In March of 2019, the Caribbean Financial Action Task Force released a mutual evaluation report that found the Cayman Islands has major shortcomings in its ability to analyse and understand the risks from money laundering and terrorism financing.
Large money laundering investigations and prosecutions were non-existent and the use of the Financial Reporting Authority to initiate investigations was benign, the report said.
The identified problems in part stemmed from a national risk assessment, conducted in 2015, that, given Cayman’s role as an international financial centre, did not focus enough on international money laundering and terrorism financing threats.
The regional affiliate of the Financial Action Task Force, the global standard-setting body in anti-money laundering, said the risk assessment provided a “fair level” of understanding but it did not contain an assessment of legal persons or arrangements, nor did it include a sufficient analysis of risks faced by parts of the financial sectors that are not subject to supervision, like lawyers or excluded persons under the Securities and Investment Business Law.
The CFATF made a total 63 recommendations in its report and gave Cayman one year to implement the measures to enhance the effectiveness of its laws and practices to combat money laundering.
The government responded to the report by appointing a dedicated task force, made up of the premier, the attorney general, the deputy governor, and the ministers for financial services, commerce and finance, to oversee the implementation of a “comprehensive action plan”.
The task force started to coordinate the implementation of the plan and led several initiatives with the aim of remedying the identified shortcomings. All public sector bodies involved in the CFATF response began making amendments to their processes and procedures to meet the February 2020 deadline.
A slew of legal amendments followed, including a regulatory and supervisory framework for ‘excluded persons’, which were until then exempt from requiring a license to conduct securities investment business and being regulated by the Cayman Islands Monetary Authority.
In April, the Legislative Assembly approved extra funding to acquire IT and human resources for different agencies to address AML deficiencies.
In July alone, 10 of the 11 bills presented in the Legislative Assembly aimed to strengthen Cayman’s anti-money laundering and countering terrorism financing regime.
New legislation in February had already recognised the Cayman Islands Legal Practitioners Association as the self-regulatory body for the supervision of lawyers. The association has delegated its supervisory functions to the Cayman Attorneys Regulatory Authority, which has begun to build its regulatory oversight framework. This included the registration of law firms, including sole practitioners, for AML purposes.
The Royal Cayman Islands Police Service enhanced its financial crimes unit with greater focus on money laundering and terrorist financing investigations. The RCIPS partnered with the Economic Crime Unit of the City of London Police to deliver training and advice on the processes and procedures of the new task force. The local police service also engaged with the UK’s National Crime Agency to assist in an overall strategic crime threat and risk assessment.
The Financial Reporting Authority, meanwhile, received more funding to address a lack of resources needed to deal with a growing backlog of suspicious activity reports.
The Department for Commerce and Investment, General Registry and the Cayman Islands Legal Practitioners Association held numerous awareness sessions for jewellers and precious metal dealers, realtors, non-profits and lawyers.
The National Coordination Team, in cooperation with the Anti-Money Laundering Unit, then drafted a first follow-up report to inform the CFATF of Cayman’s progress in meeting the recommended actions, which Attorney General Samuel Bulgin presented to the CFATF plenary in Antigua on 22 Nov.
Cayman has until 21 Feb. 2020 to demonstrate that it has made positive and tangible progress in implementing the recommendations of the report. The Financial Action Task Force then has to decide whether to impose a remediation plan on the Cayman Islands and place the jurisdiction on the compliance document. The FATF will deliver its decision at its June 2020 plenary.