Banking Compliance Issues in Cayman Islands Spark Concerns
The Cayman Islands, a British Overseas Territory in the Caribbean, has long been a major international financial center. However, a recent Mutual Evaluation by the Financial Action Task Force (FATF) has highlighted significant money-laundering and financial crime concerns within the territory.
A Major International Financial Center with Significant Deficiencies
The Cayman Islands boasts the 6th largest banking sector in the world, with a cross-border asset position valued at $1.365 trillion dollars and cross-border liabilities of $1.347 trillion. The lack of taxation on corporate profits, capital gains, and personal income for corporations and individuals operating within the territory has contributed to its popularity as an international financial hub.
However, this relaxed regulatory atmosphere has also led to concerns about money-laundering and financial crime. FATF’s Mutual Evaluation identified several significant deficiencies in the Cayman Islands’ anti-money laundering regime, including:
- Lack of focus on international financial crime risks
- Failure to impose sanctions on entities that do not file complete and up-to-date information on beneficial ownership with authorities
- Inadequate assessment of financial sector risks not directly supervised within the territory
- Proportionate sanctioning and asset seizure for money-laundering and other financial crimes
- A reactive approach to financial crime, rather than a proactive one
Mitigating Risk in the Cayman Islands
Banks and other financial institutions operating in the Cayman Islands can take several measures to limit their risk:
1. Conduct thorough Know Your Customer (KYC) actions
Banks should determine the entity type registered or operating in the Cayman Islands, the nature of their business, and their reasons for operating there.
2. Identify the source of wealth and revenue
Banks should investigate whether clients receive revenue from the Cayman Islands or hold significant assets there.
3. Review complex cases and transactions
Banks should review complex cases and transactions to identify potential money-laundering risks.
4. Coordinate with regulatory agencies and financial institutions
Banks should coordinate with regulatory agencies and other financial institutions to share information and best practices.
By taking these measures, banks can limit their risk exposure in the Cayman Islands and ensure compliance with anti-money laundering regulations.