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Threats revealed to Cayman’s AML regime

| 09/10/2015 | 4 Comments
CNS Business

Francis Arana, head of the Anti-Money Laundering Unit in the Attorney General’s Chambers

(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But it is now facing a much tougher test at a time when the AML and other related laws and regulations are out of date, when there is insufficient legislation to cover charities and other business risk areas outside of the offshore sector, such as the real estate industry and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“We have outdated anti-money laundering, terrorism and financing laws that are in urgent need of updating,” Arana told the conference audience, as he explained that some threats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.

The Global Compliance Solutions 11th annual  AML/Compliance & Financial Crime Conference is currently taking place at the Grand Cayman Marriott Hotel.

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Category: Finance, Financial Crime, Financial Services

Comments (4)

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  1. Anonymous says:

    Another day another allegation by Mr Polack against the Attorney general. Isnt the minister of financial services responsible for the legislation which Mr Arana was criticising? It amuses me how CNS panders to Mr Polack’s obsessive dislike of the AG and the legal department.

  2. Peter Polack says:

    In a disturbing outbreak of truth Francis Arana, the head of the Anti-Money Laundering Unit of the Attorney General’s Chambers outlined the delinquent disarray of our legislation on money-laundering at this conference.This report amounts to another confirmation of the non-performance of his boss the Attorney-General and the chief officer.
    Mr.Arana is a brave man to reveal that the emperor has no clothes. Perhaps we should have been forewarned by the recent and sudden departure of Superintendent Stephen Ratcliffe the former head of the Financial Crimes Unit who decamped to Zurich without a word on our perilous standing with the Financial Action Task Force.
    The DPP has also advised that responsibility under the Proceeds of Crime Law lies with the RCIPS and her department only has an advisory role. So far as I am aware neither the RCIPS nor the Financial Crimes Unit employs any lawyers which must put them in a curious position.
    The assessment was another failure by the Portfolio of Legal Affairs.
    There is also the matter of the resource rich and well paid Financial Reporting Unit which has not been the subject of a performance review in light of recent events. The Director of the Financial Reporting Authority was appointed a mere two years after being an articled clerk with the Attorney-General chambers. According to the government release this former RCIPS officer of thirty three years’ service rocketed to the Director position in 2005 appointed by the Attorney-General. In addition to his substantial FRU salary he would likely receive a police pension while many qualified persons have neither. In taking the position he replaced a retired Commissioner of Police but it was unclear if the position was advertised. So long as there is a pretence of performance the Caymanian public must pretend we have accountable leadership until 2017.

    • Woof woof says:

      why is it that on the rear eve of a CATF review that the public at large being told that there are some serious gaps in the country’s AML governance process. What have the people who who are responsible for ensuring compliance been doing since the last reviews. How come all of a sudden there is a rush to have the proverbial committees established to review the situation. Where has the supposedly robust governance process touted by the politicos gone why are t there continued reviews of all sectors on an ongoing basis, why haven’t the necessary laws been updated before now.

      It is evident that we have a serious crisis on our hands with all decks now on hand trying to remedy or as they say mitigate the risks, however, the cat is out of the bag and the highly likely reputation all fall out from this lack of governance process will no doubt be used against this jurisdiction by those who are hell bent on showing that we are still a pirate shaven in more ways than one. This is a serious indictment on all the pertinent Government agencies and ministries and shows the need for a whole sale house cleaning.

  3. Uncle Sam and Aunty Ewwww says:

    Death by a thousand cuts…….

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