Crime, international forces persist

Physically isolated by vast expanses of water, Cayman Islands residents can easily fall into thinking that they face a set of challenges specific to the territory.  

A four-person panel at the Anti-Money Laundering /Compliance & Financial Crime Conference served as a reminder that Cayman confronts obstacles that are common among Caribbean and offshore jurisdictions, including internal pressure from rising local crime and external pressure from regulations imposed by large nations. 

‘Street crime is on the increase’  

“The poor state of the economy is rendering many people unemployed. Street crime is on the increase and law enforcement is struggling with certain issues around gang violence,” said Charles Thresh, managing director, advisory, of KPMG Advisory Ltd. of Bermuda. 

“Bermudians have typically had a very high standard of living. For various reasons the expats, there’s been a bit of an exodus of expats from the island, so it affects the middle-class (if you can say that in Bermuda) because rental properties that were a mainstay of the GDP of Bermuda, the occupancy levels have gone down. Many people had borrowed on the back of a sort of rising tide of rentals and expats going into the country. Now that that tide has slightly turned, paying off mortgages have become more of an issue,” he said. 

An audience member remarked that, if not for Thresh’s references to Bermuda, he could have been talking about the situation in Cayman. 

Thresh said individuals’ micro-economic problems are in turn affecting the greater community, and leading in some cases to crimes such as drug dealing and money laundering. 

“People are looking for alternative sources of wealth, and there are going to be always a portion of society that is more susceptible to approaches for illegal activity,” he said. 

RJ Berry, head of compliance of the Cayman Islands Monetary Authority, said Thresh’s commentary would also apply to Cayman. “We’ve got issues going on in our country and in our communities that affect the quality of our life, and I think it would be remiss of us to think it doesn’t have a trickle-down effect,” he said. 

In addition to Thresh and RJ Berry, the panel at the conference held 13-14 October at Grand Cayman Marriott Beach Resort also included Tyrone Fitzgerald, who is general counsel of the Grand Bahama Port Authority, and Inspector Carl Berry of the Jamaica Constabulary Force.  

Fitzgerald said a source of concern in the Bahamas is the rise of cash-for-gold operations where people can sell precious metals, jewellery, etc. – some of which may have been stolen. He said local studies demonstrate “a direct link between those business operations and a surge in crime”. 

He also said that scrap metal is now being stolen regularly and sold to scrap metal dealers. “Persons are now looking for other ways to simply survive and make a living. There’s no excuse for it, but we have to address it from a societal perspective,” he said. 

Carl Berry said efforts are ongoing in Jamaica to streamline the judicial process, especially in complex cases such as financial crimes. “One of the challenges is the snail pace with which matters move through the court system from get-go to final take. We are working seriously on that,” he said. 

Links between low-level, financial crimes  

The worlds of street crimes and financial crimes are overlapping, speakers said. Proceeds from street crimes can become capital for financial crimes, and accordingly, proceeds of financial crimes can fund street crimes and even terrorist activities. 

“The economy itself generates a lot of side issues, or side effects if you like, which translate into the levels of street crime,” Thresh said, illustrating the point with an anecdote from Bermuda:

“We have four major banks, and they all face the issue of taking deposits and large bundles of cash, occasionally. I’ve spoken to one bank where they said, ‘Look we had suspicious activity reported in relation to a particular deposit.’ ‘Why did you think it was suspicious?’ ‘Well it didn’t breach the dollar limit we had set, but it did smell of marijuana.’” 

The same week as the AML/CFC Conference, by coincidence, a separate conference was held at the same Marriott featuring attorneys general from Britain and its overseas territories.

At the attorneys general conference, Solicitor General for England and Wales Edward Garnier, QC, told his audience that the UK and territories face growing crime on two fronts, financial crime and violent street crime. 

“We are, to coin a phrase, all in this together,” Garnier said.

“What touches you, touches us. Drugs, gangs, money laundering and terrorism are not issues peculiar to England any more than they are peculiar to the overseas territories.”  

Just as poor economic conditions can put pressure on lower-income people to commit street crimes, they also can put pressure on middle-and-higher income people to commit financial crimes, Thresh said. 

Carl Berry said a particular difficulty in prosecuting financial crimes is that the people committing those crimes often hold positions of power and prestige in society. 

Outside pressures  

While Caribbean jurisdictions and Bermuda each tackles crime fomented by economic conditions, together they are impacted by regulations imposed by large nations, particularly the US. 

Panellists said whatever the professed intentionality of measures such as the US Foreign Account Tax Compliance Act, the primary effect will be to disadvantage offshore financial institutions rather than to address crime. 

For example, Thresh cited US policies that would “effectively put a tax penalty on reinsurance premiums coming into Bermuda”, adversely impacting the territory’s reinsurance industry in favour of US reinsurance companies.

“In essence, you can argue there’s a trade war going on, and domestic reinsurance companies benefit on the cost of offshore reinsurance companies, so all of our international business is suffering,” he said. 

RJ Berry said the Caribbean and Bermuda have an image problem, which is exploited by foreign lawmakers when arguing for statutes to attempt to regulate offshore accounts.

“Jurisdictions want their money, and they have this thing that they’re losing all this money and it’s going offshore. Rather than fixing loopholes in their own tax codes, they come knocking on the doors of other jurisdictions to fix their problems,” he said. 

Warranted or not, offshore territories’ reputations should compel them to strive for transparency and compliance, for example by continuing to sign Tax Information Exchange Agreements. 

“Let me remind you that next year is an election year in the US. If you cast your mind back to 2008, we were told about the biggest tax scams being in a big building in Cayman, even though we know there’s a bigger building somewhere in Delaware that does exactly the same thing,” RJ Berry said.

“We’ve got to continually reassess where we are. Unfortunately we tend to be these reactive states rather than proactively strategising.” 

Thresh said additional regulations have the potential to harm the offshore financial industry, particularly for smaller firms trying to compete in the sphere. 

He said, “Banks don’t want to reach that tipping point where clients say they’re going somewhere else because it’s terribly difficult. It then becomes a business issue where your clients are getting hacked off with it.” 

“It’s manifestly true that smaller businesses cannot afford the cost of compliance, and I think it means that smaller boutiques as a genre of business are under threat in these areas that have a high degree of regulation attached to them,” Thresh said.

“The fact is people complain about our rates all the time. Part of the reason Big Four rates are very high compared to smaller firms is compliance, risk management, training, all of the structures we have internally, meaning it’s expensive to operate in the market where we operate. So the smaller firms do have my sympathy, but I don’t think there’s any way of changing where that is going.” 

RJ Berry added, “Hand on heart I would say that is true in Cayman.” 

The reality is the credo of the global financial sector is characterised by gamesmanship, not egalitarianism, Thresh said. 

“If you enter this industry thinking it’s fair, you’re going to be sadly disappointed. The onshore jurisdictions – particularly the States but other places that are onshore but have features of offshore like Luxembourg, Switzerland, what have you – they don’t mind us being disadvantaged, and so no matter how hard the Caribbean will work we will always be slightly on the back foot because we will be responding to some threat that may or may not be motivated by a desire to reduce crime,” he said.

“It may be motivated by a desire to compete against our jurisdictions.” 

Thresh said, “It’s not a fair game, but I think we do all right.” 

AML-CFC caribbean panel (1)

Tyrone Fitzgerald, Carl Berry, Charles Thresh, RJ Berry. – Photo: Patrick Brendel