Financial Crime Definition in Cayman Islands: A Growing Concern
The Cayman Islands, a small Caribbean territory, may seem like an unlikely hub for international finance. However, its relaxed regulatory environment has made it an attractive destination for businesses and individuals seeking to capitalize on its financial services. Unfortunately, this ease of operation has also led to concerns about money laundering and financial crime.
Deficiencies in Anti-Money Laundering Regime
A 2019 Mutual Evaluation by the Financial Action Task Force (FATF) revealed several deficiencies in the Cayman Islands’ anti-money laundering regime. The territory’s focus on domestic financial crime risks has been criticized for neglecting international financial crime risks, while its failure to impose sanctions on entities that do not disclose beneficial ownership information has raised concerns.
EU High Risk Third Country List
The European Union has placed the Cayman Islands on its High Risk Third Country list due to strategic deficiencies in its anti-money laundering regulations and enforcement. The territory’s National Risk Assessment did not adequately assess risks in financial sectors not directly supervised within the territory, and sanctions against entities and individuals involved in money laundering were found to be disproportionate and ineffective.
Reactive Approach
The Cayman Islands has been criticized for taking a reactive approach to financial crime, only responding after crimes have occurred rather than proactively addressing potential threats. Additionally, a lack of coordination between regulatory agencies and financial institutions within the jurisdiction has hindered efforts to combat financial crime.
Mitigating Risk
To mitigate their risk in the Cayman Islands, financial institutions can take several measures:
- Conducting in-depth due diligence on clients registered or operating in the territory
- Identifying the entity type, business nature, and source of wealth and revenue
- Looking to other businesses for best practices in mitigating AML issues
- Providing training with subject-matter experts
Progress and Challenges
Despite notable deficiencies in its anti-money laundering program, the Cayman Islands has made efforts to improve its regime. FATF has rated it as largely compliant or fully compliant with all 40 of its recommendations.
As the Cayman Islands continues to work towards improving its anti-money laundering program, financial institutions must remain vigilant and take proactive measures to protect their businesses against financial crime.
Conclusion
The Cayman Islands’ complex web of financial activity requires a proactive approach to mitigate risks. Financial institutions can take steps to limit their exposure to financial crime by conducting thorough due diligence and staying informed about regulatory developments. As the territory continues to improve its anti-money laundering regime, financial institutions must remain vigilant and adapt to changing regulations and threats.