The UK has decided not to impose direct rule on the British Virgin Islands, despite a report finding gross failures of governance in the territory.
The review said the BVI’s constitution should be suspended and its government dissolved amid corruption concerns.
But the foreign secretary will instead allow a new administration to implement reforms in the next two years.
If they fail to meet targets, Liz Truss has taken new powers to make imposing direct rule easier.
The former leader of the BVI, Andrew Fahie, was arrested in April for alleged drug smuggling and money laundering in the US.
The inquiry was commissioned in 2021 amid claims about corruption and misuse of taxpayers’ money but was not directly connected to the arrest of Mr. Fahie.
Led by British judge Sir Gary Hickinbottom, the report described the state of governance in the BVI as “appallingly bad”.
He found that millions of dollars of state funds were spent each year by politicians and ministries without proper process, there was “serious dishonesty” relating to sales of public property, and there was widespread abuse of appointments.
In his conclusions, Sir Gary called for a two-year suspension of the BVI constitution, cessation of the elected ministerial government and the imposition of direct rule by the UK.
He also recommended reviews of the government’s welfare payments, the sale of public land, and law enforcement on the islands.
Outlining her reasons for not imposing direct rule on the BVI, Ms Truss pointed to changes that have been made since Sir Gary’s report in April, including the removal of Mr Fahie from his role and the creation of a new government of national unity, which has begun criminal investigations.
Ms Truss said she believed the BVI’s new government should be given the opportunity to “demonstrate their commitment to reform” and implement the 48 recommendations made by Sir Gary and the further measures the administration has proposed.
But she added: “If it becomes clear that this approach is not delivering the reform the people of the BVI want and deserve we will take action. This may require the swift implementation of the final report recommendation [imposing direct rule].”
In May, Mr Fahie pleaded not guilty to charges of conspiring to launder money and import cocaine to the United States, according to Reuters news agency.