Report: A slight decline in reported suspicious activity

The Financial Reporting Authority of the Cayman Islands recorded a slight decrease in suspicious activity reports in the year 2010/2011, according to the authority’s annual report.

The authority, whose role it is to analyse and disseminate disclosures of financial information concerning suspected money laundering, proceeds of criminal conduct and the financing of terrorism, received 353 new cases in 2010/2011 compared to 358 cases received in 2009/2010 and 320 cases in 2008/2009.

“In spite of the slight decrease of SARs received, we remain confident that the vigilance of the reporting entities is not waning given the trend of reports received following negative reports in international press against activities with connection to these Islands,” the FRA wrote in its report.

The reports sent to the authority were diverse both in terms of the activities reported and the home countries of the natural persons and legal entities named in connection with suspicious activity. Under the Cayman Islands Proceeds of Crime Law it is a criminal offence for financial services providers and also for non-financial sector agents, not to report observed suspicious activity or suspected fraud.

Suspicious financial activity is the most common reason for filing suspicious activity reports with 134 cases, followed by suspected fraud (97), money laundering (22), declined business (17) and corruption (14).

Suspicious financial activity generally consists of activity that lacks an apparent lawful economic basis to support it. For example, activity that is not in line with a customer’s declared level of expected income for an account. Fraud includes a wide range of cases from Internet fraud and cheque fraud to other financial scams. During 2010/2011, the FRA noted a particular increase in the cases of counterfeit or fake cheques used in a growing number of debt collection scams.

The perpetrators of debt collection scams claim to be international clients with large commercial accounts that need to be placed with a local agency for collection, the FRA said in its report. Shortly after the account is placed for collection, the customer mails what appears to be a cashier’s cheque for the debt owed. The fraudsters then attempt to extract the amount due from the collection agency’s trust account before the cheque is discovered as fraudulent.

Another area noted by the FRA as a concern for law enforcement is Internet fraud, such as overpayment schemes that target island-based online consumer-to-consumer shopping websites.

“In this scheme, the buyer claims to be from overseas and creates an excuse to make payment in the form of a cashier’s cheque, money order or personal cheque for more than the selling price. Then they instruct the seller to wire them back the extra money. The cheque the buyer sends bounces and the seller is then liable for the total amount of the cheque,” the FRA wrote.

A third area of concern according to the FRA are phishing scams, which aim to acquire sensitive confidential information such as usernames, passwords and banking and credit card details by pretending to be a trustworthy entity.

Suspected money laundering, declined business and corruption represent only 6 per cent, 5 per cent and 4 per cent respectively of all suspicious activity reports. Reported suspicious activity around corruption typically involves unusual transactions of companies whose beneficial owners are politically exposed persons or related to politically exposed persons, the FRA wrote.

The Cayman Islands leads a list of 71 countries with the largest number of subjects (146) named in suspicious activity reports, followed by the United States with 107, Kyrgyzstan (47) and Venezuela (38). The large number of subjects from the Kyrgyz Republic and Venezuela is mostly due to the large number of subjects identified in requests for information from these countries, the FRA wrote.

In 2010/2011, the authority received reports from 116 different financial service providers and other reporting entities, in addition to 34 overseas financial intelligence units requesting information from the authority. Banks continue to be the largest source of cases received, but their total number of SARs declined to 96 from 132 received in the previous year. Overseas Financial Intelligence Units (66), company managers (44), trust companies (39), mutual fund administrators (30) were the other main sources of financial activity reports.

Of the 353 cases filed in 2011, 289 were completed and of these 136 were deemed to require no further immediate action. Overall, the FRA noted an increase in the voluntary disclosure to local law enforcement and also a growing level of sophistication in the type of SARs’ received.

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