Financial Crime World

Money Laundering Techniques Pose Significant Risk in Cayman Islands: Report

A recent assessment of anti-money laundering (AML) and counter-terrorist financing (CFT) measures in the Cayman Islands has revealed a significant risk of foreign fraud, evasion of foreign taxes by non-residents, and drug trafficking. The Caribbean Financial Action Task Force (CFATF) published a Mutual Evaluation Report in March 2019, which analyzed the country’s AML/CFT system and found several major problems.

Key Findings

  • Lack of enhanced due diligence
  • No specific obligation for financial institutions to apply enhanced due diligence when dealing with high-risk countries
  • Higher threshold for transaction reporting
  • Holes in regulation and supervision of financial institutions
  • Lack of independence for the Financial Reporting Authority (FRA)
  • Lack of safeguards and regulations for cash couriers

Compliance Levels

The Cayman Islands was found to be:

  • Fully compliant with only 12 of the 40 FATF recommendations
  • Largely compliant with 15
  • Partially compliant with 13

The report also noted that the country’s AML/CFT system is vulnerable to domestic and foreign criminal activities, including tax evasion, fraud, and drug trafficking.

Domestic and Foreign Threats

Domestically, theft, corruption, and drug trafficking were identified as the main generators of proceeds of crime. Foreign-generated proceeds posed a more significant threat to the financial sector. The report recommended increasing the level of sanctions screening and enhancing customer due diligence (CDD).

Unsupervised Entities

  • Lawyers remain unsupervised for AML/CFT purposes
  • Risk-based supervisory regime for dealers in precious metals or stones (DPMS), real estate agents, and accountants has not been fully implemented

Challenges in Investigations and Prosecutions

Complex financial crimes are not pursued, with investigations and prosecutions primarily focusing on domestic minor predicate offences.

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. The Financial Services Minister, Tara Rivers, emphasized the country’s commitment to maintaining its standing as an international financial centre while meeting changing global standards.

Recommendations for Reducing Money Laundering Risks

  • Improve sanctions screening processes
  • Implement robust AML/CFT measures

To reduce exposure to money laundering risks in the Cayman Islands and elsewhere, experts recommend improving sanctions screening processes and implementing robust AML/CFT measures.