Financial Crime World

Banks in Cayman Islands Struggle to Detect Fraud, Evasion of Foreign Taxes, Report Finds

Introduction

A recent assessment of anti-money laundering (AML) and counter-terrorist financing (CFT) measures in the Cayman Islands has highlighted significant risks of foreign fraud, evasion of foreign taxes by non-residents, and drug trafficking. The report, published by the Caribbean Financial Action Task Force (CFATF), assessed the effectiveness of the country’s AML/CFT system.

Findings

The report found that the Cayman Islands were fully compliant with only 12 out of 40 recommendations made by the Financial Action Task Force (FATF). The country was largely compliant with 15 recommendations and partially compliant with 13. Key areas of concern include:

  • Lack of Enhanced Due Diligence: The report highlighted a lack of enhanced due diligence, particularly in dealing with high-risk countries.
  • Regulation and Supervision: Holes were identified in the regulation and supervision of financial institutions, including a lack of independence for the Financial Reporting Authority (FRA).
  • Safeguards for Cash Couriers: Limited safeguards were found for cash couriers.

Banking Sector

The banking sector in the Cayman Islands is massive, with cross-border assets valued at $1.365 trillion US and liabilities of $1.347 trillion US. The report noted that the country faces inherent risks from domestic and foreign criminal activities, including:

  • Tax Evasion: Foreign-generated proceeds of crime pose a greater threat to the financial sector than domestically generated proceeds of crime.
  • Fraud: The report recommended increasing sanctions screening and enhancing customer due diligence (CDD).
  • Drug Trafficking: Foreign fraud and drug trafficking were identified as significant risks to the country’s financial system.

Recommendations

The report made several recommendations, including:

  • Enhancing Sanctions Screening: Increasing sanctions screening and enhancing CDD to reduce exposure to money laundering risks.
  • Risk-Based Supervision: Implementing a risk-based supervisory regime for dealers in precious metals or stones, real estate agents, and accountants.
  • Financial Crimes Unit: Strengthening the financial crimes unit’s resources and capabilities to combat complex financial crime.

Implementation

The government has pledged to implement the report’s recommendations over the next year or so, including legislative changes and improvements to its financial crimes unit. The Financial Services Minister, Tara Rivers, emphasized the country’s commitment to maintaining its standing as a major international financial center while meeting changing global standards.

Conclusion

With Alessa, banks in the Cayman Islands can improve their AML/CFT measures and reduce exposure to money laundering risks. Contact us today to learn how our solutions can help flag AML indicators, enhance sanctions screening processes, and more.