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Impending spot checks to see how well e-gaming firms and online casinos are deploying measures against financial crimes and terrorism funding have left the Crown Dependency of the Isle of Man badly exposed, a leading authority on Anti Money Laundering (AML), has told Byline Times.
“This is where the Isle of Man definitely has a high risk of being grey-listed,” said Dr Ilaria Zavoli, a senior researcher at the University of Leeds, adding: “What I see is not positive.”
Grey listing is an international designation for jurisdictions with strategic financial-crime and terrorism-funding deficiencies and can trigger rapid ‘de-risking’ by investors.
The warning comes ahead of a critical inspection of the Irish Sea island’s regulatory health next year by Moneyval, the European partner to the Financial Action Task Force (FATF); inter-governmental bodies which combat the financing of terrorism and global cybercrime worth $15Tn a year – a figure set to reach 20Tn in 2026, making it the second biggest economy behind China.
Inspectors are expecting a series of legislative improvements at the Crown Dependency – first called for in 2016 – alongside effective implementation of financial crime protections within the 148 companies it currently regulates.
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Dr Zavoli, a lawyer whose academic work informs UK AML policy on property and construction, said: “The Isle of Man Government must show both that it has the tools to fight money laundering and economic crime and that it’s using them properly.
“The inspectors will go into businesses directly and ask them, for example, how their suspicious activity reports and anti-money laundering checks work in daily practice?
“They will not be fooled by fine words and box ticking. This will be the main channel of risk for grey-listing.”
Finding itself in the company of Botswana, Albania and Lebanon on an FATF-body grey list could cost the Isle of Man 11% of its £6bn economy, according to Government predictions.
At £660m a year, it would take just three years to equal the island’s entire circa-£2bn cash reserves, while posing real risk to its prized AA3 credit rating.
The Isle of Man financial services sector has suffered a string of damaging headlines in the last 18 months. Last year a United Nations Office on Drugs and Crime (UNODC) report called the island a “transnational laundromat” for Asian crime groups exploiting “under-regulated” online gambling platforms, while Manx structures have also been implicated in so-called “pig-butchering” crypto scams – long-con investment frauds linked to human-trafficking.
Last month, a Financial Times investigation raised serious questions about the due diligence carried out by the Isle of Man Government in relation to King Gaming, a company under investigation over “huge” allegations of fraud and international money laundering.
Further, day-to-day governance on the island will soon be falling under the Moneyval spotlight. These include a £90m court case featuring allegations, denied by the Manx Department of Infrastructure and its Treasury, of unlawful interference and misfeasance in public office over the award of an infrastructure contract, a saga that has left Douglas locals exasperated and missing a new bus station, shops, and homes first promised more than a decade ago.
“Moneyval looks at all aspects of the way the island is run when it makes its grey listing decisions,” says Dr Zavoli. “Definitely they will care about this. If there is any suggestion of corruption in public offices that obviously has a reputational threat to the whole system”
Inside the island’s Parliament, the Tynwald, there is both acceptance at the need for rapid change and the “angst and friction” within some businesses complaining already of “over regulation” ahead of the October inspection.
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“We’re all concerned about over regulation,” Manx Chief Minister Alfred Cannan told politicians in December. “There is absolutely a requirement for our regulators… to ensure that we have the right frameworks for our economy to flourish in the future.”
Dr Zavoli believes such ambiguous political messaging will play poorly with Moneyval inspectors who expect clear separation.
She said: “There seems to be no proper understanding of what this private and public partnership should look like. Right now, it looks like a cosy club and Moneyval will ask ‘is this a serious attempt?’ [at regulation].”
Grey-listing would take between two and four years of reforms to escape and would likely trigger rapid de-risking. Banks could close accounts or retreat from the jurisdiction to avoid higher compliance burdens. International lenders might widen risk premiums.
Payment providers could step back. Foreign partners may refuse correspondent links – and all while Jersey and Guernsey provide ready-made Moneyval-compliant alternatives.
As Mr Cannan said last week: “I think it is an absolute priority that we secure and pass the Moneyval assessment, and the opportunities for risk-taking in that perspective are very, very slim.”
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