Vulnerabilities in Cayman Islands’ Anti-Money Laundering Efforts Revealed

Cayman Islands: A Global Financial Hub with Significant Vulnerabilities

The Cayman Islands, a global financial hub with over US$1.3 trillion in assets, has identified significant vulnerabilities in its anti-money laundering efforts, according to an executive summary of the 2015 national money laundering risk assessment.

Released earlier this year, the document highlights major external threats to the country’s financial system, including fraud and tax evasion, as well as weaknesses within the sector. The report identifies several key areas where improvements are needed:

• Remote Banking Operations: Many banks operating in Cayman do not have a physical presence in the country, with many of their head offices located in countries with inadequate anti-money laundering requirements.
• Lack of Supervision in Securities Sector: The securities sector, which includes hedge funds, is vulnerable to money laundering due to limited supervision and lack of direct inspections by authorities.
• Excluded Persons at Risk: Excluded Persons, who are exempt from licensing under the Securities Investment Business Law (SIBL), are at risk of money laundering due to limited supervision and lack of account monitoring.

Challenges Facing Financial Crimes Unit

The Financial Crimes Unit (FCU) in Cayman is woefully under-resourced, with only 18 staff members investigating over US$1.3 trillion in assets. The unit has faced challenges in processing complex investigations due to cutbacks in staffing levels and the departure of key personnel.

Increased Sanctions for Non-Compliance

Sanctions for non-compliance with Cayman’s money laundering regulations have been increased from US$5,000 to up to US$500,000, but it is unclear whether these increased sanctions have yet been applied in practice.

Recommendations and Future Assessments

The report recommends decisive action across practically all anti-money laundering measures, including regulations, supervision, sanctions, intelligence, enforcement, and domestic and international co-operation. The Cayman Islands will be assessed by the Financial Action Task Force (FATF) at the end of this year, which will look not just at paper commitments but also at whether Cayman is taking effective action against dirty money in practice.

Addressing Vulnerabilities through Transparency

A concrete measure that can be taken is setting up a central public register of beneficial ownership, which will help to increase transparency and prevent the misuse of shell companies. This will not only improve Cayman’s anti-money laundering efforts but also promote its reputation as a responsible and trustworthy financial centre.

Taking Action against Dirty Money

The report’s recommendations are critical in addressing the weaknesses in Cayman’s anti-money laundering system and ensuring that it is taking effective action against dirty money.