Britain's Overseas Territories Open to Fraud and Money Laundering

Britain's 14 last remaining overseas territories are at risk of becoming centers for money laundering because of a dearth of qualified investigators to police their financial systems, the Commons public accounts committee warns today.

The MPs single out the Turks and Caicos Islands, Montserrat and Anguilla - all in the Caribbean - as most at risk from dubious financial practices because of poor quality regulatory standards.

The MPs warn: "Territories' financial services lack the investigative capacity to scrutinize suspected money laundering activity fully and governors have not used their reserve powers to rectify this. In such a sensitive aspect of the global financial system it is complacent to allow territories for which the UK is responsible entirely to manage the risk themselves."

The report shows that on the Turks and Caicos Islands, where 700 people are employed in financial services, there are only five people qualified to carry out investigations into suspect practices.

In Montserrat and Anguilla, with 150 and 200 people respectively working in the financial sector, there is only one qualified person on each island capable of investigating suspected fraud.

The report says that with the exception of the Cayman Islands, where there have been two successful prosecutions, no one has ever been successfully prosecuted by local investigators in Bermuda, the British Virgin Islands, Gibraltar, Turks and Caicos Islands, Monserrat or Anguilla.

Sir Peter Ricketts, permanent secretary at the Foreign Office, said "a lack of capacity to follow up cases" was the reason behind the failure to prosecute people.

The MPs call on the Serious Fraud Office and the Serious Organized Crime Agency, the Treasury and the Financial Services Agency to become directly involved in checking fraud in overseas territories.

Edward Leigh, chairman of the committee of public accounts, said: "In most of the territories, the standards of regulation across areas such as banking, money laundering, insurance and securities are not as good as those in the crown dependencies. The FCO, actively supported by other relevant agencies, must do more to help the Territories, especially the smaller ones, and strengthen regulation. Where necessary, this should include bringing in more UK investigators and prosecutors."

The PAC report also criticizes the Foreign Office for continuing to subsidize Bermuda and the British Virgin Islands when their per capita income is higher than that of Britain.