Financial Crime World

Guidance Notes for Financial Services Providers (FSPs) in the Cayman Islands: Money Laundering/Terrorist Financing/Proliferation Financing

Introduction

The following Guidance Notes provide essential information on money laundering/terrorist financing/proliferation financing (ML/TF/PF) for Financial Services Providers (FSPs) in the Cayman Islands.

Definition and Scope

  • Money Laundering/Terrorist Financing/Proliferation Financing: This refers to disguising or concealing the origin, nature, or destination of funds derived from unlawful activities, including terrorism or proliferation.
  • Sources of Funding: Terrorist groups may obtain funds through various means, such as:
    • Kidnapping
    • Extortion
    • Smuggling
    • Fraud
    • Theft
    • Robbery
    • Narcotics trafficking
    • Legitimate sources or a combination of lawful and unlawful sources

Methods of Laundering

  • Terrorist groups use various methods to launder funds, including:
    • Cash smuggling
    • Structured deposits/withdrawals from bank accounts
    • Purchasing monetary instruments
    • Using credit/debit cards
    • Wire transfers

Vulnerabilities in Charities and Non-Profit Organizations (NPOs)

  • NPOs are vulnerable to being misused for terrorist financing. Terrorist groups use NPOs to raise and launder funds for terrorism.

Underground Banking

  • The hawala system, a form of underground banking, has been used to move terrorist-related funds.

Reporting Obligations

  • FSPs must disclose information about suspected money laundering/terrorist financing/proliferation financing to the Financial Reporting Authority (FRA) or the police as soon as is reasonably practical.
  • Failure to do so is an offense punishable by imprisonment and fines.

Sanctions Compliance

  • FSPs must comply with international targeted financial sanctions/orders, designations, and directions issued in relation to ML/TF/PF. This includes:
    • Filing suspicious activity reports (SARs)
    • Freezing funds
    • Informing the Governor as required under the relevant Acts/orders if they discover a relationship that contravenes any applicable sanctions orders or directions

Proliferation Financing

  • Proliferation financing refers to providing funds or financial services used for the manufacture, acquisition, possession, development, export, transportation, transfer, stockpiling, or use of weapons of mass destruction and their means of delivery and related materials in contravention of national Acts or international obligations.

Reporting Obligations (Proliferation Financing)

  • FSPs must refer to the meaning of term “Proliferation” in the Proliferation Financing (Prohibition) Act (2017 Revision) for the purpose of these Guidance Notes.
  • The TA deals with matters relating to the prevention, suppression, and disruption of proliferation of weapons of mass destruction and its financing.
  • The TA makes it an offense to provide, receive or invite instruction, advice, guidance or financial services related to the manufacture, acquisition, possession, development, export, transportation, transfer, stockpiling or use of weapons of mass destruction and their means of delivery and related materials in contravention of national Acts or international obligations.