CONFIDENTIAL
Item 2 Financial Services/economic issues
3. Mr January reported on events in Montserrat. He emphasised that
the current problems in the Montserrat finance sector underlined the timeliness and importance of the Coopers and Lybrand survey. There were lessons to be learned here which related not only to the setting up of offshore sectors in small jurisdictions, but also to the general administration of DTs. In late February, a fraud conspiracy involving some twenty banks licensed in Montserrat had been uncovered by the local police. Since then the issue had become
increasingly complex. Montserrat banks were now being linked with frauds perpetrated in the US, and with Central American banks suspected of being involved in money-laundering. Ramifications had
spread to Barclays of Miami and Lloyds of London, and there were
possible connections between banks under suspicion in Montserrat and
financial institutions in other DTs (eg TCI, BVI). The Metropolitan
Fraud Squad were currently assisting the Montserrat Police with their enquiries. They were liaising with the US authorities.
4.
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Mr January outlined some of the broader issues to which the
investigation had drawn attention. First, Mr Gallagher of Coopers
and Lybrand had reported himself reasonably satisfied with
Montserrat's banking legislation, but was most unimpressed by its
inefficient implementation. This hiatus between legislative provision and effective enforcement was a problem common to many
other aspects of DT administration. Second, the close
inter-connection between the investigation of the Montserrat frauds
and operations by the FBI and other US operations had on occasion
given grounds for concern regarding extraterritoriality but
serious problems had to date been avoided. Third, Treasury lawyers
had now ruled that HMG was not liable for losses incurred as a
result of the Montserrat frauds; however, in the international
public eye, HMG might still be deemed in some way responsible, even though control of the finance sector had been fully devolved to
Montserrat government control. Fourth, the issue of clawing back
responsibility to HMG over the offshore financial sector in the DTs
was currently being reviewed. The resource implications of such a
proposal needed careful consideration, and we needed to be certain
that real benefits would result. Finally, the Montserrat bank
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CONFIDENTIAL