Financial Crime World

CAYMAN ISLANDS FACES SIGNIFICANT RISK OF MONEY LAUNDERING

A recent assessment of the Cayman Islands’ anti-money laundering (AML) measures has identified a significant risk of foreign fraud, evasion of foreign taxes by non-residents, and drug trafficking. The Caribbean Financial Action Task Force (CFATF) published a Mutual Evaluation Report in March 2019, which analyzed the country’s AML/Counter-Terrorist Financing (CFT) measures against the Financial Action Task Force (FATF) 40 Recommendations.

Key Findings

  • The Cayman Islands were found to be fully compliant with only 12 of the 40 FATF recommendations.
  • Several high-risk areas were identified, including:
    • Lack of enhanced due diligence for financial institutions dealing with high-risk countries
    • Higher threshold for transaction reporting (15,000 KYD or about $18,300 US)
    • Holes in regulation and supervision of financial institutions
    • Lack of independence for the Financial Reporting Authority (FRA)
    • Inadequate safeguards for cash couriers

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.

“The history of financial services in the Cayman Islands shows that Government and the private sector are willing and able to meet changing global standards while maintaining our standing atop the international financial services market,” said Financial Services Minister Tara Rivers.

Recommendations

  • Increase sanctions screening
  • Enhance customer due diligence (CDD)
  • Implement a risk-based supervisory regime for dealers in precious metals or stones (DPMS), real estate agents, and accountants
  • Greater use of civil forfeiture
  • Pursuing large and complex financial investigations and prosecutions

Challenges Ahead

The report warned that foreign-generated proceeds of crime pose a more significant threat to the financial and non-financial sectors than domestically generated proceeds of crime. The country’s banking sector was the sixth largest in the world in 2014, with a cross-border asset position at $1.365 trillion US and fifth by cross-border liabilities of $1.347 trillion US.

Lawyers remain unsupervised for AML/CFT purposes, and a risk-based supervisory regime for DPMS, real estate agents, and accountants has not been fully implemented. The investigations and prosecution of money laundering in the Cayman Islands are primarily domestic minor predicate offences.