Financial Crime World

Cayman Islands Faces High Risk of Fraudulent Transactions, Report Reveals

Introduction

A recent assessment by the Caribbean Financial Action Task Force (CFATF) has found that the Cayman Islands is at high risk of money laundering due to a lack of effective measures in place to prevent fraudulent transactions.

Assessment Findings

The report, published in March 2019, evaluated the Cayman Islands’ Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) measures against the Financial Action Task Force’s (FATF) 40 Recommendations. The assessment found that while the Cayman Islands was fully compliant with only 12 of the 40 recommendations, there were significant weaknesses in areas such as:

  • Transaction Monitoring: Lack of effective transaction monitoring systems
  • Sanctions Screening: Inadequate sanctions screening processes
  • Customer Due Diligence: Insufficient customer due diligence practices

Key Issues Identified

The report highlighted several key issues, including:

  • Lack of Enhanced Due Diligence: No enhanced due diligence for high-risk countries
  • Threshold for Transaction Reporting: Threshold for transaction reporting is too high (15,000 KYD or approximately $18,300 US)
  • Regulation and Supervision: Holes in the regulation and supervision of financial institutions
  • Independence of Financial Reporting Authority: Lack of independence for the Financial Reporting Authority
  • Safeguards and Regulations for Cash Couriers: Inadequate safeguards and regulations for cash couriers

Banking Sector Vulnerabilities

The Cayman Islands’ banking sector was found to be particularly vulnerable, with:

  • High Level of Cross-Border Activity: High level of cross-border activity in the financial centre
  • Large Amount of Money Flowing Through Economy: A large amount of money flowing through the economy, making it susceptible to domestic and foreign criminal activities

Recommendations for Improvement

The study identified several areas for improvement, including:

  • Increasing Sanctions Screening: Implementing a more comprehensive sanctions screening process
  • Enhancing Customer Due Diligence: Enhancing customer due diligence practices for higher-risk customers
  • Implementing Risk-Based Supervisory Regime: Implementing a risk-based supervisory regime for dealers in precious metals or stones, real estate agents, and accountants

Government Response

The government has promised to implement the report’s recommendations over the next year, including legislative changes and strengthening its financial crimes unit with a focus on money laundering and terrorist financing investigations. Financial Services Minister Tara Rivers emphasized the importance of meeting changing global standards while maintaining the country’s standing as an international financial centre.

Conclusion

The findings of the report highlight the need for improved measures to prevent fraudulent transactions in the Cayman Islands and underscore the importance of effective anti-money laundering and counter-terrorist financing regulations.