Cayman Islands: The Role Of The Money Laundering Reporting Officer

THE LEGISLATIVE "REQUIREMENT" FOR AN MLRO

The Money Laundering Regulations of the Cayman Islands (as amended) (the "Regulations") issued underthe Proceeds of Criminal Conduct Law of the Cayman Islands (as amended) do not specifically createthe role of a Money Laundering Reporting Officer ("MLRO").

Regulation 5(1) states that a "person & in the course of relevant financial business carried on by that personin or from the Islands" as defined in the Regulation must, amongst other activities, "maintain & internal reporting procedures". The scope of this Regulation includes, for example, mutual funds regulated underthe Mutual Funds Law (as amended) of the Cayman Islands.

Regulation 14 expands on the internal reporting procedures to be put in place. Such procedures will be inaccordance with the Regulations if they identify "an appropriate person" to whom internal reports ofsuspicion of money laundering are made.

THE SELECTION OF THE MLRO

Guidance notes, published in September 2003 and amended in May 2007, were prepared by the CaymanIslands Monetary Authority ("CIMA") and various professional associations to provide assistance in theinterpretation of the Regulations and to give guidance on anti-money laundering best practice (the"Guidance Notes").

Guidance Note 5.2 provides that the "appropriate person" should be "& a suitably qualified andexperienced person to whom suspicious activity reports "SAR") must be made by staff".

Guidance Note 5.3 states that the "appropriate person" should be someone who is "& well versed in thedifferent types of transaction which the institution handles and which may give rise to opportunities formoney laundering".In addition,

Guidance Note 5.4 states that the "appropriate person" to whom internal reports of suspicion ofmoney laundering are required to be made should be:

1. a natural person;
   
   
2. autonomous (meaning the MLRO is the final decision maker as to whether to file an SAR);
   
   
3. independent (meaning no vested interest in the underlying activity); and
   
   
4. have access to all relevant material in order to make an assessment as to whether the activity is oris not suspicious.

Whilst the Guidance Notes have no legislative authority, compliance with them will be taken into accountby the courts in determining whether Financial Services Providers have complied with the Regulations.

THE ROLE OF THE MLRO

The "appropriate person" is in practice called the MLRO and his/her primary duties under the Regulationsare to:

1. receive reports of any information or other matter, which comes to the attention of a personhandling relevant financial business, which gives rise to an actual knowledge or suspicion of moneylaundering;
   
   
2. consider such reports in light of relevant information in order to determine if the information or othermatter does give rise to such knowledge or suspicion;
   
   
3. have reasonable access to other information which may assist in considering such report; and
   
   
4. making a disclosure to the Reporting Authority in the Cayman Islands ("Reporting Authority") if afterconsidering such report there is knowledge or a suspicion of money laundering.
   
   

Section 5 of the Guidance Notes describes the role of MLRO in more detail as follows:

1. information concerning money laundering suspicions should be investigated;
   
   
2. disclosure to the Reporting Authority should be made promptly;
   
   
3. the MLRO should establish and maintain a register of money laundering referrals made to him bystaff;
   
   
4. reports to the Reporting Authority should be in standard form; and
   
   
5. the MLRO should maintain a register of reports to the Reporting Authority.
   
   

MLRO COMPLIANCE PROCEDURES

Whilst not specifically referenced in the Regulations or Guidance Notes, other activities also need to beundertaken by the entity subject to the Regulations. Often these are delegated to the MLRO, althoughthey may be further delegated, and include:

1. training of key staff;
   
   
2. customer verification procedures;
   
   
3. ongoing monitoring of business relationships;
   
   
4. maintenance of anti-money laundering records for the required periods;
   
   
5. liaison with the Reporting Authority regarding suspicious activity reporting;
   
   
6. liaison with CIMA on matters regarding vigilance policy and systems;
   
   
7. ensuring that internal auditing and compliance departments regularly monitor and makerecommendations for up to date systems on vigilance; and
   
   
8. maintenance of training and procedures manuals so that in the event of a suspicious activity beingdiscovered, all staff are aware of the reporting chain and procedures to follow.
   
   

Depending upon the nature of the relevant financial business, an MLRO may also require access to:

1. a register of declined business; and
   
   
2. records of discontinued relationships.
   
   

An MLRO should be aware of and, as appropriate, depending on the nature of the relevant financialbusiness, provide input to:

1. procedures for introduced business;
   
   
2. use of permitted exemptions; and
   
   
3. reliance on publicly available information for substantial private clients.
   
   

IDENTIFYING UNUSUAL OR SUSPICIOUS TRANSACTIONS

As the types of transactions which may be used by money launderers are unlimited it is difficult to define asuspicious transaction. The Guidance Notes are instructive in that they differentiate between "suspicious"and "unusual" as set out below.

"Unusual"

Where a transaction is inconsistent in amount, origin, destination, or type with a customers known,legitimate business or personal activities, the transaction must be considered "unusual", and the staffmember put on enquiry.

"Suspicious"

Where the staff member conducts enquiries and obtains what he considers to be a satisfactoryexplanation of the unusual activity, he may conclude that there are no grounds for suspicion, andtherefore take no further action as he is satisfied with matters. However, where the enquiries conducted bythe staff member do not provide a satisfactory explanation of the activity, he may conclude that there aregrounds for "suspicion" requiring disclosure.

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.