Anti-Money Laundering & Countering the Financing of Terrorism
Role of CIMA and the Cayman Islands
As a leading and competitive international financial centre, the Cayman Islands has established its regulatory framework based on relevant international standards of supervision and co-operation with both local and overseas regulatory authorities.
The Cayman Islands Monetary Authority plays a central role in the fight against money laundering and terrorism financing. Section 6(1)(b)(ii) of the Monetary Authority Act gives the Authority legal responsibility, as part of its regulatory function, “to monitor compliance with the anti-money laundering regulations.” These regulations prescribe measures to be taken to prevent the use of the financial system for the purposes of money laundering and terrorist financing. In addition to the Anti-Money Laundering Regulations (AMLRs), the regulatory framework against financial crime in the Cayman Islands includes the Proceeds of Crime Act, the Terrorism Act and the Proliferation Financing (Prohibition) Act.
The Cayman Islands has implemented the Financial Action Task Force’s (FATF) 40 Recommendations on the Prevention of Money Laundering and the Countering of Terrorist Financing, which are international standards for effective anti-money laundering and counter terrorist financing regimes. In 2017, the Cayman Islands were assessed against FATF’s 40 Recommendations. The mutual evaluation report can be found here.
The Cayman Islands are a founding member of the Caribbean Financial Action Task Force (CFATF), which is an FATF style regional body. The Cayman Islands are also member of ARIN-Carib, a regional asset recovery network and the Financial Reporting Authority (FRA) is member of the Egmont Group, an international network of financial intelligence units.
National AML/CFT Governance
The Anti-Money Laundering Steering Group is the governing body responsible for the general oversight of anti-money laundering (AMl) and countering the financing of terrorism (CFT) policy in the Cayman Islands, as stated in section 5 (2) (a) of the Proceeds of Crime Act. It is also responsible for the general administration of the FRA; for promoting effective collaboration between regulators and law enforcement agencies; and for monitoring interaction and co-operation with overseas financial intelligence units. Other national stakeholders responsible for developing the national AML/CFT strategy and policy include the:
- Inter-Agency Coordination Committee (IACC);
- Anti-Money Laundering Unit (AMLU);
- Ministry of Financial Services and Home Affairs (MFSHA);
In addition to the Authority, the Department of Commerce and Investment is a public sector supervisor with responsibility for monitoring compliance with the AML/CFT framework specifically for real estate agents and brokers, and precious metals and stone dealer .
The Registrar of Companies is responsible for the oversight of non-profit organizations that pose a high risk of being misused for terrorism financing.
In addition, as self-regulatory bodies, the Cayman Islands Institute of Professional Accountants and the Cayman Islands Legal Practitioners’ Association have been designated as AML/CFT supervisors for lawyers and accountants, respectively.
Finally, the intelligence, law enforcement and prosecution functions are performed by the Office of the Director of Public Prosecutions (ODPP), the FRA, the Cayman Islands Customs Department (Customs) and the Financial Crimes Unit (FCU) of the RCIPS.
National AML/CFT Governance Framework of the Cayman Islands
AML/CFT Legal Framework
The AML/CFT legal and regulatory framework of the Cayman Islands is responsive to emerging risks and is informed by the themes from the latest National Risk Assessment and the resulting national AML/CFT Strategy. The goals of the strategy include:
- Enhancing the jurisdiction's AML/CFT legal and regulatory framework;
- Implementing a comprehensive risk-based supervisory framework;
- Strengthening of sanctions, intelligence and enforcement;
- Enhancing domestic cooperation and coordination;
- Ensuring an efficient and effective system for international cooperation; and
- Raising AML/CFT awareness among all stakeholders and the general public
The key legislation and regulations in support of the Cayman Islands efforts to combat money laundering, terrorism financing and proliferation financing are described below:
Proceeds of Crime Act
The Proceeds of Crime Act, when first enacted, repealed the Proceeds of Criminal Conduct Act as well as the money laundering sections of the Misuse of Drugs Act.
The Proceeds of Crime Act creates criminal offences relating to money laundering. Under the Proceeds of Crime Act, the offence of money laundering includes concealing, disguising, converting, transferring or removing criminal property. It is also an offence to conceal or disguise the nature, source, location, disposition, movement or ownership of criminal property. Property from unlawful conduct can be in different forms. Property wherever situated includes: money, all forms of real or personal property, and other intangible or incorporeal property. Proceeds of Crime Act details the mechanisms for tracing original property, disposing property and for mixing property. Any profits accrued from such property are also considered as representing property which was obtained through unlawful conduct.
Furthermore, failure to make a disclosure regarding another person who is engaged in criminal conduct and tipping off, meaning where an individual knows or suspects that a disclosure is about to take place, is taking place or has taken place and the individual makes a disclosure which is likely to prejudice any investigation, are also offences.
The Proceeds of Crime Act also authorises courts in the Cayman Islands to issue confiscation orders against a defendant who is convicted of an offence under the Proceeds of Crime Act.
The Proceeds of Crime Act also define the term “Relevant Financial Business.” This definition can be found in section 2 and Schedule 6 of the Proceeds of Crime Act.
Anti-Money Laundering Regulations
The Anti-Money Laundering Regulations (AMLRs) require all persons engaged in relevant financial businesses, as defined in the Proceeds of Crime Act, to have in place systems, policies and procedures to implement a strong AML/CFT/CPF framework in their organisation, including procedures for:
- Customer due diligence
- Recordkeeping
- Implementing a risk-based approach
- Ongoing monitoring
- Complying with lists of targeted financial sanctions
- Internal reporting of suspicious activities
- Staff screening
- Staff training
- Internal controls
Financial service providers that do not comply with the AMLRs may be subject to an administrative fine imposed by their supervisor or to criminal prosecution.
Terrorism Act
The Terrorism Act criminalises the act of terrorism and combats the financing of terrorists and terrorists’ organisations. Under the Act, any person who provides property with the knowledge or intention that the property would be used to carry out an act of terrorism, or used by a terrorist or terrorist organization, commits an offence. Terrorist property includes: ‘property that is the proceeds of, or used in, or intended or allocated for use in, the financing of acts of terrorism, terrorists or terrorist organisations’ “regardless of whether the property is from legitimate sources.”
This Act requires that a person who knows or suspects or has reasonable grounds for knowing or suspecting that another person has committed a terrorism financing offence, based on information the person received in the course of a business in the regulated sector, make a report to the Financial Reporting Authority (FRA) or the person’s money laundering reporting officer, as soon as possible. Failure to do so constitutes an offence.
Proliferation Financing (Prohibition) Act
Under the Proliferation Financing (Prohibition) Act proliferation is defined as ‘the development or production, or the facilitation of the development of production, of nuclear, radiological, biological, chemical weapons or systems for their delivery.’ The illicit financing of such activities is condemned under the aforementioned legislation.
Under the Proliferation Financing (Prohibition) Act, it an offence for anyone to provide funds and economic resources to fund unauthorised proliferation activities; or to enter into or becomes concerned in an arrangement which that person knows or suspects facilities, by whatever means, the acquisition, retention, use or control of funds and economic resources to fund unauthorised proliferation activities.
The Proliferation Financing (Prohibition) Act also states that persons who have funds in their possession that are owned or controlled by a designated person or derived from economic resources of a designated persons must:
- freeze these funds immediately; and
- report to the FRA
Failure to do so may result:
- in an administrative monetary penalty imposed by the FRA; or
- in criminal prosecution
The FRA, in relation to any country, has been given powers to issue directions to any relevant persons; and persons operating in the financial sector, concerning the unauthorised financing of proliferation once they meet the conditions expressed in section 5 of the Proliferation Financing (Prohibition) Act.
AML/CFT Guidance Notes
The Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands (the GNs) provide general guidance to financial services providers on the prevention and detection of money laundering, terrorist financing and proliferation financing in the Cayman Islands. They also aim to provide transparency and consistency in the interpretation and application of the AMLRs. The GNs provide practical guidelines that represent best practice for the development of anti-money laundering procedures in line with international standards.
The GNs should be read in conjunction with the regulatory laws and more importantly, with the legislation pertaining to the AML/CFT framework of the Cayman Islands. The GNs are an important feature of the AML/CFT regime of the Cayman Islands and non-compliance with them will be taken into account by the Courts in determining whether a person has breached the relevant provisions of the Proceeds of Crime Act or the AMLRs; and by CIMA in determining whether to exercise any of its enforcement powers for breaches of the AMLRs.
The Proceeds of Crime Act states that in deciding whether a person committed an offence under this section the court shall consider whether the person followed any relevant guidance which was at the time concerned - (a) issued by the Monetary Authority; and (b) published in a manner approved by the Governor in Cabinet as appropriate in its opinion to bring the guidance to the attention of persons likely to be affected by it.
The AMLRs provides that in determining whether a person has complied with any of these regulations a court - (a) shall take into account any relevant supervisory or regulatory guidance which applies to that person; and (b) may take into account any relevant guidance issued by a body in the islands that regulates, or is representative of, any trade, profession, business or employment carried on by that person.
The AMLRs further provides that in determining whether to exercise any of its enforcement powers for breach of these regulations, the supervisory authority shall take into account (a) these regulations; and (b) any supervisory or regulatory guidance.