A report on the Financial Action Task Force’s recent review of Cayman’s defenses against terrorist financing and money laundering will likely be released next month, and the results will not be positive, according to Premier Alden McLaughlin.
“It’s not going to be a good report,” Mr. McLaughlin told the Compass. “It is going to find that we have some areas we need to improve on our anti-money laundering and counter-terrorist financing systems.”
The premier explained that Cayman has implemented most of the legislation required by the FATF – an organization that sets standards for combating money laundering, terrorist financing and related threats to the international financial system.
However, the task force has spotted deficiencies in how Cayman’s rules and regulations are being followed in practice, he said.
Mr. McLaughlin did not go into specifics, but statements have been made in recent public hearings that demonstrate Cayman’s struggles to meet FATF standards.
For instance, Financial Reporting Authority Director Robert Berry told the Public Accounts Committee on Jan. 31 that his department needs additional staff to handle a skyrocketing load of suspicious activity reports of potential money laundering and other financial crimes connected to Cayman.
When the Financial Reporting Authority – the organization that provides information to law enforcement agencies from other jurisdictions that have investigations involving Cayman – receives a suspicious activity report, it must look into the report to see if it should be forwarded to law enforcement authorities for further investigation.
The Financial Reporting Authority is dealing with a growing backlog of uncompleted reports, and only completed 398 of the 980 reports it had to analyze in 2016/17, according to its annual report from that period.
The good news is that Cayman will have time to remedy this and other deficiencies the FATF may have identified during its review. Unlike with other organizations such as the European Union, Cayman will not automatically be slapped on a blacklist or a gray list after a negative review. Cayman will have a year before the FATF reviews it again to see what improvements have been made.
Mr. McLaughlin said he has already formed a committee that is making action plans to address the FATF’s perceived deficiencies. For starters, he said the Financial Reporting Authority, the Cayman Islands Monetary Authority, the Ministry of Financial Services, and other financial services-related government departments will receive more manpower and resources.
Other deficiencies have already been addressed.
In November, legislators amended the Proceeds of Crime Law to give more independence and autonomy to the Financial Reporting Authority, removing the requirement for it to get consent from the attorney general before fulfilling international information requests. Attorney General Samuel Bulgin explained at the time that the amendment was required by the Financial Action Task Force.
“We’re going through a period of review and have a third draft report of our system, and this was one of the things that was flagged in that report,” he said.
Financial Services Minister Tara Rivers was at a FATF meeting on the review in Paris last week, the premier added, and she will have more information on what needs to be done here.
Mr. McLaughlin remarked that the most recent FATF review has introduced a new concept, which holds Cayman to a higher standard, that of “risk and context.”
The premier explained that the FATF might give Cayman a lower grade than other jurisdictions with less-robust anti-money laundering systems. This is because Cayman is one of the world’s leading offshore jurisdictions, and therefore, is held to a higher standard, he said.
“They don’t even try to pretend anymore. Cayman is expected to operate at higher standards and have a greater scrutiny of the business that comes here than some other jurisdictions,” he said. “It’s a result of our success and the volume of financial services business that comes through the jurisdiction.”