Implications for financial institutions

In January 2010, the Anti-Corruption Law, 2008 comes into force. The Law will establish for the first time in the Cayman Islands an Anti-Corruption Commission. Ben Tonner is a barrister and attorney specialising in AML, corruption and criminal litigation with Samson & McGrath and he reports on this crucial new development.

The Commission, which will consist of the Commissioner of Police, the Complaints Commissioner, the Auditor General and two others (being either retired judges, policemen, JPs, magistrates or lawyers) will review and investigate corruption related complaints and reports for referral to the Attorney General’s Department for prosecution. In the wake of the highly publicised Metropolitan Police corruption probe dubbed Operation Tempura, the establishment of an effective, domestic anti-corruption regime is arguably long overdue. Nevertheless, the Law is not being introduced in response to the now infamous Scotland Yard investigation (which, on the most recent financial analysis, has cost the Islands close to $8 million); instead it will give effect to both the Organisation for Economic Cooperation and Development and UN Conventions on combating bribery in international business transactions.

As such, the Law is not limited in scope to police officers, politicians and public officials. On the contrary, those legal entities most likely to be affected by the Law, certainly on a day-to-day basis, are our financial institutions and their employees; the entities that handle the proceeds of corrupt acts.

Therefore, the ACL must be added to the long list of regulatory obligations to which our banks and businesses are subject. Adding to the raft of AML and CTF compliance and regulatory laws already in place, the ACL imposes further, onerous obligations on our financial institutions.

Of immediate relevance to the business sector is that the Commission will have the power to freeze bank account activity for 21 days (section 4(2) of the Law) if it has reasonable cause to believe that the ‘request’ relates to the proceeds, or suspected proceeds, of a corruption offence. By way of example, if a public officer or member of the Legislative Assembly receives a financial benefit in exchange for the improper exercise of his political influence and that money is subsequently deposited in your bank, you may be receiving an unexpected communication from the Commission. The Commission may also require the production, in writing, of information to assist its investigation, and has the power to disclose any information received to the Cayman Islands Monetary Authority or the Attorney General as appropriate.

Failure to comply with such orders and requests (without reasonable excuse) carries a summary penalty of up to two years imprisonment and a maximum fine of $50,000. Not only will institutions need well documented policies and procedures in place from 31st December, 2010, in order to respond efficiently to requests, but they will also need to know how and when to challenge an order by application to the Grand Court and/or by exercising professional privilege.

Even more draconian consequences follow if your business gives the Commission incorrect information. Section 25 (1) of the Law states that where any person makes a statement, which to his knowledge is not consistent with a statement previously made to the Commission (or any other law enforcement agency), he commits an offence and is liable to a fine of $10,000 or imprisonment for three years. Only time will tell how this section is interpreted by the Crown, but it appears that once a person has given an account to the Commission, any deviation from that account is potentially an arrestable offence.

On the basis that multiple requests for information are going to be made of your organisation from January 2010, an institution would be well advised to prepare itself and its staff without delay.

Importantly, since the Law is designed to give effect to the OECD requirements, it logically follows (as it does in the case of the Proceeds of Crime Law 2008 and the Money Laundering Regulations), that in order to show that the legislation has teeth, the State needs to be seen to prosecute individuals and companies. The very absence of prosecutions would signal not that the Cayman Islands is a corruption free zone, but instead that our legislation is ineffective and that corruption is going undetected and unpunished.

If there were any doubt that such a policy will in fact be implemented by the AG’s Department, reference should be made to the clear warnings delivered by a senior crown prosecutor during his recent presentation at the 5th Annual Global Compliance Solutions Conference at the Marriott, Grand Cayman in October. Said prosecutor took the opportunity to stress the international pressure being exerted on the Cayman Islands not just to comply with its international obligations, but to be seen to comply. There is no more dramatic an illustration of compliance than high profile prosecutions of institutions and their employees. The clear message is that the Attorney General’s Department is allowing you and you business until January 2010 to get a head start; from that date forward, its enforcement agencies are coming whether you are ready or not.



Ben Tonner