Anti-Money Laundering & Countering the Financing of Terrorism
This page covers:
Role of CIMA and the Cayman Islands
As a leading international financial centre, the Cayman Islands has framed its regulatory system around international standards of supervision and co-operation with overseas regulatory authorities.
The Cayman Islands Monetary Authority has a central role in the fight against money laundering and the preservation of financial stability. Through the prevention and detection of money laundering the Authority is able to assist in preserve preserving the integrity of the Cayman Islands financial services industry whilst protecting the interests of stakeholders and maintaining the competitiveness of the Cayman Islands as a leading world financial centre.
Section 6(1)(b)(ii) of the Monetary Authority Law (2010 Revision) gives the Authority legal responsibility, as part of its regulatory function, "to monitor compliance with the money laundering regulations." These regulations, which prescribe measures to be taken to prevent the use of the financial system for the purposes of money laundering, are in the form of the Proceeds of Crime Law, 2008, Money Laundering Regulations (2009 Revision).
The Basle Statement of Principles issued in December 1988 set out basic principles in relation to customer identification, compliance with legislation and regulation enforcement agencies and record keeping and systems.
The Cayman Islands has accepted the Financial Action Task Force’s (FATF Forty Recommendations on the Prevention of Money Laundering and Nine Special Recommendations on Countering Terrorist Financing, which are the international standards for effective anti-money laundering and counter terrorist financing regimes.
The latest reports on Cayman’s compliance with the 40+9 Recommendations, arising from CFATF and IMF assessments, can be downloaded here.
The Cayman Islands is a member of the Caribbean Financial Action Task Force (CFATF) and observes the CFATF’s 1992 Kingston Declaration on money laundering. This declaration endorsed the implementation of the 1988 United Nations Vienna Convention, the Organisation of American States Model Regulations, the 40 FATF Recommendations and the 19 Regional Specific Objectives.
Development of Anti-Money Laundering Legislation
Similar to other financial centres, the Cayman Islands do not exist in a vacuum, and is not insulated from external events and initiatives. In 1986, the government signed a Mutual Legal Assistance Treaty with the United States that allowed for the exchange of information between the United States and the Cayman Islands in respect of criminal activity. This was then followed by a series of legislative measures aimed at stemming the flow of illegal proceeds into the Islands.
Misuse of Drugs Law
In 1985, the Misuse of Drugs Law was enacted to give effect to the Vienna Convention in the Cayman Islands. The MDL is concerned with drug trafficking and the laundering of the proceeds from such activity. The law empowered the authorities to seize and confiscate drug trafficking money, and laundered property and assets. This was subsequently amended in 1992 to enable Cayman legislation to fully comply with the United Nations Convention against illicit traffic in narcotics, drugs and psychotropic substances.
The Misuse of Drugs (International Cooperation) Law (2000 Revision) provided for cooperation with other countries in relation to drug related criminal proceedings and investigations.
Mutual Legal Assistance Treaty
In 1986, the government signed a Mutual Legal Assistance Treaty with the United States that allowed for the exchange of information between the United States and the Cayman Islands in respect of criminal activity. This was then followed by a series of legislative measures aimed at stemming the flow of illegal proceeds into the Islands.
Proceeds of Crime Law
The Proceeds of Crime Law, 2008, was brought into force on 30 September 2008 and repeals the Proceeds of Criminal Conduct Law as well as the money laundering sections of the Misuse of Drugs Law. It, therefore, brings together in one place the anti money laundering provisions for the Cayman Islands. Apart from the very noticeable change in the size of the law, there have also been some significant changes to the legislation.
One of the most fundamental changes is that the Attorney General has the power to restrain and recover the proceeds of criminal conduct on civil grounds. In addition, criminal conduct is now broader than under the previous law, It extends beyond indictable offence to all offences. Another significant change has taken place under the offence of failure to disclose. The law has expanded to include “has reasonable grounds” for knowing or suspecting that another person is engaged in criminal conduct, thereby moving from a subject test base to an objective test base to determine culpability.
It is also worthy to note that a further addition to defences has been included, thereby making it a defence for non-disclosure if a person did not know or suspect that another is engaged in money laundering and he has not been provided by his employer with such training. In that regard there is also the inclusion for a vicarious criminal liability of the employer where it has been proved that an offence has been committed with the consent, connivance or attributable to any neglect on the part of a director, manager, secretary or other similar officer of the body corporate.
Money Laundering Regulations
The Money Laundering Regulations (MLR) were issued in September 2000 under the Proceeds of Criminal Conduct Law (which has now been replaced by the Proceeds of Crime Law). The MLR place additional legal and administrative requirements on entities conducting “relevant financial business.”
Relevant Financial Business
The definitions of relevant financial businesses are detailed in Regulation 4(1) of the MLR. These are:
(a) banking or trust business carried on by a person who is a licensee under the Banks and Trust Companies Law;
(b) building societies licensed under the Building Societies Law ;
(c) co-operatives licensed under the Cooperative Societies Law.
(d) insurance business and the business of an insurance manager, an insurance agent, an insurance sub-agent or an insurance broker within the meaning of the Insurance Law;
(e) mutual fund administration or the business of a regulated mutual fund regulated under the Mutual Funds Law.
(f) company management as defined in the Companies Management Law, and
(g) any of the activities set out in the Second Schedule of the Regulations
Schedule 2- List of Activities
Schedule 2 of the Money Laundering Regulations lists the activities that fall within the definition of “Relevant Financial Business”. These are:
- Acceptance of deposits and other repayable funds from the public.
- Financial leasing.
- Money transmission services.
- Issuing and administering means of payment (e.g. credit cards, travellers’ cheques and bankers’ drafts).
- Guarantees and commitments.
- Trading for own account or for account of customers in: (a) money market instruments (cheques, bills, CDs, etc.); (b) foreign exchange; (c) financial futures and options; (d) exchange and interest rate instruments; (e) transferable securities.
- Participation in securities issues and the provision of services related to such issues.
- Advice to undertakings on capital structure, industrial strategy and related questions and advice and services relating to mergers and the purchase of undertakings.
- Money broking.
- Portfolio management and advice.
- Safekeeping and administration of securities.
- Safe custody services.
- Financial, estate agency and legal services provided in the course of business relating to the sale, purchase or mortgage of land or interests in land on behalf of clients or customers.
- The services of listing agents and broker members of the Cayman Islands Stock Exchange as defined in the CSX Listing Rules and the Cayman Islands Stock Exchange Membership Rules respectively.
- The conduct of Securities Investment Business.
- Dealing in precious metals or precious stones, when engaging in a cash transaction of fifteen thousand dollars or more.
- The provision of registered office services to a private trust company by a company that holds a Trust licence under section 6(5)(c) of the Banks and Trust Companies Law (2009 Revision).
AML/CFT Guidance Notes
The key elements of the MLR include the requirement to have in place systems and training to prevent money laundering; identification procedures; record-keeping procedures; internal reporting procedures, and the duty to report evidence of money laundering.
In June 2001, the Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands (the “GN”) was first issued. The document provides general guidance to financial services providers on the prevention and detection of money laundering in the Cayman Islands. It also aims to provide transparency and consistency in the interpretation and application of the Money Laundering Regulations (2005 Revision) and amendments thereto. The GN provides practical guidelines that represent best practice for the development of responsible anti-money laundering procedures in line with international standards.
The document was produced by the Authority, the Cayman Islands Bankers Association, the Cayman Islands Funds Administrators Association; the Company Managers Association; the Cayman Islands Insurance Managers Association, and The Society of Trust and Estate Practitioners (Cayman Islands Branch). The Cayman Islands Real Estate Brokers Association; the Cayman Islands Society of Professional Accountants; the Cayman Islands Law Society; the Caymanian Bar Association; the Cayman Islands Compliance Association; and the Government also provided valuable input and now have observer status on the Guidance Notes Committee (GNC) that is responsible for continuously reviewing and making any changes to the GN. In 2008, the GN was renamed "Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing" in recognition of the important role that all relevant parties must also play in the fight against terrorism financing.
Section 136(5) of the Proceeds of Crime Law 2008 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."