Cayman’s AML ‘most rigorous’ in world says AG

| 22/10/2010

(CNS): With the recent strengthening of financial crime legislation with Proceeds of Crime Law, as well as the introduction of the Anti-Corruption Law, the attorney general has said the Cayman government is continually reinforcing its commitment to fighting financial crime. Samuel Bulgin described Cayman’s anti-money laundering and combating financial terrorism (AML/CFT) regime as “one of the most rigorous in the world” during a presentation at last week’s Global Compliance Solutions Annual Conference at the Grand Cayman Marriott. The AG pointed out that compliance and solid regulation was a vital part of the country’s financial success.

Explaining how the Cayman Islands’ AML/CFT enforcement regime operates through a partnership of institutions and authorities, including the Cayman Islands Monetary Authority, the Financial Reporting Authority (a member of the Egmont Group), the Financial Crime Unit of the Royal Cayman Islands Police, the MLAT Central Authority, Customs and the Attorney General’s Chambers, he said the network had been built, brick by brick, over time to not only ensure compliance with international standards, but effective enforcement.

“The Cayman Islands Government recognises the compliance industry’s vital role in supporting our jurisdiction’s AML/CFT regimes through the application of statutory requirements for fitness and probity to a full range of financial services sector participants covered by the regulatory regime,” Bulgin told the conference audience. “This includes adherence to the Money Laundering Regulations under the Proceeds of Crime Law which impose comprehensive statutory AML/CFT obligations on relevant financial business in relation to customer due diligence measures, recordkeeping, systems of internal control and suspicious activity reporting; and training.”

He said the broad coverage was unique to Cayman’s approach as it encompassed sectors not commonly regulated in many jurisdictions, such as trust service providers, fund administration, company service providers and money transmitters. The AG said he believed the comprehensive approach had contributed to the financial services sector’s ability to continue to evolve with the changing global markets.

“The presence – rather than the absence – of a strong legal and regulatory framework is a key driver of commercial success,” Bulgin stated. “In a number of respects, the anti-money laundering regime in the Cayman Islands has outpaced international standards….in the breadth of activity coverage; in the undertaking of retrospective due diligence on all clients existing prior to the implementation in 2000 of upgraded AML legislation; the breadth of the statutory obligation to report suspicious activity under the AML legislation; and the immobilization of bearer shares.”

However, he revealed that since 2003, there have only been five successful prosecutions for money laundering in the Cayman Islands, the last almost four years ago in December 2006. He said charges in the five cases had ranged from advance fee fraud, theft, frauds and conspiracy to defraud. Prison sentences ranged from 12 months to 5 years and fines levied ranged from $6,000 to $1 million. Forfeiture amounts have ranged from CI$143,000 to US$500,000 against two of the defendants. (It is not clear why the recent prosecution of Robert Girvan was not cited by the AG during his address.)

“These types of results are achieved through continuous investment and reinforcement in the legal and regulatory frameworks which seek to deter and ultimately prevent financial crime,” the AG added. “In fact, with the most recent consolidation and strengthening of financial crime legislation into the far-reaching Proceeds of Crime Law, as well as the introduction of the Anti-Corruption Law, Cayman’s AML/CFT regime is one of the most rigorous in the world.”

The Anti-Corruption Law which took effect on 1 January is the latest piece of legislation dealing with prevention of corruption, criminalization of bribery and international cooperation. It forms the basis on which the UN Convention on Corruption can be extended by the UK and ensures Cayman can implement the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The AG also pointed to the evaluations by the Caribbean Financial Action Task Force, which he said validated the strength and stability of the Cayman Islands AML/CFT regimes.

“We are working towards preparations for a fourth-round CFTAF evaluation expected in 2012. These evaluations also provide a useful third-party ‘health-check,’ as constant vigilance and regular review of enforcement measures is required to combat the increasing complexity of financial crime,” Bulgin said.

As incoming Chair of CFTAF, the Cayman Islands is tasked with carrying forward the work programme for the organisation over the next year and ensuring that members adhere to strict anti-money laundering standards.

“The Cayman Islands government will be continuing to make the necessary investments and improvements to our AML/CFT regimes for the future. This is particularly important as international standards are under the microscope in the context of ‘lessons learned’ from the global financial crisis,” the country’s top attorney told the conference as he closed up his presentation.

“As a jurisdiction, we believe that the strength and stability of the Cayman Islands through a period of significant upheaval in the financial markets, coupled with the best-in-class regimes we have built and which have been tested both by standard setters and in practice place, make us uniquely qualified to take an active role in helping shape future standards,” he said adding that Cayman looked forward to providing the compliance community with continued updates on the progress.

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  1. Need to Know says:

    For Tim, Chris and the rest of the experts one question:

    Can the Directors/Members of a local Ordinary Resident Company be arrested and charged and taken to court in the Cayman Islands?

    IF that is so, what’s the purpose of having a company. why not just a T*B License in the name of the owner if you can be held responsible as an individual as well?

    Thanks, and look forward to hearing from you.

    • Anonymous says:

      The benefit of the separate legal personality of a company is to limit the civil liability of its shareholders. Clearly, criminal liability is another matter. The necessary intention to commit a criminal act must have been formed by an individual and the acts must have been committed by and individual. Companies cannot think and cannot act except by individuals. If there is a criminal conspiracy which involves directors and shareholders then all of them are liable to criminally charged. It would make a mockery of justice if one could not be criminally charged simply because your business was incorporated. I think you will find this in any common law jurisdiction, not just in Cayman.         

  2. Flo says:

    What kind of standards, exactly is everyone looking for?  Cayman has a robust anti-money laundering legislationthat has ranked supreme under examination by all of the governing bodies – we stand well into the top-10 jurisdictions in the world in this area.   Retroactive due diligence was carried out on every Cayman client at a significant cost to the industry, despite the fact that the US and the UK ultimately refused to take part in a similar exercise – but who ever said that international standards are international? 

    The negativity expressed by some of those below is undoubtedly done for self-righteous horn-blowing and quite honestly it is tiresome.  Cayman has continued to evolve and improve its AML legislation and processes.  It has done supremely better and made bigger efforts than many of the OCED jurisdictions- for example, the United States.  Memories are often (conveniently) short, but let us be reminded that the Madoff fraud was perpetuated in the US and could not have happened in Cayman due to our requirements for independent audits.  Madoff, for those of you who have conveniently forgetten, masterminded one of, if not the, biggest frauds in US history. 

    Google Professor Jason Sharman’s report to find his report on an experiment he conducted just last year where he attempted 45 times to open anonymous accounts with $10,000 cash.  He was not successful in his endeavour in Cayman.  He was successful 17 times – 13 of the 17 times were OECD countries.  He was successful 7 times in the US, 4 times in the US, 1 time in Spain and 1 time in Canada.  In Wyoming, the pleasnt service provider offered up his colleague’s social security number to act as the ‘requisite’ identification.  Now isn’t that customer service!

    It would really be a refreshing break if all of the blowhards who maliciously criticise Cayman on this site could possibly tansform themselves and provide a balanced, intelligent viewpoint or, doubting the feasibility in that, just keep quiet.  Nobody likes a school-yard bully.


    • O'Really says:

      "Memories are often (conveniently) short, but let us be reminded that the Madoff fraud was perpetuated in the US and could not have happened in Cayman due to our requirements for independent audits."

      I seem to remember that the Grand Island Commodity Funds were audited here. What about BCCI? First Cayman Bank? How did those audits turn out? Apparently memory is both short term and selective. Audits are after the fact events, they will not prevent fraud and in most cases do not detect it. Your reliance on such a flawed process is touching but naive. 


      • Chris Johnson says:

        These entities licenced by CIMA are a mere fraction where auditors have been found wanting, starting with Interbank in 1973. In the case of First Cayman bank the auditors, Coopers and Lybrand, were fired for raising matters in the audit report and subsequent management letter sent to the board. I personally raised this matter with the authorities but was shown the door. More astonishing is that another big 4 audit firm took on the position of auditor without even consulting Coopers and Lybrand.The audit was never completed as the bank folded.

        I have no doubt that political pressure was put on to keep the bank’s doors open and this should never be allowed to happen again.

        Audits do not guarantee to find fraud butthey frequently do. In the three cases mentioned and Interbank I can guarantee that had the audits been properly performed the frauds would have been discovered. We should not however keep blaming the auditors for in each case the directors were reckless and turned a blind eye. As I keep repeating we must have proper regulation and laws in place in order to reign in the cowboys.

        Compliance is one thing but a lack of transparency and meaningful laws is another thing.

        • O'Really says:

          I can’t quite tell from your post if you are disputing my assertions or agreeing with them, but one thing is clear, we both agree that an audit won’t prevent a fraud. Unfortunately the regulatory and monitoring structures in Cayman have incorporated the audit function into them as a low cost alternative for government ( if not the company owners )  to avoid the costs of  staffing, training and directing the agencies tasked with the function of policing financial services. Tone is set at the top and successive governments have shown by their actions, rather than their flowery words, that real regulation with teeth is not on their agenda. The AG’s presentation as reported on CNS is long on jargon and short on substance; in other words, more business as usual.

          By the way Chris, it’s Coopers & Lybrand; that ampersand used to be important to you as I recall!

          • Flo says:

            I should also note that in order for Cayman to remain a successful jurisdiction, we do have to strike the right balance between being open for business and efficient regulation.  What you describe would make investing through Cayman so bloody hard no one would even bother.  The laws here have been structured so as to prevent the vast majority of fraud without unduly punishing the good guys.


            • O'Really says:

              "What you describe would make investing through Cayman so bloody hard no one would even bother."

              As with your first response to me above on this thread, you seem to have a comprehension problem. My post does not touch in any way on alternative regulatory options, so exactly how do you reach the conclusion I have quoted in this post?

          • Chris Johnson says:

            I agree with much of what you have to say but bear in mind that 80% of audit work of funds is done overseas. This is where most of the problems lie when it comes to poor work. However local firms bear the brunt of the litigation because they have to sign off in accordance with CIMA regulations. Maybe this is not beneficial to the local firms when looking at overall litigation exposure. Of course the Grand Cayman Commodity Funds were in a different category beacause the directors, investment advisors, lawyers and auditors were all well known individuals and firms who should have known better. These were meant to be red carpet funds but sadly all has been swept under the carpet over the pasttwo years and more. Perhaps we will be enlighted somewhat in the court hearing this week.

            • O'Really says:

              Judging by the size of the re-issue departments the big 4 firms have now, probably more than 80% of fund audits are performed overseas. Anyone who understands this process also understands that very little, if any, value is added to the audit process by local sign off. It generates substantial fee income locally and creates jobs but should fool no-one into thinking it is an effective oversight.

              Your point about the Grand Cayman Commodity Funds is of course spot on and they are a perfect example of just how little progress Cayman has made in tackling service providers who abjectly fail to fulfill their professional duties whilst drawing significant fees.  


            • Betty says:

              Here the interesting question is what did CIMA do during last 2 years when it comes to Grand Islands Funds.  Did they raise red flags during their regulatory review? In Cayman laws and regulation do not matter and what matters is who knows who and who you play golf with.  It is a sad state of affairs.  I was laughing when Don Seymore was praising CIMA as to how they manage Motor & General issue.  What a joke !

      • Flo says:

        If I am to read your post correctly, you believe that any regulatory structure must be set up to ensure that no fraud is committed, ever.  I am not sure who is the naive one here, but I don’t think it is me.

        Fraud will be perpetrated – unfortunately, we are not going to achieve a system that catches all criminals and fraudsters or indeed prevents them from conducting their crimes. 

        What I am saying is that the regulatory structure in Cayman is well-established and is more advanced than that of most other countries in the world, yet we still sport a black eyes from criticisms such as yours that are unbalanced against Cayman.  You have named three cases – two of them quite old indeed.  There are some 9700 hedge funds here and how many tens of thousands of companies and other vehicles?  I think that if you work out the maths, this lookslike some fairly good averages.  I thank you for assisting me in proving my point that there is a solid regulatory infrastructure here and a willingness to continue to evolve and better it in support of international requirements.  Cayman has continued to be a successful jurisidiction because it is a place where companies and institutions can place trust in the infrastructure, not because this is the sanctuary for fraudsters.



        • O'Really says:

          Your initial post stated that the Madoff fraud could not have happened here, because of the requirement for an independent audit. I simply pointed out how naive this statement is. In fact, you now acknowledge this because you have acknowledged that no regulatory system can eliminate fraud, even one with an independent audit requirement. 

          Further down this thread there is a post by Tim Ridley which I will not bother to repeat  here, but with which I whole heartedly agree. The second paragraph in particular is important because it deals indirectly with the failure of successive governments to adequately staff the various agencies responsible for oversight. Given the importance of the financial service industry to Cayman’s economy and the huge amount of revenue it generates for government, is there any excuse for this? As I said elsewhere, tone is set at the top, predominantly by action or lack thereof and the tone of the government, if not the service providers themselves, still leaves much to be desired.

  3. noname says:

     Well with big Mac away (and being very quiet) ,  we can always really on somebody else coming out with dumb comments to make Cayman look like  a joke. Such a qualified person should have more sense. 

    We would be better regarded if we actually enforced the laws that are in place. Sadly this is not the case and cowboy directors get away with fleecing their clients.


  4. reality check says:

    Yes AML, do you people actually no what AML is.

    Have you tried to open a Cayman bank account. Try it Mr archant, then open an account in the UK, or even an account in Delaware and compare the documentation you need.

    And let us not even mention the fact that the UK refused to nake AML check retrospectively like Cayman did

    The real point Cayman falls down on isif they recognise tax evasion as the proceeds of crime?

    • John Evans says:

      Comments which suggest that the writer hasn’t recently tried (as I have) to open a bank account in the UK.

      Sadly the rigmarole surrounding accounts handling relatively small amounts of money in Cayman is just window dressing.

      Based on a lot of work we did at Net News I am forced to conclude that the old adage of, "money talks,"  still applies to the Cayman financial system.

      While an individual may (in theory!) have to jump through hoops to open an account to handle their salary, any individual or organisation with plenty of money, plus a good lawyer, can open the doors and suddenly channel millions of dollars through the islands pretty much without regulation.

      True, the days when people stepped off a flight carrying a suitcase stuffed with cash and were nearly killed in the rush as the banks competed for their business may be over but that’s only because there are now easier ways to do it.

      • Anonymous says:

        Well, come Monday morning I am marching down to the bank and asking what is the requirements for me to put my 6 million dollars into their bank.  I will tell you their reply on Monday night.

        As for the US and UK, maybe I’ll give them a call as well so I can find out what they want too.

      • Caymanite says:

        Well, if it was reported in the Net News it must be the truth!  Such a profound group of investigative journalists never before shadowed a more hallowed door. 

        Your claims of truth do not come with a huge dob of credibility.  Try again.


    • O'Really says:

      Normally I am not too picky about spelling here on CNS; I am capable of tpyos myself!

      But am I expected to believe that anyone who spells know "no" actually understands the topic of AML legislation and enforcement? Sorry, don’t buy it.  

      • Rabble Rouser says:

        Confusing retrospective and retroactive would have been your second clue.

        • B L Seebub says:

          Not sure that retrospective and retroactive would have any difference in sense when used in the context of legislation.

          • Rabble Rouser says:

            I’m no expert in the Queen’s english, and I just finished a bottle of wine by myself so I’m a poor one to ask, but in my drunken stupor there is a little voice in my head that says "retrospective" would take past events into consideration when drafting current legislation, and "retroactive" legislation would make past events subject to current legislation. Therefore laws that are retroactive means you could be found guilty for something that was not a crime at the time when you did it, whereas retrospective legislation does no such thing.

  5. Tim Ridley says:

    Cayman is making progress, but could and must do a lot better on prompt and effective enforcement of the laws and regulations it already has. And simply loading up with new ones will not cut it in the challenging world of "effective implementation" reviews by international standard setters that are now the fashion.

    Lack of resources is a big part of the problem in the relevant parts of the RCIPS, CIMA and other agencies. And the Anti Corruption Commission is another good example of this point. It came into existence on 1st January 2010. And has a broad and powerful mandate to deal with both local and overseas corruption. Where are its offices and staff? And has anyone actually seen or heard anything of it in action?



  6. Anonymous says:

    I wonder which world he is referring to. Certainly not the one we all know.

  7. Rorschach says:

    Yeah, Right..and the Emporer a’int naked either….

  8. Re. "Cayman’s AML ‘most rigorous’ in world says AG".

    Does anyone locally actually believe this nonsense?

    As with Bermuda, Cayman needs to spend less time claiming how nice and shiny its legislation is and more taking it for a test drive.

    • Chris Johnson says:

      Thank you David. Cayman’s legislation regarding  offshore products is not only out of date but seriously flawed. Segments of our Companies Law go back to 1862 and we are way behind our competitors in terms of modern day legislation. Our Premier appointed a law revision committee over a year ago, headed by Charles Jennings, formerly of Maoles and Calder, and what have we heard? Not a peep.

      One gaping hole in our laws is that cowboy directors who collect directorships like stamps at $10,000 -$25,000 a pop can still get away with their negligence with indemnities issued by the company appointing them. This practice was outlawed in England decades ago and indeed in many other countries. It must be outlawed here if Cayman is to be viewed as a serious financial centre. Moreover it is high time that our Government introduced a Directors Disquailification Act to further inhibit the bad practices of many directors who ride roughshod over creditors and investors alike.Looking at some of the US court decisions regarding various Cayman directors is seriously embarrassing for the country. Enough of sweeping the subject under the table!

      • Rolf says:

        Chris, it is interesting that previous PPM Government appointed a former senior partner from Maoles and Calder as the Chairman of Cayman Islands Monetary Authority.  This gent mentioned at a recent seminar that while he was the Chairman of the CIMA they knew sub prime mortgage crisis coming and instructed to the CIMA management to dispose all its investments in mortgage back securities and hence they avoided heavy investment losses.  Question is why they did not tell the institutions/banks under its control to do the same.

        • Peddle it elsewhere says:

           Rolf, you aren’t making any sense.  CIMA investing in mortgage backed securities?  CIMA???

        • Anonymous says:

          A. Because it is not the job of the regulator make investment decisions for licensees.

          Were any of its licensees seriously damaged by the sub-prime crisis? As I understand it, it was Bank of Butterfield’s Bermuda operation that took a hit on this.     

    • Gordon Barlow says:

      Spot on, David. To answer your question: nobody with any knowledge of the Offshore-finance world actually believes this nonsense. I don’t really know who these assurances are aimed at.

    • Anonymous says:

      Mr. Marchant,

      It is not nonsense. It is common knowledge that one can far more easily open a bank account in the U.S. or the UK than in Cayman. In North Carolina, one of my colleagues was told that he did not even require his passport. But don’t take my word for it, read this report where someone did take it for a test drive: