The idea that people in the Cayman Islands could attempt to finance terrorist organizations may seem strange to some, but the risk is very real.
Just ask Paul Inniss, a former officer in the police service’s Financial Crimes Unit and the current head of compliance for the General Registry.
When Inniss was still with the Royal Cayman Islands Police Service, a group of workers came here from a jurisdiction they said didn’t have a developed banking sector, he said. As such, the workers asked their employer to pay all of their salaries into one bank account, which would then be disbursed to their families back home.
However, it was soon discovered that the money instead was being funnelled to the Turkey- and Iraq-based terrorist group, the Kurdistan Workers’ Party, known as the PKK.
“The issue is that the intelligence coming from the homeland said the money wasn’t really going to the families, it was going to an organization called the PKK,” said Inniss. “This is real, this isn’t made up. It’s something I investigated.”
To curtail this kind of activity, government this year passed the Non-Profit Organisations Bill, which requires the territory’s nonprofit organizations to register and submit their financial information to the General Registry. While the incident described above did not entail NPOs being used for terrorist financing, such entities are susceptible to being used for just that, according to Inniss.
Moreover, he said, he has seen Cayman NPOs used for all types of other nefarious activities.
“I’ve seen it all,” he said. “I’ve seen the unfortunate abuse and misuse of the NPO sector – sporting organizations, churches, sporting groups, you name it.”
Indeed, a 2015 national assessment on money laundering risks identified the regulation of charities as a significant vulnerability for Cayman.
That assessment was carried out to prepare the territory for an inspection later this year by the Caribbean Financial Action Task Force, an intergovernmental body that develops and promotes policies to combat money laundering and terrorist financing.
The new NPO legislation will help Cayman prepare for this inspection by establishing tighter regulations for Cayman-based nonprofits, which are defined in the bill as any entity that receives donations to be used for the public benefit.
The information NPOs have to submit to the registry includes their directors, controllers, owners and financial information. The extent of the financial information that has to be submitted depends on the size of the entity – smaller organizations may be able to submit just a bank statement, while larger ones may have to provide more detailed financial statements.
Nonprofits that take in more than $250,000 and send at least 30 percent of that overseas also must have their financial statements reviewed by an accountant and report the results to government. (“If it were me, it would be every percent [because] it is the small transactions that are the most dangerous because of lone wolfs,” Inniss said of this provision.)
All entities will be subject to investigations by the attorney general or general registrar if suspected of wrongdoing.
However, the law gives Cabinet the discretion to exempt NPOs from being subject to the new rules. This was a concern brought up while the bill was being considered by lawmakers last year.
“[The bill] gives Cabinet the authority to override the regulatory body that’s created within law,” opposition legislator Alva Suckoo said last October, adding that such a provision “is going to make us a laughingstock.”
Speaking on this concern at a seminar last month on the new law, Ministry of Financial Services and Home Affairs Policy Officer Wilbur Welcome said the exemption power is intended to be used only in “extreme situations,” such as when an outside NPO is coming here to assist in a disaster.
“When the bill was discussed, this provision was discussed in length,” he said last month.
Other exempted entities include government bodies that are overseen by a financial regulator such as the Cayman Islands Monetary Authority, as well as trusts that are registered under the Banks and Trust Companies Law.
The exemption does not extend to churches and schools, though.
When asked why schools regulated by the Department of Education Services and churches registered under the Churches Incorporation Law have to go through that added step, Welcome explained that the NPO legislation is primarily concerned with preventing terrorist financing – something that’s not on the radar of the other regulators.
“The education department isn’t concerned with terrorist-financing measures,” he said. “They’re concerned with your teachers, what your curriculum looks like – they have no concern if the school has raised $10 million and sent $5 million to Syria to an organization they never heard of to start a school, and that school turned out not to be a school, but to fund ISIS.”
While the new legislation imposes new requirements that some entities may find onerous, Welcome said it also should make it easier for many NPOs to operate in the territory.
For instance, NPOs registered as limited companies will no longer be subject to a $500 fee each time they change an officer, as is required by the Companies Law. Instead, they will be subject to a fee of $25 under the NPO Law, said Welcome.
Entities that were previously required to undergo financial audits will now be able to undergo a financial review by a “duly qualified accountant” instead, he said.
Inniss added that being registered may make it easier for NPOs to open accounts with banks, which have put such entities under especially intense scrutiny in recent years.
Perhaps the most important aspect of the new legislation, Inniss said, is that it will be an added protection against Cayman-registered NPOs being used for the financing of terrorism, which would cripple the territory’s reputation.
Government held a series of seminars last month to inform NPOs of their obligations under the new law. Those entities will now have to register by July 31, 2018, after which they will be subject to fines.
“We’re expecting the good NPOs will report the bad ones,” said Welcome.