Maples wins court battle over ‘onerous’ anti-money laundering rules

Financial regulators over-reached in their attempts to enforce ‘onerous’ anti-money laundering regulations on one of Cayman’s biggest financial services firms, the Grand Court has ruled.

The Maples group, which has more than 40,000 clients worldwide, successfully challenged some of the findings of an adverse inspection report form the Cayman Islands Monetary Authority.

Lawyers for Maples argued that the regulator had misinterpreted the requirements, attempting to impose obligations on the firm that would have been almost impossible to comply with. 

Maples contended that no other jurisdiction required such stringent customer due diligence and that if CIMA’s recommendations were allowed to stand it would have damaged a key sector of the Cayman Islands economy.

“Were those Findings and Requirements to become an established element of Cayman Islands regulatory standards, there is a risk that a considerable number of clients would consider leaving the jurisdiction,” wrote Maples Group chief risk officer, Phillipa White, in an affidavit considered by the court.

“It is important to note that, in my experience across the Maples Group, the Findings and Requirements would impose a standard of scrutiny (in certain respects without reference to risk) that goes beyond that required in any other jurisdiction when compared in the context of equivalent services and business relationships.”

She went on to state that this scenario would have presented significant challenges to the continued operation of Maples corporate and fiduciary service businesses in the Cayman Islands and to the entire sector. 

Landmark case

The landmark judicial review case was brought by Maples Corporate Services Limited and Maples Financial Services, contesting the legality of administrative requirements made by CIMA.

The case, heard over five days in February, examined the appropriate balance between rooting out money laundering and terror financing risks in the Cayman Islands – in compliance with international obligations – and allowing companies to do business efficiently.

Justice Ian Kawaley largely sided with Maples, in a 109-page judgment issued last week, quashing several findings from CIMA of breaches of the regulations.

One key element at stake was the extent to which the company was required to interrogate its customers over business dealings with third parties. Maples argued that it couldn’t be expected to request information, including on source of funds, for transactions outside of the jurisdiction and unrelated to its own business relationship with the client.

Kawaley’s ruling indicated that a ‘risk-based approach’ was more appropriate and consistent with international standards. He said this cooperative approach “seeks to achieve practical results in a real world in which regulatory resources (both public and private) are limited and accordingly greater effort is expended in mitigating higher risks than lower ones.”

Concern over ‘grey list’

The judgment references CIMA’s legitimate concerns about threats to the jurisdiction, including that Cayman was placed on a Financial Action Task Force ‘grey list’ partly because the number of money-laundering prosecutions and convictions did not match Cayman’s risk profile.

Against this backdrop, Kawaley suggested, CIMA had over-reached, adopting an ‘envelope-pushing’ interpretation of the regulations.

“To my mind a genuine and well-founded concern about the importance of strengthening the Cayman Islands financial system underpins the rigorous approach that CIMA has adopted to carrying out its statutory duties in relation to one of the largest service providers in the jurisdiction. 

“But for legitimate concerns about the jurisdiction’s rating status, the Authority might well have felt able to adopt a more flexible approach to the disagreements which arose in the course of the inspection process.”

In some instances, he said, the regulator has taken a ‘rigid construction’ of measures that were intended to be ‘malleable’ and that could be tailored to suit the scope and depth of a business relationship. 

Fighting money laundering

Rohan Bromfield, head of the fiduciary services division of CIMA, had argued in an affidavit to the court that the entire regulatory framework was meant to be consistent with international rules to combat money laundering, terrorism financing and proliferation financing. 

“The Authority views the maintenance of the jurisdiction’s position as a premier international financial centre as being inextricably linked with its level of success in meeting the international standards set for fighting financial crime, its cooperation with international regulatory authorities, and in ensuring that the Cayman Islands plays its part in limiting the opportunities for ‘regulatory arbitrage’ by criminals, whilst at the same time promoting a level playing field for legitimate business.”

Kawaley, in his judgment, affirmed that CIMA does have the power to impose requirements on licensed financial services business, though these are largely intended to be advisory in nature.

While he concluded that, in this case, CIMA had gone too far in its interpretation of the regulations, he noted that the authority’s inspection had identified some issues and imposed requirements that were not challenged by Maples.

“The Plaintiffs’ anti money laundering systems are clearly robust but not flawless, just as the regulatory actions of the Authority are robust and not flawless in truly trying regulatory times.”

In a statement to the Compass, a spokesperson for Maples said it was grateful to the Grand Court for its assistance with the interpretation and application of the anti-money laundering regulations.

“The Maples Group takes regulatory compliance matters very seriously (with Group entities regulated in a number of jurisdictions) and the Group is fully supportive of the work of the Cayman Islands Government and the Cayman Islands Monetary Authority in protecting and enhancing the integrity of the financial services industry of the Cayman Islands,” she said.