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:
- a natural person;
- autonomous (meaning the MLRO is the final decision maker
as to whether to file an SAR);
- independent (meaning no vested interest in the underlying
- 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:
- 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;
- 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;
- have reasonable access to other information which may
assist in considering such report; and
- 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:
- information concerning money laundering suspicions should
- disclosure to the Reporting Authority should be made
- the MLRO should establish and maintain a register of
money laundering referrals made to him bystaff;
- reports to the Reporting Authority should be in standard
- the MLRO should maintain a register of reports to the
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:
- training of key staff;
- customer verification procedures;
- ongoing monitoring of business relationships;
- maintenance of anti-money laundering records for the
- liaison with the Reporting Authority regarding suspicious
- liaison with CIMA on matters regarding vigilance policy
- ensuring that internal auditing and compliance
departments regularly monitor and makerecommendations for up
to date systems on vigilance; and
- 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
Depending upon the nature of the relevant financial business, an MLRO may also require access to:
- a register of declined business; and
- records of discontinued relationships.
An MLRO should be aware of and, as appropriate, depending on the nature of the relevant financialbusiness, provide input to:
- procedures for introduced business;
- use of permitted exemptions; and
- 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.
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.
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.
Diarmad Murray, Partner
David Whittome, Partner
Peter Harris, Partner
British Virgin Islands
Heidi de Vries, Partner
Hugh O'Loughlin, 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.