International financial sanctions are applied against countries or persons which are deemed to have violated international laws. These sanctions are imposed with the intention of:
- changing the conduct of listed countries or persons;
- imposing punitive measures when international peace and security are threatened and diplomatic efforts have failed; and/or
- deterring, preventing or suppressing terrorist acts.
Two of the key international bodies that adopt these international sanction measures are the United Nations (UN) and the European Union (EU). Other bodies, such as the Office of Foreign Assets Control ('OFAC'), also impose sanctions however these sanctions are beyond the scope of this paper.
Extension to the Cayman Islands
The UK Government passes Orders in Council ("Orders") which extend UN and EU sanctions to its Overseas Territories. Once extended in this way, these Orders have the force of law in the Cayman Islands.
Such orders apply to any person in the Cayman Islands, any British citizen ordinarily resident in the Cayman Islands and any entity incorporated or constituted under the laws of the Cayman Islands.
Orders generally prohibit persons from dealing with funds owned or controlled by a designed person unless authorization is obtained by licence (see below).
Failure to observe these prohibitions may result in ones conviction for criminal offence thereby rendering one liable to fines and/or imprisonment.
A defence may be available if the person did not know and had no reasonable cause to suspect that they were dealing with funds owned or controlled by a designed person or persons acting on their behalf.
Specific obligations of Financial Services Providers
Financial Services Providers are expected, pursuant to the Money Laundering Regulations (as revised), to have systems and controls in place to conduct initial due diligence, for ongoing monitoring and for reporting suspicious activity.
Financial Services Providers should keep up to date with the relevant sanctions lists. In doing so, FSPs may discover that certain sanctions are applicable to one or more of their clients, existing or new.
Pursuant to the Proceeds of Crime Law, the Money Laundering Regulations and the Terrorism Law FSPs must file a Suspicious Activity Report to the Financial Reporting Authority if they discover a relationship that contravenes a sanctions order or a direction under the Proliferation Financing (Prohibition) Law.
Sanctions in force
A list of sanction orders in force in the Cayman Islands can be found on the CIMA website. Official sanctions orders applicable in the Cayman Islands are published in the Cayman Islands Gazette.
In certain circumstances, one can apply for and obtain a licence under the Restrictive Measures or UN Sanctions (Overseas Territories) Orders. The respective order should be consulted to determine if a licence is available. Such licences may allow for activities that would otherwise be prohibited. Applications can be made in writing to the Financial Secretary of the Cayman Islands.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.