Cayman Islands

Last updated: 28/12/2014
 


CENTRAL AUTHORITY FOR REPORTING


OTHER ANTI-MONEY LAUNDERING REGULATOR(S)

Cayman Islands Real Estate Brokers Association (CIREBA)   

ARE LAWYERS COVERED BY ANTI-MONEY LAUNDERING LEGISLATION?

Lawyers are covered by the Proceeds of Crime Law 2008 and Money Laundering Regulations 2013 to the extent that they are involved in ‘relevant financial business’, such as giving advice about financial undertakings, capital structure, industrial strategy or mergers and acquisitions. Lawyers are also subject to the provisions of the Terrorism Law, 2011.  

LIST THE LAWS REGARDING ANTI-MONEY LAUNDERING, INDICATING WHICH LAWS ARE APPLICABLE TO LAWYERS.

ARE VISITING LAWYERS SUBJECT TO LOCAL LAWS REGARDING ANTI-MONEY LAUNDERING, AND, IF SO, TO WHAT EXTENT?

Local anti-money laundering laws apply to all acts done within the Cayman Islands. Accordingly, anything done by a visiting lawyer whilst within the Islands is subject to local regulation.

LIST ANY MONEY LAUNDERING GUIDANCE FOR LAWYERS (FOR EXAMPLE, LAW SOCIETY OR BAR ASSOCIATION GUIDELINES) CURRENTLY IN PLACE.

The Guidance Notes on the Prevention and Detection of Money Laundering (  March 2010)(“the Guidance Notes”) issued by the Cayman Islands Monetary Authority in conjunction with local associations (including the Cayman Islands Law Society) provide guidance on best and expected practice. The Guidance Notes cover implementing the relevant legislation and the practicalities of doing so. The legal profession is covered only as it relates to relevant financial business services.

IS THE LAW SOCIETY/BAR ASSOCIATION INVOLVED IN SUPERVISING OR ENFORCING COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS?

The Cayman Islands Law Society and the Caymanian Bar Association do not supervise or enforce AML regulations.  However, under the voluntary code of conduct that is subscribed to by members of these organisations, attorneys are under a professional obligation to comply with relevant anti-Money Laundering laws and procedures. A serious failure to apply appropriate AML standards by an attorney may be subject to disciplinary action by the Chief Justice.

DESCRIBE CLIENT DUE DILIGENCE REQUIREMENTS, INCLUDING WHEN IT MUST BE UNDERTAKEN BY LAWYERS.

Client identification procedures must be in place to ensure that under the Money Laundering Regulations , evidence of a client’s identity is established as soon as practicable after a business relationship is formed involving the conduct of ‘relevant financial business’. As such, satisfactory evidence of the identity of the client must be obtained.

The Guidance Notes provide assistance with standardisation of individual, company and partnership requirements.

Where business is being conducted on behalf of others, client identification procedures need to be applied to the ultimate applicant for business. However, if the intermediary is acting in the course of business in relation to which an overseas regulator exercises a regulatory function and is based in an approved jurisdiction, an Eligible Introducer’s Certificate may be accepted in lieu of complete documentation. The certificate must state that copies of the due diligence material obtained by the intermediary are available on request.

Further, a number of exemptions are also permitted where the client is a regulated entity in an approved jurisdiction or listed on an approved market or exchange. The lists of approved markets, exchanges and jurisdictions are updated from time to time by the Cayman Islands Monetary Authority and can be found in the Guidance Notes Appendix H (Approved Markets and Exchanges) and in the Money Laundering Regulations .

DOES YOUR COUNTRY FOLLOW A RISK-BASED APPROACH TO CLIENT DUE DILIGENCE BY LAWYERS? 

Yes. In specific cases prescribed in the Anti-Money Laundering and Counter Financing of Terrorism laws enhanced or simplified due diligence requirements are permitted.

ARE THERE ENHANCED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, POLITICALLY EXPOSED PERSONS?

Pursuant to the Guidance Notes ,there are enhanced due diligence requirements for the below client types:

Politically Exposed Persons

In addition to ordinary due diligence the following procedures are required:

  • Have appropriate risk management systems to determine whether the customer is a PEP
  • Obtain senior management approval for establishing business relationships with PEPs
  • Take reasonable measures to establish the source of wealth and source of funds
  • Conduct enhanced ongoing monitoring of the business relationship 

High Risk Countries

All financial services providers including lawyers are expected to perform appropriate research through publicly available tools to enable them to know which countries are represent a high risk. The recommended sources within the guidance notes are the websites maintained by FATF, FinCEN, OFAC and Transparency International.

Enhanced due diligence must be performed on individuals and entities located in high –risk jurisdictions, with greater scrutiny of documentation is order to determine authenticity. In addition, checks and measures need to be implemented to ensure that the individual / entity is legitimate and reliable.

Not for Profit Associations / Charities

Not for profit associations and charities may pose a higher risk as they are considered susceptible to being used for money laundering / terrorism financing, or they may be providing funds to high risk countries.

The following documents and procedures are required for identification and verification purposes:

  • an explanation of the nature of the proposed entity’s purposes and operations;
  • the identity of at least two signatories and / or anyone who gives instructions on behalf of the entity to be obtained and verified;
  • if registered overseas, confirmation of the charity’s registered number by contacting the charity commission of the respective country and obtaining the name and address of the commission’s correspondent;
  • verification that the charity does not appear on any terrorist lists nor has any association with money laundering.

ARE THERE SIMPLIFIED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, LISTED COMPANIES?

Yes. The Money Laundering Regulations  state that no steps need to be taken to obtain evidence of a person’s identity in certain defined, situations, including where:

  • there are reasonable grounds for believing the applicant for business is a person bound by regulation 5(1) (lawyers and accountants);
  • there are reasonable grounds for believing the applicant is acting in the course of business in relation to which an overseas regulatory authority exercises regulatory functions;
  • they are based or incorporated in, or formed under the law of, a country specified in the Third Schedule of the Law;
  • they are a third party introduced by an Eligible Introducer (see next section for details);
  • there are circumstances where a lawyer assists with a one-off transaction for a client (e.g. securities transactions, for which payment is not given to the client but reinvested on the client’s behalf in another transaction / investment. The transaction must result in another reinvestment or be made directly to the client. Records must be kept as evidence of the transaction. 
  • the transaction is in respect of certain limited categories of insurance business.

Simplified due diligence cannot be relied on for clients that are deemed to be high risk (PEPs or in circumstances where there is knowledge or suspicion that the client is involved in money laundering or there is knowledge or reasonable cause to believe the client is involved in terrorist financing).

ARE LAWYERS PERMITTED TO RELY ON THIRD PARTY DUE DILIGENCE?  IF YES, PLEASE DESCRIBE.

Lawyers can rely on third party due diligence in respect of third party business relationships or one-off transactions, by an intermediary in the regulated sector who is an Eligible Introducer.

The Eligible Introducer must provide the lawyer with assurance that they have obtained the required level of client identification as per regulations / guidance / policy and have retained such evidence. The lawyer is also required to ensure the documentary evidence will satisfy the regulatory body of the country from where the introduction is from. The lawyer, not the Eligible Introducer, will be liable for failures to comply satisfactorily with AML / CFT obligations.

In addition the lawyer must ensure the third party introducer falls within the requirements for being an Eligible Introducer as per S.5 (1) of the Money Laundering Regulations and the Guidance Notes. 

WHEN IS A LAWYER UNDER AN OBLIGATION TO REPORT SUSPICIOUS TRANSACTIONS?

A lawyer is obligated to report suspicious transactions (a “suspicious activity report” or “SAR”) when actual knowledge or suspicion of money laundering or terrorist funding comes to the lawyer’s attention in the course of carrying out his / her profession.

However, information that has come to a lawyer under privileged circumstances is not reportable under the Proceeds of Crime Law.

“Privileged circumstances” include information communicated to a lawyer:

  • by a representative of a client in connection with the giving by the adviser of legal advice to the client;
  • by a representative of a person seeking legal advice from the adviser; or
  • by any person (i) in contemplation of, or in connection with, legal  proceedings; and (ii) for the purpose of those proceedings.

Failure to disclose knowledge or suspicion of money laundering carries a maximum penalty of five years’ imprisonment and an unlimited fine.

DOES ATTORNEY/CLIENT PRIVILEGE AND/OR DUTIES OF CONFIDENTIALITY PROVIDE A DEFENSE OR PARTIAL/TOTAL EXCEPTION TO THE REQUIREMENT TO REPORT SUSPICIOUS TRANSACTIONS? 

Confidentiality

No/ The reporting of suspicious transactions  is exempt from  the statutory  duty of confidentiality, and thus cannot be relied on as a defense to not reporting.

Attorney/client privilege

Yes, client privilege serves as a defense to not reporting suspicious transactions where the information or other matter came to the lawyer in privileged circumstances.

This provision also extends to paralegals, legal secretary or legal executives or other professional employed/in partnership with a professional advisor. 

However the defense will not apply to information or other matters which are communicated or given with the intention of furthering a criminal purpose.  Therefore, if for example a client instructs lawyers in order to conceal the proceeds of crime (e.g. through real estate transactions or setting up of trusts), and the lawyer suspects the money is from a crime- then the information passed to the lawyer would not be privileged as it would be passed in the context of furthering the commission of a criminal offense.

An example of this might be where tax advice was sought ostensibly to enable the affairs of a tax evader to be regularised but in reality was sought to aid continued evasion by improving the evader's understanding of the relevant issues (i.e., communications which take place in order to obtain advice with the intention of carrying out an offense.

A  lawyer may be able to rely on the defense of reasonable excuse, if at the time he believed that the information came to him under privileged circumstances, but it then transpired the information was sought to further a criminal purpose.

DOES LOCAL LAW PROVIDE ANY CRIMINAL AND/OR CIVIL INDEMNITY TO A LAWYER WHO HAS REPORTED A SUSPICIOUS TRANSACTION?

Under the Proceeds of Crime Law, no person may be subject to any legal, administrative or employment-related sanction, regardless of any breach of a legal or employment-related obligation, for releasing information relating to a contravention of the law.

ONCE A SUSPICIOUS TRANSACTION REPORT HAS BEEN FILED, IS A LAWYER ALLOWED TO PROCEED WITH THE LEGAL ADVICE/TRANSACTION, AND, IF SO, MUST CONSENT FROM AUTHORITIES BE OBTAINED FIRST?

Once the SAR is made a lawyer will be able to proceed with the legal advice / transaction; and will not be at risk of prosecution by continuing with the advice / transaction before receiving consent from the authorities.  

IS THERE A TIPPING-OFF PROHIBITION?  IF YES, PLEASE DESCRIBE.

Yes. Under the Proceeds of Crime Law, a person commits an offense if (i) s/he knows or suspects that an activity in relation to which a disclosure is required to be made is about to take place, is taking place or has taken place; and / or (ii) s/he makes a disclosure which is likely to prejudice any investigation which might be conducted following the disclosure.

Tipping off carries a maximum penalty of five years imprisonment and an unlimited fine. 

DESCRIBE ANY RESTRICTIONS ON ACCEPTING A NEW CLIENT.

Client acceptance can be discontinued if:

  • the Eligible Introducer is unable to provide written confirmation of the identity of a third party and the lawyer is not satisfied that identity verification is up to the required regulatory standard; or
  • the client is unable to provide satisfactory identification that can be verified

ARE THERE ONGOING MONITORING REQUIREMENTS FOR EXISTING CLIENTS?  IF YES, PLEASE DESCRIBE.

As per the Guidance Notes, ongoing monitoring procedures must be in place in order to uncover any potential money laundering or terrorism financing activities. Risk assessments should be used to determine the order of periodic reviews, so that higher risk clients are dealt with first / more frequently.

An institution is entitled to rely on the identification and verification steps that it has already undertaken unless it has doubts about the veracity of that information. However, there must be policies and procedures in place for routine reviews of data collected at the client on-boarding / identification stage, to ensure that documents are up to date. 

DESCRIBE ANY OTHER WAYS IN WHICH LAWYERS ARE AFFECTED BY ANTI-MONEY LAUNDERING LEGISLATION.

As per section 22 of The Terrorism Law, a person is liable if they knowingly assist in the retention or control of terrorist property by providing means of concealment, movement or transfer. Due to the nature of the work lawyers perform they may be used to facilitate this illegal activity. The only defense to this is if a lawyer can prove that they were unaware or had no reasonable cause to believe that the arrangement related to terrorist property. 

The Terrorism (United Nations Measures) (Overseas Territories) Order, 2001, and The Proliferation Financing (Prohibition) Law include similar offenses. Furthermore, sanctions imposed by the EU and United Nations are routinely extended to the Cayman Islands by virtue of UK Orders in Council.

HAVE LAWYERS IN YOUR JURISDICTION BEEN IMPLICATED IN MONEY LAUNDERING, INCLUDING ANY TYPE OF COMPLAINT, ARREST OR PROSECUTION?

No

HAS THE FINANCIAL ACTION TASK FORCE (FATF) CONDUCTED A MUTUAL EVALUATION OF THIS COUNTRY, AND, IF SO, WHAT WERE THE FINDINGS CONCERNING LAWYERS’ COMPLIANCE WITH THE FATF 40+9 RECOMMENDATIONS?

On 23 November 2007, a CFATF Mutual Evaluation Report was released and the Third Follow-Up Report published 28 October 2010.

According to the Follow-up Report, there was no monitoring programme by the authorities to ensure that real estate agents, brokers or lawyers when dealing with real estate transactions comply with AML/CFT measures. The Cayman Islands have addressed this by the addition of Schedule 2 to the Money Laundering Regulations, which includes real estate matters as activities that fall within the definition of ‘relevant financial business’. 

In addition, CIREBA (Cayman Islands Real Estate Brokers Association) regulates the real estate sector for AML / CFT matters.

 

Information provided by:

Nick Dunne
Walkers Global
190 Elgin Avenue
George Town
Grand Cayman
KY1-9001

nick.dunne@walkersglobal.com

+1 345 814 4548