Financial Crime World

Fraudulent Activities Plague Banking Sector in Cayman Islands, Report Reveals

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The Caribbean Financial Action Task Force (CFATF) has published a report highlighting significant risks of foreign fraud, evasion of foreign taxes by non-residents, and drug trafficking in the Cayman Islands. The assessment evaluated the jurisdiction’s anti-money laundering (AML) and counter-terrorism financing (CFT) measures against the Financial Action Task Force’s (FATF) 40 Recommendations of 1990.

Weaknesses in AML/CFT Framework

The report identified several weaknesses in the Cayman Islands’ AML/CFT framework, including:

  • Lack of enhanced due diligence for financial institutions dealing with high-risk countries
  • Inadequate controls for beneficial ownership information and transaction reporting
  • Insufficient safeguards and regulations for cash couriers

High-Risk Areas

The report highlighted several high-risk areas, including:

Financial Institutions

  • Failure to implement effective risk-based approach to customer due diligence
  • Lack of transparency in transactions involving high-risk countries

Beneficial Ownership Information

  • Inadequate controls for collecting and maintaining beneficial ownership information

Transaction Reporting

  • Inadequate reporting requirements for cross-border transactions

Banking Sector Vulnerability

The Cayman Islands’ banking sector is one of the largest in the world, with a cross-border asset position of $1.365 trillion US and fifth by cross-border liabilities of $1.347 trillion US. The report warned that this high level of financial activity makes the jurisdiction vulnerable to money laundering and terrorist financing.

Domestic and Foreign Criminal Activities

The report identified domestic and foreign criminal activities as significant threats to the financial sector, including:

Foreign-Generated Proceeds of Crime

  • Foreign-generated proceeds of crime pose a greater risk than domestically generated proceeds

Increased Sanctions Screening

  • The report recommended increased sanctions screening for all transactions involving high-risk countries

Recommendations and Implementation

The government has promised to implement the report’s recommendations over the next year or so, including:

Legislative Changes

  • Strengthening financial crimes unit
  • Enhancing due diligence requirements for financial institutions
  • Improving beneficial ownership information collection and maintenance

Financial Crimes Unit

  • The CFATF recommended strengthening the financial crimes unit to effectively investigate and prosecute financial crimes.

By implementing these recommendations, the Cayman Islands aims to improve its AML/CFT framework and reduce the risk of fraudulent activities in the banking sector.