Anti-Money Laundering Measures in the Cayman Islands

Transcription

1 Anti-Money Laundering Measures in the Cayman Islands

2 Foreword This memorandum has been prepared for the assistance of those who are considering the law of the Cayman Islands (sometimes referred to as Cayman ) as it pertains to anti money laundering measures. It deals in broad terms with the requirements of Cayman law. It is not intended to be exhaustive but merely to provide brief details and information which we hope will be of use to our clients. We recommend that our clients and prospective clients seek legal advice on Cayman law in respect of any specific scenarios, matters or concerns. This memorandum has been prepared on the basis of the law and practice as at the date referred to below. Conyers Dill & Pearman July 2015 Page 2 of 15

3 TABLE OF CONTENTS 1. INTRODUCTION 2. THE PROCEEDS OF CRIME LAW 2.1 The Money Laundering Offences 2.2 Penalties and Enforcement 3. THE MONEY LAUNDERING REGULATIONS 3.1 Application 3.2 Systems and Training to Prevent Money Laundering 3.3 Offences and Penalties 4. THE GUIDANCE NOTES ON THE PREVENTION AND DETECTION OF MONEY LAUNDERING AND TERRORIST FINANCING IN THE CAYMAN ISLANDS 5. ANTI-CORRUPTION LAW 5.1 Overview 5.2 Offences and punishment 6. RELATED LEGISLATION 6.1 Industry Specific Regulation 6.2 The Mutual Legal Assistance Treaty 7. CONCLUSION Page 3 of 15

4 1. INTRODUCTION The Cayman Islands is a leading international financial centre with a robust antimoney laundering regulatory structure. Cayman s anti money laundering legislation has been carefully crafted and diligently upgraded to ensure that the jurisdiction remains in compliance with the highest of international standards. Most importantly, the highly skilled professionals in the Cayman Islands, including lawyers, accountants, auditors and fund managers and administrators, cultivate a strong culture of compliance, taking very seriously the negative impact (both in terms of direct and reputational damage) that regulatory failures would bring to the jurisdiction. The Proceeds of Crime Law (the PCL ) is the primary legislation in the Cayman Islands intended to combat the activity of money laundering. The PCL reflects the forty plus nine recommendations formulated by the Financial Action Task Force ( FATF ), and has as its primary objective the development and improvement of Cayman s legal systems and mechanisms to counter the laundering of drug trafficking money and other criminal proceeds. The Money Laundering Regulations (the Regulations ) are promulgated under the PCL and apply to persons engaged in relevant financial business. In addition, the Cayman Islands Monetary Authority ( CIMA ) has published Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands (the Guidance Notes ). The PCL, the Regulations and the Guidance Notes combine to create a comprehensive, robust and modern anti money laundering and anti terrorist financing legislative regime. 2. THE PROCEEDS OF CRIME LAW The PCL creates the core money laundering offences. It also contains provisions for the making and enforcement of confiscation orders and establishes certain investigatory and co operative powers to enhance enforcement efforts. The PCL strives to reflect the approach advocated by the FATF and other international agencies concerned with the prevention and detection of money laundering. The PCL also Page 4 of 15

5 creates and sets out the obligations and duties of the Financial Reporting Authority, the financial intelligence unit established in the Cayman Islands to receive, analyse and take action with respect to reports of suspicious activities. 2.1 The Money Laundering Offences Under the PCL, five primary offences are defined: (i) concealing or transferring criminal property; (ii) entering into arrangements for the facilitation or use of criminal property; (iii) acquisition, possession or use of criminal property; (iv) failure to disclose a suspicion of criminal conduct; and (v) tipping off. Criminal conduct is defined as conduct which constitutes an offence in Cayman or would constitute an offence in Cayman if it occurred there. Property is criminal property if it constitutes a person s benefit from criminal conduct or it represents such a benefit (in whole or in part and whether directly or indirectly) and the alleged offender knows or suspects that it constitutes or represents such benefit. (i) Concealing or Transferring Criminal Property A person commits an offence if he conceals, disguises, converts, transfers or removes from Cayman criminal property (as defined above). A person does not commit this offence if he makes (or intends to make, but fails to do so with reasonable excuse) a disclosure to the Financial Reporting Authority or his money laundering reporting officer (the disclosure defence ). For obvious reasons, the disclosure defence does not apply to the person who actually committed (or was a party to) the act from which the property derives. Professional legal advisers who obtain information in privileged circumstances do not commit an offence by failing to disclose such information. Furthermore, an offence is not committed if the person knows, or believes on reasonable grounds, that the relevant criminal conduct occurred outside the Cayman Islands and was not, at the time it occurred, unlawful in that jurisdiction. Page 5 of 15

6 (ii) Entering into Arrangements A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person. The disclosure defence and legal privilege defence apply to this offence as well and an offence is not committed if the person knows, or believes on reasonable grounds, that the relevant criminal conduct occurred outside the Cayman Islands and was not, at the time it occurred, unlawful in that jurisdiction. (iii) Acquisition, possession or use of proceeds of criminal conduct A person commits an offence if he acquires uses or has possession of criminal property. The disclosure defence and legal privilege defence apply to this offence as well and an offence is not committed if the person knows, or believes on reasonable grounds, that the relevant criminal conduct occurred outside the Cayman Islands and was not, at the time it occurred, unlawful in that jurisdiction. Furthermore, a person does not commit this offence if he acquired, used or had possession of the property for adequate consideration. (iv) Failure to Disclose A person commits an offence if he knows or suspects, or has reasonable grounds for knowing or suspecting, that another person is engaged in criminal conduct if (i) the information on which the suspicion is based came to his attention in the course of his business in the regulated sector or other trade, profession, business or employment and (ii) he does not disclose his suspicion as required by the law to his money laundering reporting officer or the Financial Reporting Authority. Page 6 of 15

7 A person does not commit the offence of failure to disclose if he has a reasonable excuse for not making the required disclosure. Professional legal advisers or other relevant professional advisers who come into information in privileged circumstances are not required to make disclosure. Trainees, paralegals, legal secretaries or other employees of legal and professional advisers do not commit this offence if they have not been provided with adequate training on how to detect and report suspicious activities. (v) Tipping Off A person commits an offence if 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 (whether or not a disclosure has been or is likely to be made in relation thereto) and he makes a disclosure which is likely to prejudice any investigation which might be conducted following such disclosure. The offence of tipping off is not made out where the accused did not know or suspect that the disclosure was likely to be prejudicial to the investigation. A professional legal adviser does not tip off a client when he is giving legal advice to the client or to any person in connection with legal proceedings or contemplated legal proceedings. 2.2 Penalties and Enforcement A person guilty of concealing or transferring criminal property, making arrangements with respect to criminal property, or acquiring, using or possessing criminal property is liable on summary conviction to a fine of five thousand dollars or imprisonment for two years or both. On conviction on indictment for such offences, the maximum penalty is imprisonment for a term of fourteen years or an unlimited fine, or both. A person guilty of failing to disclose or tipping off is liable on summary conviction to a fine of five thousand dollars or to imprisonment for a term of two years or both. On conviction on indictment for such offences the maximum penalty is a term of five years imprisonment or an unlimited fine or both. Page 7 of 15

8 Where any offence is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, manager, secretary, partner or other similar officer of the body corporate or partnership, the individual as well as the body corporate or partnership is guilty of the offence and shall be liable to be proceeded against and punished accordingly. The PCL contains extensive and comprehensive provisions with respect to investigations into alleged money laundering, as well as provisions pertaining to the seizure, detention, forfeiture and confiscation of the proceeds of criminal conduct. 3. THE MONEY LAUNDERING REGULATIONS 3.1 Application The Regulations are promulgated under the PCL and apply to persons engaged in relevant financial business, meaning: Banking or trust business carried on by a person who is licensed under the Banks and Trust Companies Law; Acceptance by a building society of deposits made by any person (including the raising of money from members of the society by the issue of shares); Business carried on by a co operative society within the meaning of the Cooperative Societies Law; Insurance business and the business of an insurance manager, an insurance agent, an insurance sub agent or an insurance broker within the meaning of the Insurance Law; Mutual fund administration or the business of a regulated mutual fund within the meaning of the Mutual Funds Law; The business of company management as defined by the Companies Management Law; Page 8 of 15

9 The acceptance of deposits and other repayable funds from the public; Lending; Financial leasing; Money transmission services; Issuing and administering means of payment (i.e. credit cards, travellers cheques and bankers drafts); Guarantees and commitments; Trading for own account or for account of customers in money market instruments, foreign exchange, financial futures and options, exchange and interest rate instruments or transferable securities; Participating in securities issues and providing services related to such issues; Providing advice to undertakings on capital structure, industrial strategy and related questions, and advice and services relating to mergers and the purchase of undertakings; Money broking; Portfolio management and advice; Safekeeping and administration of securities; Safe custody services; Financial, estate agency and legal services provided in the course of business relating to the sale, purchase or mortgage of land or interests in land on behalf of clients or customers; Page 9 of 15

10 The services of listing agents and broker members of the Cayman Islands Stock Exchange; The conduct of securities investment business; Dealing in precious metals or previous stones, when engaging in a cash transaction of fifteen thousand dollars or more; and The provision of registered office services to a private trust company by a company that holds a trust licence under the Banks and Trust Companies Law. 3.2 Systems and Training to Prevent Money Laundering In conducting relevant financial business, a person is required to maintain client identification procedures, keep know your client and suspicious transaction records, establish internal reporting procedures for suspicious transactions, and have in place internal controls and communication procedures which are appropriate for the purposes of forestalling and preventing money laundering. Such businesses are also required to have in place adequate training for staff on their obligations under the law with respect to money laundering. The Regulations describe in some detail the exact nature of these requirements and the form that the procedures should take. 3.3 Offences and Punishment Failure to comply with the requirements of the Regulations constitutes an offence punishable on summary conviction to a fine of five thousand dollars or on indictment to imprisonment for up to two years and a fine. It is a defence to show that a person took all reasonable steps and exercised all due diligence to avoid committing the offence. Where an offence under the Regulations is committed by a company or partnership and is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, a director, manager, secretary, partner or controlling member, such person shall be guilty of that offence and shall be liable to Page 10 of 15

11 be proceeded against and punished accordingly, in addition to the company or partnership. 4. THE GUIDANCE NOTES ON THE PREVENTION AND DETECTION OF MONEY LAUNDERING AND TERRORIST FINANCING IN THE CAYMAN ISLANDS The Guidance Notes are promulgated and regularly revised and updated by CIMA in the exercise of powers granted to it under the PCL. The Guidance Notes provide guidelines that should be adopted by those engaged in financial business in the Cayman Islands. Whilst failure to comply with the Guidance Notes is not, in itself, an offence, the failure to follow the Guidance Notes will be taken into account in assessing whether or not an offence under the PCL has occurred or whether a relevant financial business has taken all reasonable steps to comply with the Regulations. Failure to comply with the Guidance Notes may also result in sanctions being applied by CIMA to the business in question, and may be a factor in obtaining or renewing a licence from CIMA to carry on a regulated business. It is the Guidance Notes that provide the nuts and bolts for relevant financial businesses to follow in carrying out their mandate under the PCL and the Regulations. It addresses in great detail the requirements of the law as they pertain to internal systems and controls. For example, the Guidance Notes specify the form of identification that ought to be provided by applicants for business, and the timing and content of staff training programs. The Guidance Notes offer examples, tips and suggestions in narrative form and favours a risk based approach to establishing internal policies, subject to certain minimal requirements enumerated with precision in the lengthy document. Certain industry specific guidance is included in the Guidance Notes, as are the necessary forms for filing suspicious activity reports. Any of our Cayman attorneys would be pleased to advise on the aspects of the Guidance Notes relevant to any of our clients in particular. Page 11 of 15

12 5. ANTI-CORRUPTION LAW 5.1 Overview The Anti Corruption Law, 2008 came into effect on 1 January It gives effect to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and the United Nations Convention against Corruption. It sets out extensive local and international corruption offences and provides for the establishment of the Anti Corruption Commission (the Commission ). The Commission has broad powers to receive information regarding and investigate suspected corruption offences. The Commission s power includes the ability, with the consent of the Grand Court, to freeze bank accounts and other property for up to 21 days at the request of any anti corruption authority if it has reasonable cause to believe that the request or information relates to the proceeds of corruption. 5.2 Offences and punishment The range of local offences includes bribery of public officials and members of the Legislative Assembly, fraud, breaches of trust, abuse of office, non disclosure of conflicts of interest, failure to report offers of bribes to or solicitations of bribes by public officials and members of the Legislative Assembly, frauds on the government, selling of and dealing in public offices, illegal secret commissions and making false statements to the Commission. Penalties range from fines of $1,000 and/or 3 months imprisonment on summary conviction up to fourteen years imprisonment on indictment. Bribery of a foreign public official is an offence which attracts a penalty of up to fourteen years imprisonment on indictment. Conspiracy, attempts and incitement to commit an offence as well as aiding, abetting, counselling and procuring the commission of an offence are also crimes. Page 12 of 15

13 6. RELATED LEGISLATION 6.1 Industry Specific Regulation The activities of banks and trust companies in Cayman are regulated generally by the Banks and Trust Companies Law and the regulations promulgated thereunder. This legislation requires that entities proposing to carry out banking or trust business be licensed by CIMA. Similarly, insurance companies fall under the Insurance Law, mutual funds operate under the Mutual Funds Law and companies carrying on registered office or corporate administration services fall under the Companies Management Law. Entities licensed under these and other similar laws operate under the oversight and regulation of CIMA and must comply with detailed regulations and standards that reflect industry best practice. In certain respects, these obligations overlap with and reinforce the jurisdiction s generally applicable anti money laundering measures. A detailed discussion of the regulation of these types of entities is beyond the scope of this memorandum. Clients and interested persons should be aware, however, that this additional layer of regulation may impact on anti money laundering and compliance issues for these types of entities. Please feel free to consult any of our Cayman attorneys for specific advice on these matters. 6.2 The Mutual Legal Assistance Treaty Mutual Legal Assistance Treaties allow generally for the exchange of evidence and information in criminal and ancillary matters. The Mutual Legal Assistance Treaty of 1986 facilitates the provision, on a reciprocal basis, of legal assistance in criminal matters between the USA and Cayman. The objective of the treaty is to enhance the ability of law enforcement agencies to investigate, prosecute and suppress criminal offences. Virtually identical legislation is in place in the other British Overseas Territories in the Caribbean. Page 13 of 15

14 7. CONCLUSION As is noted on CIMA s website, The Cayman Islands Monetary Authority has a central role in the fight against money laundering and the preservation of financial stability. Through the prevention and detection of money laundering, the Authority is able to assist in preserving the integrity of the Cayman Islands financial services industry whilst protecting the interests of stakeholders and maintaining the competitiveness of the Cayman Islands as a leading world financial centre. In addition, the private sector of the Cayman Islands, particularly those persons engaged in the provision of offshore legal, administration and management services, understand the need to combat, on an international level and in a co operative way, money laundering and terrorist financing. Persons who would seek to use the jurisdiction to further their criminal endeavours are unwelcome in the Cayman Islands. Page 14 of 15

15 This publication is not a substitute for legal advice nor is it a legal opinion. It deals in broad terms only and is intended merely to provide a brief overview and give general information. About Conyers Dill & Pearman Founded in 1928, Conyers Dill & Pearman is an international law firm advising on the laws of Bermuda, the British Virgin Islands, the Cayman Islands and Mauritius. With a global network that includes 140 lawyers spanning eight offices worldwide, Conyers provides responsive, sophisticated, solution driven legal advice to clients seeking specialised expertise on corporate and commercial, litigation, restructuring and insolvency, and trust and private client matters. Conyers is affiliated with the Codan group of companies, which provide a range of trust, corporate, secretarial, accounting and management services. Page 15 of 15