Money laundering shifts gears

The growing sophistication of money launderers is placing Cayman’s non-financial sector at risk, the Director of the Financial Reporting Authority David Thursfield said last week.

Because banks and other financial institutions are subject to strict due-diligence regulations, Mr. Thursfield said, criminals are looking for lower-profile and less-resistant ways of laundering illegal money.

‘Gone are the days when you could walk off a cruise ship with a bag full of cash and do something with it in the Cayman Islands,’ he said. ‘Money launderers have had to become much more sophisticated.’

A prime target for launderers, for example, is the non-financial sector of the investment industry, parts of which are not as alert to illegal financial activities, he said.

Although lawyers and accountants are largely familiar with the requirements of the Proceeds of Criminal Conduct Law, many in the non-financial sector are not.

‘Real estate companies, jewellery shops and luxury-car dealers can all become victims of money launderers,’ he said.

Contrary to common belief, Mr. Thursfield said people in the non-financial sector who know of, or suspect, someone of money laundering are required under the PCCL to make a Suspicious Activity Report to the Financial Reporting Authority.

The law requires the report when the suspicion or knowledge of a crime has been gained in the course of trade, professional or business activities or employment.

Anyone found guilty of failing to report their suspicions or knowledge of money laundering are liable to a fine of $50,000 and/or two years imprisonment.

Mr. Thursfield said he worked to publicise the requirements of the PCCL during his 18-month tenure as FRA director.

‘I went on a quest to speak to as many in the financial-services industry as I could,’ he said.

However, he said, many in the non-financial industry are still unaware of the risks posed by money-launderers, who approach the activity as an ongoing process rather than an event.

‘They’re looking to get a foothold here,’ he said. ‘If they can buy a house with dirty money, that’s the first stage of laundering.’

Making the situation more dangerous is the fact that money launderers no longer deal only in cash.

Sophisticated schemes have been developed where cheques or other forms of payment are used to purchase goods.

However, such transactions may become questionable, Mr. Thursfield said, when, for example, an unfamiliar customer wants to buy a large quantity of gemstones.

Because many in the non-financial sector earn their income through commission, they may be tempted to ignore any suspicions, exposing themselves to possible liability.

For instance, Mr. Thursfield said, a real estate agent may stand to earn a $100,000 commission, although suspecting that something may be wrong with the buyer or the terms of the deal.

‘That kind of commission money is a life-changing event, so the agent might say to himself: ‘Do I report the client, or do I take the commission money?” Mr. Thursfield said.

‘What the agent has to learn is that he can do both. The two options aren’t mutually exclusive. He can take the commission money, but he has to make the report, too.’

He said a Suspicious Activity Report does not mean a person is guilty, only that the transaction is suspect, and that all reports are confidential.

‘The confidentiality of the FRA is much more rigid and sanctioned than any bank,’ he said, adding that penalties for violating confidentiality are harsher for FRA staff than for others.

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