Cayman to feature on EU anti-money laundering list

Within the next few weeks, the Cayman Islands is going to be included on the European Union’s list of high-risk third countries for money laundering.

The European Commission on 7 Jan. adopted a regulation to update the bloc’s anti-money laundering list in line with the changes to the Financial Action Task Force’s grey list of jurisdictions whose AML practices are under increased monitoring.

Cayman was listed by the FATF in February of last year for deficiencies in its AML framework. The Cayman Islands government committed to working with the international standard-setter on implementing an action plan to address any outstanding issues.

The plan focusses on applying effective sanctions, penalties and enforcement actions to ensure that breaches are quickly remediated. For instance, those who do not file accurate and up-to-date beneficial ownership information should face effective sanctions.

To be removed from the FATF list, Cayman must also demonstrate that all types of money laundering are prosecuted and that such prosecutions result in proportionate penalties.

Under EU rules, FATF-listed jurisdictions are typically included in its own AML list.

The move to list Cayman had therefore been expected from as early as October 2021 but was delayed until now.

The delegated directive, which does not need to be transposed into the national laws of EU member states, will come into effect, provided the EU Parliament and Council have no objections during a 30-day period. The list will then take effect three weeks after publication in the official gazettes.

Most Cayman-based investment or other structures are not impacted by the listing.

However, it does affect certain securitisation vehicles that involve Cayman.

In April 2021, the EU Securitisation Regulation came into effect. It prohibits the use of special purpose vehicles (SPVs) in EU AML listed high-risk third countries.

This may, for example, prevent EU investors from investing in US collateralised loan obligations (CLOs) which typically use Cayman Islands SPVs. Cayman Islands CLO issuers have voiced such concerns since Cayman’s FATF greylisting.

Financial Services Minister André Ebanks anticipated the listing late last year, stating that if Cayman were to be blacklisted by the EU as a result of the FATF greylisting, government would engage with EU officials in much the same way it did after Cayman’s EU tax blacklisting, which was reversed a few months later.

At the time, Ebanks noted that Cayman was “moving steadily” towards being taken off the Financial Action Task Force anti-money laundering grey list.

While Cayman is one of the few jurisdictions that is compliant with all 40 FATF technical criteria, the criticism of Cayman’s AML regime is centred on the practical outcome of its rules in three of 11 monitored areas.

One of the three areas has already been marked as addressed by the FATF, Ebanks said.

The earliest opportunity for Cayman to be removed from the FATF grey list is at the end of 2022.