Cayman Islands: Improving FATF’s AML Compliance Rating

This article was originally published in the January 2022 edition of the ACAMS Today Caribbean Catch-up.

In December 2017, the Cayman Islands went through its Fourth Round Mutual Evaluation, a report that analyzed the level of compliance with international standards on combatting money laundering as well as the financing of terrorism and proliferation. The evaluation was conducted by the Caribbean Financial Action Task Force (CFATF), the regional standard setter of the Financial Action Task Force (FATF).

The two-pronged process for the mutual evaluation for which countries are assessed consists of technical compliance with FATF’s 40 Recommendations and immediate outcomes (effectiveness of the regime).

Since receiving its mutual evaluation report in November 2018, the Cayman Islands made significant progress in improving effectiveness by updating its anti-money laundering/counter-terrorist financing (AML/CTF) national strategy, conducting terrorist financing and sectoral risk assessments as well as making amendments to the Anti-Money Laundering Regulations and Proceeds of Crime Act. In addition, the Cayman Islands designated an AML/CTF regulator for designated non-financial business and Professions (DNFBPs) and created a new Bureau of Financial Investigations for investigating money laundering.

As a result, in its February 2021 review,¹ the Cayman Islands received largely compliant or compliant ratings on 39 of FATF’s 40 Recommendations for technical compliance. As of October 2021, the Cayman Islands have been reassessed as having qualified on all FATF’s 40 Recommendations as 'largely compliant' or 'compliant.' The latest upgrade is in relation to the jurisdiction's virtual assets regime. This now places the Cayman Islands at the forefront of all jurisdictions assessed so far on technical compliance. In relation to immediate outcomes, FATF noted that out of the 63 action points, the Cayman Islands had met 60, leaving only three action points outstanding when placing the Cayman Islands on the ongoing monitoring list. To be removed from the ongoing monitoring list, FATF stated in its 'Jurisdictions under Increased Monitoring – October 2021' report that the Cayman Islands would need to impose 'adequate and effective sanctions in cases where relevant parties (including legal persons) do not file accurate, adequate and up-to-date beneficial ownership information' in line with those requirements and demonstrate '…that they are prosecuting all types of money laundering in line with the jurisdiction’s risk profile and that such prosecutions are resulting in the application of dissuasive, effective and proportionate sanctions.'²

In its February 2021 update, FATF commented that the Cayman Islands government had 'made a high-level political commitment to work with the FATF and CFATF to strengthen the effectiveness of its anti-money laundering (AML) regime.'³ The action plan focuses on applying effective, proportionate and dissuasive sanctions as well as enforcing administrative penalties and enforcement actions to ensure that breaches are quickly remediated.

In relation to these immediate outcomes, the Cayman Islands Monetary Authority (CIMA) increased inspections and monitoring, which had already been underway with its administrative fines regime implemented.

As a result of having worked on and implemented actions for fifteen months, FATF recognized that the Cayman Islands had taken steps toward improving their AML/CTF regime, including applying sanctions that are effective, proportionate and dissuasive, as well as issuing administrative penalties and enforcement actions against obliged entities to ensure that AML/CTF breaches are remediated.

In keeping with this commitment, the Cayman Islands set an action plan which focuses on:

• • Applying sanctions that are effective, proportionate and dissuasive. In addition to implementing administrative penalties and enforcement actions to ensure that breaches are remediated effectively and in a timely manner by the Cayman Islands Monetary Authority.
  • 'Imposing adequate and effective sanctions in cases where relevant parties…[have not filed] accurate, adequate and up-to-date beneficial ownership information…'⁴ for legal entities and arrangements, in accordance with the available regimes set by the Registrar of Companies and the Cayman Islands Monetary Authority.
  • '…demonstrating that they are prosecuting all types of money laundering…,'⁵ including complex money laundering cases and standalone money laundering causes involving proceeds of foreign offenses, in line with the jurisdictions’ risk profile as an international financial center '…and that such prosecutions are resulting in the application of dissuasive, effective and proportionate sanctions…'⁶ against natural and legal persons as set forth by the Cayman Islands Bureau of Financial Investigations and the Office of the Director of Public Prosecution.

Conclusion

The three remaining recommended actions highlight the jurisdiction's strong level of commitment to the mutual evaluation process. In terms of compliance and enforcement actions, as well as recent work done by the relevant agencies, continued effectiveness is being closely monitored to substantiate the progress in these areas.

It is intended that the Cayman Islands will report its progress on completing the areas identified in the action plan for consideration—by FATF—in 2022.

¹Jurisdictions under Increased Monitoring — February 2021, Financial Action Task Force, https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-february-2021.html

²Jurisdictions under Increased Monitoring — October 2021, Financial Action Task Force, https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-october-2021.html

3.Ibid.

4.Ibid.

5.Ibid.

6.Ibid.