The current anti-money laundering regime in the Cayman Islands consists of the new Anti-Money Laundering Regulations, 2017 (the Regulations), the Proceeds of Crime Law (2017 Revision) (the PCL) and the Cayman Islands Monetary Authority Guidance Notes, each as amended from time to time (the AML Regime). The AML Regime must be read in line with the Financial Action Task Force Methodology (the FATF) which was updated November 2017 when the Regulations came into effect. The Regulations were introduced as part of the Cayman Islands on-going Anti-Money laundering/Counter Financing of Terrorism Strategy that seeks to address money laundering, terrorist financing and proliferation financing challenges. The Regulations impose obligations on relevant financial businesses (RFBs) to know whom they are providing services to. RFBs are now defined more broadly under the PCL. It includes, but is not limited to, the business of engaging in one or more of the following:
Key updates addressed in the Regulations include the following updates:
Under Regulation 8 there is an obligation to take a risk-based approach to assess and mitigate. RFBs are required to take steps appropriate to the nature and size of the business to identify, assess and understanding the money laundering and terrorist financing risks. This can be done by considering the following factors:
Under the FATF the financial business can calculate the overall risk by using these rate factors together with qualitative checks, such as the country risk rating, their overall risk rating. It is important to understand the risk the business undertakes in order to assess overall risk rating. The systematic approach taken by the business must be writing so that the approach is formalized.
Under the AML regulations, a person carrying out relevant financial business shall not keep anonymous
accounts or accounts in fictitious names.
ENHANCED DUE DILIGENCE
The regulations impose an obligation to carry out enhanced customer due diligence where the risk is greater for terrorist financing or money laundering are greater. This includes where the customer is a PEP or they are from a foreign country identified by credible sources as having AML deficiencies. Where they are unable to obtain enhanced COD the RFBs are directed to not open the account and/or file a Suspicious Activity Report.
SIMPLIFIED DUE DILIGENCE
RFBs can now apply simplified customer due diligence measures where it is determined that the risks are low. The due diligence must be commensurate with the low risks involved and the assessment of the risk must be consistent with the findings of the Anti-Money Laundering Steering Group, CIMA or a body designated in writing by the Cabinet.
RFBs are not permitted to carry on a business relationship, or carry out a one-off transaction with a shell bank.
PEPs are considered to be high risk and must have enhanced customer due diligence imposed. In conducting business with PEPs senior approval within the business must be obtained and a procedure to determine the source of wealth must be put in place. The financial business must also conduct ongoing monitoring of the PEP customer. This includes, but is not limited to, using corruption indexes, bank lists and screening software. In the group of PEPs there are low and higher risk customers and the financial business must have in place a policy and practice of how the distinction can be made by its business.
Under the Law RFBs are required to designate a person at managerial level as the Money laundering Reporting Officer (MLRO) to ensure compliance with the requirements set out the Regulations. In addition to having MLRO, you must have a deputy MLRO to ensure there is always a compliance person present who understands the anti-money laundering procedures. There must be internal reporting procedures that can be following clearly by the employees of the business, which should be contained in their AML policies and procedures.
RFBs are able to delegate their compliance function however, the responsibility to comply with the Regulation remains with the relevel financial business. The continued expectation around the delegation is that the RFBs must be able to answer questions about their policies and procedures including risk assessment process, delegated tasks, record keeping, and how compliance training is conducted including where the functions are delegated, which functions are maintained by the RFB, how those delegated functions are monitored or enforced, and the agreement(s) which detail such an arrangement together with the service providers own AML policies and procedure must be produced upon request by a competent authorities.
The list of countries with equivalent AML regulations are now be maintained by the Anti-Money Laundering Steering Group to ensure that it has the list remains up to date. Click the name: List of Equivalent Jurisdictions
RFBs are compliant with the Regulation if they keep records in the following manner:
A financial group carrying out relevant financial business through a group arrangement must implement group-wide programs against ML and TF. This includes all applicable branches and majority owned subsidiaries of the group. Where there are foreign branches and majority owned subsidiaries they must have anti-money laundering and counter terrorist financing requirements consistent with the Cayman Islands, even where the foreign country standards are less strict.
The financial group programs must include:
*CIMA guidance highlights the need for RFBs to be cautious of complex networks and arrangements that span across multiple jurisdictions that lack legitimate rationale in taking on new business and continuing existing relationships
The penalties for contravening the Regulations are severe with liability of up to a fine of $500,000 for a summary conviction or imprisonment for two years. The court will take into account any supervisory or regulatory guidance that was issued that applies and take into account that relevant industry practices which the business operates.
The CIMA Mutual Funds and Mutual Funds Administrator Sector Specific AML/CFT guidance notes highlight the key risk area that mutual funds must weigh carefully. They are as follows:
The notes indicate that the special circumstances mutual funds are under, fund administrators and operators should make it good practice to obtain and maintain more than simplified COD or to at least ensure there are enough safeguards to ensure their obligations under the Regulations are met.
The RFBs have an obligation to ensure that their written policies and procedures have the board's overall AML policy statement and their RBA based on their perception of risk for their business including the systematic evaluation method for the customer onboarding phase. They must also include how decisions will be documented. In addition, RFBs must ensure that the designated MLRO
Tri-Bridge will issue an update as soon as we are made aware of any changes to the industry approach and/or changes to the CIMA Guidance Notes.
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DISCLAIMER This document is intended to provide a brief overview and general information and should not be construed or relied upon as legal advice.