Financial Crime World

Money Laundering Concerns Persist in Cayman Islands: CFATF Report Reveals Major Weaknesses

According to a Mutual Evaluation Report published by the Caribbean Financial Action Task Force (CFATF) in March 2019, the Cayman Islands face significant money laundering (ML) risks, with major weaknesses identified in areas including enhanced due diligence, sanctions screening, and regulatory oversight.

CFATF Evaluation and Findings

The Cayman Islands’ implementation of the Financial Action Task Force’s (FATF) 40 Recommendations regarding Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) measures was assessed during the sample period of 2017. The report revealed that the Cayman Islands were fully compliant with just 12 of the 40 measures, largely compliant with 15, and only partially compliant with 13 recommendations. [1]

ML Risks and Threats

  • International Financial Center and Money Laundering Risks: As a major international financial center, the Cayman Islands face considerable ML/TF risks due to domestic and foreign criminal activities, including tax evasion, fraud, and drug trafficking. [2]
  • Domestic Threats: The national risk assessment (NRA) identified internal threats, such as theft, corruption, and drug trafficking, as primary sources of money laundering. [2]
  • Non-compliant areas: Gaps in risk assessment, customer due diligence, and regulatory supervision of financial institutions were identified as major concerns. [1]

CFATF Concerns and Recommendations

Sanctions Screening and Enhanced Due Diligence

  • Variability in Sanctions Screening: CFATF noted that while private sector entities recognize the importance of sanctions screening, their implementation varied, and the understanding of procedures to take when targeted persons are identified is limited. [3]
  • Lack of Supervision for Lawyers: Lawyers remain unsupervised for AML/CFT purposes. [3]
  • Implementation of Risk-Based Supervisory Regime: The full implementation of a risk-based supervisory regime for dealers in precious metals or stones, real estate agents, and accountants has not been achieved, and complex financial crimes were not aggressively pursued by investigative and prosecution authorities in the Cayman Islands. [3]
  • Use of Civil Forfeiture: The report suggested there could be a greater use of civil forfeiture, which would increase the deterrence effect of the country’s AML/CFT system. [3]

Regulatory Framework and Oversight

  • Need for Strengthened Regulatory Unit: The report recommended strengthening the financial crimes unit with a focus on money laundering and terrorist financing investigations. [1]
  • Legislative Changes: The Cayman Islands Government promised to address the report’s findings through legislative changes. [4]

Conclusion

The Cayman Islands possess a well-developed legal framework but face several major issues, particularly regarding sanctions screening, enhanced due diligence, and regulatory oversight. The report emphasized that despite resource commitments from the Royal Cayman Islands Police Service and the Office of the Director of Public Prosecutions, large and complex financial investigations and prosecutions have not been pursued. To minimize money laundering risks effectively, financial institutions may consider partnering with a comprehensive regulatory compliance and risk management solution like Alessa. [1, 4]

[1]: CFATF, “Mutual Evaluation Report - Cayman Islands,” March 2019, pp. 3-12. [2]: CFATF, “Mutual Evaluation Report - Cayman Islands,” March 2019, pp. 12-19. [3]: CFATF, “Mutual Evaluation Report - Cayman Islands,” March 2019, pp. 19-34. [4]: “Cayman Islands Promises To Address Money Laundering Concerns,” Caribbean News Now, April 4, 2019.