Proceeds law put to the test

(CNS): With the Proceeds of Crime Law 2008 taking effect for its first full year, the number of suspicious activity reports (SARs) has climbed steadily to 358 cases from 320 the year before, according to the recently released Financial Reporting Authority’s 2009/2010 annual report. Even so, this figure still seems to be miniscule for a country dubbed the fifth biggest financial centre in the world. Martin Livingstone, Partner with Maples and Calder and President of the Cayman Islands Compliance Association said that it is important to properly understand the type of business carried out in the Cayman Islands.

“There are two key reasons for this. In terms of banking, over 85% of the funds on deposit in Cayman are intra-bank placements, that means funds transferred to the Cayman branch or subsidiary by other bank group members. Such funds will have already been vetted for anti-money laundering purposes before coming to Cayman,” he said.

Other types of financial entities, such as investment funds and insurance vehicles, are mainly institutional and referred business, so investments have been sourced from or through other entities, most of which are themselves regulated in approved jurisdictions or listed on recognised stock exchanges.

Livingstone said that, again, such investments are by their nature lower in risk (and less prone to suspicion), as the funding has already been vetted before being invested.

Even though the number of SARs have been climbing steadily overall, the number of cases which have required no further immediate action have increased disproportionately (37% in 2008 – 2009, versus 52% in 2009 – 2010). The PCL now makes it an offence if someone is found negligent in reporting a crime, which could indicate the increased eagerness in reporting any suspicion.

Anthony Travers, Chairman of Cayman Finance, said that the making of a suspicious activity report should not be construed as an indication of money laundering or criminal activity. “It may simply mean that the reporter is unable to undertake the necessary due diligence. In some circumstances it may be impossible to do so to the standard required by the law,” he commented.

Livingstone did agree, however, that this increase could have something to do with the fact that an objective test for reporting suspicion has been introduced. He added: “It also could be because the elements of the conduct suggest to the reporter that some form of crime may have occurred (e.g. fraud), but the law enforcement agencies have not come to the same view. It may also relate to repeat reports on the same activity; e.g. Nigerian e-mail scams.”

One area in particular that has seen a considerable increase is the number of SARs filed by money transmitters, which hastripled from the 2008/2009 figure of 8 to 24 for 2009/2010. Livingstone thinks this is an important indicator that the PCL is effectively doing its job.

He stated: “I would view the increase in money transmitter reports as an indication that the law works. It should be remembered that the Proceeds of Crime Law is the main cog in our AML regime to prevent and detect money laundering, not to prevent and detect the predicate or underlying crime; e.g. the theft or drug dealing. There are other specific laws, including the Penal Code to combat that. This data tells me that money transmitters are now more conscious of their obligations under the AML regime.”

Former Cayman Islands Monetary Authority Chairman, Tim Ridley felt that the new PCL is achieving its purpose: “I think the reporting regime is necessary in order for Cayman to meet international standards and commitments. It pretty well follows the UK system so it is here to stay,” he said.

Livingstone agreed, and said: “Cayman has adopted the international standard for reporting obligations under our Proceeds of Crime Law. The law now forces us to think carefully about our actions, learn more about our clients and their business and work to protect the reputation of our own businesses and the Cayman Islands as a leading financial services jurisdiction.”