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Cayman Islands Under Fire for Failure to Combat Money Laundering

The Cayman Islands, a major financial hub, has been accused of failing to effectively combat money laundering and fraud. According to a recently released national risk assessment report, the country faces significant threats from dirty money flowing through its financial system.

Serious Vulnerabilities in Anti-Money Laundering Regime

Despite being a leading financial center, the Cayman Islands has serious vulnerabilities in its anti-money laundering regime. The report highlights that many banks operating in the country do not have a physical presence, and their head offices are often located in countries with lax anti-money laundering regulations.

Securities Sector Particularly Vulnerable

The securities sector, which includes hedge funds, is particularly vulnerable to money laundering. A significant number of individuals exempt from licensing requirements are at risk of being exploited for illicit activities. The report also notes that many mutual funds registered in the Cayman Islands do not have their main activity taking place within the jurisdiction, making it difficult to track the identity and locations of ultimate beneficial owners.

Understaffed Financial Crimes Unit

The Financial Crimes Unit (FCU) is understaffed and under-resourced, with only 18 investigators tasked with handling complex investigations involving assets worth US$1.3 trillion. The unit has faced challenges due to staffing cuts and the departure of key personnel.

Increased Penalties for Non-Compliance

Until recently, penalties for non-compliance with money laundering regulations were inadequate, but they have since been increased from US$5,000 to up to US$500,000. However, it is unclear whether these sanctions have been applied in practice.

Recommendations and Next Steps

The report recommends decisive action across all anti-money laundering measures, including regulations, supervision, and enforcement. The Financial Action Task Force will assess the Cayman Islands’ efforts later this year, providing an opportunity for the country to demonstrate its commitment to combating dirty money.

Calls for Concrete Measures

Transparency International is calling on the Cayman Islands authorities to take concrete measures, such as setting up a central public register of beneficial ownership, to address these vulnerabilities and ensure that the country’s financial sector is not compromised by illegal activities.