After the Caribbean Financial Action Task Force released its scathing report in March on the shortcomings in Cayman’s anti-money laundering and counter-terrorist financing regimes, government officials promised a “comprehensive action plan” to address the shortcomings and avoid having the territory placed on a CFATF grey list.
Some of the changes entail tweaking Cayman’s rules to have more information on the companies that do business here, and to more easily process that information.
For example, last November legislators amended the Proceeds of Crime Law to give more independence and autonomy to the Financial Reporting Authority, removing the requirement for it to get consent from the attorney general before fulfilling international information requests. Attorney General Samuel Bulgin explained at the time that the amendment was required by the Financial Action Task Force, which wanted Cayman to provide more autonomy to its Financial Reporting Authority.
But most of the changes will require more law enforcement focus on high-profile money laundering cases, more law enforcement officers and other government officials, and more training for those officers.
This will require millions of dollars in extra spending.
Estimates have not been publicly made about how much CFATF-mandated reforms will cost the private sector, but the figure may stretch into the millions. For example, the territory has more than 10,000 registered funds, and all funds must now have anti-money laundering officers.
The CFATF reforms will also cost the public sector millions of dollars. During Finance Committee proceedings in April, Premier Alden McLaughlin said his administration is prepared to spend “many of millions of dollars” to make sure Cayman can comply with international anti-money laundering standards.
“We have gotten quite an unfavourable report from the CFATF, so we are working across the full range of entities and agencies that are required to have those systems in place to improve them,” McLaughlin explained during the proceedings. “We have been placed in an observation period, have one year to get our systems up to satisfactory standard. If we don’t, we will be moved from observation status to a grey list – and then it gets worse from that.”
The premier proposed spending increases in multiple government departments at the Finance Committee hearings to bolster their anti-money laundering regimes. He asked legislators to approve about $4.7 million in extra spending, including $610,000 of extra spending for the Border Control Services, $3 million for the Cayman Islands Monetary Authority, $266,000 for the Department of Commerce and Investment, $228,000 for advice to the Attorney General’s Office and Cabinet, $374,000 for financial intelligence services, and $189,000 for law enforcement agencies.
When a legislator asked him about the first proposed appropriation of $610,000 for the Border Control Services, McLaughlin said the money would be largely spent towards hiring extra compliance officers and training for them. He added that he would be making many more requests for extra funding for anti-money laundering controls throughout that day’s Finance Committee hearings.
“Throughout the [supplemental appropriations] paper, we will see some significant increases for many of the entities that have any interface at all with the anti-money laundering CFT issues,” he said. “The government is committed to spending many millions of dollars, quite frankly, to bolster that regime and the vast majority of this allocation is relating to that.”
McLaughlin did not go into detail about the other appropriations, but the supplemental appropriation report contains notes about what each appropriation will be used for.
The $266,000 supplemental appropriation for the Department of Commerce and Investment is earmarked to “implement recommendations included in the AML/CFT plan.” This likely includes money to fund the department’s supervision of non-financial businesses such as real estate companies and jewellery stores. These types of businesses never had a government agency to report anti-money laundering information to until March 2017, when the Department of Commerce and Investment was made their regulator.
Now that the department is regulating designated non-financial businesses for the purposes of anti-money laundering, the department has to send officers on regular inspections to check whether those businesses have proper prevention measures in place.
The department also had to draft a handbook and hold regular workshops for businesses to comply with the territory’s regulations.
The $3 million appropriation for CIMA will likely be used, at least in part, to hire more regulators. The supplemental appropriation report only states the money will be used “to support the cost of additional requirements” for anti-money laundering regulation, but McLaughlin has mentioned the need for additional CIMA officers to help make Cayman compliant with the CFATF standards.
The supplemental appropriation report has more details about the $228,000 appropriation for the Attorney General’s Office and Cabinet and the $374,000 appropriation for financial intelligence services.
According to the report, the $228,000 will go towards “policy advice to the Attorney General [to] oversee and coordinate the development of integrated policies and their implementation through the Anti-Money Laundering Steering Group).” This includes drafting guidance for Cayman to respond to international anti-money laundering developments, and preparing initial drafts of Cabinet papers and notes for the attorney general’s review on such matters.
The $374,000 for financial intelligence services will, in part, provide more resources for the Financial Reporting Authority to deal with a growing backlog of suspicious activity reports. Financial Reporting Authority Director Robert Berry told the Public Accounts Committee in February that his department received 938 suspicious activity reports last year – about a 50-percent increase over the 601 reports it received in 2016/17, which itself was a near record.
Berry told the Public Accounts Committee that he needs additional resources to deal with the growing backlog.
“We’ve recently undertaken assessment of our resource needs, including both human and physical capital – IT infrastructure – and concluded we don’t have the necessary resources to meet mandate in terms of timeliness,” he said at the time. “We’ve prepared a paper for the chief officer and AG to seek supplemental funding this year for additional staff.”
The $189,000 for law enforcement is earmarked for the “provision of prosecution services relating to criminal matters, International Legal Cooperation Activities, and “Justice Protection Law Activities.”
Pursuing more prosecutions for high-profile money laundering cases was one of the primary standards the CFATF wants Cayman to follow.
Although money laundering offences are investigated and prosecuted, this involved almost exclusively minor domestic predicate offences. Given the shortcomings of national risk assessment, the CFATF report noted, this “may not be fully commensurate with [Cayman’s] risk profile.”