Suspicious Activity Reports declining

The Financial Reporting Authority’s Annual Report tabled during the recent Session of the Legislative Assembly indicated a decline in Suspicious Activity Reports from the years of 2001 and 2002.

Between July 2003 and June 2004 – the period of the FRA’s Report – there were 282 SARs made.

SAR figures in the calendar years of 2001 and 2002 were 392 and 443 respectively.

The FRA report indicated some reasons for the decline.

‘Years 2001 and 2002 were periods of intensive retrospective due diligence for (financial service providers),’ the report stated.

FRA director David Thursfield explained that when financial service providers were first required to submit SARs there were many existing matters that needed reporting. Once they were reported, however, there were fewer new matters that needed reporting.

The evolution of the type of financial business being conducted here has also affected the numbers of SARs.

‘Private banking has declined here,’ said Mr. Thursfield. ‘Things like hedge funds have increased, and that kind of investment is more institutional. Due diligence on institutional investors is normally done somewhere else.’

Mr. Thursfield said this was especially the case when the institutional investor was coming from a well-regulated country.

When dealing with institutional investors, SARs are usually only necessary when the nature of the business become suspicious.

‘If they start to do things that are inherently suspicious, that should prompt an SAR,’ he said.

Mr. Thursfield said the actions of companies like Parmalat and Enron were not necessarily suspicious.

‘Businesses are into far more things these days than just milk and petrol,’ he said. ‘They do all sorts of things to diversify and stay ahead of the competition.

‘Just because they use their companies to do something else, it’s not necessarily suspicious. They were using Parmalat to raise funds. Of course they need to raise funds,’ he said.

Mr. Thursfield said the criminal actions of people in those companies raised suspicions after the fact.

The FRA report noted that the threshold for the requirement of a SAR is much different in Cayman than in other countries.

An annual report from Canada’s Financial Intelligence Unit showed it handled 2.2 million reports during its first operational year in 2002/2003.

However, while Canada has a SAR threshold that includes provisions relating to the dollar value of the movement of funds and wire transfers, the Cayman Islands has a philosophy that focuses on the level of suspicion, not the value.

‘The Cayman Islands prioritised and focused on anything suspicious, be it $5 or $5 billion,’ said Mr. Thursfield. ‘But it focuses on nothing if it is not suspicious.

‘The policy is a good combination for policing and for encouraging business to happen,’ he said. ‘It’s an extremely cost-effective way of achieving the purpose we are here for. We don’t have the budget of a country like Canada anyway.’

In another aspect of the report, there was a significant increase in the number of SARs reported from banks and trust companies.

The report said the rise in that sector reflected a surge in fraudulent internet banking.

Mr. Thursfield said that SARs from attorneys are going down, from 71 in the calendar year of 2001 to 23 in the year of the report.

The report noted that in the United Kingdom, the requirement for filing SARs did not extend outside the financial sector, including to lawyers and accountants.

‘In some ways, we’re ahead of the UK (in fighting money laundering),’ Mr. Thursfield said. ‘They have stiffer penalties, but we have a wider catchment.’

The FRA report also showed that 42 per cent of the subjects of SARs were from the United States, with subjects from Cayman the second most at 16 per cent.

Mr. Thursfield said a major part of the US figure being so high was simply the proximity, convenience and ease of access to the Cayman Islands.

Noting that 80 percent of Americans do not have a passport and can travel here with a minimum of documentation, he said many from the US see Cayman ‘as just another Florida Key’ when it comes to the ease of getting here.

Mr. Thursfield also pointed to the reputation Cayman as gained in America from the Hollywood handling of films like The Firm as a reason some from the US think they launder money here easily.

‘It brings up an interesting dilemma,’ Mr. Thursfield noted. ‘In the financial world, the Cayman Islands needs to be world class in terms of regulation. But the more squeaky-clean we make it, the less intrigue it will offer in enticing some people to visit here.’

Of the 282 SARs handled in Cayman by the FRA during the period of the report, 117 were sent onward.

Sixty-five of the SARs sent onward went to other government entities in the Cayman Islands, while 52 were sent to Financial Intelligence Units or law enforcement agencies overseas.

SAR report information sent onward to overseas entities requires the consent of the Attorney General, the FRA report noted.

The FRA succeeded the Financial Reporting Unit on 12 January 2004.

The Authority is responsible for receiving, and as permitted, requesting, analysing and disseminating disclosures of financial information regarded as suspicious

Under the Proceeds of Criminal Conduct Law, Suspicious Activity Reports are required to be made by any person who, through the course of his trade, profession, business or employment, knows or suspects that another person is engaged in money laundering.

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