On 1 June 2007 amendments to The Money Laundering Regulations (2006 Revision) (the "Regulations") came into effect by virtue of the The Money Laundering (Amendment) Regulations 2007 (the "Amending Regulations"). These come after an amendment to the Proceeds of Criminal Conduct Law (2005 Revision) (the "PCCL") on 30 May 2007 (which extended the definition of "money laundering") and the Cayman Islands Monetary Authority ("CIMA") publishing revised Guidance Notes in March 2007 on the Prevention and Detection of Money Laundering.
SUMMARY OF MAIN CHANGES
The Amending Regulations include a number of substantive changes dealing mainly with the following:
- incorporating the offences under the Terrorism Law into
the definition of "money laundering";
- introducing the concept of an "appropriate internal
audit function" as an obligatory internal control
- including knowledge or suspicion of terrorist financing
into the identification and reporting procedures;
- clarifying the fact that liability for failure to obtain
identification information from an eligible introducer
remains with the person providing the financial services in
- introducing extensive provisions on identification and
record keeping for wire transfers.
EXTENDING THE DEFINITION OF MONEY LAUNDERING
The definition of "money laundering" previously included acts which constitute an offence under sections 47 and 48 of the Misuse of Drugs Act (2000 Revision) (the "MDA") and sections 32 to 34 of the PCCL. This definition has been extended to include offences under sections 19 to 22 of the Terrorism Law (2003 Revision) (the "TL"). "Money laundering" therefore includes the following acts:
- assisting drug traffickers (s47 MDA);
- concealing or transferring proceeds of drug trafficking
- assisting another to retain the benefit of criminal
conduct (s32 PCCL);
- acquisition, possession or use of property representing
proceeds of criminal conduct (s33 PCCL);
- concealing or transferring proceeds of criminal conduct
- soliciting terrorist property (s19 TL);
- using property for the purposes of terrorism (s20
- arranging for property to be used for terrorist purposes
(s21 TL); and
- facilitating the retention or control by another person
of terrorist property by concealment, removal from a
jurisdiction or transfer to nominees (ie money laundering)
"APPROPRIATE INTERNAL AUDIT FUNCTION"
Part II of the Regulations deals with what systems and training need to be in place to prevent money laundering if you are carrying out relevant financial business. Section 5(1)(a)(iv) previously required appropriate procedures of internal control and communication to be in place but the Amending Regulations have extended this requirement by introducing the need to have an "appropriate internal audit function". CIMA has issued a Statement of Guidance on Internal Controls for Trust Companies, Company Managers and Corporate Service Providers which may assist in designing the appropriate procedures to comply with this requirement.
SUSPICION OF TERRORIST FINANCING
Terrorist financing is doing any act which constitutes an offence under sections 19 to 22 of the Terrorism Law. It is worth noting that the act does not have to take place in the Cayman Islands. It is sufficient that it would have amounted to such an offence if the act had been carried out in the Cayman Islands.
As part of the identification procedural requirements under Part III, section 7(3)(b) of the Regulations now requires you to collect the usual identification evidence, as soon after initial contact with the applicant for business as is reasonably practicable, if you reasonably suspect them of being engaged in terrorist financing (or if you suspect that the transaction is being carried out on behalf of someone engaged in such activity).
Similarly, section 14(a)(ii) of Part V of the Regulations requires internal reporting procedures to be maintained, identifying an appropriate person to whom reports should be made, concerning any knowledge of or reasonable suspicion that someone is engaged in terrorist financing.
The Regulations make a distinction between offences relating to money laundering and offences relating to terrorist financing when it comes to the level of suspicion required before identification or reporting procedures kick in. Suspicion of money laundering requires "knowledge or suspicion" that money laundering is taking place, whereas suspicion of terrorist financing requires an extra level of "knowledge or reasonable suspicion" that terrorist financing is involved.
RESPONSIBILITY OF THE CAYMAN FINANCIAL SERVICES PROVIDER
The Amending Regulations tack on a clarification provision to the end of section 9(4) of the Regulations reinforcing the responsibility of the financial service provider in Cayman to carry out proper compliance checks on eligible introducers where necessary. The service provider will be liable for any failure to obtain and record satisfactory evidence of identity.
NEW REQUIREMENTS FOR WIRE TRANSFERS
The Amending Regulations introduce a new Part VII dealing with "Identification and Record Keeping Requirements relating to Wire Transfers". It applies to funds of any currency that are sent or received by a payment service provider carrying on business in or from within the Cayman Islands. Unless the transaction falls within one of the exceptions (relating mainly to debit and credit cards) in section 17(2) and (3), the payment service provider must forward information that verifies that the payer is the person he claims to be and that the provider is satisfied that the information establishes that fact.
There are additional provisions dealing with the specific requirements for:
- transfers of funds within the Islands;
- batch file transfers;
- the payment service provider for the payee being able to
detect whether key information is missing in relation to the
payer (and what to do if such information is missing);
- additional obligations owed by the payment service
provider relating to record keeping, situations where there
are technical limitations on the systems used to transfer
funds and the relevant information at the same time; and
dealing with enquiries from the Reporting Authority.
The Amending Regulations have already come into effect, but there will be no prosecution for failing to comply with the identification and record keeping requirements relating to wire transfers until 1 January 2008. This will give payment service providers time to put the necessary procedures and technical mechanisms in place.
Wayne Panton, Partner
David Whittome, Partner
Heather Bestwick, Partner
British Virgin Islands
Jack Boldarin, Partner
Philip Millward, Partner
Rod Palmer, Partner
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.