Developers pose major AML risks

| 19/05/2021 | 82 Comments

(CNS): As property development and construction continues to surge across the Cayman Islands, it’s not just the natural environment that is at risk. The large number of developments for commercial purposes, especially beach and waterfront condo and apartment projects, are posing a risk to the jurisdiction because of their vulnerability to money laundering.

Victoria Templeman, who heads the Cayman Islands Bureau of Financial Investigations (CIBFI), told CNS that Cayman’s development community is a weak link in the anti-money laundering regime, and outreach to this sector is part of the plan to cut that risk and address the concerns relating to this sector.

Templeman said that independent developers are difficult to police and, as is the case in many jurisdictions now, they pose a challenge for the authorities to monitor. Ensuring that they are following anti-money laundering compliance rules is difficult, she said, and while the CIBFI is tasked with looking for the developments that throw up red flags, they also welcome tip-offs from the public over the kind of projects that might to be taking cash for pre-construction sales from overseas investors but may not be doing the required due diligence.

“We are looking for partnerships with the stakeholders and community when it comes to policing this area,” she said.

At a recent press conference, Finance Minister Chris Saunders said that April was a record-breaking month for stamp duty. Even with closed borders and people struggling because of the tourism shutdown, government collected a whopping CI$12 million in duty for just one month on property sales.

Experts in the sector have told CNS that a fraction of that relates to local sales on homes and land, and that a greater part of it is from the sale of luxury condos and apartments in commercial developments all over the coastline of Grand Cayman, from North West Point to Rum Point. In some cases, developers start selling condos before they have received planning permission, often as a means of raising the finance for these proposed or speculative projects.

It is these types of sales that Templeman and her team are concerned about because the failure of Cayman to properly regulate this area in the past helped put Cayman on the recent Financial Action Task Force grey list. Unlike financial institutions that have entire compliance departments, real estate agents, brokers and others in the property field don’t have the resources to employ the necessary experts to do the risk assessments of clients, which includes meeting ‘know your client’ requirements and recording the details of the ultimate beneficial owners. This can be challenging when people investing in property are doing so through offshore entities.

Templeman said the relevant agencies need to work with developers based here to ensure they understand their responsibilities and the consequences for failing to meet AML requirements.

In the last few weeks CIMA has begun showing its new teeth after changes to the law paved the way for the regulator to begin imposing administrative discretionary fines on financial institutions. It is now clamping down hard on cooperate service companies. But laundering money through established financial institutions or banks today is considerably more difficult than it used to be. As a result, those wishing to clean dirty money gained through crime or corruption or those trying to hide their money are increasingly turning to the world’s property markets.

Luxury homes in London have become the prime location for hiding dirty money, according to law enforcement agencies in the UK, and Cayman is far from immune from the same type of lure for international criminals. The multi-million dollar waterfront condo and apartment market combined with the ability to come and go to the jurisdiction as a property owner have made the islands a very attractive prospect for wealthy owners, both legitimate and not so legitimate.

While the Cayman Islands Real Estate Brokers Association (CIREBA) provides anti-money laundering training annually for its three dozen or so members, there are many more unregistered agents and brokers who are involved in selling units in developments as well as developers selling directly to clients.

However, it is not clear how much access they have to information about their obligations. In addition, the temptation for developers and agents to turn a blind eye to possible red flags raised by their customers when collecting partial sales and deposits on pre-construction sales is strong when that money is critical to raising the finance in the first place to complete the project.

Experts warn that sales made before a development has started are the most risky. Those looking to hide dirty money are often more willing to take risks on projects where they could lose a deposit because it fails to become a reality.

The Department of Commerce is now the regulator for all Designated Non-Financial Business and Professions (DNFBP), and it also points to people buying properties unseen as one of many red flags. On its website the DCI notes the many other major risks that realtors must look at and the risks they face themselves, such as holding payments in escrow for clients or dealing with overseas buyers who purchase through opaque identities.

“Property purchases are one of the most frequently identified methods of laundering money as property can be used either as a vehicle for laundering money or as a means of cleaning illicit funds,” the DCI states. “Criminals buy property both for their own use as principal residences or investment vehicles; providing legitimate income to mask the proceeds of crime.”

DCI Director Ryan Rajkumarsingh told CNS that developers must now also register with the department to get their trade and business licence (TBL). They must all have AML systems in place, especially those on the active register who are not using brokers or agent to sell their developments and are selling their units themselves.

“We provide training to the industry via face to face, personal sit-downs and online on our website as well as on the Cayman Finance website,” Rajkumarsingh said. He explained that the DCI requires developers selling units directly to provide a number of documents to help address the potential pitfalls and red flags before a TBL would be issued.

Rajkumarsingh noted that in addition to an annual form, “random checks are done to ensure persons who are exempt are not selling themselves. Everything is done using a risk based approached recommended by the FATF”.

Templeman said that it requires partnership and cooperation between the brokers, developers and the conveyancing lawyers to ensure that the real due diligence is actually being done. That is the challenge for those who are regulating and policing the property market and working towards removing Cayman from the grey list, she said.

The Cayman Islands Bureau of Financial Investigations is undertaking a risk assessment of all DNFBP, and developers potentially present the greatest gaps in full compliance.

Templeman explained that the CIBFI may receive information from overseas about developers being used as conduits for dodgy cash. However, she admitted that the police and regulators are largely dependent on the honesty of developers, brokers and the lawyers involved in the sales to ensure that people from overseas buying property here are being properly scrutinised and are not using ill-gotten gains to buy up Cayman’s coastline.

To report concerns about potential money laundering contact the RCIPS Financial crimes unit call 1 (345) 949-8797 or email RCIPS.FCU@rcips.ky


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Category: Business, Crime, Crime Prevention, Real Estate

Comments (82)

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  1. Anonymous says:

    OMG while you’re all trying to pin something on every little business in Cayman it’s estimated $800bn-2 trillion is laundered around the world annually. We’re not even a blip in the system. There’s less real estate sold in Cayman in a decade than sells in a single building in NYC. Quit shooting Cayman in the foot and get some perspective for heavens sake!

  2. Anonymous says:

    No s**t Sherlock, I would think there’s a good chance most houses on Cayman that are owned by wealthy ex-pats and foreign residents are money dumps in one form or another.
    Does anyone really believe that Cayman isn’t a major money laundering venue for those losing cash from the US, Canada and Europe and planting it in property?
    If someone can afford to build or own a multi million dollar home and leave it empty for most of the year, or in some cases years, then serious questions need answering and sone serious taxes need paying.

  3. Anonymous says:

    There’s a certain pool company on island that likes to wildly over inflate pool estimates for rich friends…sounds like the regulators are catching on. Sad.

  4. Anonymous says:

    So what’s the purpose of the financial insitution? Every month I see $2 coming out of my account for compliance fees. So much so that now I owe the bank $6 for having a US bank account with no funds in it. Explain that one?

  5. Anonymous says:

    In addition to developments and certain jewelry/souvenir shops referenced, many restaurants/lounges, car rental services, beauty parlors are also laundries.

  6. Anonymous says:

    May I ask how much money laundering we have actually stopped with these over the top AML requirements? Does anyone publish those statistics? Crime rates all over the world have not gone down, especially financial crime, so one can assume that the money laundering hasn’t either. How do we demonstrate policy success? Just thinking out loud.

    • Anonymous says:

      I am a Caymanian attorney (sole practitioner), who has made reports to FRA, Financial Crimes Unit, CIMA and DCI. To my knowledge, however, nothing was ever done, aside from (possibly) putting information submitted away in a file.

  7. Naya Boy says:

    Three stages of money laundering I place the bread $$$ on my table. I put the mayo ham and cheese on the bread$$ i open my mouth and bite down ad swallow mixing it up in my stomach. what the hell wrong with that?? that’s how we eat in the Cayman islands. Unnah want starve to death or wha?

  8. Political Slut says:

    Standard Procedure in our real estate industry! unnah try hush erryting Kris!$$$$

  9. Anonymous says:

    Which MP was given a free ocean front apartment? NOTHING TO SEE

    • Anonymous says:

      In lieu of commission. If you’re a foreign developer with an LCCL, the law says you have to hire a local realtor to sell your properties. It doesn’t specify how you have to pay that realtor. Paying commissions with a condo instead of cash is smart for most developers. In either case, however, it’s not really a good way to launder the proceeds of criminal conduct.

    • Anonymous says:

      Don’t belittle the man’s gall….it was TWO apartments.

  10. Anonymous says:

    Source of funds? Sale of investment property. It’s the most opaque no-questions asked laundering vehicle there is. Cayman’s real estate market was bid-up in 1990’s after the first MLAT was signed, and all the historic drug money fled newly-compliant banks and brokers into successive years of condo projects. Many of Cayman’s suspiciously-wealthy families (and real estate brokers) were deeply involved in the fast and loose era, and it’s frankly, decades beyond tracking all the duffels of origin.

  11. Anonymous says:

    I’d be far more concerned with the “non-profit” churches if I was them.

  12. Anonymous says:

    it just part of our ‘finacial services’……zzz

  13. Anonymous says:

    Are you kidding me? The jealous zealots are now trying to kill our real estate business. Enough is enough.

  14. Anonymous says:

    Really RCIP. Do you even understand how ML works?
    I am in the real estate industry the amount of paperwork I have to do to onboard a client it’s ridiculous. Then I have the DCI to deal with who have come in and overlooked everything I do. I got a long report in early 2020 about all the issues they found. I paid a consultant to assist me put in place a bunch of AML stuff. When the client pays it done bank or wire transfer. I have never dealt with cash payments except for small down payments. Are the RCIP saying that persons are paying property developers cash? Do they see the average price of a property in Cayman are they saying people are walking around with briefcases full of cash to pay developers?

    • Anonymous says:

      8.58 Do you understand how ML works yourself? Its not all about getting cash into the system, thats just one stage. Bank wire transfers and real estate (and other investments) transactions are then used to obscure the source of this cash.

    • Anonymous says:

      Says just another real estate dingdong…
      Poor you. I get paid a fraction of what you make in commissions and I do WAY more KYC/AML etc than you would EVER know.
      Quit yer whining and go get your nails and eyelashes done.

      Nothing to see here. Move along.

  15. Anonymous says:

    Never mind developers the actual strata plans themselves are one of the biggest black holes in Cayman.

    • Anonymous says:

      Strata schemes are usually an inefficient money pit, but I am not sure about them being an AML threat.

      • Chris Johnson says:

        I am not sure if hotels and condos are subject to the AML laws. If so I have never heard of any inspections. Certainly laundering goes on in hotels. That I know as a fact

      • anon says:

        9.28pm Doesn’t CAL have a strata plan, it administers a number of different aircraft and operates a very efficient money pit with limitless contributions paid by the taxpayer.

  16. Anonymous says:

    About bloody time this has been going on for decades and with the restaurant business as well. Money laundering and corruption is rampant in the Caymans

    • Anonymous says:

      Don’t forget those T-shirt and souvenir shops, which do nothing seem to have sold one items for decades, but still operate in expensive rental units and have done so for decades.

      Also, what about corrupt politicians, who we know have used their governmental power improperly? XXX

    • Anonymous says:

      “the Caymans” … spot the non resident

      • Anonymous says:

        More of them than ever..

        Spot the resident seems to be more challenging.

        • Anonymous says:

          You must be blind or a shut-in; almost everyone in the Cayman Islands over the past 14 months is a resident.

          • Anonymous says:

            Exhibit A. You just proved their point, doofus.

          • Anonymous says:

            I guess you know that CNS is accessible world wide, yes?
            Even people that used to live here pop in.

            And to be clear, being here 14 months doesn’t mean that you know we do not refer to Grand Cayman nor either of the other 2 islands as “the Caymans”. Rookie mistake made by newbies and flight attendants/pilots.
            Such a small thing but makes the newbies easy to spot.

            • Anonymous says:

              Quite. My favourite is the obnoxious “expat” who obliviously uses the word persons. Doh!

              • Anonymous says:

                I hear Caymanians – especially the ones who are educated – say “persons” all the time. The usage is rampant in government among civil servants and elected officials. It drives me nuts to hear it but, as anyone who has studied linguistics knows, every regional dialect of a language has its own idiomatic peculiarities.

                • Anonymous says:

                  Exactly. So when a poster on cns pretending to be an expat to prove their point but uses the word persons you know they’re a fraud. Likewise The Caymans is a dead give away it’s someone commenting from abroad that has spent no time here.

            • Anonymous says:

              Man, you people are dense. The story is about what actually happens on the ground here in Cayman, not in cyberspace or forums like this. You do know that there’s a real world outside of the confines of cyberspace, yes? If you’ve been on the ground (and grounded in reality) in the Cayman Islands for the past 14 months, the vast majority of people you would have laid eyes on are residents. Some of those residents might be “newbies” but they’re still residents. Most residents don’t say “Caymans” and they actually know to say “Cay-man” instead of “Caymen.” And some know what curry goat tastes like, how to play dominoes and two local meanings of the word “Rundown.”

      • Anonymous says:

        My favorite used to be hearing “ We will be descending into the Grand Cayman Islands” from aircraft hostie on board the plane. Obviously not KX.

    • Anonymous says:

      If we’re going down the slippery slope, I think we better look at your household finances, as well. I’m sure an eagle-eyed inspector who wants a promotion will be able to find some shady dealings. And don’t forget: You’re guilty until you can prove you’re innocent.

  17. Anonymous says:

    “…working towards removing Cayman from the grey list..”.
    Good luck with that. The simplistic narrative of the rest of the world is that Cayman is a very large financial hub, therefore it must have a very large amount of money laundering. Notwithstanding twenty years of ever more onerous AML procedures (in many cases a good deal more onerous and intrusive than those in onshore jurisdictions) the fact is that not a lot of actual money laundering has been turned up here. The response of the rest of the world is that means Cayman needs to do yet more (and, again, in many instances do more than is done in onshore jurisdictions).It’s entirely possible, of course, that the underlying assumption of the narrative (ie large financial centre inevitably means large amounts of money laundering) is wrong. Indeed, there is never any proper analysis or understanding by the rest of the world of the exact nature of the financial business here that generates the headline dollar figure of the size of our business. Just because country X has a financial sector which is 10 times the size of country Y does not mean that country X must necessarily have 10 times the amount of money laundering in country Y. But we are never going to be able to prove a negative so will forever be put in the naughty corner.

    • Anonymous says:

      That’s rich, the one supposed to save us from the gray list has to overcome his past sanction for non compliance.

    • Anonymous says:

      Well said 5:53 Fact: is MUCH easier to open a bank account as a non resident in the USA than most other places, especially Cayman. The vast majority of the financial sector in Cayman is legitimate business that chooses to operate in a tax friendly jurisdiction, which is completely legal.

  18. AML Advisor says:

    RCIP has done it again. Do they understand anything.
    There are several types of businesses which are conducted as relevant financial business (RFB). Property Developers are not covered by the FATF in their list. However the Cayman Islands Government through DCI have included Property Developers in the regulations and therefore they are now regulated.
    CNS please do your homework and see how many countries including the mighty UK and US have included property developers in their AML DNFBP oversight.
    The Cayman Government has gone above and beyond in their AML responsibility.

  19. Anonymous says:

    Say what.. really.

    “However, she admitted that the police and regulators are largely dependent on the honesty of developers, brokers and the lawyers involved in the sales to ensure that people from overseas buying property here are being properly scrutinised and are not using ill-gotten gains to buy up Cayman’s coastline”

    • Anonymous says:

      Hahahahaha! I know right!!?
      Yes, let me NOT sell you a multi-million dollar property, giving me a huge %, because your money might be from ill-gotten gains…
      Hahahahaha All the way to the bank.
      Come on! Every single person on this island knows someone in real estate and everyone has a story about them. Every. Single. One. of them.

  20. No $hit $herlock, you don’t say says:

    This all seems to late as there is more likely countless millions if not billions of ill gotten gains wrapped up Cayman hard asset market. You can’t exactly expect CERIBA or any other independent real estate outfit to do their own due diligence. So it will be interesting to see if CIG sets up another OfReg like quango to oversee realtors.
    In the same vain retail banks already stick their small account holders with AML monitoring fees that are disproportionate to the $s in their account. The millionaire account holders pay the same fees which equate to less than pocket change. Seems unfair that we all have to pay these monitoring fees when only some of us should truly be under the microscope.
    On a thankful note it’s good to hear that this is now on the regulator’s radar after years of it being common knowledge on the street.

    • Anonymous says:

      Yes. Banks and insurance companies believe that they have a God-given right to always make a profit at everyone else’s expense.

      These big law firms have been up to no good for decades, but now it’s time to pay the piper.

  21. I think the time has come to question these so-called anti-money laundering rules as they mostly affect working people with increasing red tape and costs to do banking. The rich corporations always have “legal” ways to get around them and yet we come up with more anti-money laundering rules for working people. More practical and productive for society to have anti-poverty rules and address the growing inequality! We will soon have to get a permit to use the bathroom!

    • Anonymous says:

      I agree. These anti-money laundering rules are getting ridiculously out-of-hand.

      It’s the OECD and FATF and European Parliament that want to destroy offshore jurisdictions and drive business back onshore.

      But it doesn’t stop there. That pressure gets put on the MPs and government officials shoulders, who then transfer that pressure to the private sector.

      But it doesn’t stop there. MPs and government, then give the big professional businesses the job of assisting (when, in large part, they are the problem) and then us regular people in society are left with the real burden.

      It is, without doubt, a vicious cycle.

    • Anonymous says:

      That’s true. To open a bank account here you need to provide your first born as collateral.

      If you want a loan, you’re looking at handing over a left testicle. It doesn’t matter who it belongs to, but it must be provided.

  22. Anonymous says:

    Another non story. Do you really think crooked investors are handing suitcases full of banknotes to developers, who then pay all their construction teams in cash, who then pay sub contractors in cash, etc… And to claim real estate brokers don’t have the means to do due diligence, that’s baloney too. And there are service providers in cayman who can provide a 3rd party compliance service if needed. So if there was any suspicion, we already have the wherewithal to solve it. Easy peasy Japanesy.

    • Townah says:

      Money laundering hasn’t worked that since at least the 80s my friend, at least not in significant numbers.

    • Anonymous says:

      My CIREBA agent caused me to overpay for my Apt and after all the commission she collected included the Chattels in the Sales Agreement which would have cost me more Stamp duty. Will never use one again.

      • Anonymous says:

        Yep!! Same here. Mine cost me $200+ in monthly payments with lies and an old, outdated and incorrect MLS sheet which is what I based my offer on.
        Then did the exchange rate in HIS favor and made the offer in KYD when I specified USD. Further, the owner was headed to the USA and WANTED USD!
        Biggest name in real estate my a$$…
        I warn EVERYONE away from that company and tell them to be very wary when buying.

  23. Anonymous says:

    Check the restaurants.

    • Anonymous says:

      Yeah. Bars are a great place to launder money. No AML protocols to buy drinks and food. This, however, would be AML overkill.

  24. Caymanian in Financial services says:

    Why doesn’t the lands and survey department conduct KYC/CDD and confirm UBO’s before processing a sale or transfer, would seem to me the easiest way for the government to monitor, similar to how corporate service providers are expected to do prior to for shareholders and directors etc.

    • I can only drive in the right hand lane says:

      Please, don’t ask L&S to do any more, they can’t cope with their current workload. See the “tickertape” alert when you open their website.

  25. Anonymous says:

    Good article. Dirty/overseas money is making it impossible for local residents to buy property. I don’t understand why non residents are not charged an annual property tax or a higher stamp duty at purchase. Ironically you need a work permit to work on the island but there are no restrictions from non residents actually buying the island. Madness.

    • Anonymous says:

      Agreed. There should be controls on non-Caymanians buying property, especially if they are not local residents.

      However, as is evident, the developers are not building residential properties for Caymanians. It’s for the big money players.

      Like Bob Marley said, We gotta those those crazy bald heads out of town.

  26. Anonymous says:

    $5M and $10M+ condos aren’t paid for with cash. The funds have to pass through international banks. More people collecting all the same documents is just regulation for the sake of doing so. Waste of everyone’s time that could be allocated to far more consequential matters like preserving our environment.

    • Anonymous says:

      Placing the funds in the financial system is but the first step in a 3 part money laundering process; placement, layering and integration. Purchase and sale of real estate in funds already in the system is a common tactic in the layering and integration steps. To say nothing of using real estate for asset sheltering and concealment.

      The fact that the money to purchase the property may have passed through an “international bank” does not mean you can ignore the obligations to understand the source of the funds and the ultimate beneficial owner. Otherwise you are entirely reliant on the bank having done the necessary due diligence, but whilst not understanding what exactly they did to check it. Look forward to you sharing your list of which banks can be trusted versus which ones can not, as well.

      • Anonymous says:

        We get all the finer points from the compliance 101 manual. The point is that if the banks with all their compliance resources can’t identify all this suspicious activity, then how is a real estate developer going to. The list of banks that can be trusted should be formulated by the global organizations that license banks. Somehow it has become every service providers responsibility. In 10 years will there be any financial services jobs aside from compliance ones? Ridiculous. Regulation run amok.

  27. Anonymous says:

    I’m a developer and the amount of DD I have to do on my clients. I was even inspected by DCI. This is more red tape than I need but I understand the need for it. I hope all this stuff we are being required to do is worth it. We are just a tiny dot on the map but every one is focus on our success.

  28. Anonymous says:

    who cares…? cayman never has ..its private money.

  29. Anonymous says:

    in cayman we build hospital sized laundry facilities…

  30. Anonymous says:

    Finally! I knew it like 10 years ago. And personally know 2 or 3 who are laundering money here.

  31. Anonymous says:

    ZZZZZZZZZZZZZZZZZZZZzzzzzzzzzzzzzzzzzzzzzzzzz
    Nothing new here. Nothing to see here. Move along…

    LMAO It’s 2021 and someone is JUST now opening up this Pandora’s Box? Hahahahaha
    It is just another cartel living and thriving here in the Cayman Islands.

    Nothing to see here. Move along…

  32. Anonymous says:

    Ask Mr Rajkumarsingh how many compliance inspections his department has done on developers to see if they are applying the law. Should be an interesting answer. Given CIBFI has identified this area as high risk and all.

    • Anonymous says:

      I think he would be happy to answer, I know quite a few developers who have been inspected and given strict deadlines and a list of actions to get their act together.

      • Anonymous says:

        But the fact they had no work permit allowing them to undertake that activity may have slipped the inspectors by?

  33. Anonymous says:

    From what I’m reading there was no checks and balances before but now it’s a very rigorous process to get a TBL and be registered. At the end of the day they saw a potentential weakness in the sytem and now they have mitigated the risk. Seems to be going in the right direction.

  34. Cayman Laundramat says:

    You’ve hit on the mother lode. This is where it happens, and has been happening a long time. The easiest way to wash, despite the so called scrutiny. Seven mile corridor and expanding at a rapid pace. Good luck!

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