Financial Crime World

Cayman Islands Exposed for Failing to Combat Fraud and Money Laundering

The Cayman Islands has been found to be vulnerable to fraud and money laundering, with its financial system being used to commit financial crimes. An executive summary of the country’s 2015 national money laundering risk assessment reveals that many banks operating in the Caymans do not have a physical presence in the country, making it easier for criminals to launder money.

Financial Sector Vulnerabilities

  • Over 85% of the world’s hedge funds are domiciled in the Cayman Islands
  • Many operate under lax regulations
  • The Securities Investment Business Law (SIBL) is supposed to regulate this sector, but around 2,275 individuals and companies are exempt from licensing requirements, leaving them vulnerable to money laundering

Mutual Funds Concerns

  • Over 11,000 mutual funds registered in Cayman often do not conduct business within the jurisdiction, making it difficult for authorities to track their activities
  • Many of these funds have unknown ultimate beneficial owners, which makes it hard to identify and prosecute those involved in financial crimes

Investigative Resources

  • The Financial Crimes Unit (FCU) responsible for investigating financial crimes is severely under-resourced, with only 18 staff members to investigate assets worth over $1.3 trillion
  • Until recently, sanctions for non-compliance with Cayman’s money laundering regulations were inadequate, but have since been increased from $5,000 to up to $500,000

Recommendations and Consequences

  • The report recommends “decisive action” around anti-money laundering measures, including regulations, supervision, sanctions, intelligence, enforcement, and international cooperation
  • Failure to take concrete measures could have severe consequences for the country’s reputation and economy
  • Experts are calling on Cayman authorities to set up a central public register of beneficial ownership to increase transparency and combat fraud

The country has only a few months to show it is serious about tackling financial crime before its assessment by the Financial Action Task Force (FATF) in December this year. It is crucial that the Cayman Islands takes decisive action to address these vulnerabilities and prevent further financial crimes from taking place.