Cayman Islands Faces Serious Risks of Money Laundering

The Cayman Islands, a major financial centre with over $1.3 trillion in assets, has serious vulnerabilities when it comes to preventing money laundering. A recently released national risk assessment highlights significant risks of dirty money being laundered through the world’s sixth largest financial centre.

Major Vulnerabilities

Securities Sector: A Major Weakness

The report flags the securities sector, which includes hedge funds, as a major vulnerability. Over 85 percent of the world’s hedge funds are domiciled in Cayman, with many operating without proper supervision or due diligence.

• The law that governs this sector, the Securities Investment Business Law (SIBL), is criticized for allowing thousands of individuals to operate exempt from licensing requirements.
• This lack of oversight creates a high risk of money laundering and corruption.

Under-Resourced Financial Crimes Unit

The Financial Crimes Unit (FCU) responsible for investigating money laundering cases in Cayman is severely under-resourced, with only 18 staff members to investigate assets worth over $1.3 trillion.

• The unit has seen significant cutbacks since 2007, including the departure of key personnel such as a forensic accountant.
• This lack of resources hampers the unit’s ability to effectively prevent and detect money laundering.

Low Sanctions and Lack of Enforcement

While sanctions for non-compliance with Cayman’s money laundering regulations have been increased from $5,000 to up to $500,000, there is no evidence that these penalties have been applied in practice.

• This lack of enforcement creates a culture of impunity, allowing individuals and organizations to continue engaging in money laundering without fear of consequences.
• Decisive action is needed to strengthen the country’s anti-money laundering measures.

Upcoming Financial Action Task Force Assessment

The Cayman Islands will be assessed by the Financial Action Task Force later this year, which will evaluate not just paper commitments but also actual implementation of anti-money laundering measures.

• With a few months to go before the assessment, authorities in Cayman have an opportunity to shape up and demonstrate their commitment to preventing dirty money.
• Transparency International is calling for concrete measures to be taken by the Cayman Islands government to address its vulnerabilities and strengthen its anti-money laundering system.

Recommendations

One key recommendation is the establishment of a central public register of beneficial ownership, which would help to prevent secrecy and increase transparency in financial dealings.