Intertrust has agreed to pay $5 million to the Cayman Islands Monetary Authority to settle its appeal against a fine by the regulator for anti-money laundering failings.
Under a consent order, filed on 10 Oct and published by the Grand Court on Thursday, Intertrust has to pay the original $4,232,606.50 fine plus a contribution to the regulator’s internal and external legal fees totalling $767,392.50.
In May 2021, CIMA imposed its largest-ever fine for breaches of the Anti-Money Laundering Regulations and what it called Intertrust’s “pervasive and protracted history of non-compliance with the requirements of the [Anti-Money Laundering Regulations] and its failure to remediate these significant breaches”.
CIMA said it had inspected Intertrust in 2017 and 2019 and identified several serious breaches which concerned the application of customer due diligence measures, the failure to verify the source of funds and to obtain documentation on the purpose and nature of business relationships.
The regulator further noted the company’s failure to identify beneficial owners, to perform ongoing monitoring and to consider all relevant risk factors.
Another on-site inspection in 2020 revealed further breaches of the regulations in relation to client files that were inspected. This prompted a warning notice in January 2021 and the decision and fine notices on 13 May.
In September 2021, Intertrust was allowed to appeal the decision notice even though a 21-day deadline had passed, after it had obtained originally only the court’s permission to appeal the fine. The company sought a declaration from the court that CIMA’s decision to issue the notice and the requirements contained in it were unreasonable and unlawful.
Contested decision notice
The contested decision notice instructs Intertrust to conduct and document a full risk assessment on all clients within six months.
In addition, the company must collect the nature and purpose of the business relationship, client due diligence, know-your-customer, and source of wealth or source of funds information for all high-risk customers within nine months, and for medium- and low-risk customers within 12 months.
Intertrust claimed it was not clear what the authority meant by requiring the company to conduct “a full risk assessment” on all its clients and that there were not sufficient reasons given for its decision.
In allowing the appeal, Justice Nicholas Segal concluded that missing the deadline appeared to have been a genuine mistake and that Intertrust’s case could not be dismissed as frivolous.
Segal noted Intertrust “had belatedly changed its tune and position”, after first accepting the authority’s conclusions and mapping out an action plan to remedy the shortcomings.
But he said the company had raised serious issues which justified and merited a hearing.
In May 2022, Segal handed down a judgment on a narrow point of law raised by a discovery application filed by Intertrust.
It claimed that two affidavits filed by CIMA’s in-house lawyers were not evidence because the definition of attorney in the Grand Court Rules meant attorneys from an external law firm.
CIMA argued that all its in-house attorneys were fully admitted and qualified Cayman attorneys and it had conducted numerous cases and proceedings through its in-house counsel over 25 years without anyone ever having suggested that it had acted improperly.
The judge agreed, stating Intertrust’s claim was baseless.
Under the consent order, Intertrust has until 30 June 2023 to comply with CIMA’s decision notice by conducting the required risk assessments and due diligence on all clients or terminating the client relationships.
In October, corporate services provider CSC obtained regulatory clearance from CIMA for its proposed acquisition of Intertrust. CSC has made an all-cash offer to buy the outstanding stock of Intertrust at 20 euros per share. The offer period ends in December.
AML enforcement challenged
The Monetary Authority has been under pressure to demonstrate to the Financial Action Task Force (FATF) that its anti-money laundering enforcement actions are aggressive enough.
The FATF has placed the Cayman Islands on its list of countries under increased monitoring for strategic deficiencies in their AML framework.
CIMA’s fine of Intertrust was a key element in persuading the FATF to recognise in June 2022 that enforcement by the regulator is no longer an issue.
In 2021, Maples Group filed for judicial review of CIMA’s interpretation and application of certain provisions of the AML regulation, saying the regulator had changed its approach without providing prior notice, consulting with industry stakeholders or issuing updated guidance notes.
In June, Sterling Asset Management equally applied for judicial review of a $299,050 fine imposed by CIMA for the investment management firm’s anti-money laundering breaches.
Both reviews are ongoing.
EDITOR’S NOTE: This article was amended to reflect that the consent order was the result of a settlement.
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