Every year the US State Department fulfills its mandate to publish a report of “major money laundering countries.” An expert on compliance topics casts his eye over the terrain.

The latest report is Volume Two of the wider annual International Narcotics Control Strategy Report (INCSR), which the State Department published recently. Money laundering reporting officers (MLROs), relationship managers and compliance officers at private banks, estate-planning firms, mancos, asset management firms and other wealth management businesses throughout the world use it regularly when calibrating their country risk strategies.

This article confines its observations to countries that are, or were until recently, counted in many quarters as offshore financial centers that offer services to HNW individuals and family offices. Dollar signs, unless otherwise stated, denote US dollars.

Antigua and Barbuda
In 2022 the FATF pronounced that Antigua and Barbuda complied with 11 of its recommendations and largely complied with 25 of them. The islands form a financial services hub where international banking and digital financial services are offered and where money laundering takes place. Tax evasion, fraud and, potentially, terrorist financing are also in progress. There are five offshore money remitters, three casinos, 32 citizenship by investment (CBI) program agents, and an unknown number of international business companies (IBCs). These last are tax-neutral offshore companies formed under the laws of the islands whose ownership is no longer as opaque as it was in the 'noughties.

Bearer shares (whoever carries the share is the owner) are permitted for IBCs, but the resident agent in question must register them, with the names of the beneficial owners on hand for the authorities to peruse. Thanks to regulation, IBCs and bearer shares are not the money-laundering vehicles that they used to be. The CBI program (designed in 2012 by the London-based consultancy in residency and citizenship Henley & Partners) does not admit citizens of Iran, Iraq, North Korea, Yemen, Somalia and the Sudan. Minimum investment is $200,000. The Money Laundering (Prevention) Act 2024 wrought changes to this law, introducing clearer requirements for customer due diligence or CDD, heightened reporting obligations and a renewed emphasis on transparency for non-profits and beneficial ownership structures. The country has a mutual legal assistance treaty (MLAT) with the US, which creates a legal pathway of information about bank accounts to the US.

The Bahamas
As an international financial center, The Bahamas has a $400 billion financial services sector that dwarfs the country’s Gross Domestic Product (GDP), which amounted to $14.34 billion in 2023. The financial sector is partially composed of multi-generational wealth that includes private banking, family trusts, and fund management. The Bahamas’ luxury real estate market, gaming industry, and virtual assets are also significant components of a diverse economy.

The State Department believes that the jurisdiction "suffers from domestic fraud schemes and transnational criminal activities." Money laundering occurs regularly in private banking and the government keeps a special eye on this sector. The country is a world leader in central bank digital currencies (CBDCs), but money laundering has not occurred in this sector so far.

The real estate and construction sectors are also susceptible to money laundering. In 2023, real estate contributed $2 billion, or 16 per cent, of GDP, while construction contributed $634 million.

The report states that the absence of convictions and asset forfeitures make The Bahamas a low-risk base of operations for many sophisticated fraudsters, including those that dabble in corruption. However, the State Department complains that, despite extensive training and improvements in investigative and prosecutorial techniques, Bahamian police and prosecutors shy away from complex financial crimes and seizures of real property and assets derived from illicit activities. When authorities pursue cases, INCSR says, an accepted “culture of adjournments” delays adjudications for years. Strong political will and co-ordination between institutions is apparently lacking in the pursuit of complex financial crimes.

In November 2022, the FTX cryptocurrency empire collapsed into bankruptcy after a chain of events triggered by a CoinDesk report that raised questions about FTX's financial health. Bahamian authorities were fairly quick off the mark in arresting its CEO, Sam Bankman-Fried, the next month. FTX had registered itself there under the innovative DARE Act 2020 (since amended). The INCSR report does not mention the case.

The only Bahamian legislation that addresses cyber crime directly is the Computer Misuse Act 2003. Hacking and extortion, and the laundering the proceeds of these crimes, do occur to a noticeable degree in The Bahamas, especially given its extensive cyber-frameworks, in banking as in everything else.

Barbados
This island has an active offshore financial services sector but does not have an economic citizenship program. Investigators and prosecutors use the Proceeds of Crime Act routinely, but not (according to the State Department) to seize and forfeit assets adequately.

In 2024, the central bank commissioned an external vendor to perform an independent review of the sanctions screening software that financial institutions used. The results showed a 90 per cent effectiveness rate for client screening and a 93 per cent rate for transaction screening, drawing high praise from the Americans.

Barbados' proximity to South America makes it a drug-smuggling centre and criminals funnel many of the cash proceeds through the real-estate sector, putting foreign HNWs in the firing line as suspects.

Last year, Parliament passed the “Criminal Justice (Plea Negotiations and Agreements) Bill 2024,” which allows plea bargaining. Enforcement actions in 2024 included forfeiture, cash detention, listed assets orders and the application of unexplained wealth orders. Prosecutors are now more efficient. Barbados recorded three money laundering prosecutions and five convictions in 2024, primarily linked to drug trafficking and fraud.

Belize
Problems persist in the investigation and prosecution of money-laundering cases in Belize, especially in real estate sales. Moreover, between January and October last year, lawyers, accountants, payment service providers and the real-estate sales sector sent the authorities only one suspicious transaction report (STR) each.

The Financial Services Commission (FSC), which regulates non-bank financial services and the extensive offshore sector, suspended the largest virtual assets service provider’s (VASPs) license and issued cease-and-desist orders to six other virtual-asset entities, according to the report. This is mysterious as the FATF, in its report on Belize last year, mentioned "the absence of any evidence of VASPs operating in Belize...the operation of VASPs is prohibited until December 31, 2025."

The FCS also supervises 2,553 international registered trusts, 75 active foundations and 94 registered agents. Of the 175,000 or so registered IBCs, the Belize Companies and Corporate Affairs Registry (BCCAR) listed 21,508 as active as of October 2024. This, too, clashes with the FATF report on Belize, which states that an Act of 2022 "extinguished IBCs in Belize."

The British Virgin Islands
The BVI is a British Overseas Territory with an economy that depends on tourism and financial services and is a major, sophisticated financial center. It has a share structure that does not require a statement of authorized capital, which is conducive to money laundering. The proceeds of crime that criminals wash there are mainly from either domestic crimes or the trafficking of narcotics.

The islands’ proximity to the US Virgin Islands and the use of the US dollar as its currency pose additional risks regarding money laundering because drug traffickers use the BVI as a conduit to the US. In April 2022, INCSR states, the US Drug Enforcement Administration arrested BVI Premier Andrew Fahie on charges of money laundering and drug trafficking in relation to Mexico's Sinaloa cartel, which famously washed its ill-gotten gains through HSBC before 2012. Fahie was sentenced to 135 months in prison for conspiring to import cocaine into the US. His conviction was the result of an elaborate US government sting operation. No drugs or money actually changed hands.

The Drug Trafficking Offences Act provides for limited asset forfeiture that requires no conviction for money laundering. The United States can obtain legal assistance from the BVI through its MLAT with the UK and does so regularly.

Beneficial ownership information must be shared with British law enforcers within 24 hours of a request (or one hour in urgent cases). Even though the BVI promised to make its registry publicly available, it has not done so – this is to conform to the data-protection policies of the European Union.

The Cape Verde Islands
Narcotics reportedly transit through 'Cabo Verde' on luxury yachts and criminals wash the proceeds through the real-estate sector. The economy of this Portuguese territory is cash-intensive, making transactions difficult for the police to track. Private banks and other reporting entities in the islands are "inconsistent" in their reporting of suspicious transactions. The cross-border currency declaration process is likewise patchy. Nobody need gather any information about the beneficial ownership of corporations.

The Cayman Islands
This British overseas territory is a major international financial hub. It has more than 121,000 incorporated and registered companies and 85 per cent of the world's hedge funds were domiciled there in 2017.

Money laundering is generally based on predicate crimes committed overseas, notably fraud, corruption, and tax evasion. Banks, securities businesses and investment funds are most exposed to money launderers, i.e. most detected cases go through them. The threat of terrorist finance is 'medium-low.'

The names of company directors and subscribers, and details of registered offices, year-end share capital and the nature of companies' business are publicly available. The government has promised to introduce a publicly accessible register of company beneficial ownership. Shell banks (i.e. banks and other companies with no physical presence), anonymous accounts and the use of bearer shares are prohibited. VASPs must report suspicious activity. The United Nations Convention against Corruption was extended to the Cayman Islands in 2020. There is a special MLAT between the UK and the US concerning the islands, supported by island legislation.

In 2022, the latest year for which data is available, the Cayman Islands Monetary Authority imposed two administrative penalties totalling about $455,000 for AML-related transgressions. As of November 1 last year, the Bureau of Financial Investigations had 33 AML inquiries underway.

Curaçao
This Dutch territory is a regional financial center and a transshipment location for drugs and gold from South America. Money is laundered through money mules, private foundations, cash-intensive businesses that act as front companies, online gambling, brick-and-mortar casinos, the sale of luxury goods, real estate, unlicensed money lending and remitting, wire transfers, private capital investment funds and trade. A good number of these activities involve HNW individuals.

The US State Department credits law enforcement in Curaçao with a good record of detecting money laundering. In 2019 Curaçao ended its offshore tax regime. It nonetheless has 49 independent banks, including six private banks.

Curaçao is home to one of the largest online gaming licensors in the world. Virtual currency may be used in online gaming following passage of a new law in December 2024 and INCSR sees this as a money-laundering issue. Last year, the Dutch Government extended the UN Convention against Corruption to Curaçao.

The online gaming sector as one of the highest-risk sectors in Curaçao, along with banking, money transfer agencies and the e-trade zone.

Cyprus
INCSR says that the main predicate crimes for money laundering in this jurisdiction are fraud, foreign corruption, tax evasion, narcotics trafficking, and tobacco smuggling. The Cypriot police and Attorney General have limited resources to investigate any illicit offshore activity that goes through Cyprus, which concerns the American authorities because the island has a significant number of registered shell companies. This concern may, of course, sound slightly hypocritical in view of President Trump's decision (made before the State Department published INCSR) to stop enforcing the Foreign Corrupt Practices Act 1977 (FCPA) on the grounds that it was preventing US firms from drumming up business overseas.

Cyprus is a regional financial and corporate services hub with many non-resident businesses which account for perhaps 45 per cent of all registered companies. The total number of all registered companies fell from 203,545 in 2021 to 198,863 on December 31, 2023, "largely due to the de-listing of many companies that were not compliant with [Cypriot] Law – more are under review for de-listing." The police and prosecutors have few resources to investigate offshore illicit activity.

Public access to Cyprus' three ultimate beneficial owner (UBO) registries (companies,  trusts and similar legal arrangements, and non-profit organizations) was suspended in 2022 in accordance with a decision by EU judges, so only competent authorities and "covered entities" (see below) continue to have access. A UBO, as elsewhere all over the world, is any person who ultimately owns more than 25 per cent of a company or legal entity, or otherwise controls the same, whether through ownership, directly or indirectly, of a sufficient percentage of shares, through voting rights or through any other means.

The term "covered entities" is a very American one, denoting any firm to which this-or-that US statute applies. It would be more accurate to say that all obliged entities (an FATF term for "reporting entities," as they are called in the UK) can have access to the lists. These are – although INCSR does not say so – people in the regulated sector at banks, accountancy firms and other professional firms that report their suspicions (and other data) about their clients and counterparties to the authorities.

To the north of the Greek republic of Cyprus is the separatist Turkish sector of the island, protected since 1974 by Turkey. The Americans consider its AML laws and institutions to be inadequate and are "concerned" by launderers' use of its casinos and cryptocurrencies.

The Central Bank of Cyprus discourages private banks from owning or facilitating transactions in virtual currencies. Cyprus ended its CBI program in 2020 because of allegations of corruption.

Dominica
This Caribbean island is not an international financial center of especial note, although it does have 27 offshore banks (three of them in possession of VASP licenses) and 16 insurance companies. It does not permit IBCs. Its CBI program accounts for a staggering 30 per cent of its GDP. Narcotics and firearms trafficking, plus fraud, are the major sources of illicit funds.

The prime ministers of Dominica, Antigua and Barbuda, Grenada, and Saint Kitts and Nevis signed a memorandum of understanding in March last year to co-ordinate their CBI programs. The agreement includes a minimum investment of $200,000 for all four programs (not delineated in East Caribbean dollars, even though four of those nations use them), information sharing, mutual regulation and the same standards for their agents.

Hong Kong
The primary sources of laundered funds in Hong Kong are fraud and other financial crime, drug trafficking, illegal gaming and goods smuggling. Sophisticated international syndicates launder dirty money there, along with local criminals. They use bank accounts that take advantage of stolen or manipulated identities to conduct fraud. They have also tried to exploit technological advances in online payment services to transfer illicit funds.

The Hong Kong Monetary Authority (HKMA) granted eight digital banking licenses in 2019. The Americans believe that digital banks, which "onboard" HNW customers and others using mobile phones and which lack retail branch networks, might be criminogenic. Virtual asset trading platforms are regulated for money laundering.

In December 2022, the government amended the Anti-Money Laundering Ordinance to require businesses that execute transactions in precious metals and stones of more than $15,380 to register with Customs & Excise. This is of great interest to HNW investors from all over the world and is likely to decrease the amount of laundering in this sector. The State Department, however, does not mention the fact that volume is likely to increase, as the government is trying to turn Hong Kong into an international gold hub. In October 2024, Hong Kong chief executive John Lee Ka-Chiu stated that “Hong Kong must build up global gold trade amid stiff competition from Singapore, build an international gold trading market and develop world-class gold storage facilities.”

The State Department believes that self-regulatory bodies, particularly those that oversee Designated Non-Financial Businesses and Professions (DNFBPs) such as lawyers, accountants, real-estate agents, vehicle dealers and trust and company service providers, do not understand AML risks well enough and ought to improve their game.

In 2024 the HKMA fined two banks for bad money laundering controls. One was China CITIC Bank, a huge commercial bank; the other was Fubon Bank (Hong Kong), which has a wealth management arm.

Panama
Illicit funds often move through Panama in trade transactions, DNFBPs, bulk cash shipments, virtual assets, banks, shell companies, casinos and crypto-currencies, some of which concern HNWs. There is no structural capacity to identify laundered funds and officials enforce laws and regulations inconsistently. Corruption, and an under-resourced judicial system, also hinder Panama’s fight against money laundering. There is now, however, a centralized registry of beneficial owners of corporations.

Predicate crimes include drug trafficking, tax evasion, foreign corruption, financial fraud and the smuggling migrants and goods. Panama is on the European Union’s list of non-cooperative jurisdictions for tax purposes (compiled October 2024). The other jurisdictions on that list are American Samoa, Guam, Russia, the US Virgin Islands, Anguilla, Palau, Samoa, Vanuatu, Fiji, and Trinidad and Tobago.

Several bills that could help Panama fight money laundering are still languishing in the National Assembly – notably an asset forfeiture bill. The enforcement of regulations "can be inconsistent" and law enforcers lack the necessary resources to conduct complex/undercover investigations.

Saint Kitts and Nevis
This federation of two Eastern Caribbean islands relies on tourism, a CBI program and an offshore financial sector for its revenue. It has a good set of AML laws. The Financial Services Regulatory Commission takes a risk-based approach to supervising and monitoring the entities that it regulates, although INCSR notes that money-laundering concerns take a back seat to prudential regulation. Theft is the main predicate crime for money laundering, with drug trafficking coming in second.

IBCs exist (1,664 in September 2024) but each must maintain a register of shareholders and directors and give a copy to its registered agent for official inspection at any time. It takes less than 24 hours to form an IBC or a limited liability company (LLC) in Nevis. The double jurisdiction has an MLAT with the US.

The State Department finds some fault in the retention and updating of beneficial ownership information. There are no measures to prevent criminals or their associates from holding a significant or controlling interest or a management function in law firms, accountancy firms, real estate brokerages, or dealers in precious metals and stones.

INCSR states that "fit and proper testing for DNFBP ownership generally does not cover beneficial owners." This means that the authorities do not always bother to determine whether the UBOs of corporations are fit to own their shares, although that test does apply to financial practitioners' fitness to do their jobs.

Saint Vincent and the Grenadines
The offshore sector of these islands has been declining in recent years. As of 2023, there were 2,750 IBCs, 1,875 LLCs, 59 international trusts, 14 registered agents, 17 fund administrators/managers, and 60 mutual funds. The survey says that the use of bearer negotiable instruments (BNIs) is a money-laundering problem, even though the government insists on the registration and custody of bearer share certificates by registered agents who must keep records of all bearer certificates. It suspects – but does not overtly state – that regulators do not oversee the charity sector properly and this 'may' lead to money laundering. The government has not yet assessed the money-laundering risks associated with VASPs.

Sint Maarten
Before Hurricane Maria in 2017, this Dutch territory hosted offshore companies and private banks which provided fertile ground for HNW investors who purchased or developed large-scale real-estate projects, including hotels and casinos. The report credits the government with rebuilding key infrastructure back up to pre-hurricane levels since the disaster.

The report, however, does not rate private banks as much of a money-laundering risk, concentrating instead on the casinos and the island's national lottery. Nevertheless, the central bank thinks that the banks that it regulates could do better when monitoring clients and transactions.

United Arab Emirates
The report does not mention Dubai by name, although this is the main financial hub of the UAE and, indeed, the main one in its time zone. Sanction evaders and drug money launderers use it as a financial way station, using banks, money service businesses (MSBs), dealers in precious metals and stones and real estate to launder funds. Exchange houses, hawala networks and general trading companies are venues for bulk cash smuggling and trade-based money laundering. Criminals also move virtual currencies into the UAE and convert them to 'fiat assets' (this term is presumably a reference to financial instruments denominated in fiat currencies, along with payments in the currencies themselves) before moving them out.

The federation's various AML authorities have overlapping duties which, the US State Department fears, might allow criminals to conduct regulatory arbitrage between them. There is a bilateral MLAT between the US and the UAE but it is not in force yet, according to INCSR.

The UAE has spent the last few years upgrading its AML laws and regulations, its cooperation with international counterparts, and its structure for overseeing its AML efforts. Last year it created a general secretariat to support the National Committee for AML/CFT (CFT stands for "Combating the Financing of Terrorism") and created the Supreme Committee for the Oversight of the National Strategy for AML/CFT to help the federation adhere to international AML standards. The UAE Government imposed more stringent penalties for non-compliance. In December 2023, the Financial Services Regulatory Authority of Abu Dhabi updated its AML rulebook.

The UK
London is responsible for $3.8 trillion in daily foreign exchange – more than one third of worldwide trades and more than the next three largest centers (New York, Singapore and Hong Kong) combined. It has the deepest pools of internationally-oriented capital and some describe it as the largest offshore financial center of all.

INCSR describes the UK as "a leader in combating illicit finance." It identifies "high-end money laundering" – a term coined by the UK's law enforcers to mean washing funds through the British financial sector and related professional services – as the main method of laundering money, along with MSBs (check cashers, money transmitters and bureaux de change). Intelligence gaps persist in relation to high-end laundering, with criminals holding the proceeds of crime in complex trading arrangements, real estate and other non-cash investments. International controller networks – which offer professional money laundering services to criminals – are a primary problem here.

The State Department is impressed by the UK’s championing of unexplained wealth orders (UWOs), although British authorities have only used them a handful of times thus far, and by the Economic Crime and Corporate Transparency Act 2023. This, although INCSR does not say so, requires every company to have an "appropriate" address for its registered office and to provide Companies House – the national corporate registry which employs 1,400 people in various cities – with an appropriate registered email address. Companies House ought to have stopped the use of PO Boxes (and equivalent services) as registered office addresses by now, according to last year's business plan.

The Act, as INCSR says, gave Companies House extra powers to verify the identities of company directors, remove fraudulent organizations from its register and share information with criminal investigators. It also gave the police more powers to seize, freeze, and recover virtual assets.

Here and there
Corruption remains a significant predicate crime for money laundering throughout the world but most especially in the City of London, which washes the proceeds of corruption from all nations.

One major money-laundering country does not appear on the list. This is the US itself, which contains its own offshore sector and was counted as equal to the UK as a “country of money laundering concern” until the State Department’s reports ceased to list it during the presidency of George W Bush. In view of President Trump’s drive to give the US a fresh competitive edge by cutting red tape, and his consequent decision to stop enforcing the FCPA, it seems unlikely that it will appear on the report again.