Financial Crime World

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Financial Crime Investigation Methods in Cayman Islands Under Scrutiny: Report Highlights Risks of Money Laundering and Terrorist Financing

A recent report by the Caribbean Financial Action Task Force (CFATF) has highlighted significant risks of money laundering and terrorist financing in the Cayman Islands, a major international financial centre. The report found that the island’s anti-money laundering (AML) and counter-terrorist financing (CFT) measures are incomplete, leaving it vulnerable to foreign fraud, evasion of foreign taxes by non-residents, and drug trafficking.

CFATF Report Highlights Incomplete AML/CFT Measures

According to the report, the Cayman Islands were fully compliant with only 12 out of 40 FATF recommendations, largely compliant with 15, and partially compliant with 13. The study identified a number of major problems, including:

  • Lack of enhanced due diligence
  • High thresholds for transaction reporting
  • Holes in regulation and supervision

Inherent Risks of Money Laundering and Terrorist Financing

The report also warned that the Cayman Islands is confronted with inherent ML/TF risks from domestic and foreign criminal activities, including:

  • Tax evasion
  • Fraud
  • Drug trafficking
  • Theft
  • Corruption
  • Domestic proceeds of crime

Recommendations for Increased Sanctions Screening and Enhanced Due Diligence

The study highlighted the need for increased sanctions screening and the importance of ensuring that financial institutions apply enhanced due diligence when dealing with high-risk countries.

Implementation of Report’s Recommendations

Despite having a well-developed legal framework, the Cayman Islands has struggled to implement effective AML/CFT measures. The report found that investigations and prosecutions of money laundering in the Cayman Islands are primarily focused on domestic minor predicate offences, rather than large and complex financial crimes.

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. The minister responsible for finance, Tara Rivers, stressed that the Cayman Islands is committed to ensuring its AML/CFT framework is robust and capable of safeguarding the integrity of the jurisdiction’s financial sector.

Significance for Financial Institutions

The report’s findings have significant implications for the island’s financial institutions, which are expected to take a more proactive approach to detecting and preventing money laundering and terrorist financing. The government has promised to work with the private sector to implement the recommendations and reduce the risk of financial crime in the Cayman Islands.