Government seeks to give CIMA’s enforcement teeth with new fines

The Cayman Islands Monetary Authority

Government is proposing to give the Cayman Islands Monetary Authority new enforcement powers by introducing administrative fines that range from $5,000 for minor breaches by individuals to $1 million for very serious offenses by corporate entities.

The proposed legislative changes, published on Sept. 9 in the official Gazettes, come as part of a series of bills in preparation for the inspection by the Caribbean Financial Action Task Force, which will assess the anti-money laundering regime of the Cayman Islands in 2017.

The suggested amendments to the Monetary Authority Law aim to give the financial services regulator the power to impose administrative fines for breaches of regulatory laws and anti-money laundering and terrorism financing regulations.

The fines are intended as an independent civil penalty. Criminal sanctions could come in addition to the monetary forfeit, if a breach is deemed an offense.

The bill distinguishes between minor, serious and very serious breaches. Minor breaches carry the penalty of one or more continuing fines of $5,000 up to $20,000 until the breach is stopped.

For “serious” and “very serious” breaches of laws and regulations, CIMA would have the discretion to impose respective fines up to $50,000 and up to $100,000 for individuals and up to $100,000 and up to $1 million for corporate entities.

In applying the fines, the authority has to consider the need to maintain a sound financial system, prevent licensees from benefiting from violations, and the need to punish breaches and deter future offenses.

If the bill becomes law, Cabinet will determine in separate regulations the provisions to which fines can be applied, the procedure for imposing fines and the appeals process.

The lack of fines in Cayman’s regulatory enforcement regime has been noted for some time. A 2009 International Monetary Fund report on Cayman’s compliance with anti-money laundering standards highlighted the lack of administrative sanctions. It suggested legislative changes that would allow the Financial Reporting Authority, which receives suspicious activity reports related to money laundering, to directly impose administrative sanctions in addition to criminal penalties.

The report noted CIMA’s ability to impose regulatory sanctions against entities that do not have anti-money laundering reporting systems and procedures in place, but it said additional administrative sanctions would streamline the process.

The new bill proposes now to give power to impose administrative fines to CIMA rather than to the FRA.

More legislative changes

The Ministry of Financial Services prepared a total of 12 bills to improve Cayman’s regulatory framework. Other proposed legislative changes, published on Sept. 9, include the removal of references to bearer shares from the Companies Law, amendments to the Proliferation Financing (Prohibition) Law, two new categories of audits under the supervision of the Auditors Oversight Authority and, once again, a bill for the regulation of nonprofit organizations.

The Ministry of Financial Services said all bills have the support of industry and are intended to maintain the jurisdiction’s adherence to international standards and prepare Cayman for the Caribbean Financial Action Task Force’s mutual evaluation process in 2017.

“In order to continue adhering with international standards, the ministry’s bills are intended to provide for greater powers for law enforcement and regulatory agencies, including their abilities to administer administrative penalties and more effectively cooperate with their international counterparts. Greater clarity is also introduced as to the types of businesses that have a responsibility to adhere to the international standards,” the ministry said.

In May, government abolished the ability of Cayman Islands exempted companies to issue bearer shares, which can be held anonymously, to improve the transparency of the true owners of these companies.

All existing bearer shares had to be converted into registered shares, held in the name of the beneficial owner, by July. A new bill aims to remove the last references to bearer shares from the Companies Law.

In addition, government wants to amend an existing law that prohibits the financing of nuclear, biological and chemical weapons to ensure conformity with the international standards recommended by the Financial Action Task Force.

The regulation of nonprofit organization is also back on the table, because of the potential for money laundering and terrorism financing in this as yet unregulated space.

The U.S. State Department report on international narcotics control highlights each year the “weak supervision of nonprofits and non-financial organizations” in Cayman as a major anti-money laundering weakness.

Under the Non-profit Organisations Bill, charities and other nonprofits will have to be registered and maintain financial statements.

The registration system is designed to meet the FATF requirement that countries know the nonprofits that are operating in their territory and facilitate investigations of bad actors in the nonprofit sector.

Nonprofits with a gross annual income of more than $250,000 will have to maintain audited accounts.

In the past, certain charities criticized the proposed regulation, stating they would not be able to afford the additional expense for record-keeping and annual external audits.

The ministry said it will conduct a public education campaign for the Non-profit Organisations Bill, 2016, in the near future.

The debate on the bills in the Legislative Assembly is tentatively set for the first week of October.