Expat Offshore Finance Centres
The Cayman Islands faces its biggest challenge this month, when
it will meet with Financial Action Task Force representatives in
a bid to convince them not to blacklist the jurisdiction, says Will
Foggon
It’s make or brake time for the Cayman Islands. Last year
the Caymans were described by the Financial Action Task Force as
non-cooperative with regard to the fight against money laundering
and they have until June to convince it that times have changed.
Situated 480 miles south of Miami in western Caribbean, this British
Crown Colony has boasted an offshore centre since 1966 when its
first trust and banking laws were passed. Since then, the Cayman
Islands has focused on servicing institutions rather than private
clients.
Expat Offshore Finance Centres & US Health Insurers
They have 46 of the world’s top 50 banks and are the second
biggest home for captive insurance companies (especially US health
insurers).
But like many Caribbean offshore centres, the Caymans have, rightly
or wrongly, been seen as a den for drug barons and money launderers.
Originally focusing on company formation and trusts, its asset protection
structures and shell companies provided the perfect tools for money
launderers. The islands also have confidentiality enshrined in their
Preservation Law of 1996 and has no tax on income, profits, capital
or wealth.
The focus began to shift towards a more regulated environment in
1996 when the islands set up their Cayman Islands Monetary Authority.
The Monetary Authority Law allowed for the regulation and licensing
of all financial services companies. And the Proceeds of Criminal
Conduct Act, 1996 is the island’s key anti-money-laundering
legislation, which was amended in 1998 when the fiscal exemption
clause was removed. Previously the clause had prevented the island’s
authorities cooperating with other jurisdictions over fiscal offences.
Expat Offshore Finance Centres And The FATF
Since then, the islands have implemented a code of conduct against
money laundering, which, the FATF admitted, met most of its 40 recommendations
in terms of customer identification, internal reporting and record
keeping and has been at the centre of the development of the Caribbean
Financial Action Task Force - the independent initiative by the 25
states of the Caribbean to stamp out money laundering. But much to
the Cayman’s annoyance, the islands were labelled ‘non-cooperative’
and have since issued a press release in which they criticise the
FATF as ‘contradictory’. But the efforts to modernise
continued in February this year with a bill aiming to tighten up
company formation business. The legislation requires the 62 banks
on the island that aren’t a subsidiary to establish a properly
staffed office and maintain records.
But the FATF has publicly said: “Although the Cayman Islands
have criminalised the laundering of the proceeds of all serious
crimes and encourage the reporting of suspicious transactions (by
providing a safe harbour from criminal liability for those who report),
they lack a mandatory regime for the reporting of suspicious transactions.”
However, the Cayman Islands contends that such a view is too technical
and ignores its efforts, which have been praised by the FATF itself.
To describe it as non-cooperative is therefore contradictory.
Expat Offshore Finance Centres & John Bourbon
John Bourbon, managing director of the Cayman Islands Monetary Authority,
explains the latest situation: “The trouble was that there was
no mandatory requirement. We are now in the process of updating that
and have been doing so for the past nine months.”
And significantly for the islands, the FATF has agreed to visit them
this month to see its efforts in action. Bourbon says: “We think
what we’ve done will be reflected by the FATF.” Patrick
Moulette, FATF executive secretary, says: “The FATF is engaged
in a constructive dialogue with the Cayman Islands to assess the
actual implementation of the recently enacted reforms.”
But for the product providers, at least, the Caymans are doing
enough. Bourbon says: “We get a new bank every month, a new
insurance company every week and about two new funds every week.”
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