TNAG-1874-FCO40-2665-Relations-between-Hong-Kong-and-other-British-Dependent-Terr-1989 — Page 28

CONFIDENTIAL

Item 2

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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

The financial institutions in other DTs (eg TCI, BVI). Metropolitan Fraud Squad were currently assisting the Montserrat Police with their enquiries. They were liaising with the US authorities.

4.

P

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

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

CONFIDENTIAL

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