Enhanced Due Diligence for Offshore Jurisdictions in 2026: Practical Standards by Territory

Enhanced due diligence for clients registered in offshore jurisdictions is one of the highest-volume compliance activities at payment firms serving complex businesses. The combination of offshore registration, high-risk sectors, and cross-border transaction flows creates a due diligence obligation that must be specific, evidence-based, and regularly refreshed. The standard EDD framework — senior management approval, source of wealth, enhanced monitoring — is necessary but not sufficient for offshore clients. The EDD must be calibrated to the specific jurisdiction, the corporate structure, and the nature of the underlying business.

The Regulatory Basis for Offshore EDD

The obligation to apply EDD to offshore-connected business relationships derives from multiple provisions of MLR 2017. Regulation 33(1)(b) requires EDD for business relationships or transactions involving high-risk third countries listed by HM Treasury (which tracks FATF grey and black lists). Even for offshore jurisdictions not on the HM Treasury high-risk list, Regulation 33(3) requires firms to apply EDD in any situation that by its nature can present a higher risk of money laundering or terrorist financing. Offshore registration — particularly in jurisdictions with historically low substance requirements, limited beneficial ownership transparency, or high use for tax structuring — is widely recognised as a higher-risk indicator.

BVI: Current EDD Standards

Following the BVI's FATF-related reforms and the passage of the Economic Crime (Transparency and Enforcement) Act 2022, BVI entities no longer benefit from the opacity they previously did. However, the BVI remains a jurisdiction where comprehensive EDD is appropriate for most business relationships.

For a BVI-registered client, a proportionate EDD pack should include: current certificate of incorporation; register of directors; share register showing all shareholders; evidence of beneficial ownership to the natural person level (all persons with 25%+ direct or indirect ownership), with certified passport copies and proof of address; memorandum and articles of association; evidence of the purpose of the BVI entity in the group structure (why is this activity conducted through BVI rather than the operating entity's home jurisdiction?); and source of funds documentation for anticipated transaction flows. The last element is critical — the mere existence of a BVI structure is less concerning than a BVI structure for which no coherent commercial rationale can be articulated.

Cayman Islands: Post-Grey-List EDD

The Cayman Islands was removed from FATF's enhanced follow-up list in October 2023 following its comprehensive reform programme. This removal reduces (but does not eliminate) the need for elevated EDD for Cayman entities. For Cayman-registered holding companies, investment vehicles, or fund structures with legitimate commercial purposes — which describe the majority of Cayman entities — EDD documentation should demonstrate: proof of CIMA registration or licence (where the entity conducts regulated activities); the beneficial ownership register filing; substance evidence (economic substance compliance under the Private Funds Act or Companies Act); and board minutes or equivalent governance records demonstrating active management.

Panama: Elevated Risk Profile

Panama presents elevated risk for payment firm EDD purposes. Panama appeared on the FATF grey list between 2014-2016 and again from 2019-2023. Its removal in October 2023 came after extensive reforms, but the jurisdiction retains characteristics that require careful ongoing assessment: limited beneficial ownership register transparency, high volumes of nominee structures historically, and association with high-profile financial crime cases (the Panama Papers revelations continue to affect perceptions of Panamanian company structures).

For Panamanian clients, EDD should include specific focus on: verification that the company is not a mere shell with nominee director and shareholder arrangements; evidence of real commercial activity (audited accounts, contracts, bank statements); and source of wealth explanation for all UBOs that goes beyond self-certification. Panama has ratified the OECD Common Reporting Standard and participates in automatic exchange of financial account information, which provides some cross-referencing capability for source of wealth verification.

Seychelles: Ongoing Caution Required

Seychelles was added to the FATF grey list in October 2020 and removed in October 2022 following legislative reforms. However, Seychelles remains a jurisdiction associated with a high volume of dormant or shell company structures, and the practical implementation of the new regulatory framework is still maturing. For Seychelles-registered entities, EDD should closely mirror the BVI framework, with particular attention to demonstrating genuine commercial substance and to the provenance of the directors and UBOs (where nominee arrangements are discovered, the investigation should extend to the economic owners behind the nominees).

Practical EDD Framework for Offshore Clients

• Senior management approval before account opening, with a written EDD sign-off document that addresses each risk factor specific to the jurisdiction
• UBO identification to the natural person level, with certified identity documents (not electronic copies of copies)
• Corporate structure diagram showing all entities between the customer and the UBOs
• Commercial rationale for the offshore structure, with documentary evidence (contracts, accounts, regulatory licences)
• Source of wealth for UBOs: substantive documentation, independently corroborated where possible
• Annual EDD refresh: offshore jurisdictions change their regulatory status; the EDD file must remain current