Money laundering is the process by which the direct or indirect proceeds of criminal activity are channelled through financial institutions or other organisations in a way that is intended to conceal their true origin and ownership. If the money laundering is carried out successfully, the money or other assets concerned can lose their criminal identity and appear to be legitimate.
Following the tragic events of September 11, issues of money laundering, and, in particular, funds used to support terrorist activities, are again at the forefront of global attention. The rationale behind stopping the terrorist is the same as the rationale behind stopping any criminal: identify and cut off the money supply and, thereby, identify and isolate the criminal.
Over the past few years, the Cayman Islands has been at the forefront of anti-money laundering measures. In 1996, anti-money laundering legislation encompassing ‘all crimes' was introduced under the Proceeds of Criminal Conduct Law (“PCCL”). In 2000, a raft of legislation was passed, which included the money laundering regulations (MLRs) and further amendments to the PCCL. In summary, the offences under the PCCL are:
The term ‘criminal conduct' or ‘criminal activity' in this context means any conduct or activity, whether it takes place in the Cayman Islands or anywhere else, which would constitute an indictable offence if it took place or if it had taken place in the Cayman Islands.
The MLRs apply to financial service providers who are carrying on relevant financial business in the Cayman Islands, including insurance business and the business of an insurance manager, agent, sub-agent or broker and cover four principal areas. They require financial service providers to have formal systems in place that deal with client identification procedures, record keeping, training, and internal reporting procedures.
Failure by any financial service provider to have such systems in place leaves them exposed to criminal penalties under the MLRs. The Cayman Islands Monetary Authority has, in conjunction with various professional associations, issued guidance notes on the prevention and detection of money laundering in the Cayman Islands, which are designed to provide guidance to financial service providers on how to comply with the requirements of the MLRs.
One of the most significant amendments to the PCCL has been the mandatory requirement to report suspicious activity to the Reporting Authority. Failure to report activity which an individual or a company knows or suspects to be money laundering also carries with it severe criminal penalties. This is an important ingredient to any anti-money laundering policy, as it gives the financial service provider the incentive to adopt a proactive approach to the detection and reporting of suspicious activity.
The principles that underpin all of this legislation are not new. The practice of ‘know your client' has been in place for some time in the Cayman Islands, as it has in other jurisdictions. Similarly, the practice of reporting suspicious activity is well known to financial service providers here and elsewhere. The more recent legislation in the Cayman Islands has simply given a mandatory effect to these principles with stiff criminal penalties for failing to comply. Consequently, financial service providers in the Cayman Islands are well placed to adopt and incorporate into existing practices the full ambit of anti-money laundering regulation.
It is now almost universally accepted that the financial services industry has a key role to play in countering global criminal activity. While there is often a concern about excessive regulation, this concern is unlikely to materialise in relation to anti-money laundering regulation in the Cayman Islands. The legislation currently in place puts the Cayman Islands in the vanguard of the global fight against crime. Moreover, effective anti-money laundering legislation is an asset to any financial centre, as it invariably promotes confidence and security.
Cayman Islands insurance managers, in conjunction with legal advisors, are able to provide specific instruction to operators of captive insurers of the steps to be followed to ensure compliance.