedfromgamingtaxes,theestimatedincomefortheentiresectorin2016wasapproximatelyBD$8million.

Therelativelysmallsizeoftheindustryhasallowedthebettingsectortodevelopitsowninternalsetsofanti-money laundering controls. One must appear in person to deposit funds into an account topurchasealotteryticketortoplaceasportbet.Thisface-to-faceaspectallowsstaffinbettingfacilitiestopersonallygaininsightintoindividualbettinghabits.Giventhesmallsizeoftheisland,moststaffinthissectorareawareofindividualsthatmayposeamoney-launderingthreat.

Assessment of sectoral ML threat

Lawenforcementhasconcernsregardingthepotentialuseofbettingshops/crownandanchortablestolegitimisetheproceedsofcrime.LikeMSBs,thisisacashbusinesswhichhasahigherriskunlessthereisevidenceofextendedduediligence. Basedon the reported figures for the taxpaid, it isestimatedthattheannualrevenueisapproximatelyBD$8millionforthebettingshops.However,asregulationorsupervisionof thebettingsectorhasnotadvancedsincetheoriginalActwasput inplace, there isnomechanismtoconfirmtherevenueearnedinthesector.Therefore,theMLthreatwasassessedtobemedium.

SummaryFindings:

Notwithstandingtherelativelysmallsizeofthesector,thenationalMLthreatratingwasassessedto bemedium, given concerns about the cash-intensive nature of the business. The inherentvulnerability score for the betting sector is medium. The relatively small size of transactionsconducted in the betting sectormakes it unlikely to be used for significantmoney laundering.Nonetheless,vulnerabilitiesrelatedtothesectorstemfromthewidespreaduseofcashandthepresenceofsomehigher-riskclientssuchasPEPs.

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Analysis of sectoral inherent ML vulnerabilities

Theentirebetting sectorwasanalysed for thisassessment, included the fourexistinggaminghouses.ThisisnotasectorthatisrequiredbyFATFtoberegulatedbutasitwasnotedasahighrisksectorinBermuda’slastAML/ATFevaluation,itwasdeemedappropriatetoundertakeaformalriskassessment.

This sector has a small turnover, no anonymous products, is of limited use in tax evasion and fraudschemes,itstransactionsaretraceable,andtransactionsareallface-to-face.

However,vulnerabilitiesidentifiedrelatedtotheuseofcash,accessibilityoftransactionrecords,somehigher-riskclientsandthepresenceofsomemoneylaunderingtypologiesinternationally.

Although the levelof cashactivity ishighandbetting shopsdohavesomehigher-risk clients, suchasPEPs, the relatively small transaction amounts diminishes the potential for even moderate sums ofmoneytobelaunderedviathebettingsector. Therearelimitedinternationaltypologiesinvolvingthebettingsector.However,therearesomeindicationsthatthebettingsectorhasbeenusedbycriminalstojustifytheoriginsofsuspectedproceedsofcrime.Inthesecases,lawenforcementhasindicatedthatit is not always easy to determinewhether betting firms have disbursed funds to clients due to theabsenceofrecord-keepingobligations.

Nobeneficialownership requirementsare inplace for the sector,but thisdoesnothavea significantimpact,asonlyindividualscanopenaccountswithbettingestablishments.

Inevaluatingallofthesefactors,theoverallinherentvulnerabilityratingwasassessedasmedium.

Conclusion

Whentakingintoaccountthemediumthreatratingattributedtothebettingsectorandtheinherentvulnerabilityratingofmedium,theoverallsectoralriskwasdeterminedtobemedium.

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Chapter 19: The Casino Gaming Sector

AML/ATF Supervisory Authority – Bermuda Casino Gaming Commission

Introduction

Atpresent,thereisnoactivecasinogamingindustryinBermuda.InDecember2014,theCasinoGamingAct 2014 (the Act) was passed, and various amendments to, and provisions of, the Act have beenbroughtintoforceduring2015throughto2017. TheActallowsforamaximumoffourlicencestobeissued for integrated resort casinos to operate on the island, and there is a three-stage applicationprocessforeach.

TheBermudaCasinoGamingCommission(theCommission)isthecompetentauthorityresponsibleforcasino gaming licensing and AML supervision for casino operators. Any resort casinos permitted tooperate on the island will not only be regulated by the industry-specific statute and supportingregulations setting outAMLobligations, but theywill be subject to the provisions of theProceeds ofCrime (AML/ATF) Regulations 2008, which contains customer identification and due diligencerequirements.

ThereispoliticalwilltopermitcasinogaminginBermuda,andtheCommissionhasdraftedanumberofindustry-specificstatutoryinstrumentsinanticipationofcasinosbeinglicensedtoopenandoperateonthe island. To date, these instruments are in draft form, awaiting approval through the legislativeprocess.

Thefirststepintheapplicationprocessistoapplyforsitedesignation.Duringthereviewperiod,thereweretwoapplicationsfordesignatedsiteorders.Onewasgrantedin2016andtheotherwasgrantedinJanuary2017.TwofurtherapplicationshavebeenreceivedbytheMinisterresponsibleforgaming,bothawaitingtherequiredlegislativeapprovals.

The second stage of the application process is to file for a casino licence. This stage started in April2017,whentheCommissionpublishedanoticestartingthestatutorythree-monthperiodtofileforthecasino licence. An internationalcasinooperatorsubmitteda jointapplicationwithoneof theentitiesgrantedapprovalforasitedesignation,thefirsteverinBermuda.OnSeptember22,2017,therewasa

SummaryFindings:

TheMLthreatlevelforthissectorwasconsideredatthetimeoftheanalysistobeLow,giventhatnocasinoshaveyetbeenestablished.

ThefinalpotentialinherentMLvulnerabilityratingforthegamingsectorofhighisconditionallyofferedbasedontheinternationalexperiencesinthisarea.

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publichearingoftheapplication,afterwhichtheCommission—satisfiedthatallapplicablerequirementsweremet—awardedaprovisionalcasinolicencetotheapplicantandthehotel.

Thethirdandfinalstageoftheapplicationprocessisthesuitabilitystage.Onlyattheconclusionofthisfinalstagecanacasinolicencebegranted,allowingfortheopeningandoperationofacasino.Asnotedpreviously,noapplicationhasreachedthatstageandnocasinoisyetoperational.

Assessment of sectoral ML threat

Although the ML threat in this sector would normally be considered high, as no casino has yetestablishedanoperationinBermuda,thethreatwasratedaslow.

Analysis of sectoral inherent ML vulnerability

Despite nooperating casinos during the assessment period, itwas agreed that real andpotentialMLvulnerabilitieswouldstillbeassessedinanticipationofopeningthefirstcasinoinBermuda.

Fortheanalysisoftheinherentvulnerabilitieskeyareasoffocuswere:

1. anticipatedclientbaseandprofilesonthebasisthatmanycasinopatronswillbevisitorsfromotherjurisdictions

2. anticipateduseofcashandwiretransferswithinthisindustry3. otherfactorspresentinthissectorinotherjurisdictionsthatmayfeatureintheanticipated

Bermudasectorandrenderthesectorvulnerabletomoneylaundering

ThepotentialinherentMLvulnerabilityoftheBermudacasinogamingsectorwasassessedashigh.Thisoverallratingisdrivenbythefactthatthetotalsizeofthebusinesswasnotanalysedandasignificantproportion of patrons will possess the characteristics that typically increase the vulnerability of aneconomicsectortomoneylaundering,specifically:

• politicallyexposedpersons(bothdomesticandinternational)• highnetworthindividuals• non-residents• foreignpersonalorbusinessinterests• personswithcriminalantecedents

Bermuda’s proposed model for casino operations is to have integrated casinos and resorts, so theexpectation is that casinos in Bermuda will be patronised by a significant number of internationalclients.Onemitigatingfactoristhatthevastmajority(approximately85%)ofvisitorstoBermudaarefromtheeasternseaboardoftheUS.Thereisnoevidencetosuggestatthistimethathavingacasinooperating in Bermudawill change that demographic and attract a larger proportion of patrons fromhigh-riskjurisdictions.

Further,thereisnoindicationtodatethatanycasinolicensedtoopenandoperateinBermudawillbevoid of the typical characteristics that increase the attractiveness of using the sector for moneylaundering.Fourfeaturesmakethegamingsectorparticularlyvulnerabletomoneylaundering:

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• casinogamingispredominatelyacash-intensivebusiness• itinvolvesfrequentexchangesofcashforcasinochipsortickets• thereareahighnumberofelectronictransactionsintoandoutofcasinodepositaccounts• theindustryfacilitatesthemovementofmoniesintoandoutofajurisdiction’sfinancialsector

These factors all increase the inherent vulnerability rating. Several other features of the anticipatedBermuda gaming sector also increased the inherent vulnerability of the sector tomoney laundering.Theseinclude:

• the existence of extensive typologies and examples of the use of a casino gaming sector formoneylaunderingandfortaxandfraudschemes

• the use of agents, allowing for “casinomarketing arrangements,” where an agent introducescustomerstoaspecificcasinooperatorinexchangeforacommission

• thepotentialofnon-face-to-faceinteractionwithpatrons

Conclusion

Basedonthelowthreatratingattributedtothegamingsectorandthepotentialinherentvulnerabilityratingofhigh,thepotentialinherentsectoralMLriskratingismedium.

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TERRORIST FINANCING RISK ASSESSMENT

Chapter 20: Terrorist Financing Introduction and overview The Bermuda Government is committed to combatting terrorism and terrorist financing, and tosupporting regional and global efforts to do the same. Bermuda implemented its first anti-terroristfinancing (ATF) legislation in 2004 and has since reinforced that legislation with enhanced legal andsupervisoryframeworksandadeterminationtohaveanATFregimethatmeetsinternationalstandardsandallowsustoplayaneffectiveroleincombattingthesenefariouscrimes.In2016,theGovernmentofBermuda’sNationalAnti-MoneyLaunderingCommittee(NAMLC)formedaworkinggrouptoconductaterroristfinancingriskassessmentinthejurisdiction.Thefindingsfromthatworkinggroup’seffortsformthissectionoftheNAMLCReport.Importantly,thereisnoevidenceofterrorismorterroristfinancinghavingtakenplaceinBermuda.Still,no jurisdiction can be considered immune from either terrorism or the financing of terrorism. TheevolvingnatureofterroristactsseeninternationallyreinforcesthefactthatBermuda’sATFregimemustremainrelevantandeffective.The TF assessment for Bermuda involved identifying terrorism and TF threats; and then assessing TFvulnerabilities. Based on the available data and an analysis of international TF typologies thatmighthypotheticallyoccurinBermuda,thecurrentlevelsofterrorismandTFthreatsinBermudaisassessedtobeMedium-Low.SectoralvulnerabilitiesbasedonperceivedpotentialriskhasbeenassessedandformostsectorsithasbeendeterminedthattheTFriskislowormedium-low,withonlythenot-forprofitsectorratedatapotentiallevelofmedium.To paint a complete picture of the sectoral risk, theworking group also assessed the strengthof thecountry’sdefencemechanisms,includingits:

• comprehensivelegalandinstitutionalframeworks• coordinatedandeffectiveintelligenceandlawenforcementefforts• robustfinancial,regulatoryandsupervisoryframeworks• timelyinternationalcooperation• inter-agencycoordination• consistentoutreachtosectorsthataremorevulnerabletoTF(suchasnon-profitorganisations

andmoneyremitters)

Overtheyears,BermudahasundertakenasignificantamountofworktodeveloparobustATFregime.Ithasastronglegislativeandinstitutionalframeworkandeffectivecooperationbetweendomesticandforeign competent authorities. Overall, the work that has been done to address terrorist financing

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matters has been positive. Bermuda is continuing its work to update and further strengthen thisframeworktoensurethatittakesintoaccountchangesinthemarketplace,methodsusedinrelationtoterrorism and terrorist financing, international requirements in this regard and any gaps that areidentifiedinthelegal,institutionalandoperationalframeworks.

Criminalising Terrorist Financing Bermuda’sAnti-Terrorism(FinancialandOtherMeasures)Act2004(ATFA)istheprimarylegislationforcriminalising terrorist financing. The ATFA criminalises three forms of fundraising for the purpose offinancingterrorism.Apersoncommitsanoffenceifhe/shedoesanyofthefollowing(withtheintentionorsuspicionthatthemoneyorotherpropertywillbeusedforterrorismorterroristfinancing):

• invitesotherpersonstoprovidemoneyorotherproperty• receivesmoneyorotherpropertyfromotherpersons• providesmoneyorotherpropertyhimself.

Targeted Financial Sanctions BermudaimplementstargetedfinancialsanctionsasrequiredbyUNSCR1267(1999)—anditssuccessorresolutions(includingUNSCR1988(2011)and1989(2011))—throughUKlegislationextendedtooverseasterritoriesbysanctions-relatedOrdersinCouncil(hereafter“Orders”).

The process of implementing these Orders has been enhanced significantly over the years, with theBermudian and UK authorities cooperating and coordinating processes to allow for simultaneousimplementationoftheOrdersinBermuda.Asaresult,in2016,therewerethreeordersmadebytheUKandextendedto itsoverseasterritories,whichBermudawasabletobring intoforceonthesamedaythat theywereenactedby theUK. Additionally,when theUKamends theOrders thatarealready ineffect in Bermuda, the amendments come into force in Bermuda automatically and with immediateeffect.

Bermuda Intelligence, Law Enforcement, Prosecutorial and Asset Recovery Agencies InBermuda,fiveagenciescooperateonTF-relatedenforcement–theFinancialIntelligenceAgency,theBermuda Police Service, the Department of Public Prosecutions, the Customs Department and theAttorneyGeneral’sChambers.BecauseoftherelativelysmallsizeofBermuda,thereareclosetiesandstrong working relationships between agencies (both formally and informally) allowing for effectivedomesticcooperation.

International Cooperation It was highlighted earlier in this report that Bermuda’s Attorney General is the Central Authority formutual legalassistancerequestsandassuchreceivesrequestsforassistancefromforeigncountries inconnectionwithcriminalproceedingsthathavebeeninstituted,orcriminalinvestigationsthatarebeingconducted. Bermuda provides legal assistance in criminalmatters to any country, provided criminalproceedingsoracriminalinvestigationhascommencedandtheproceedingsorinvestigationconcernsacriminal offence in that country. The Attorney General can, therefore, assist a foreign country in

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relation to TF that has occurred in that foreign country, furthering Bermuda’s commitment to theinternationalfightagainstterrorismfinancing.Inaddition,anumberofotheragencies,includingtheFIAwith their membership in the Egmont Group, play a key role in ensuring effective internationalcooperation.

Regulatory and Other Controls As noted previously in this report, Bermuda has a strong legislative framework that imposesrequirements and establish systems thatmitigate the level of TF threat in regulated financial entitiesanddesignatednon-financialentities.Thesupervisorybodieshaveextensiveregulatoryandsupervisorytoolkits, to ensure that they can effectively monitor and enforce compliance with the relevantprovisions. The relevant supervisors are; the BMA, for regulated financial institutions – which inBermudaincludetrustandcorporateserviceproviders;theFinancialIntelligenceAgency,fordealersinpreciousmetalsandpreciousstonesandotherhighvaluedealers;theSuperintendentforRealEstatefortherealestatesector;andtheBarristersandAccountantsAML/ATFBoardforlawyersandaccountantsinindependentpractice.AlongwiththeRegistrarGeneralwhichoverseescharities,theycooperateandcollaborate with each other and the other AML/ATF competent authorities to appropriately andeffectivelyaddressTFmatters.

What is Terrorist Financing? The Financial Action Task Force (FATF) defines a “terrorist act” by reference to widely adoptedinternational conventions62. Consequently, the FATF defines terrorist financing as any financing ofterroristacts,andofterroristsandterroristorganisations.Thiscaninvolvetheprovisionoffundsfromcriminalactivityaswellasfundsfromlegitimateorigins.Bermuda’sAnti-Terrorism(FinancialandOtherMeasures)Act2004(ATFA)definesterroristfinancinginbroad terms, including commissioning funds,directly financing,organisingordirecting funds,usingorpossessing money or property, or any other funding arrangements that contribute to terrorism.63Furtherdetails in this regard canbe gained from theATFAdefinitions for “terrorism”64 and “terroristproperty.”65

How Bermuda Assessed its Terrorist Financing Risk InkeepingwiththeFATFrequirementsforjurisdictionstoidentifyandassesstheirexposuretoTFrisk,inJune 2016, a working group was formed by NAMLC with the aim of conducting Bermuda’s first TFNationalRiskAssessmenttogainadeeperunderstandingofBermuda’sTFrisks.WiththesupportandsanctionoftheCabinetandCivilServiceExecutive,theentireprojectwascoordinatedbytheOfficeofNAMLC, which provides secretariat services to NAMLC. The working group included persons withrelevantexperience,understandingandexpertise in thesematters tobeable toappropriately informthediscussionsandanalysis.Representativesweredrawnfromjudicial,prosecutorial,lawenforcement,

62 Page 125, General Glossary, International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation, The FATF Recommendations, February 2012 63 ATFA Section 2 64 ATFA Section 3 65 ATFA Section 4

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financialintelligence,assetrecovery,immigration,bordercontrolandsupervisoryagencies.Inaddition,the working group sought input from the private sector via consultation with representatives of themain financial sectors, as well as the legal, accounting and non-profit sectors. The private sector’sinvolvementwasessential toensuringacomprehensiveassessmentofBermuda’sTF risksas theyarekeyplayersinthedetectionandpreventionofTF.

As it is understood that globally terrorism has both local and international roots and targets, theinvestigationintoitsthreattoBermudalookedatthepotentialfordomesticterrorismandthethreatofthe jurisdiction being used as a transit point for people intent on committing terrorist acts abroad.Additionally,thefeaturesofterroristfundswereexamined,namely:

• The directions of terrorist funding, meaning whether funds are generated in the homejurisdiction andused for terrorist operations elsewhere,whether funds are generated abroadandusedforterroristoperationsinBermuda,orwhetherBermudaisatransitpointforterroristfunds

• Sourcesoffinancing,eitherfromlegitimatesourcesorfromcriminalactivities• Whichchannelsarebeingusedtomoveterroristfunds

Todetermine theoverall riskof terrorist financing inBermuda, theworkinggroup reviewedavailablequantitativeandqualitative informationconcerningterroristactsandterrorist financing, including lawenforcement data, intelligence information, and terrorist research. Given the very limited empiricalevidenceofTFinBermuda,theworkinggroupadoptedanadditionalapproachtoassessingtheTFrisk,which involved the examination of hypothetical TF scenarios that were drawn from a wide range ofinternational TF typologies, and the assessment of the possibility of such scenarios occurring inBermuda. The analysis of these TF scenarios took into account all relevant socioeconomic, financial,institutional,legalandregulatoryfactorswithinthejurisdictionthatmightinfluencewhetherornotthescenarioscouldoccurandthesectorsmostlikelytobeaffectediftheydidoccur.Inordertocarryoutthis assessment, a shortlist of 20 relevant TF typologies were selected from credible internationalsourcessuchasFATFandtheEgmontGroup.ThetypologiescoveredbothtraditionalTFtechniquesandemergingTFrisk.Theworkinggroupusedthe20typologiestodevelophypotheticalscenariostocovera wide array of features seen in the typologies, while being relevant to the distinctive and relevantaspects of Bermuda. The working group then used these scenarios to assess the level of terrorismthreatsandrelatedTFriskinBermuda.

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Chapter 21: Terrorist Financing Risk Assessment

TounderstandtheoverallriskofterroristfinancinginBermuda,theworkinggroupneededtofirstknowthethreatofterrorisminthejurisdiction.Areviewofintelligencereportsoverrecentyearsaswellasan investigation into whether any of the major international terrorist groups have connections withBermudarevealedthattheoverallriskofterrorisminBermudaislow.

Since 2009 in Bermuda, there have been 15 intelligence reports and general international alertspotentiallyrelatedtoterrorism.Onlythreeoftheseintelligencereportsmeriteddomesticinvestigation.Followingtheseinvestigations,itwasdeterminedthattherewasnoevidencetoindicatethattherewasanyactualorpotentialterrorismactivityinBermuda.

Table 1 – Intelligence Reports and General International Alerts on Potential Terrorist Threats recorded in Bermuda since 2009

Inaddition to the intelligence reports, theworkinggroupexamined if therewereany indications thatBermuda was being used by any of 13 notable international terrorist groups, either as a stagingjurisdiction or as a conduit for TF activities. The level of terrorist threat posed by Foreign TerroristFighters(FTF)andself-radicalised(lonewolf)terroristswasalsoconsidered.Basedonthe informationreviewedbytheworkinggroup, itwasdeterminedthattherearenoknownterroristgroups,organisationsand/orterroristfightersorself-radicalisedterroristsoperatingwithin,ortargeting Bermuda. The terrorist groups were selected for review based on intelligence from theappropriate authorities and open source data on the scope and global outreach of these groups,includingprevioustargets(andfinancingsupport)toNorthAmericaregioncountries(USandCanada)aswellastheUK66.Theseterroristgroupsselectedforreviewwere:

66 As noted, Bermuda is part of the North America region and is a UK Overseas Territory

InvestigatedInternationalAssistancerequestedReceived

InternationalAssistancerequestsent Total

Domestic 3 - - 3

Regional - - - -

Global - - 7 7

InternationalAlerts - 5 - 5

Total 3 5 7 15

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1. IslamicStateofIraqandSyria(ISIS)2. AlQaedaintheArabianPeninsula(AQAP)3. AlQaedaCore4. AlQaedaintheIslamicMaghreb(AQIM)5. AlShabaab6. Hamas7. Hezbollah8. JabhatAl-Nusra9. Khalistaniextremistgroups10. HaqqaniNetwork11. AbuSayyaf12. TurkestanIslamicMovement(TIM–formerlyETIM)13. Al-QaedaintheIndianSubcontinent

TheWorkingGroup(WG)alsoexaminedpossiblelinkstoFTFandself-radicalised(lonewolf)terrorists.Tofurtherassessthepotentialthreat,theworkinggroupreviewedtheglobaloutreachofeachofthe13groupsandlookedat,amongothercharacteristics:

• thepotentialtotarget,oroperatein,Bermuda• techniquesusedbythegroupsforraisingandtransferringfunds• thepotentialforthesegroupstobeaffiliatedwithBermuda

There is no indication, or even anecdotal evidence, to suggest that Bermuda is being used by any oftheseinternationalterroristgroupsorbylone-wolfterroristoperators.However, the following threemain issuesemergedwhenconsideringbroadercontextual issuesabouttheterrorismthreatlevelofBermuda,inparticularBermuda’svulnerabilitytoFTFsandself-radicalisedterrorists.

• Bermudahasahighlydiversifiedpopulationofguestworkersfromallovertheworld,workingpredominatelyintheinternationalbusinessandhospitalitysectors

• MostBermudianundergraduateandpostgraduatestudents traveloverseas toundertaketheirstudies(mostlytotheUS,CanadaandtheUK)

• The WG determined that the terrorism threat profile of Bermuda can potentially shift, anddramatically so, during high-profile events, such as the America’s Cup, or when high-profileguestsvisitthejurisdiction

Bermuda remains vigilant and continuouslymonitors any demographic, or other, changes that couldincreasetheterrorismthreatandvulnerabilityinBermuda.

Terrorist Financing Threat TodeterminetheoverallthreatofTFinvolvingBermuda,theworkinggroupreviewedthelimiteddataonTFthatwasavailableinrelationtoBermudaalongwiththescenariosdevelopedfromthetypologies.Inassessingthethreatsalongthethreeaxesidentified—thedirectionoffunds,thesourcesoffundsand

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the channels of funds—most threats in Bermuda are medium-low, and a few are low. Overall, theworkinggroupconcludedthatthelevelofTFthreatismedium-low.Since2009therehavebeen22 intelligencereportsand internationalassistancerequestspertainingtopotential terrorist financing. The intelligence reports included international and domestic requestsmadetotheFinancialIntelligenceAgency(FIA)fromforeignFinancialIntelligenceUnits(FIUs)andlocallawenforcement,butalso includesspontaneousdisclosuresmadebytheFIAtoforeignFIUsand locallawenforcement,andinternationalrequestssentbytheFIAtoforeignFIUs.ForrequestsmadebyagenciesoutsideofBermuda,nofurtheractionswererequestedbytherelevantjurisdictions.Followinginvestigationofthesereportsandrequests,noevidencewasfoundofactivitiesand/orsectorsinBermudabeingusedtosupportand/orfinanceterrorismactivitieswithin,orbeyond,thejurisdiction.Table 2 – Intelligence Reports and International Assistance Requests of Potential TF Reports in Bermuda Since 2009

Additionally, and in view of the limited empirical data, the working group considered severalhypotheticalscenariosthatweredevelopedforthepurposeofthisexercise,takingintoaccountfactorsthatwererelevantintheBermudacontext.

Direction of Funds Inanyjurisdiction,therearefourpotentialdirectionsthatTFflows:

InvestigatedInternationalAssistancerequestedReceived

InternationalAssistancerequestsent Total

DirectionofFundsFundsgeneratedinBermuda,foroperationsinaforeignjurisdiction 7 - 4 11

Fundsgeneratedinaforeignjurisdiction,foroperationsinforeignjurisdictions(transitpoint)

- 3 8 11

Total 7 3 12 22

Source

Legalincome/Donations 7 3 4 14

Unknown - - 8 8

Total 7 3 12 22

Channels

Banking 5 - 2 7

Insurance(Long-termDirect) - 2 7 9

MoneyServiceProviders 2 - 3 5

RealEstate 0 1 - 1

7 3 12 22

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1. Fundsaregeneratedinthehomejurisdictionforterroristoperationswithinthehomejurisdiction2. Fundsaregeneratedinthehomejurisdictionforterroristoperationsinaforeignjurisdiction3. Fundsaregeneratedinaforeignjurisdictionforterroristoperationsinthehomejurisdiction4. Funds are generated in a foreign jurisdiction for terrorist operations in a different foreign

jurisdiction,andthehomejurisdictionoperatesasatransitpointTheconclusionoftheworkinggroup’sanalysisoftheseflowsisasfollows:

i) Funds generated in the home jurisdiction, for operations within the home jurisdiction

As there are no known terrorist organisations and/or individual terrorists operating in Bermuda, andaccordingly,nodomesticterroristactsrequiringfinance,theTFthreatinBermudawasconsideredtobelow in relation to funds generated in the home jurisdiction for terrorist operation within the homejurisdiction.

ii) Funds generated in the home jurisdiction, for operations in a foreign jurisdiction ThelevelofTFthreatinBermudawasassessedtobemedium-lowinrelationtofundsgeneratedinthehomejurisdictiontosupportterroristoperationsinaforeignjurisdiction.Of the 22 intelligence reports and international requests recorded in Bermuda, 11 related totransactions where funds had been generated in Bermuda and subsequently sent to high-riskjurisdictions. However,thereisnoevidencetoindicatethatanyfundsweregeneratedinBermudatosupport and/or finance terrorist activities inside, or outside, the jurisdiction. Nonetheless, the WGidentified that there is still a need for ongoing education of the public in relation to traditional andemergingTFmethods. This isreinforcedbytherecent incidentsofphishingfraudinBermuda. Theseincidents were initiated from outside Bermuda and targeted residents in Bermuda, but were notdeemed to be connected to TF. However, considering the experience of local law enforcementregarding foreignphishingattacks, this techniquemightmoderately impactBermuda’sexposuretoTFrisk.

iii) Funds generated in a foreign jurisdiction for operations in the home jurisdiction As there are no known terrorist organisations or individuals in Bermuda, therewould bede facto nofinancingforsuchactivitiesrequiredinBermudaatthistime.Theriskforthistypeofterroristfinancingisthereforeratedlow.

iv) Funds generated in a foreign jurisdiction and transiting Bermuda for operations in foreign jurisdictions ThelevelofTFthreatinthisareaisconsideredmedium.Thisratingisduetotherelativelylargesizeofthe international business sector and the associated significant number of international transactions.

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While the majority of the international transactions processed are associated with the internationalbusinesses domiciled in Bermuda, given the high volumes, the jurisdiction could be attractive toterroristsattemptingtoconcealand/ormovefundsthroughBermuda.

Source of Funds PotentialdomesticandforeignsourcesofTFinBermudaarelimited,thoughpotentialsourcesofTFinBermudacouldbefromlegitimatesourcessuchassalaries,businessincomesand/ordonations.Given the nature of Bermuda’s financial sector, it is possible that foreigners might attempt to useBermudian financialproductsaspartofaschemetoroute funds to terroristorganisations. However,therearenointelligencereportsoranyotheravailableevidencesuggestingthishasoccurred.A furtherpotential sourceof fundswas identified in relation to the illicitdrugs trade.Bermudahasarelatively large number of gang-related drug dealers and a relatively high rate of drug use, but nomaterial capacity for thedomestic productionof drugs. Since essentially all drugs are imported, it ispossiblethataportionoftheimporteddrugscouldbelinkedtofinancingterrorism.Theworkinggroupalsoassessed theNon-ProfitOrganisation (NPO)sector todetermine thepotentialforsuchorganisations,includingthosenotrequiredtoberegistered(e.g.churches)tobemanipulatedto raise funds for terrorist operations. Although 45% of the global TF cases involve NPOs67, it wasdetermined that in the Bermuda context this potential threat is largely offset by the fact that themajorityofBermudaNPOsfocusexclusivelyondomesticcharitywork;lessthan10%ofBermudaNPOshaveoverseasbeneficiaries.

Channels The recorded intelligence reports, international requestsanda reviewof somehypothetical scenarioshighlightseveralchannelsthatcouldbepotentiallyutilisedfortransmittingterroristfunds.Insurance68,Banking andMSBswere deemed to be themost pertinent in the Bermuda context based on the 22intelligencereportsandinternationalrequests.Nineoftheserelatedtolong-termdirectinsurance,andseventobanking,fivetoMSBs.• Banks: Bermuda’s status as an International Financial Centre (IFC) with a significant commercial

insurance/reinsurance industry means that its banks undertake a high volume of internationaltransactionsonadailybasis. Accordingly, it is relevant toconsider theTF threat to theBermudabankingsector. Itshouldbenotedthatthemajorityof theglobalTFtypologieshighlightthatthebankingsector isoneof themainchannelsutilisedby terrorists. Nonetheless, theWGconcludedthattheTFthreattoBermudabanksbeingusedaschannelstomoveterroristfundsismedium/lowbecause there are only four licensed banks in Bermuda, none of which carry out correspondentbankingservices.

67 EGMONT Report: FIUs and Terrorist Financing Analysis – A review by the EGMONT Group of sanitized cases related to Terrorist Financing. 68 Throughout this paper insurer/insurance includes reinsurers/reinsurance. Distribution channels are the weakest link for ML (and maybe TF) in this sector.

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• MSBs: Bermuda has a growing community of guest workers who remit funds to their homecountriesonaperiodicbasisbyusingMoneyServiceBusinesses.Someoftheseguestworkersarefrom jurisdictions regarded tobehigh risk for terrorismor TF, so it is possible that funds sent tosupportterroristoperationsmightbedisguisedasfundsbeingsenttosupportfamilymembers. InBermuda, wire transfers andMSBs are two of the channels used for money laundering, so theycouldalsobepotentiallyusedforTF.However,theTFthreattothissectorisreducedsincethereisno evidence of radicalisation in Bermuda, and no evidence that the influence of foreign terroristorganisationsextendstoBermuda.WithregardtoMSBs,thelevelofTFthreatismedium/low.

• Physical transportation of cash: There is also always a potential for moving terrorist fundsphysically,incash,acrossinternationalborders.Ininternationaltypologies,thischannelisusedbyself-radicalised individuals. In Bermuda it is possible that such persons could use thismethod totakefundsoutofthecountryforthepurposesofTF,butaspreviouslynoted,thereisnoevidenceofself-radicalisation in Bermuda. The use of cash couriers is known in Bermuda as a method forlaunderingtheproceedsofdrugtrafficking.However,inthosecasestheempiricalevidenceshowsthat the couriers are typically not the primary criminals, butmerelymules who rarely know thesource or purpose of the funds. Therefore, although thismethod is used forML in Bermuda, inthesecircumstances,thelevelofTFthreattoBermudafromthischannelisconsideredmedium-low.

• Insurance companies: The composition of the Bermuda insurance market reduces the risk of itbeingusedasachannelforTF.Over95%oftheBermudainsurancemarketiscomposedofgeneralbusinessandlong-termreinsuranceentities.Insuranceproductsfortheseentitiestypicallyhavenocash surrender values and no payouts are made once policies mature. Therefore, they do notprovidethesufficientfunctionalityandflexibilitytobelikelyvehiclesforthemovementofterrorist-relatedfunds.

Sectoral Analysis of Terrorist Financing Risk AsthereisnoterroristactivityinBermudaandnoknownterroristorganisationsorlone-wolfoperatorsactiveinthejurisdiction,thesectoralanalysisisbasedonpotentialrisk.

Banking InBermuda, terrorist fundsaremost likely tobemoved through thebanking system, though the riskwouldhavetobebasedonthepresenceofradicalizedresidentsmakinguseofBermuda’sinternationalbankingproducts.Atpresent,thereisnoevidenceofanyradicalizedresidentsinBermuda.ThebankingsectorinBermudaofferssophisticatedfinancialproductsandthecountryishometomanybusinesses thatoperate in the internationalmarketplace. Someof the financial productsofferedarepotentiallyvulnerabletoTFiftheyarenotsufficientlymonitoredand/orcontrolled.Thebankingsectorrequirescarefulmonitoring,buttheTFrisktotheBermudabankingsectorisloweredbythefactthereareonlyfourlicensedbanksinBermuda,noneofwhichactasacorrespondentbank.TheautomatedAML/ATFmonitoringsystemsusedbythebanksareadequate.Theresultsoftheon-siteandoff-siteexaminationsofthebankingsectorshowthatthebankshaveagoodunderstandingofthe

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risksrelatedtoTFandthatthere’sanopendialoguewiththesupervisoryauthoritiesandenforcementagencies.Overall,theworkinggroupassessedthelevelofTFriskswithinthebankingsectortobemedium-low.

Money Service Business (MSBs) ThereareonlytworegisteredMSBsinBermuda,bothofwhichareaffiliatedwithwell-regulatedglobalinstitutions.Since2009therehaveonlybeentwoTF-relatedintelligencereportsrelatedtoMSBs;bothwereinvestigatedandnoevidencewasfoundto indicatethatthesectorhadbeenusedtosupportorfinanceterroristactivities.The key threat identified within theMSB sector is the potential of diaspora communities located inBermudasendingfundstohigh-riskjurisdictionsundertheguiseoffamilialsupport.SomeofBermuda’sgrowing community of guest workers—who use MSBs to periodically remit funds to their homecountries—arenationalsofcountriesregardedtobehighriskforterrorismandTF.Therefore,thereisapotentialriskthatfundssenttosupportterroristoperationsmightbedisguisedasfundsbeingsenttosupport familymembers,or that such legitimate fundsmightbedivertedby terrorist sympathisers intherecipientcountry.This sector requires continued closemonitoring, though a number of factorsmitigate the TF risks ofMSBs. First,MSBsare licensedasfinancial institutionsandthereforefallunderthesupervisionoftheBMA. Second, similar to banks and other financial institutions, all persons using these services aretreatedasclients,meaning legislationrequiresMSBs tocompletea riskassessmentand full customerduediligenceprior toconductingclient transactions. Third, since2009, theannualsupervisoryonsiteexaminationoftheMSBsectorhasshownacontinuedimprovement intheabilityofMSBstomonitorclienttransactions.ThenatureandstructureoftheMSBsector inBermudaclearlymitigatesthethreatofTF.Overall,thelevelofTFriskswithintheMSBsectorislow.

Corporate Service Providers (CSPs) There are approximately 100 corporate serviceproviders in operation inBermuda. These companiesoffer services associatedwith the formation andmanagement of companies, partnerships and otherlegal arrangements, which can be used by terrorist financers to establish companies with complexstructuresthatconcealtheultimatebeneficialownersandtherebyfacilitatethemovementofterroristfunds.InBermuda,thereisnoevidenceofsuchmisuseofCSPs.Additionally,theCSPsectoriscurrentlybeingbrought under the regulatory umbrella of the BMA, which will see CSPs subject to direct AML/ATFregulation.However,themajorityofCSPsarealreadysubjecttoacertaindegreeofAML/ATFpoliciesand procedures and systems and controls, asmost CSPs in Bermuda are ownedor controlled by lawfirms, accounting firms, or regulated financial institutions that are already subject to AMT/ATFregulation.

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Companies and partnerships can be structured in a way that disguises the identity of the beneficialowners and thereby potentially facilitates terrorist financing. However, Bermuda’s regulatory andlegislativeregime—coupledwiththefactthattherehasbeennoTFactivitydetectedintheCSPsector—resultedinadeterminationthattheTFriskismedium-low.

Long-term (direct-life) Insurance Long-term(direct-life)insurersrepresentlessthanapproximately1%ofthetotalassetsintheBermudainsurancemarket.ThepotentialTFthreattothissectorisprimarilyintheformofcyber-attacksforthepurpose of TF. The intelligence reports and international requests that were reviewed by the WGshowednoevidencetoindicatethatthissectorhadbeenusedtosupportorfinanceterroristactivities.Overall,thelevelofTFriskswithinthelong-term(direct)insurersislow.

General Business (Non-Life) Insurance and Reinsurance GeneralBusiness (non-life) insuranceandreinsurancedonot fully fallwithinscopeoftheProceedsofCrime(POC)Regulations,sincetheyaretraditionallyconsideredlowriskforML/TF.GiventhatBermudais an insurance-based IFC, there is a considerable amount of funds initiated in, and flowing through,thesefirms.However,insuranceproductsfortheseentitiestypicallyhavenocashsurrendervaluesandnopayoutsaremadeoncepoliciesmature.Therefore,theydonotprovidethesufficientfunctionalityandflexibilitytobelikelyvehiclesforthemovementofterrorist-relatedfunds.

Furthermore,onlyahandfuloftheseentitiesunderwritebusinesslinesthatexposethemtokidnappingclaimsand theWGdidnot findanyevidenceofmisuseof insurancepolicies forpayments related tosuchclaimsthatbenefitterrorists. AkeyTFthreatwithinGeneralBusiness insuranceandreinsuranceincludespotentialcyber-attacksforthepurposeofTF.

Overall,thelevelofTFriskswithinGeneralBusinessinsurersandreinsurerswasconsideredtobelow. Lawyers and Accountants There is no evidence of any specific TF threats to the legal and accounting professions in Bermuda.Lawyers and accountants are subject to comprehensive AML/ATF requirements and subject tosupervisionby theAML/ATFBoard. TheBarristers&AccountantsAML/ATFBoard is obligated to filesuspicious activity reports with the FIA and is also able to specifically cooperate with the BMA onsupervisory matters, since some aspects of their supervisory remits overlap in relation to certainentities.ThelevelofTFriskwithinthelegalandaccountingprofessionswasdeterminedtobelow.

Non-Profit Organisations (NPOs) ThekeypotentialthreatsidentifiedwithintheNPOsectorare:

• charities with overseas operations that send funds overseas and later divert these funds forterroristfinancing

• unregistered churches, including small house churches, receiving donations that are sentoverseastosupportterroristsundertheguiseofcharitablefunds

• membersofthepubliccarryingoutpublicfundraisingforterroristfinancingundertheguiseofacharity

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Funds donated to churches during religious services do not constitute public fundraising under theCharities Act 2014 and therefore are not subject to any regulatory oversight for AML/ATF purposes.Though this isapotential risk, it isestimated that inBermuda,317charities (94%) focusondomesticcharitywork-theyraisefundsinBermudaandperformalloftheircharitableactivitieswithinthelocalcommunity. Only20 (6%)of registered charities engage in charitableworkor activities (cross-borderflows) outside of Bermuda. Furthermore, churches that engage in public fundraising for charitablepurposes,otherthanduringreligiousservices,musteitherregisterascharitiesorformcharitablearmsthatareregisteredcharities.SubsequenttothecompletionoftheNRA,asectoralriskassessmenttoassessthelevelofML/TFriskintheNPOsectorwasperformedandariskbasedapproachtoaddressthissectorhasbeenimplemented.Although there is nodataon terrorist financing in theNPO sector, there are TF vulnerabilities in thissector.Accordingly,theTFriskswithintheNPOsectorisassessedasmedium.

All Other Regulated Sectors The key TF threats identified in other regulated sectors (trust companies, investment funds, fundadministrators,non-licensedinvestmententities,gaming,high-valuedealersandtheBSX)are:

• potentialcyber-attacks• phishingthroughtheuseofe-mailandfax

Complex trust structures with foreign controllers or beneficiaries introduce TF vulnerabilities toBermuda,buttheseserviceprovidersareregulatedbytheBMAasfinancial institutionsandsubjecttocomprehensiveprudentialandAML/ATFregulation.Similarly, investment funds, fund administrators and licensed investment companies are regulated bythe BMA and thus subject to comprehensive regulation. Even non-licensed investment companies,whicharenotsubjecttocomprehensiveprudentialrequirements,arewithinthescopeoftheAML/ATFregimeandfallundertheumbrellaoftheBMA.The abuse of the real estate sector for TF is very lowdue to the nature of the real estatemarket inBermuda.Overall,theTFriskinthesesectorsisassessedasmedium-low.

Other Unregulated Sectors The working group also reviewed private trust companies and betting shops and lending occurringoutsideofthebankingsector.Effortsareunderwayacrosstherelevantauthoritiestocomprehensivelyreview these sectors, with a view to appropriately update the regulatory framework and level ofregulation.Overall,theTFrisksintheprivatetrustcompaniesandbettingshopsandlendingoutsideofthebankingsectorareassessedtobelow,giventhenatureoftheiroperations.

Conclusion

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Themethodology used by theworking group involved identifying TF risks by assessing separately: (i)terroristandTFthreats;and(ii)TFvulnerabilities.TheterrorismthreatinBermudawasassessedtobelow,owingtoanabsenceofevidenceofdomesticterrorism,terroristorganisationsandindividuals,anda lack of evidence of foreign terrorist organisations exercising influence in Bermuda. The terroristfinancingthreatwasrankedslightlyhigher(medium-low)astherearesomechannelsofTFfundingthatBermudahashigherlevelsofexposureto,giventhenatureofBermuda’sinternationalfinancialservicessector.In the absence of terrorist activity in Bermuda and no known terrorist organizations or terroristsoperating in/from the jurisdiction, an assessment of potential TF risk was undertaken. With theexceptionofthenot-for-profitsectorwhichwasratedasmediumTFrisk,alloftheothersectorswereratedateithermedium-loworlowTFrisk.InorderforBermudatoeffectivelycontributetotheinternationalATFeffortsandoperateasaqualityIFC,therelevantBermudaagencies,inconjunctionwiththeprivatesector,mustcontinueto:

a. rigorouslyassesstheterrorismandTFthreatsb. ensureastrongATFframeworkinlinewithinternationalstandards

WhilethereisnoevidentialsupportforBermudabeingasourceofTF,nojurisdictioncanbeconsideredimmune. Continuing international acts of terrorism demonstrate that terrorist activities and TF areconstantlyevolving.BermudaneedstoensurethatitsATFregimeremainsrobustandisabletoadaptappropriatelytoany,andall,risks.

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Chapter 22: Conclusion Inherent Money Laundering Risk Findings National Threats Theoverall threat levelofmedium-high takesaccountof the ratings fromthe twosubcategorieswithdata,namelydomesticmoneylaunderingandmoneylaunderingfromabroad.

• Thedomesticmoneylaunderingthreatisamedium-lowthreat,withdrugtraffickingconsideredto be the most significant predicate in this regard. Other domestic predicates that couldcontributetomoneylaunderinginBermudawereprimarilyconsideredtobelow-threat.

• Threats fromabroadaremore severe. Thisarea is viewedashigh threat,which is consistentwith internationaltrends. International fraud, internationaltaxcrimes, foreigncorruptionandinternationalmarketmanipulation/insidertrading—thecorepredicatesofthiscategory—areallhigh threat. The international financial services sector inBermuda is thereforeparticularly atrisk.

Inherent Money-Laundering Risk at the Sectoral Level The findings from thisML risk assessment provide a useful foundation uponwhich both supervisoryauthoritiesandtheregulatedsectorscanundertakemeaningfulriskanalyses.Riskanalysisisimportant;lookingatsectoralandinstitutionalmoneylaunderingriskallowssupervisoryauthoritiestoshapetheirinspectionprogrammes. It alsoassists regulated institutions in implementingpoliciesandproceduresthataresuitableforthetaskofcombatingmoneylaundering.

As noted in the table below, of the 15 sectors assessed, four were rated as high-risk for moneylaundering,whilethreewereratedasmedium-high.

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Sector ThreatRating

InherentVulnerability

Rating

InherentMoney-LaunderingRisk

Rating

Banking High High High

Securities High Medium-high High

Insurance(long-termdirect) Medium-high Medium-high Medium-high

Reinsurance(generalandnon-lifeinsurance) Low Medium-low Medium-low

MoneyServiceBusinesses Medium-high Medium Medium-high

Gaming Low High Medium

Betting Medium Medium Medium

RealEstate Medium-low Medium-high Medium

Dealersinpreciousmetalsandstones Medium-low Medium Medium

Accountants Low Medium Medium-low

Lawyers Medium-high Medium-high Medium-high

High-valuedealers(Car,boat,motorcycleandantiquedealers;andauctioneers)

Medium-Low Medium-low Medium-low

TrustServiceProviders Medium-high High High

CorporateServiceProviders High High High

Otherfinancials(BermudaStock

Exchange) Low Medium-low Medium-low

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As previously highlighted, Bermuda’smoney laundering is largely imported,which iswhy the sectorswithhighexposuretointernationalbusinesshavehigherriskratings.Thebanking,securities,trustandcorporateserviceprovider(CSP)sectorsareratedashavinginherentlyhighrisk.Thebankingsectorisconsidered high risk because of their exposure to the potential threat of money laundering frominternational predicates, both directly, from their own international clients, and indirectly, from theirdomesticcommercialclientsintheinternationalbusinesssector.

Thetrustserviceprovidersectorisassessedashavinginherentlyhighrisk,duetotheglobalreachofthetrusts under operation, the high value of asset transfers, and the risk profile of customers, whichincludeshigh-net-worthindividualsandPEPs,bothresidentandnon-resident.

IntheCSPsector,thegatekeeperfunctionplayedbyCSPsforinternationalclientsmeantthatboththethreatand inherentvulnerability formoney launderingwerehigh, resultingwithanoverall inherentlyhigh-riskrating.

The securities sector’s inherently high-risk rating is driven primarily by the level of internationalinvolvement in the sector,high-risk individuals in the clientbase, and thegrowing importanceof thissectorinBermuda.

Thelegalsector,whichoffersproductsandservicesto internationalclients,has increasedexposuretobeingusedtoharbourtheproceedsfromforeigncrimes.Therefore,theywereratedashavingmedium-highinherentrisk.

Long-term direct insurance has a medium-high inherent risk, driven primarily by the nature of theproductsofferedandthepredominantlyinternationalclientbaseserved.

The MSB sector is also rated medium-high, driven primarily by the intrinsic characteristics of theproductsoffered,thewideaccesstotheproducts,thetransientnatureofthecustomerbaseandtheirexposuretocashtransactions.

Thecasinogamingsector is ratedasmedium,and though thismayseemodd in lightof internationalexperiencewith casino gaming, it should be noted that this is a prospective rating no casino gamingtakesplaceinBermuda.However,theassessmentwasprimarilyfocusedonpotentialvulnerabilitiestobetter adapt legislative controls and supervisory focus for this sector when operations are licensed.Therefore, the sectoral working group took some account of the type of gaming expected to bepermitted,giventhelegislativeframework.Theabsenceofcasinooperationsisreflectedinthesectoralthreatrating.

Terrorist Financing Risk Assessment Asexpected,thereisnoevidenceofterrorismorterroristfinancinginBermuda.Notwithstanding,theoverallTFthreatinBermudawasassessedtobemedium-low.BermudahasmoderatelyhigherlevelsofexposuretosomechannelsofTFfunding,giventhenatureofBermuda’sinternationalfinancialservicesectorandtheexperienceoflocallawenforcementandintelligenceauthoritieswithmethodsfrequentlyused in money laundering cases. However, this heightened exposure is offset by the absence ofevidenceofTFoccurring inBermuda,or theuseofBermuda’s financial systems for themovementofterroristfunds.

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On the basis that there was no evidence of terrorism or terrorist financing in the jurisdiction, theanalysis of sectoral vulnerability was done of potential TF risk. The not-for-profit sector was ratedmedium risk, while the banking, trust and corporate service providers, securities (investment funds,fundadministrators,non-licensed investmententities),gamingandhigh-valuedealerssectorswereallrated asmedium-low. All other sectors reviewed, includingMSB, insurance (captive and commercialincluding long-term(direct-life)), legalandaccounting,privatetrustcompaniesandbettingwereratedaslow.InrelationtotherealestatesectoritwasconcludedthattheabuseofthissectorforTFisverylow.

Conducting the Second Iteration of the National Money Laundering Risk Assessment on Money Laundering Comparedwith2013,therewasamarkedimprovementinthequalityandavailabilityofdatarequiredfortheNRA,andenhancedparticipationfromAML/ATFauthoritiesandothergovernmentagencies.Inmanyofthesectoralgroupsthatmakeupthefinancialsector, lessons learnedfrom2013hadalreadyresulted in data calls being incorporated in the annual returns required from regulated institutions,thoughthisisnotyetimplementedacrossallfinancialsectors.Inthecaseofnon-financialsectors,datacallshadtobeundertakenduringtheNRA.

The2017NRAsawactiveparticipationfromtheprivatesectorinallsectors.Insomecasestheprivatesectorparticipationoccurredat theworkinggroup level; inothers theparticipationwasat theresultsvalidationstage,butwasneverthelessstillmeaningful.Thislatterapproachwastakeninsectorssubjecttomoremature supervisory regimes,wheredatawasalready inhandandcouldbeusedearly in theprocesstopopulatetheinputvariablesforthosesectoralassessments.Inthosesectors,thepreliminaryscoresweregeneratedbydataand latervalidated throughoutreach to,anddiscussionwith, industryrepresentatives.

Subsequent Events WhiletheassessmentperiodofthisreportisfromJanuary2013toDecember2016,thedatacollectionperiodcommencedin2015andcontinuedthrough2017.Thefollowingrepresentsadocumentationoftheregimechangesandprogressmadebytheauthoritiesduring2017:

1. New legislation enacted in February 2017 allows the Registrar of Companies to implement aregime for monitoring compliance with obligations relating to legal persons under theCompaniesActandotherrelevantcorporatelegislation.

2. CabinethastakenamorefocusedapproachtomonitoringprogressintheenhancementoftheAML/ATF regime, through implementation of various accountability measures such as theestablishmentofaspecialCabinetCommitteeandinvocationofareportingmechanismfortheNationalAnti-MoneyLaunderingCommitteetoreportontheiractivities.

3. Legislativeamendments to theProceedsofCrimeAct1997made income/profit-based foreigntax evasion a predicate formoney laundering in Bermuda,which now allows for the filing ofSuspiciousActivityReportswhenthereisasuspicionthatsuchactivitiesaretakingplace.

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4. National-level trainingwasoffered to seniorgovernmentexecutivesandCabinetMinisters, toenhancetheirunderstandingoftheAML/ATFregimeandtheinternationalstandards.Trainingwasalso conducted for supervisory authorities and forotheroperational agencies involved intheAML/ATFregime.

5. ThenewRealEstateBrokers’LicensingAct2017wasenactedinOctober2017andrequiredrealestateagentsandbrokers to submit applications for licencesbyNovember15,2017. Amongother things, this new Act imposes new fit and proper requirements on licensees and theirassociates.TherewillalsoberequirementsforsubmissionofrelevantinformationinrelationtocompliancewiththeAML/ATFrequirements.

6. AriskanalysisofthetypesandcategoriesoflegalpersonsthatcanbeincorporatedinBermudahasbeenconductedandareportisbeingfinalisedtoenhancetheeffectivenessoftheRegistrarofCompany’scomplianceprogramme.

7. CSPs now have more supervision, following legislative amendments. Accordingly, thesupervisoryframeworkforCSPsisnowoperational,andlicenceshavebeenissuedtoanumberofcorporateserviceproviders,startingin2017.

8. Legislative changes came into effect in early November 2017 in relation to the High-ValueDealers regime that will allow for more effective “policing of the perimeter” of this sector.These changes allow the supervisor—the Financial Intelligence Agency—to get informationabout,andtakeactionagainst,entitiesthathavenotregistered.

9. Amendments to legislative requirements in relation to beneficial ownership continue. Inaddition to imposing specific requirements for legal persons in relation to holding and filingaccurate beneficial ownership information, the exchange control filing, and the vettingframeworkhasbeenexpandedtoensurethatthedefinitionsofbeneficialownershiparefullyinlinewithFATFrequirements.

10. Other legislative amendments addressed a range of gaps in the regime,with the key aims tostrengthen the CDD requirements in relation to legal persons and legal arrangements, toimplement a risk-based regime for non-profit organisations and to empower the supervisoraccordingly.

11. Changes have also been made to TF related legislation to address gaps in relation todesignationsofpersons.

12. AML/ATFauthoritieshavereviewedthefindingsoftheNRAanddeterminedappropriateactionsteps, both at the national and agency level. Work is ongoing to update policies and actionplansandtotakeappropriatestepstoaddressidentifiedgaps.

13. Inearly2018,apublic/privatesector initiativewaslaunchedtohighlighttoraiseawarenessofAML/ATFmattersandtohighlighttothepublictheimportanceofthemplayingtheirroleinthefight against money laundering and terrorist financing. Key issues highlighted include therequirements in relation to the filing of SARs and the need to appropriately address CDDrequirements. This initiative titled the “Good Business” campaign which has a website at:www.goodbusiness.bm.

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Appendix A. Glossary

AGC Attorney General Chambers

AML Anti-Money Laundering

AML/ATF Board Barristers and Accountants AML/ATF Board

ATFA Anti-Terrorism (Financial and Other Measures) Act 2004

ATF Anti-Terrorist Financing

BMA Bermuda Monetary Authority

Board Barristers and Accountants AML/ATF Board

BPS Bermuda Police Service

BCGC Bermuda Casino Gaming Commission

BPS Bermuda Police Service

CDD Customer Due Diligence

CFATF Caribbean Financial Action Task Force

CSP Corporate Service Providers

Customs Department of Customs

DPP Department of Public Prosecutions

EFTs Electronic Funds Transfers

EU European Union

FATF Financial Action Task Force

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FCO Foreign and Commonwealth Office

FIA Financial Intelligence Agency

FIU Financial Intelligence Unit

FTF Foreign Terrorist Fighters

GDP Gross Domestic Product

IFC International Financial Centre

MoF Ministry of Finance

MoLA Ministry of Legal Affairs

MoU Memorandum of Understanding

MSB Money Services Providers

MVTS Money Value Transfer Systems

NAMLC National Anti-Money Laundering Committee

NPO Non-profit Organisation

NRA National Risk Assessment

OECD Organized & Economic Crime Department

PEP Politically Exposed Person

PF Proliferation Finance

POCA Proceeds of Crime Act 1997

POC Regulations Proceeds of Crime (Anti-Money Laundering and Anti-

Terrorist Financing) Regulations 2008

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RG Registry General

RoC Registrar of Companies

SAR Suspicious Activity Report

SoRE Superintendent of Real Estate

TAFA Terrorist Asset-Freezing etc. Act 2010

TF Terrorist Financing

TFS Targeted Financial Sanctions

TSPs Trust Service Providers

UK United Kingdom

UN United Nations

US United States

UNSCR United Nations Security Council Resolution

WB World Bank

WG Working Group

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Appendix B. The World Bank Tool

Assessment of Money Laundering Risk As noted in the body of the report, theWorld BankModel identified seven key areas to assess forMoneyLaundering,asfollows:

MODULE1-Nationalmoneylaunderingthreat

MODULE2-Nationalvulnerability

MODULE3-Banking/creditunionsectorvulnerability

MODULE4-Securitiessectorvulnerability

MODULE5-Insurancesectorvulnerability

MODULE6-Otherfinancialsectorsvulnerability,namely,moneyservicebusinessesandtheBermudaStockExchange

MODULE7-Non-financialsectorsvulnerability,namelydesignatednon-financialbusinessesandprofessions(DNFBPs)andothers,suchas:

• TrustServiceProviders

• CorporateServiceProviders

• CasinoGamingandtheBettingSector

• RealEstateDealers

• Dealersinpreciousmetalsandstones

• LawyersandAccountants;

• DealersandAuctioneersspecialisinginhigh-valuegoods(cars,boats,bikesandantiques)

Thefigurebelowillustratestherelationshipsbetweenthemodules.

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TheWorldBankModelproducesratingsandscorestodeterminetheoverallrisk.Thegeneralprocessisasfollows:

i. Eachofthemodulestoassessvulnerability(Modules2–7)isbrokendownintowhatarecalled“inputvariables”and“intermediatevariables.”EachinputvariableassessesvariouskeyfeaturesofthesectoralornationalAMLframework,ortheproductsofferedbyeachsector,andrequiresaquantitativeassessmenttobemadebytheworkinggroup.Theworkinggroupassignsscoresfortheseinputvariables,whicharetheninputintotheWorldBankModeltool,whichusesitsbuilt-inalgorithmstocalculatetheintermediatevariables.

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ii. Thecombinationofinputandintermediatevariablesgeneratesasinglequantitativescorefor each vulnerability module (Modules 2 – 7). These scores translate into thevulnerability rankingsof low,medium-low,medium,medium-highorhigh. This appliesforbothsectoralandnationalvulnerabilityassessments.

iii. The quantitative scores for each sector are combined with scoring on the nationalcombatingcapability, togeneratea singlequantitative score that indicates thenationalvulnerabilitylevel,whichcanbeplottedtoanationalvulnerabilityranktodetermineanoverallrankingoflow,medium-low,medium,medium-highorhigh.

iv. Module1of theassessment tool is anexceptionanddoesn’toperateonquantitativelydetermined input variables. Instead, the module requires the Working Group todetermineasubjectiverankingoftheMLthreatfromthevariouspredicateoffencesintolow,medium-low,medium,medium-highorhigh.Themodulealsorequirestherankingofthemoneylaunderingthreattoeachsector,aswellastheidentificationandrankingofthecross-borderthreat,usingthesamerankinglevels.Uponrankingallofthesethreats,theusermustdetermineasinglenationalthreatrank.

Assessment of Terrorist Financing Risk Bermuda’sTFNRAwascarriedoutusinganassessmentframeworkdevelopedbytheWorldBankGroup(WB). The WB tool provides a systematic method to identify, assess and evaluate TF threats andvulnerabilitiestoenhanceunderstandingofTFrisk.TheWBtoolcanbemodifiedasnecessarytotakeaccount of the salient features of each country. For example, in the case of Bermuda the tool wasmodifiedtoreflectBermuda’sstatusasanInternationalFinancialCentre(IFC)andthefactthatBermudahasnotexperiencedanyterrorismandTFcases.

Figure1–WBTFRiskAssessmentTool

Source-WorldBank

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TheWBtoolinvolvesanoverallassessmentofTFriskthatisbasedonanexaminationofthreefactors:

i. TerroristThreatAssessment–Thispartofthetoolassessesthelevelofterroristthreat inthejurisdictionbyreviewingquantitativeandqualitative informationconcerning terroristactse.g.enforcement data, intelligence sources, and terrorist research. For Bermuda, threats ofdomesticterrorismwereassessed,aswellasthethreatofthejurisdictionbeingusedasatransitpointforpersonswhoareintentoncommittingterroristactsabroad.

ii. National Terrorist Financing Threat – The level of the terrorist threat directly influences thelevel of terrorist financing. Accordingly, this partof the tool analysedpotential TF threatsbyexaminingcertainfeaturesofterroristfunds,namelythedirectionofthemovementofterroristfunds, the source of terrorist funds and the channels through which terrorist funds aretransferred:

a) Directions–assesswhetherfundsaregeneratedinthehomejurisdictionandusedforterrorist operations elsewhere, or whether funds are generated abroad and used forterroristoperationsinthehomejurisdiction.Anotherpossibilitycouldbethatterroristfundssimplypassthroughthejurisdiction.

b) Sources – assess the sourceof funds. Financingmay come from legitimate sourcesorfromcriminalactivities.

c) Channels-examinewhichchannelsarebeingusedtomoveterroristfunds.

NationalTerroristFinancingVulnerability–ThispartofthetoolassessesthestrengthoftheCountry’sdefensemechanisms,includingthecontrolsandmeasuresadoptedtodetectandcombatTF.Examplesinclude:legalandinstitutionalframework;intelligenceandlawenforcementefforts;financialregulatoryand supervisory framework; international cooperation; inter-agency coordination; and outreach tosectorsthataremorevulnerabletoTF,suchasNon-ProfitOrganisations(NPOs)andmoneyremitters.

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Appendix C. International Typologies used as part of Terrorist Financing Risk Assessment

The typologies below have been extracted from various FATF documents. FATF compiled the casestudiesfromseveralFATFmembersandthecasesdemonstrateseveralwaysandorsectorsthatcanbeutilisedtodivertfundstosupportterroristactivities.

The listhasbeenput together to facilitate theWorkingGroup’spreliminarydiscussion indeterminingandnarrowingdownthefocusoftheTFassessmenttoonlythosemethods/sectorsthatarerelevanttoBermuda.

The objective of the nextmeetingwill be to review, in general, these typologies and select up to sixtypologies which members of the Working Group consider to be most relevant and have a highlikelihoodofhappeninginBermuda.Therefore,theinitialreviewofthesetypologiesshouldfocusonlyon assessing and determining which sectors and or methods have the potential to have a highsusceptibilitytoabuseinBermuda.

1. DiversionofFundsbyActorstoNPOs

An individual (Mr.A)establishedacharitable foundationunderthepretextofcollectingdonations forSyrianrefugees,peopleinneedofmedicalandfinancialaid,andconstructionofmosques,schoolsandkindergartens.However,Mr.AwastheleaderofanorganisedschemeinwhichdonationsweresenttoagroupofindividualsrelatedtoMr.A(GroupA)insteadofthefoundation'saccount.Inmostcases,thefirst stage involved money being sent through money remitters and then transported in cash. Themoneywas then transferredeither tocredit cardaccountsor toe-wallets. ThemembersofGroupAplaced the relevant information (that funds are being collected for the declared purposes) on theInternet,but,infact,thefundsweresentasanaidforterroristsandtheirfamiliesandmeanttobeusedas a financial support for terrorist activities. This informationwas discovered through investigationsconducted by the FIU based on regular monitoring of entities on their domestic list of designatedterroristentitiesandrelatedpersonsoron informationprovidedby lawenforcement. AnalysisofthecollectedinformationallowedtheFIUtoidentifytherelationbetweendifferentcases:commonpayersandrecipientsandsimilarmodusoperandiincollectionanddistributionoffunds.Furthercooperationwith lawenforcementauthoritiesallowedtheFIUtoestablishthedirect linkbetweenMr.AandISIL'sactivity.ThisresultedinseveralcriminalinvestigationsrelatedtoMr.A.Inaddition,Mr.Awaslistedonthe domestic list of designated terrorist entities, with the relevant freezing procedures performed.Underthecourtdecisions,theassetsoftheGroupAmemberswerefrozen.

2. DiversionofFundsbyActorsInternaltoNPOs

AdomesticNPOwasestablishedtoprovideaplaceofreligiousworshipforadiasporacommunitythathadcomefromanareaofconflict,andtoraiseanddisbursefundsforhumanitariancauses.

ThenationalNPO regulatorbecamesuspiciouswhen theNPO’smandatory reporting indicated that ithadsent fundstoorganisationsthatwerenot legallyprescribedbeneficiaries. Thesefundsweresentostensiblyinresponsetoanaturaldisasterthathadaffectedthediasporacommunity’shomeland.One

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of thebeneficiaryorganisations,however,wasbelievedtobethedomesticbranchofan internationalfrontorganisationforaforeignterroristgroupoperatinginthediasporacommunity’shomeland.

TheregulatorauditedtheNPOanddiscoveredthatithadsentfundstofiveorganisationsorindividualsthatwerenotlegallyprescribedbeneficiaries.ThisincludedUSD$50,000senttotheinternationalfrontorganisation through the domestic branch, andUSD $80,000 sent directly to the front organisation’sheadquartersbranchlocatedintheareaofconflict.

Whiletheauditwasongoing,theregulatorreceivedtwoleadsfromthepublicregardingtheNPO.Bothleads cited concerns regarding the opacity of theNPO’s leadership, and that decisions to send fundsoverseas had circumvented normal accountability procedures set out in the NPO’s governingdocuments.Oneoftheleadsindicatedthatashiftinthedemographicofthediasporacommunityhadmeant a new faction had gained control of the NPO’s board of directors. This faction was moresympathetic to the cause of the foreign terrorist organisation. While these issues had already beennotedthroughtheregulator’saudit,theleadssupportedtheregulator’sconcernsregardingtheNPO’smanagement.

TheNPOleadershiprepliedtotheregulator’sconcernsbystatingthattheurgentneedtorespondtoanatural disaster had led the NPO to bypass some internal procedures and to work with whicheverorganisationscouldoperate intheaffectedareas. Takingthis intoconsideration,theNPOretaineditsregistrationbutwasforcedtopaypenalties. TheNPOalsoenteredintoacomplianceagreementwiththeregulatorthatwouldenforcestrictduediligenceandaccountabilitystandards.

3. UseofFundstransfersnearterritorieswhereISILoperates

Accordingtosensitivefinancial information,terroristfinancingriskswerediscoveredregardingtheuseof both Electronic Funds Transfers (EFTs) via banking channels and other transfers viaMoney ValueTransferSystems(MVTS)toareaslocatednearterritorieswhereISILoperatesordesignatedindividuals.The location of the receipt of these transfers were often located in areas known to be a funding,logisticalandsmugglinghubforforeignterroristfightersandterroristorganisations. Insomeofthesecases, socialmediahave suggested thatbeneficiariesof funds transfersmayhave links to terroristorradical groups. In other cases, excessive cash deposits were made in the US with subsequent wiretransfers to beneficiaries in areas located near territories where ISIL operates. Risks identified alsoincludedlackofinformationofthepurposeofthewires,therelationshipofthereceiversorthereasonfundstransferswereconductedinmultipletransactionsovershorttimeperiods.

4. Facilitatorforanetworkofpotentialforeignterroristfighters

An individualholdingseveralbankaccountsreceivednumerouswiretransfers froma largenumberofpeople.Thefundsreceivedarethentransferredtoanotherindividual’sbankaccount,whobuysplanetickets and insuranceon a regular basis.However, theuseof his credit carddoesn’t showany travelabroad.

5. ContinuedaccesstobankaccountsbyFTFs

Accordingtosensitivefinancial information,terrorist financingriskswerediscoveredregardingforeigncashwithdrawals via ATMs that weremade by unknown individuals in areas located near territorieswhereISILoperates. ThesewithdrawalsweretakenfromUS-basedbankaccountsusingacheckcard.Another terrorist financing risk identified was the existence of large deposits into bank accountsfollowedbyimmediateforeigncashwithdrawalsinareaslocatedneartoterritorieswhereISILoperates.

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This information reveals the terrorismfinancing risksposedby thecontinuedabilityof the individualswhoarebelievedtohavetravelledtoareasoccupiedbyISILtoreachtheirbankaccountsintheirhomecountries.

6. Non-repaymentofapersonalloan

An individual received two personal loans totaling Jordanian Dinar (JOD) 7,500. After he stoppedmaking repayments, the bank tried to call the individual, and his employer,whomentioned that theindividualhadbeenawayfromworkforalongperiodoftime.

After requesting information from its counterpart, the FIU was told that this individual travelled tocountry(H)andthenontoacountryborderingtheconflictzone. TheFIUofcountry(H)referredthecase to the competent general prosecutor for a suspicion of conducting terrorist financing. Thecompetentgeneralprosecutorseizedhisandhisfamily’smoveableandimmovableassets.

7. Useofoffshorebanksandinternationalbusinesscompanies,offshoreTrusts

In one case a terrorist organisation used a foreign based trust for raising, collecting and transferringfundstoIndiathroughbanking/cashcouriers/non-bankingchannelsforitsdistributionstoactivecadres,otherbeneficiariesoftheterroristorganisationandfamiliesofterrorists.Inthiscaseextensiveuseofe-mail networkwas cracked andevidence collected. A charge sheet has been filed against 10 accusedpersonsinthecourt.Twoaccusedpersonshavebeenarrested.

8. Explicitcallsforfundsonsocialnetworks

InaFacebookgrouponrecipesforwomen,oneoftheusersplacedacallforfundsin2013.AfighterinSyria was mentioned (no name indicated) who urgently needed “equipment, food andpharmaceuticals”. There was time to collect funds until “Thursday”, in order to “dispatch” therequestedmaterialby“Friday”. TheuseralsoprovidedthedetailsofanaccountheldwithaGermanbankwherethefundsweretobesent.ItisunknowniftheauthoroftheFacebookcallforfundsisalsotheperson responsible for this initiative. Theownerof theaccount isaconvert,who is suspectedofcoordinatingthisadvertisingcampaign.

9. Abuseofnon-profitorganisations/directdebitinstructions/Privatedonations

A European national asked his bank for a direct debit instruction from his account to a non-profitorganisationinanotherEuropeancountry.Thereferencethataccompaniedthisdirectdebitinstructionreferredtothesponsoringofanindividual.InformationcollectedbytheFIUshowedthatthisnon-profitorganisationwasknowntobecloselylinkedtocertaingroupsthatfinancedterroristacts.Furthermore,thenameoftheindividualthatwastobesponsoredwasalsomentionedontheUnitedNationslistofpersonsandorganisationssuspectedofbeinglinkedtoterroristgroups.

10. Insurancefraudsimulatingtrafficaccidents

Since2007,membersofthisplotcommittedseveralsporadicfraudstoobtainbenefitswithoutraisingsuspicion, such as faking traffic accidents and hiring bogus policies. Compensations provided byinsurancecompanieswerequicklywithdrawnincash.

Anincreaseinthenumberoffraudswasobservedin2012,andachronologicaloverlapwasestablishedbetweenthemostobviouscasesof fraud (involvingmembersofa terroristcell)andterroristssent to

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jointerroristorganisations likeMovement forUnityandJihad inWestAfrica (MUJWAorMUJAO)andISIL.

Itwasclearthattheindividualsneededtoobtainfundsquickly,becausetheydisregardedtheneedtokeep their operations secret by faking numerous and rough traffic accidentswhich exposed them todetection.

11. UseofthebankingsectortotransferinternationaldonationsforTF

An ongoing investigation in India alleges that Hizb-ul-Mujahideen (HM) has been receiving fundsoriginatingfromPakistanthroughdifferentchannelsinsupportofitsterroristactivitiesinIndia.HMisclaimed to be actively involved in furthering terrorist activities in India and has raised over IndianRupees (INR)₹800millionwithin thepast eight years. This grouphasbeendesignatedas a terroristorganisationbyIndia,USandtheEU.

Funds raised in other countries are also reportedly being transferred or diverted to trusts and frontorganisations of HM in Pakistan. Once the money reaches India, it is distributed through variousconduitsatvariousplacestotheactiveterroristsandfamiliesofkilledHMterrorists.Itisfurtherallegedthat the banking sector was extensively used for transfer of funds to various bank accounts for theaforementionedactivities.Fundshavealsobeenmovedviamoneyvaluetransferservices(MVTS).

The funds are mainly used to financially support members of active and killed militants of theorganisation, including familymembers. HM allegedly incurs expenditure onmobile communication,medicaltreatmentofmilitants,armsandammunitions,clothingandothermilitaryequipment.

12. ComplicitMVTSAgent

An individual raised funds forAl-Shabaab fromwithin the Somali diaspora inMissouri and elsewhereandusedavarietyoflicensedmoneyservicebusinesses(MSBs)withofficesintheUnitedStatestoremitthemoney toSomalia ingeneral supportofAl-Shabaab fighters. Theco-conspirator,whoworked foroneof theMSBs involved,helpedthe individualavoid leavingapapertrailbystructuringtransactionsinto low dollar amounts and by using false identification information. The MSB worker and otherconspiratorsusedfictitiousnamesandphonenumberstohidethenatureoftheirtransactions.

13. CashSmuggling

ApassengerfromanEUmemberstatearrivedinİstanbulSabihaGökçenAirportwithfourlargepiecesofluggageandtwosportbags.Uponthesuspicionbythecompetentauthoritiesattheairport,hewasinterviewedandfoundtobe inpossessionof€3,500Euros. Thepassengerstatedthathewasvisitingandwouldgobacktohishomelandinaweeks’time.Uponsearchofhisluggage,manypairsoftrackingboots,jeans,ISILlabelledt-shirtsandsweatshirtsandtorcheswerefound.HewasdeniedentryandwasaddedtotheTurkishno-entrylist.

14. Vishingfraud

Courierandvishingfrauds(atypeoftelephonescam)havebeenseenasaTFmethod.ThefundshavebeenusedtofinancetraveltoSyriaandIraqandalsotosustainindividualswhohavetravelledtotheseareastofightwithISIL.UKbasedextremistshaveadoptedtheorganisedcrimegrouptacticoftargetingvulnerable individualswith phones calls purporting to be either police or banking officials. They areinformed that their account(s) have been compromised in some way and are persuaded to either

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transfermoneyintoaccountscontrolledbythesuspectsortophysicallywithdrawthecash. Acourierfromthecriminalnetworkisthendispatchedtothevictims’homeaddressandpicksupthecash.

London-based networks are known to have targeted individuals in Devon, Cornwall, Dorset, Kent,BedfordshireandLondon.Themethodastohowthevictimsareselectedistodateunclearbutitmaybeassimpleasonlinetelephonedirectoriesfilteredtoregionsforaretirementagedemographic.

It is known that such networks have defrauded victims out of hundreds of thousands of pounds.EvidenceshowsthatsomemoneyisbeingtransferredoverseasusingMoneyServiceBusinesses(MSBs)totheMiddleEastbysuspects,althoughthefinaldestinationofthesefundsisstillunderinvestigation.TheamountssentareinthelowthousandsforeachtransactionorbelowtheGBP£500limitsosuspectsdonothavetoprovidefurtheridentification.

15. Promotionofvirtualcurrencytofundterrorism

OnAugust28,2015AliShukriAminwassentencedto11yearsinprisontobefollowedbyalifetimeofsupervised releaseandmonitoringofhis internetactivities for conspiring toprovidematerial supportandresourcestotheISIL.

Amin pleaded guilty on June 11, 2015. He admitted to using Twitter to provide advice andencouragement to ISIL and its supporters. Amin, who used the Twitter handle @Amreekiwitness,providedinstructionsonhowtousebitcoin,avirtualcurrency,tomasktheprovisionoffundstoISIL,aswell as facilitation to ISIL supporters seeking to travel to Syria to fight with ISIL. Additionally, AminadmittedthathefacilitatedtravelforaVirginiateenager,whotravelledtoSyriato join ISIL inJanuary2015.Thisteenager,waschargedon10June2015,intheEasternDistrictofVirginiawithconspiringtoprovidematerialsupport toterrorists,conspiringtoprovidematerialsupport to ISILandconspiringtokillandinjurepeopleabroad.

Amin’s Twitter account boasted over 4,000 followers andwas used as a pro-ISIL platform during thecourse of over 7,000 tweets. Specifically, Amin used this account to conduct twitter-basedconversationsonwaystodevelopfinancialsupport for ISILusingonlinecurrency, suchasbitcoin,andwaystoestablishasecuredonationsystemorfundforISIL.

For example,Amin tweeteda link to an articlehehadwrittenentitled "Bitcoinwa' Sadaqat al-Jihad"(Bitcoin and the Charity of Jihad). The article discussed how to use bitcoins and how jihadists couldutilise this currency to fund their efforts. The article explainedwhat bitcoinswere, how the bitcoinsystemworkedandsuggestedusingDarkWallet,anewbitcoinwallet,whichkeepstheuserofbitcoinsanonymous.Thearticleincludedstatementsonhowtosetupananonymousdonationssystemtosendmoney,usingbitcoin,tothemujahedeen.

16. PayPalaccountsusedforfundraising

A charity, set up in 2010,whose chairman is specialised in e-marketing, offers on itswebsite severaloptionstomakedonationsbycreditcard,PayPal,cashtransfers,checks.

Overayearandahalf,bankaccountsofthischarityreceivednumerousdonationsbychequesandwiretransfers below EUR 500. Of the €2 million Euros collected, EUR 600,000 came from a few PayPaltransactionsfromanothercountry.

PersonalPayPalaccountswerealsousedtocollectsfunds,thentobewithdrawnbycash,ortransferredtootheraccounts.

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17. IncitingterroristviolenceviatheInternet

Three British residents used illicit funds to pay for websites promoting martyrdom through terroristviolence. The threemenwere sentenced in 2007 in theUK to jail terms ranging from six-and-a-halfyears to tenyears. All threepleadedguilty to"incitinganotherpersontocommitanactof terrorismwholly or partly outside the United Kingdom which would, if committed in England and Wales,constitutemurder.''ThesearethefirstpeopletobeconvictedintheUKofincitingterroristmurderviatheInternet.TwoofthemenregistereddozensofInternetdomainsthroughWebhostingcompaniesinthe US and Europe. The sites facilitated communications among terrorists through online forums,hostedtutorialsoncomputerhackingandbomb-making,andhostedvideosofbeheadingsandsuicidebombingsinIraq.Thesiteswerepaidforwithfundsstolenfrom“hacked”creditcardaccounts,withthemoneylaunderedthroughonlinegamblingsites.

Commentary:ThiscasedemonstratesthefullscopeofterroristexploitationoftheInternet.Thethreemen involved took advantage of the web’s global reach and multimedia capability for terroristrecruitment,training,andtacticalcoordination.Theyalsousedthewebforterroristfinancingthroughonlinefinancialfraudandmoneylaundering.

18. Asmall,self-fundednetworklaunchesmajorattack

TheofficialreportintotheJuly7,2005attacksontheLondontransportsystemstatedthat:

"Current indicationsare that thegroupwas self-financed.There isnoevidenceofexternal sourcesofincome.OurbestestimateisthattheoverallcostislessthanGBP8,000."

"Thebombswerehomemade,andthattheingredientsusedwereallreadilycommerciallyavailableandnotparticularlyexpensive".

"The group appears to have raised the necessary cash [for overseas trips, bombmaking equipment,rent,carhire]bymethodsthatwouldbeextremelydifficulttoidentifyasrelatedtoterrorismorotherseriouscriminality."

TerroristA"appearstohaveprovidedmostofthefunding.Hehadareasonablecreditrating,multiplebankaccounts (eachwith justa small sumdeposited foraprotractedperiod), credit cardsandaGBP10,000personalloan.Hehadtwoperiodsofintensiveactivity–firstlyinOctober2004andthenfromMarch 2005 onwards. He defaulted on his personal loan repayments and was overdrawn on hisaccounts.”

Terrorist B “made a number of purchases with cheques (which subsequently bounced) in theweeksbefore7July.Bankinvestigatorsvisitedhishouseonthedayafterthebombings."

Commentary:ThoughTerroristBwasnotspecifically identifiedasaterroristuntilafteranattacktookplace,thiscasedemonstratesthatfinancial intelligenceonitsownwassufficientlyaccuratetopromptinvestigationbyfinancialinstitutions.

19. Terroristorganisationfinancedusingproceedsofdrugtrafficking

Duringadrugs investigation inrelationtococaine importationfromSouthAmericatoEurope,theFIUfoundoutthattheorganisationinvolvedinthedrugtraffickingusedmoneytransferstosendfundsfromtheNetherlandstoParaguayandBraziltoinvestindrugsandprofitstoLebanon.Policeinvestigationsindicatedthattheprofitswereusedtofundaterroristorganisation.

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20.CriminalizingRansomPayments

TheUnitedKingdom’s(UK)TerrorismAct2000prohibitstheprovisionoffundstoterroristsunderanycircumstances(s15). Italsoprohibitstheentranceintoanarrangementasaresultofwhichfundsmaybemadeavailabletoterrorist(s17).Thethreshold–reasonablecausetosuspect–isintentionallylow.

Theseoffenceshaveextraterritorialeffect.However,tworecentcaseshighlightedalackofclarityinthelawasitrelatedtoinsurancepayments,meaningtherewaspotentialforUKinsurance/reinsurancefirmsto find themselves in a position where they are called upon to reimburse to insured parties forpayments,(suchasransompayments),wheretheyknoworhavereasonablecausetosuspectthatthefunds have gone to terrorists. Existing UK terrorist finance legislation, while comprehensive, is notexplicitonwhetherornotsuchreimbursementswereprohibited in law. ThisclearlywentagainsttheUKGovernment’sclearstanceonkidnap for ransom.Toputbeyonddoubt thatsuchreimbursementsare illegal, the UK Government introduced a measure in the CT and Security Bill, currently beforeParliament,makingitanoffenceforinsurers(orreinsurers)toreimburseapaymentwhichtheyknoworhavereasonablecausetosuspecthasbeenmadeinresponsetoaterroristdemand.