Threats revealed to Cayman’s AML regime
(CNS Business): Government faces some serious challenges over the next 18 months to update the regulatory regime that protects the country’s financial service sector ahead of a task force inspection in March 2017. Francis Arana, head of the Anti-Money Laundering Unit in the Attorney General’s Chambers, who is coordinating the Cayman Islands’ National Risk Assessment (NRA), has revealed some serious deficiencies in the current laws and regulations, weakness in supervision and a lack of suitable sanctions, which need to be addressed before the Financial Action Task Force begins its assessment.
Speaking at a compliance and financial crime conference Thursday, Arana revealed the story so far on the NRA, which countries are now obliged to complete as part of the new more stringent FATF requirements introduced in 2012. Cayman was last inspected in 2007 under the old rules and was largely compliant in 38 of the recommendations regarding the measures in place to prevent money laundering, as well as tax evasion and terrorist financing.
But it is now facing a much tougher test at a time when the AML and other related laws and regulations are out of date, when there is insufficient legislation to cover charities and other business risk areas outside of the offshore sector, such as the real estate industry and diamond merchants, as well as insufficient supervision by the regulator and inadequate sanctions.
“We have outdated anti-money laundering, terrorism and financing laws that are in urgent need of updating,” Arana told the conference audience, as he explained that some threats apparent in the current environment are not even mentioned in the laws as they were not considered threats at the time Cayman first drew up the AML legislative regime.
The steering groups and various committees involved in the current risk assessment, which includes some 60 people from both the public and private sectors, have raised a number of flags and the draft report is expected to be made public early next year. But in the meantime, Arana told CNS Business, the government is already beginning to address the shortcomings and is drafting relevant new legislation as well as amendments to update existing AML laws.
The areas where Cayman will have work to do is outside of the offshore sector as the national assessment has identified a lack of any regulation surrounding the charities sector and individuals working in industries not covered by CIMA but which leave the country vulnerable to financial crime such as real estate agents or precious stone and metal traders. He also explained that the lack of substantial sanctions will need to be addressed.
Arana pointed out that while international financial crimes are taking place in other jurisdictions, Cayman is vulnerable to the laundering of the proceeds from those crimes. He said tax evasion, drug trafficking, fraud, including securities fraud generally happen elsewhere but Cayman’s financial system may feature in the criminal process further down the line.
With just 18 months to go and a lot of risk areas to address, Arana admitted this was going to be challenging but it was not impossible to ensure the shortcomings and vulnerabilities are addressed before the FATF team arrives in 18 months.
However, legislative change is far from a speedy process in Cayman. While government has often prioritized offshore legislation to facilitate business it has not always been as quick to settle on the laws needed to address risk and vulnerabilities. The lack of legislation and regulation surrounding the non-profit sector which is not just about charities and service clubs but trusts as well has been a very long time coming with efforts to draft the law being thwarted by business and privacy issue concerns.
