Major risks found in Cayman’s finance sector

| 20/03/2019 | 24 Comments

money laundering, Cayman News Service(CNS): The Cayman Islands Government is faced with a long ‘to do’ list to address “major deficiencies” inhibiting the jurisdiction’s “ability to analyse and understand its risks”, according to a new report. Well aware that the latest peer review on how Cayman combats money laundering and terrorist financing was likely to be damning, the premier recently implied that the goal posts had changed but that Cayman would be responding to the findings with a new action plan. However, the report found that Cayman has serious shortcomings in addressing its vulnerability to financial crime, despite years of claims to the contrary.

The Caribbean Financial Action Task Force (CFATF) Fourth Round Mutual Evaluation, which was finally published Tuesday, found that Cayman’s National Risk Assessment, conducted in 2015, was insufficient as it failed to properly assess the real global risks the jurisdiction faces.

It also found that Cayman authorities have failed to prosecute any serious money laundering cases, focusing too much on “domestic minor predicate offences” and failing to address the real risks the jurisdiction faces from international financial crime.

The report said that “larger and complex financial investigations and prosecutions have not been identified, or pursued, and there is limited focus on stand-alone ML cases and foreign generated predicate offences”. It found that “there remains fundamental challenges in how the jurisdiction identifies instances of ML/TF for investigation”.

The report said Cayman was being reactive, not proactive, in its investigations of financial crime, and even then it has reacted only to local crimes, with no major prosecutions of money laundering or terrorist finance cases in the jurisdiction. The evaluation said the Financial Reporting Authority is under-resourced and it has not been provided with the tools to assist investigative authorities in the identification of suspicious activity reports (SARs).

“While the FRA is able to triage the SARs they receive, they have not been able to sufficiently analyse and disclose these reports in a timely manner. They also do not have access to the widest possible level of relevant information nor does the jurisdiction collect relevant information from its reporting entities (e.g. wire transfers) that would allow for the proactive identification of cases for investigation,” the report states.

The use of disclosures from the FRA is negligible, the report found, indicating that there is an underestimation of the risks and vulnerabilities the jurisdiction is exposed to and that in many cases the necessary compliance regimes and relevant legislative frameworks are in place but they are not necessarily working efficiently.

In the long, detailed 270-page review, CFATF said that the threats associated with terrorism and proliferation were stated by Cayman as low. But the jurisdiction should thoroughly assess its financing threats, CAFTF warned, given the role of the financial sector in the global market and the potential for complex financial crime schemes here to ensure that the jurisdiction not only truly understands those threats but is capable of mitigating these vulnerabilities.

The review raises numerous issues and makes dozens of recommendations for the authorities here to implement before another review next year. However, government has said its latest anti-money laundering and counter financial terrorism action plan will address the recommendations.

“A dedicated task force comprised of a cross-section of government agencies has been appointed to oversee the implementation of a comprehensive action plan, and we are confident that all of the concerns identified in the CFATF report will be remedied within the one-year time-frame,” Premier Alden McLaughlin stated in a release outlining the plans. “Work is already underway to improve information gathering, more rigorously monitor financial activity and enhance enforcement including the confiscation of assets.”

Government officials said that efforts began prior to the finalisation of the report, which for the first time addressed the issues of technical compliance and compliance effectiveness. A new focus group, headed by the Office of the Director of Public Prosecutions, is working to enhance the use of financial intelligence to improve prosecutions, while the financial services ministry is currently leading a risk assessment of legal persons, and supervisory gaps identified by CFATF are being closed by supervisory bodies and professional associations.

Meanwhile, the Royal Cayman Islands Police Service (RCIPS) is in the process of enhancing its Financial Crimes Unit, with greater focus on money-laundering and terrorist financing investigations. Police are also partnering with the Economic Crime Unit of the City of London Police to deliver a training programme. In addition, UK personnel from crime agencies there are being seconded to Cayman.

Governor Martyn Roper said the jurisdiction was demonstrating its commitment by responding to the CFATF recommendations and that his office would remain closely engaged with the process.

“I am particularly pleased that we were able to secure strategic and advisory assistance from both the City of London Police and the National Crime Agency to guide the law enforcement initiatives. This underlines the UK’s commitment and support for the Cayman Islands,” he added.

Attorney General Samuel Bulgin said the report acknowledges Cayman’s high level of commitment to a robust anti-money laundering and terrorist financing framework and had a well-developed legal and institutional framework.

“We believe that this strong foundation, in tandem with a jurisdiction-wide, joined-up approach, will allow us to address the recommendations in a timely manner,” Bulgin stated, despite the damning findings.

However, Financial Services Minister Tara Rivers accepted that Cayman needed to do more and it was willing to do so. “Government and the private sector are willing and able to meet changing global standards while maintaining our standing atop the international financial services market,” she said.

See the full report in the CNS Library

Read more about Cayman’s response on the Anti-Money Laundering Unit website

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Category: Business, Financial Services

Comments (24)

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  1. Anonymous says:

    I wonder how many of the report’s ratings are political – you know, from the top FATF big boys.

  2. Anonymous says:

    “In March 2017, the Department of Commerce and Investment (DCI) was appointed as the supervisory authority for the Dealers in Precious Metals and Stones (DPMS) and real estate agents. Outreach and sensitisation of the AML/CFT obligation and risks is in the nascent stage. In December 2017, during CFATF’s onsite inspections, the Cayman Islands Institute of Professional Accountants (CIIPA) was appointed as the supervisory authority for the accountants. However, a supervisory authority has not been appointed for the AML/CFT oversight of attorneys.”

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  3. Anonymous says:

    Yeah – because the USA and UK are shining beacons in the world of global finance…Zzzzz.

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    • Anonymous says:

      They aren’t but they have the military and economic wherewithal to defend themselves
      We are a tiny islands in the middle of the ocean with no military and an inconsequential economic base in the global scale

  4. Anonymous says:

    Contrary to the conclusions of successive risk assessment reports, the highest AML/CTF/PC exposures are far and away in the Designated Non-Financial Business and Professions (DNFBPs) Sectors where “first contact” is usually made. Lawyers, Accountants, Real Estate, Precious Metals and Stones Handlers, and Trust and Corp Services Providers. They all still generally get a free pass to perform very superficial KYC, and/or rely on the unverified KYC diligence of others – then turn around and introduce these clients to the banks/financial services/SIBL providers, providing the references!

  5. Anonymous says:

    Uh there are many expat turned Caymanian MLROs/DMLROs that don’t know what they are doing and are hiding/shredding files from CIMA when they come through the door. How is CIMA supposed to find things when you have shady characters like that in those positions and the directors of those same companies covering for them?

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  6. V says:

    This report is not worth the paper it is printed on. It has zero credibility.

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  7. Anonymous says:

    Whacky private sector again. Not to worry CIG to the rescue for the zillion time.

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  8. Anonymous says:

    The Cayman Islands needs to create much more robust legal protections for responsible professionals (including directors and officers of CI entities). Ie. Those that adhere to our ever-moving standards and exercise their obligations to sever non-compliant and recalcitrant shareholders/relationships, shouldn’t have to suffer legal impairment for having done so. Even if those suing or exacting revenge are North Americans that don’t understand, agree with, or recognize our applicable reality in their home country. There should be basic admissibility tests for those filing actions in our courts. It shouldn’t turn into a 6yr career-paralyzing saga because someone here did the right thing.

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  9. Anonymous says:

    We all know CIG don’t want an efficient money laundering investigative regime otherwise they will lose the financial sector .

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  10. Anonymous says:

    We can’t prosecute when the law makers are second cousins of the criminals.

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    • Anonymous says:

      yes only Caymanians are committing financial crime… despite the fact that the vast majority of key positions in the entire financial services industry are held by non-Caymanians.

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      • Anonymous says:

        Caymanian are accused of theft, expats are charged with “Deception” to continue their governor’s cocktail party social climbing career to deceive others.

  11. Anonymous says:

    Duh! You think? You only have to see how mainstream fronting is to know many of our institutions are rotten to the core.

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  12. Anonymous says:

    Annnnnd back on the black list we go! hahaha

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  13. Anonymous says:

    By “confiscation of assets”, surely they mean: the freezing of illicit accounts/assets for the benefit of purported victims, and not “state confiscation” as a means of generating new CIG revenue? There is a difference, probably lost on this regime.

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  14. GlobalEffort says:

    How does Cayman compare to 1). UK 2). Other OTs 3). Rest of the Caribbean 4). Rest of the world and of course 5). USA.

    They will pick on small territories like Cayman who have done much to improve and is doing well. However, if there isn’t a global effort, those who want to do their business will find the right place.

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