Suspicious activity not properly investigated

| 21/03/2019 | 27 Comments

Cayman News Service(CNS): The evaluation of the Cayman Islands by CFATF has identified a long list of potential risks, threat and vulnerabilities faced by the jurisdiction as a result of the size and sophistication of its offshore financial sector. One significant concern, from the long list identified in the report, is the failure of the disclosures from the Financial Reporting Authority from suspicious activity reports to generate any notable money laundering or terrorist financing investigations. The report’s authors also point to the failure of the authorities to sufficiently resource this office to achieve its goals.

The Financial Reporting Authority (FRA) is the local financial intelligence unit responsible for receiving suspicious activity reports (SARs). It is supposed to analysis those reports to substantiate the suspicion and then make onward disclosures to the police or other legal authorities to trigger money laundering, terrorist financing or other financial crime investigations at home or abroad.

Last month FRA Director Robert Berry admitted that, despite having an impressive amount of agreements and reporting mechanisms in place, Cayman was failing to prosecute financial crime and his agency was overloaded.

In the Caribbean Financial Action Task Force (CFATF) Fourth Round Mutual Evaluation report, the authors found that the “jurisdiction has not provided the FRA with the tools necessary to achieve its mandate”, as it pointed to the limited access to relevant information and insufficient information technology.

“The information gathered by the jurisdiction and the resourcing of the FRA does not allow for sufficient strategic analysis that would enable the financial sector to be apprised of trends, typologies and general risks that inform them of the risk their operations face by virtue of operating in Cayman Islands,” the report warned. The task force said that the “fundamental problem” for the FRA was that the disclosures do not generate investigations.

“This may be because the FRA does not have direct access to the widest possible degree of information,” the authors noted, adding that while the other authorities and investigative bodies here are cooperating, financial intelligence is not routinely requested from the FRA.

“This inhibits the ability of the FRA to effectively supporting the operational priorities of law enforcement authorities,” the report stated. “It has ultimately created a structure that works in a siloed and inefficient manner with respect to the generation of financial intelligence.”

The FRA was also said to face challenges in performing its analyses and manually disseminating disclosures due to technical infrastructure limitations and a lack of feedback from the authorities the FRA hands over reports to.

“There is a need to improve the sectors’ overall awareness of the specific ML/TF risks faced by their Cayman Islands’ operations,” the report emphasized on a number of occasions.

CFATF said the FRA should be permitted to use its access to information to develop more fulsome disclosures to law enforcement authorities in the hopes of generating greater proactive investigations, which will require greater strategic analysis capability. It also needs to better funded.

“The Cayman Islands should ensure that the FRA is appropriately staffed to conduct greater strategic analysis,” the report said, adding that the FRA and relevant competent authorities should provide greater guidance and feedback to enable all stakeholders to identify suspicious transactions which may involve potential complex financial crime.

The majority of SARs filed in the Cayman Islands come from local retail banks. but CFATF said that there is a significant level of under-reporting from Cayman licensed banks not located here, as well as all those defined as “excluded persons”.

The report also criticised the FRA for its poor priority choices when engaging with stakeholders about how to file quality SARs.

See the full report in the CNS Library

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Category: Business, Financial Services

Comments (27)

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  1. Anonymous says:

    A recommendation is that the CI Government find a way to do its own audits well in advance of future CFATF visits to minimize the embarrassment in future. The Government needs to be more proactive in future rather than always being on the back foot responding to International pressures alone.

  2. Anonymous says:

    Maybe a FIO disclosure of the cost, including overseas conferences attended by CIG internal stakeholders as far as Europe and East Asia will show that we got nil return on these purported necessary sojourns to meet the CFAT review and the proposed expenditures for new hires. What’s needed is a complete overall of the FRA and other agencies with better coordination and dismantling of silos and single lead to oversea the varied operations with no accountability except for shifting or sitting on papers (SARS)

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  3. Anonymous says:

    Cayman has many laws about many things, but it does not do enforcement. That is just a fact.

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    • Anonymous says:

      It is actually a crime under the penal code for government officials not to fulfil their responsibilities. How many of our so called world class civil servants are in fact criminals?

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  4. Anonymous says:

    Why does it take an external review to identify what has been obvious for years. Silo working, poor prioritisation, failure to engage with stakeholders. The FRA should be at the forefront of intelligence led investigations yet the reality is it’s just a white elephant.

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  5. Anonymous says:

    I am struggling here. The FRA the Cayman Islands lead in financial intelligence is run by and staffed by a bunch of civil servants with no intelligence or law enforcement background.
    Surely they should be staffed appropriately with the proper skills tied at the hip with the police and all working in the same office.

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    • Cess Pita says:

      6.37pm I totally agree with your sentiments, but perhaps you should have put a full stop after “intelligence”?.

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  6. Anonymous says:

    An exceptionally perceptive and accurate n

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  7. Anonymous says:

    Basically, there’s very little action.

    Size of Banking Assets:
    Year Class A Bank Class B Bank Assets
    2014 $23.170 bln $1.428 trillion
    2015 $18.688 bln $1.015 trillion
    2016 $23.776 bln $1.153 trillion

    Disclosures/Requests to Competent Authorities:
    2013 2014 2015 2016
    Dept Dis Req Dis Req Dis Req Dis Req
    RCIPS* 133 4 112 0 146 3 94 2
    CUST 4 0 1 0 0 0 6 0
    IMM 23 0 10 0 20 0 14 0
    ODPP N/A 0 N/A 0 N/A 1 N/A 2
    CIMA 53 0 77 0 42 2 24 1
    * includes ACC

    Total Sums Restrained and/or Confiscated:
    Year Restrained Forfeited
    2013 USD$811k USD$295,843
    2014 USD$8.1mln USD$4,267.74
    2015 USD$5mln nil
    2016 USD$600k USD$625k
    2017 USD$400k USD$2.2mln

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    • Anonymous says:

      Please put up the CIMA regulatory fines as well. The FRA was not the only entity that was severely criticized. Why was HSBC not fined as well? And what ever happened to the Fidelity review following the FIFA scandal?

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      • Anonymous says:

        Yeah crickets on so many HEADLINE global events. These agencies (and we have 9 or more), aren’t overworked or understaffed, they are just incompetent, or worse, deliberately imperceptive. Now the whole world can see how bad it really is – led by a regime that ignores their duty to enact the Constitutional requirement for a Standards in Public Life Law for over a decade.

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  8. Anonymous says:

    Except for a while when it was headed by a UK spy…this has always been a cushy appointment for connected Caymanians that won’t make waves and will avoid risk to Cayman financial industry’s reputation.

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    • Yes, this is the problem. The politicians almost always opt for a “safe pair of hands” rather than an effective appointee who realises the importance of the job.

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  9. Anonymous says:

    Exactly

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  10. Anonymous says:

    Simple benchmark here – how many people have been taken to court by the financial authorities here? Simple answer – none! All the regulatory breaches that have been discovered were pursued by outside jurisdictions like the USA. Just to take one example – HSBC laundering Mexican drug money. That was exposed by the USA but people in these islands knew full well it was going on and said nothing. Bottom line – we’re doing Jack s***!

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  11. Anonymous says:

    #CIFA

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  12. Anonymous says:

    I suspect CFATF is upset because Cayman is not on the black List and some others are.

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    • Anonymous says:

      That’s not it. You should read their all-too-familiar CIG indictments and then comment on whether you think they’ve exaggerated the ineptitude. I think CFATF were reserved and generous in their assessment.

  13. A says:

    “One significant concern, from the long list identified in the report, is the failure of the disclosures from the Financial Reporting Authority from suspicious activity reports to generate any notable money laundering or terrorist financing investigations.”

    Most likely explanation for this is that the Cayman regime is not an attractive place for these activities. They seem to be sufficiently deterred from operating here. From my years of working in Finance in Cayman and overseas there are many preferable onshore places for this type of criminal activity.

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    • Anonymous says:

      You obviously don’t remember HSBC’s Mexican connection.

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    • Anonymous says:

      You misunderstand the criticism: SARs are documented at the FRA. In some years, for some sectors, like “Securities Businesses”, from 2015, there were as many as 20 SARs filed (from anywhere), prompting less than 10 Cayman-side investigations into merit – in other years – zero investigated for merit in an entire calendar year against a dozen SARs filed. What are these “busy, understaffed” depts actually doing if a SAR isn’t prompting ANY ACTION from anyone?

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      • Anonymous says:

        It’s nice that someone like Gerald Halischuk was finally hired on by CIMA to fill the longstanding securities supervision vacuum. But is anyone going to call untouchable Cindy Scotland into the career counsellor’s office to review what CIMA was thinking by leaving that section in shambles for last 5 years – even with repeated headlines? See also: “what does it take to get fired from government posts”…

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    • A.ebanks says:

      Which in essence is the whole reason for their existence so what exactly do we get for our money ?

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  14. Anonymous says:

    Yes we can and should improve. However lets bring it back to the real world. How do we stack up with other jurisdictions when the same standards are applied?

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    • Anonymous says:

      11:51 Badly?

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    • Anonymous says:

      To put in perspective how trivial the efforts have been: over the five years 2012-2017 there were only 24 money laundering cases with total cash seizures of usd$146,592, eur1,695, gbp945, and kyd$125,769.70. Those are the net 5 year totals.

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    • Anonymous says:

      From my reading of the report on Technical compliance Cayman is toe to toe. On the Effectiveness not so good.

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