The Cayman Islands is no stranger to intense scrutiny by other jurisdictions in terms of its anti-money laundering regime. The stereotypical image of the drug lord arriving in his private jet to deliver a suitcase full of cash is outdated and considered ridiculous by those who actually work in the island’s financial services sector.

However, a proverbial Cayman bank account makes for a great storyline and, unfortunately, this image has been hard to shake off. It seems that all too often the Cayman Islands has to work twice as hard to prove that, when it comes to the maintenance of rigorous anti-money laundering laws and the development of a strong compliance culture, it is actually a global leader and in some cases more robust than most onshore jurisdictions.
 
In June 2007, the Caribbean Financial Action Task Force conducted its third-round evaluation of Cayman’s anti-money laundering and combating the financing of terrorism regime. The report that followed in December 2007 indicated a ‘strong compliance culture’ in the Cayman financial services sector. The evaluation found that the Cayman Islands were either compliant or largely compliant with 38 of the 40 anti-money laundering and nine terrorism financing special recommendations, known as the ‘FATF 40+9’. By comparison, this puts the Cayman Islands regulatory regime very close to, or on par with other jurisdictions that participated in the FATF third-round evaluations such as the United States, Belgium, Singapore and the United Kingdom. Jurisdictions such as Canada, Bermuda, Barbados and the Bahamas, which have been subject to similar reviews, have failed to achieve the same impressive results.
 
Despite the positive feedback, the regulatory framework is constantly re-evaluated with a view to enhancing the laws already in place and adopting recommendations made by oversight bodies such as the CFATF and International Monetary Fund. In the past 12 months the Cayman Islands has seen unprecedented changes to the anti-money laundering legislation.
 
The most noteworthy change was the passing of the Proceeds of Crime Law in September 2008, which repealed and replaced the Proceeds of Criminal Conduct Law. The law intends to broaden the range of investigative powers of the police and consolidate and harmonise laws relating to proceeds of crime. Revisions to the Money Laundering Regulations quickly followed in October 2008 and again in July of 2009. In response to the legislative changes, the Cayman Islands Monetary Authority issued in December 2008 new guidance notes on The Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands to address the new requirements imposed by law. To ensure that anti-money laundering procedures are in line with the new changes, financial service providers should be reviewing and updating their anti-money laundering manuals.
 
The three main money laundering offences are found in the Proceeds of Crime Law and have remained relatively unchanged. However, the underlying definitions of criminal property and criminal conduct introduced in the law have made the money laundering net much bigger. Criminal property is defined as the benefit from criminal conduct. Benefit can be in whole or part, direct or indirect, and can include financial benefit or an interest in property. The term criminal conduct has now been expanded to cover all criminal offences, whereas previously, the offence of money laundering arose out of conduct that was limited to only indictable or serious criminal acts. Simply put, any person who benefits in some way from criminal activity may now be subject to a money laundering prosecution.
 
In the past, much attention has been paid to the annual report released by the Cayman Islands Financial Reporting Authority, which details the number of suspicious activity reports filed in a given year. The report breaks down the total of suspicious activity reports filed by the sector of business and the reasons for the suspicion. In 2008, the Financial Reporting Authority received 247 reports, of which 32 per cent came from banks and 29 per cent of the reports listed fraud as the reason for the suspicion. By comparison, Switzerland’s Financial Intelligence Unit received 851 reports in 2008. Does this mean that there is more suspicious activity going on in Switzerland or is Cayman not reporting everything it should? Unless two jurisdictions are alike in every way – financial products offered, volume of business, number of licensed financial institutions, etc – a comparison is difficult and any data needs to be interpreted with care. There is no doubt that when the annual report and numbers are released for the fiscal year that ended 30 June, 2009, there will be much discussion as to what impact the new legislation had on the numbers and what the numbers really mean.
 
Previously, financial service providers had been required to make a report relating to suspicious activity based on knowledge or suspicion that a person was involved in money laundering. The requirement to report now arises if a person knows or suspects, or has reasonable grounds for knowing or suspecting, that another person is engaged in criminal conduct. This places a requirement upon everybody working in the regulated sector to report all breaches of the law irrespective of their seriousness or whether the breaches are related to money laundering or not. These changes will very likely cause a significant increase in the number or suspicious activity reports that have been filed in the past 12 months. If this increase occurs, a consequence may be an additional burden on the Royal Cayman Islands Police Financial Crimes Unit, who will have to investigate the suspicious activity reports that have criminal substance and use further resources to support any resulting prosecution.
 
The role of the compliance officer is now recognised as a critical function for financial service providers and can no longer be viewed as simply a cost centre with no potential financial benefit to the organisation. Money laundering regulations have made it mandatory for financial service providers to designate a person, at management level, to be a compliance officer with responsibility for monitoring and ensuring internal compliance with the laws relating to money laundering. While most larger financial service providers already have this position within their organisation, smaller operations may not have a member of staff able to fit this criteria. To avoid undue burden, the guidance notes allow financial service providers to combine the functions of compliance officer and money laundering reporting officer or to out-source the function to a third party, providing certain management principles are maintained.
 
The Proceeds of Crime Law has placed an increased onus on employers to ensure that employees working in the financial sector receive appropriate anti-money laundering training. If staff members face criminal proceedings relating to any of the reporting offences contained in the Proceeds of Crime Law, the employee can raise a defence if they have not been provided training by the employer. The good news is there are a lot more training opportunities available. Local service providers are offering workshops and seminars to meet this growing demand and Global Compliance Solutions hosts an annual two day, anti-money laundering/compliance conference that attracts more than150 professionals from the financial sector each year. This year the event will be held on 15-16 October.
 
The Cayman Island Compliance Association routinely offers training events for its members and in August of this year, six scholarships were awarded by the association for an advanced international certificate in compliance and financial crime to Caymanians wishing to enter the compliance field. The recipients are in the process of completing the required assignments and will be sitting the exam next March. Also moving to the forefront is the Association of Certified Anti-Money Laundering Specialists, which has recently formed a Cayman chapter and will offer continuing education opportunities for the financial services. The official launch of the chapter is scheduled for October.
 
The compliance and anti-money laundering obligations faced by all jurisdictions must continue to evolve and develop as new money laundering threats emerge. While only discussed briefly, the recent changes to the legislative frameworks demonstrate the ongoing commitment of the Cayman Islands to be a leading jurisdiction when it comes to answering global initiatives to combat money laundering and the financing of terrorism. There will no doubt be more transformation on the horizon.