Anti-money laundering: Finding the right balance

After the Caribbean Financial Action Task Force released a report in March 2019, criticising a number of weaknesses in Cayman’s anti-money laundering framework, several professions and businesses found themselves for the first time directly subjected to AML laws and regulations.

Among the various failings, the CFATF highlighted a lack of money-laundering supervision for lawyers, accountants and other so-called designated non-financial businesses and professions, namely realtors, property developers, and dealers in precious metals and stones.

Many of the larger businesses in these categories said at the time that they had been managing money-laundering risks all along and as such the changes would be hardly new.

However, with new supervisory bodies and new regulations in place, some found the requirements stricter than they originally assumed.

Larger businesses engaged in so-called relevant financial business suddenly needed to have designated compliance and money-laundering reporting officers (MLROs) in their companies.

For some small businesses, anti-money laundering was entirely novel and not something they had concerned themselves with prior to the changes to Cayman’s AML regime.

Rachel Christ creating jewellery.

Rachel Christ, a Caymanian, who has a part-time craft business that makes jewellery, found the experience both tedious and expensive. “Two years ago, when the AML guidelines were revamped, I got caught up in being required to do the same AML compliance as say Kirk’s jewellery store simply because I sold jewellery made with silver, a precious metal.”

Christ does not have a retail store or employees and only sells wholesale to hotels and the National Gallery. Her items sell for $25 to $130.

Yet, she said, she was told to have an employee manual for her AML procedures, even though she does not have any employees and a money-laundering reporting officer.

“And then, I unfortunately stumbled upon a couple of people in compliance, who really didn’t advise me or help me that well.”

Indeed, some of the information she received was incorrect. Although she had to be aware of the money-laundering risks surrounding her craft trade and have a strategy in place on how to manage them, her activity was too small to be considered relevant financial business.

For dealers in precious metals and stones this involves individual transactions that are greater than $15,000, according to the Proceeds of Crime Law. That meant she could fill the roles of compliance officer and money-laundering reporting officer herself.

All businesses must, however, have a handbook in place outlining their AML procedures and even sole traders need to have a training manual for employees, because they could hire staff at a moment’s notice. They also need to have procedures for customer due diligence.

This can come at a considerable expense. AML advisory firms can charge $6,000 or more just for drafting a customised handbook for a small business.

Christ said she had the manuals and documents drawn up and took online AML courses.

“All of this costing my small craft business, pretty much more than I made in 2020 due to the borders being closed.”

The Department of Commerce and Investment, the supervisor of designated non-financial businesses in real estate as well as precious metals and stones dealers, she said, repeatedly told her that she had to be compliant regardless of the size of the business, whether it was trading wholesale or how much money it was making.

Ryan Rajkumarsingh, director, DCI

Ryan Rajkumarsingh, the director of DCI, said when the department initially started to regulate designated non-financial businesses for anti-money laundering purposes the additional compliance costs were a concern and it explored ways of trying to bridge the gap.

Recently, the department teamed up with the Cayman Islands Centre for Business Development, whose purpose is to assist small businesses, to see how the centre can facilitate some support around AML.

He acknowledged that businesses faced extra expense in time and money but he said “this is where we are now and where the world is going” with international standards setting the expectations for local practices.

“As bad as it is, this is the cost of doing business.”

At least the majority of the costs are one-offs and as soon as the structures and strategies are in place will not occur again.

As far as AML manuals are concerned, the DCI director said the department can do a certain amount of handholding and provides information sessions for free that are also available as recordings online on the DCI website. Other institutions, like Cayman Finance, also provide online training courses free of charge.

The department does not provide any templates, Rajkumarsingh said, because it would just end up inspecting its own materials, but it is possible to draw up a manual oneself.

Small size, he noted, does not necessarily mean that a business is less susceptible to money laundering. In fact, it may be targeted because of its small size because the expectation is that there would be less scrutiny and for its potential to grow.

The risks are also not always directly apparent. For a small craft business certain risks may, for example, be related to the country it sources its materials from.

But there are exemptions for certain very small ventures under specific circumstances, Rajkumarsingh said.

In general, he noted that the department wants to be approachable, helping businesses become compliant. Each DCI compliance officer, for instance, has a portfolio of businesses they keep in continuous communication with.

Claudia Brady, the department’s head of compliance and enforcement, said, “If any member of their portfolio contacts them and says, I don’t understand this or I need help with this, they will bring them in and go through the process. So that makes it easier.”

Brady said those businesses that already practised AML had found it easy to transition to the new requirements. And overall compliance has increased significantly in the past two years.

With more education, more outreach and more awareness, she said, businesses now better understand why the measures are needed and what is expected of them.

Although 2020 showed less AML inspection activity due to the COVID-19 pandemic, statistics in the department’s annual report confirm a greater level of understanding and compliance by the regulated companies.

Rajkumarsingh said in the beginning it was difficult to get the message across. “You are looking at an industry that was never regulated before. So, we started that process.”

But since then, regulation and compliance had progressed “leaps and bounds”.

The DCI director said he is fully aware that entrepreneurs are businesspeople first and AML risk managers second.

“We don’t want you to lose out on business, but we want you to be smart about who you are doing business with.”

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  1. If the government really wanted to help small businesses they could do a handbook and just give it to these people. The example mentioned above boggles the mind. How can you make someone who works by themselves and makes next to no money jump through hoops and spend all that money