Money laundering reports spike

The number of suspicious activity reports of potential money laundering have increased by 42 percent to 558 cases over 2012/2013.

The Financial Reporting Authority, the national agency which receives the reports of suspected money laundering and other financial crime, believes the record number was prompted by due diligence reviews prior to the U.S. Foreign Accounts Tax Compliance Act coming into effect.

The increased reporting has put the resources at CAYFIN – how the financial intelligence unit is also known under its international call sign – under intense strain, the organization said in its annual report. Only 319 of the 558 cases were completed and the remainder progressed at a various stages.

“Admittedly, such large numbers posed an uphill challenge to the analytical staff,” which did not operate at a full staff complement last year, authority director Lindsay Cacho wrote in the report.

The FRA staff consists of a director, a legal adviser, an accountant, a senior financial analyst, a financial analyst and an administration manager. CAYFIN responded to the growing case load by prioritizing investigations according to a risk ranking, which expedites the most urgent cases.

The number does not include 35 additional cases in which foreign financial intelligence units requested information from the authority.

Some 165 cases involved entities doing business in Cayman, and 55 cases concerned Caymanian individuals.

The second-largest group concerned 19 entities and 124 individuals from the United States, followed by Argentina with three entities and 99 natural persons. Canada, Jamaica and the U.K. were the only other countries with more than 20 cases each.

Most of the suspicious activity reports are filed by banks (201) and overseas financial intelligence units (69). Securities brokers, trust companies and money service providers each reported more than 50 cases. The largest group of non-financial service providers that reported suspected money laundering is lawyers.

Suspicious activity reports are filed in instances when the account balances exceed significantly the customer’s declared expected income or source of funds or a payment lacks an apparent economic basis. Because financial institutions are not expected to carry out extensive investigations, many SARs do not turn out to be the result of criminal activity.

“Nevertheless, these reports form a vital part of intelligence gathering and help build a clearer picture of the money-laundering threat to the Islands and help safeguard against criminal elements,” the FRA said in its report.

Trailing suspicious financial activity, fraud is the second-largest category of reported cases. It includes anything from forged checks to debit or credit card skimming and fraudulent bank reference letters.

The FRA said Internet fraud and online schemes attempting to take over customer accounts are on the rise. Securities fraud, which includes stock manipulation and insider trading, is another growth area.

While all financial crimes can be predicate offenses for money laundering, CAYFIN identifies money laundering in a separate category for activities that are suspected to disguise the original ownership of proceeds of crime by making it appear that the money has been derived from a legitimate source. The money laundering category represents 9.9 percent of the cases.

Corruption and suspected tax evasion make up only 38 and 17 suspicious activities, respectively, but both categories have seen an increase as regulatory enforcement efforts have been stepped up.