Financial Crime World

Cayman Islands Faces High Risk of Money Laundering Due to Lack of Effective Measures

A recent assessment by the Caribbean Financial Action Task Force (CFATF) has found that the Cayman Islands faces a significant risk of money laundering and foreign fraud due to its lack of effective anti-money laundering (AML) and counter-terrorist financing (CFT) measures.

Assessment Report Highlights Concerns

The report, published in March 2019, analyzed the effectiveness of the Cayman Islands’ AML/CFT system from a sample period in 2017 and compared it to the Financial Action Task Force’s (FATF) 40 Recommendations. The study found that:

  • The Cayman Islands were fully compliant with only 12 of the 40 measures.
  • They were largely compliant with 15, but partially compliant with 13.

Areas of Concern

The report highlighted several areas of concern, including:

  • Lack of enhanced due diligence for high-risk countries and customers
  • High threshold for transaction reporting ($18,300 US)
  • Lack of controls for beneficial ownership information
  • Financial Reporting Authority (FRA) lacks independence
  • Holes in the regulation and supervision of financial institutions

Money Laundering Risks

The report stated that the Cayman Islands has a high level of commitment to ensuring its AML/CFT framework is robust, but despite having a well-developed legal framework, there are many major problems. It noted that:

  • The jurisdiction is confronted with inherent money laundering and terrorist financing risks from domestic and foreign criminal activities, including tax evasion, fraud, and drug trafficking.
  • Domestically, theft, corruption, and drug trafficking were identified as the main generators of proceeds of crime, while foreign-generated proceeds pose a more significant threat to the financial sector.

Recommendations

The report made several recommendations, including:

  • Increasing sanctions screening
  • Implementing a risk-based supervisory regime for dealers in precious metals or stones (DPMS), real estate agents, and accountants
  • Strengthening supervision of lawyers and accountants in relation to AML/CFT purposes

Government Response

The government has promised to implement the report’s recommendations over the next year or so, including legislative changes and strengthening its financial crimes unit with a focus on money laundering and terrorist financing investigations. Financial Services Minister Tara Rivers emphasized that the Cayman Islands is willing and able to meet changing global standards while maintaining its standing as an international financial center.

Conclusion

The CFATF’s assessment highlights the need for the Cayman Islands to take immediate action to address its AML/CFT deficiencies. The government’s commitment to implementing the report’s recommendations is a step in the right direction, but it is essential that these measures are implemented effectively and promptly to mitigate the risks of money laundering and terrorist financing.