The Chamber of Commerce Council described the recent “high risk” listing of the Cayman Islands by the U.K.’s Financial Conduct Authority as “insulting” to the Cayman Islands government and the Cayman Islands financial services sector.
The Chamber Council said the FCA’s decision is “a deliberate and misguided attempt to smear Cayman’s reputation and credibility as one of the world’s best regulated jurisdictions.”
“The Cayman Islands financial services sector is among the world’s best regulated and cooperative jurisdictions according to independent assessments by various international regulatory agencies,” said President Johann Moxam on behalf of the Council. “The U.K.’s FCA listing certainly raises legitimate concerns and questions that there may be a hidden competitive agenda at play here or attempts to force the Cayman Islands government into complying with certain initiatives.”
The statement echoes the reaction of Wayne Panton, minister for Financial Services, who questioned the motives for including Cayman on the list. The minister wrote to the U.K. regulator in July, stating that a review of the sources on the basis of which Cayman’s high risk rating was formed make Cayman’s inclusion on the list “wholly arbitrary.”
Minister Panton said the listing of Cayman as a high risk country for anti-money laundering purposes is also contrary to Cayman’s consistent adherence to international anti-money laundering and terrorism financing standards, for which Cayman has been favorably assessed by independent, supranational organizations.
In response to the letter, the chief executive of the Financial Conduct Authority, Mark Wheatley, said the authority had made the decision to keep Cayman on the list of high risk countries because a range of publicly available information indicated high levels of money laundering risk and potential weaknesses in Cayman’s anti-money laundering framework remain.
He specifically referred to the U.S. Senate subcommittee report on U.S. vulnerabilities to money laundering, drugs and terrorist finances, which in 2012 stated that Cayman Islands’ legal entities had been used as vehicles for money laundering. The case involved a Cayman Islands branch of HSBC’s Mexican subsidiary HBMX.
The subcommittee found a large number of high risk transactions with insufficient anti-money laundering controls involving U.S. dollar accounts held by Mexican residents at HSBC Cayman SA, a class B banking licence holder in the Cayman Islands.
For some of the accounts that were administered by HBMX from Mexico the bank had no customer information, and other accounts were misused by organized crime, according to the report.
“We also note the U.S. State Department report on narcotics control, which lists the Cayman Islands as a jurisdiction of primary concern, particularly in light of the size of its financial sector,” Mr. Wheatley said.
Recently in Cayman there were two cases with drug and money laundering implications. In June and July, two asset managers from Cayman Islands firm Clover Asset Management pleaded guilty in a U.S. court to charges of conspiracy to launder the proceeds of a bank fraud.
This month, Caymanian businessman Bryce Merren received a six-week extension to work out a plea agreement with U.S. federal authorities concerning charges that he attempted to set up a money laundering scheme to cover up profits from the planned sale of cocaine in Puerto Rico.
Mr. Wheatley said the FCA acknowledges the steps that the Cayman Islands has taken to improve the robustness of its money laundering regulation. “We also note initiatives such as the recent consultation on a public database on beneficial ownership of Cayman Islands-registered companies. To our knowledge, the ministry has yet to announce whether or not to proceed with such a public database.”
The FCA letter ends with the reminder that the authority’s high risk country list “will be periodically reviewed in light of legislative and regulatory developments within the jurisdictions concerned.”
The Chamber Council said the fact that “every other mainstream offshore center of similar stature to Cayman and indeed many other less-developed offshore countries are missing from the list is at best a grave error in the compilation of the list or at worst a deliberate attempt to discredit the Cayman Islands as some type of public relations stunt.”
The Chamber called on Premier Alden McLaughlin, Minister Panton and Finance Minister Marco Archer to contact the FCA and the Foreign and Commonwealth Office officials “to determine what is at the heart of this listing.”
The Chamber said Cayman’s government and the financial services sector have introduced legislation, policies, regulatory procedures and tax information exchange agreements that ensure that the islands remain a world-class jurisdiction for business and to safeguard the assets of international clients.
“These actions demonstrate the tangible strides that have been taken. The conclusion that the Cayman Islands should be on such a list is truly astounding given this jurisdiction’s track record.
“What more is the Cayman Islands expected to do to satisfy the FCA and FCO?” Mr. Moxam said.