The following is intended to be a general summary of the Proceeds of Criminal Conduct Law (as amended) (the "Law") and the Money Laundering Regulations (as amended) (the "Regulations"). The Law was originally enacted on 20 September 1996 and the Regulations came into effect on 1 September 2000. There have subsequently been a number of amendments to the Regulations.
Money laundering is the process by which the direct or indirect proceeds of criminal activity are channelled through financial institutions or other organisations in a way which is intended to conceal their true origins and ownership. If money laundering is carried out successfully, the money or other assets concerned can lose their criminal identity and appear to be legitimate.
Criminal activity means any conduct or activity, whether it takes place in the Cayman Islands or elsewhere, which would constitute an indictable offence (ie a criminal offence sufficiently serious to be tried in the Grand Court).
Under the Law there are basically five main criminal offences relating to money laundering. These are summarised below.
1. It is a criminal offence to enter into or be otherwise concerned in any arrangement to assist in any way, the retention or control of the proceeds of criminal conduct knowing or suspecting that the person concerned is or has been engaged in criminal conduct or has benefited from criminal conduct. (Section 32)
2. It is a criminal offence to obtain, use or have possession of any property (including money) knowing that the property is either wholly or partly, directly or indirectly, the proceeds of criminal conduct. (Section 33)
3. It is a criminal offence to conceal or disguise property (including money), which is either wholly or partly, directly or indirectly, the proceeds of criminal conduct or to use or transfer such property or remove it from the Cayman Islands for the purpose of avoiding a confiscation order. (Section 34)
4. It is a criminal offence to do anything to inform ("tip-off") anyone who is or is likely to be the subject of an investigation into money laundering which is being or is about to be conducted or, knowing or having reasonable grounds to suspect that a report has been made to the Reporting Authority, to disclose to any person information which is likely to prejudice any investigation which might follow that report. (Section 35)
It is not an offence to disclose information to a professional legal adviser for the purpose of legal advice.
5. It is a criminal offence to fail to disclose the relevant information to the Reporting Authority as soon as practical if, in the course of employment, information comes to the employee's attention which causes the employee to know or suspect that another person is engaged in money laundering. It is a defence to prosecution for this criminal offence for a person in employment to disclose the relevant information to the appropriate person in accordance with the employer's internal procedures. (Section 37)
It is also a defence that the person charged had a "reasonable excuse" for not disclosing the knowledge or suspicion of money laundering. However "reasonable excuse" is not defined and accordingly it will be for the Courts to determine what that means.
The Financial Reporting Authority
The Reporting Authority is known as the Financial Reporting Authority (the "FRA"). The FRA consists of a Director, an attorney at law, an accountant and such other persons having appropriate qualifications and experience as may be considered necessary.
Disclosure of information to the FRA will not be treated as a breach of any statutory or other confidentiality obligation (including, therefore, those imposed by the Confidential Relationships (Preservation) Law).
No prosecution may be brought without the consent of the Attorney General.
The maximum penalties under each section are:
1. on summary conviction, a fine of up to CI$5,000.00 and imprisonment for up to two years (sections 32, 33, 34, 35 and 39); or a fine of CI$50,000.00 (section 37); and
2. on conviction on indictment, a fine and imprisonment for up to fourteen years (sections 32, 33 and 34); a fine and imprisonment for up to five years (sections 35 and 39); or a fine and imprisonment for two years (section 37).
The Law gives the Grand Court power to makes confiscation, restraint and charging orders, in addition to the penalties noted above.
The power to make regulations
The Governor in Cabinet is empowered by the Law to prescribe any measures to be taken to prevent the use of the financial system for purposes of money laundering. Such regulations may themselves create criminal offences and prescribe penalties for such criminal offences - in the case of conviction on indictment, a fine or imprisonment for a period of up to two years or both and in the case of summary conviction (ie in the Magistrates Court) of a fine up to CI$6,000.00.
MONEY LAUNDERING REGULATIONS
The Money Laundering Regulations are mandatory and have the force of law.
The Regulations require anyone engaged in "relevant financial business" activities (a financial services provider "FSP") to have in place systems and training to prevent money laundering. In particular, procedures should be put in place to:
1. identify clients/customers;
2. keep records of the evidence on which identification of clients/customers is based and records of all transactions carried out by each client/customer;
3. record internal reporting within the business;
4. monitor internal control and communication, which may be appropriate in assisting to prevent money laundering, must be in place;
5. ensure that employees involved in the relevant business are aware of all the procedures listed above and are aware of the relevant legislation and regulations relating to money laundering; and
6. ensure employees are provided with appropriate training from time to time in the recognition and handling of transactions where money laundering is or appears to be involved.
We recommend that legal advice should be obtained if in doubt as to whether the Regulations apply to any particular business activity.
SYSTEMS AND TRAINING TO PREVENT MONEY LAUNDERING
These apply to:
1. one-off transactions involving CI$15,000.00 or more;
2. any series of linked one-off transactions where the total amount involved is CI$15,000.00 or more;
3. any one-off transaction where money laundering is known or suspected; and
4. transactions on a frequent, habitual or regular basis where the total amount involved is not known at the start (defined as a "business relationship").
Evidence of identity
The procedures must require, as soon as reasonably practical after first contact with the client/customer, the production of satisfactory evidence of the client/customer's identity or the taking of specified steps which will produce satisfactory evidence of the client/customer's identity.
The procedures must require that where evidence of the client/customer's identity is not obtained the business relationship or transaction in question will not proceed any further.
The procedures must provide that when a report of known or suspected money laundering is made to the FRA in relation to a one-off transaction, any directions which may be given by the FRA as to steps to be taken in relation to the transaction concerned will be complied with.
Evidence of identity of a client/customer is satisfactory if it is reasonably capable of establishing that the client/customer is in fact the person he/she claims to be and the person obtaining the evidence is in fact satisfied that the evidence does indeed establish that the client/customer is the person he/she claims to be.
Time-frame for collecting evidence
The time span within which satisfactory evidence of the client/customer's identity has to be obtained in relation to any particular transaction or series of transactions will depend on all the circumstances but the following should be taken into account:
1. the nature of the business relationship or transaction;
2. the geographical locations of the parties concerned;
3. the practicality of obtaining evidence of identity before commitments are entered into or before money passes; and
4. in the case of a one-off transaction or a series of related one-off transactions, the earliest time at which there are reasonable grounds for believing that the total amount involved is $15,000.00 or more.
The Regulations also provide for certain exceptional circumstances in relation to evidence of the identity of a client/customer. In particular:
1. Where a payment is to be made by the client/customer and it is reasonable for the payment to be sent by post or electronic transfer, then the fact that the payment is debited from an account held in the client/customer's name at a bank licensed under the Banks and Trust Companies Law (as amended) of the Cayman Islands, is itself capable of constituting the required evidence of identity of the client/customer. However, this provision does not apply in the case of one-off transactions where there is anyway knowledge or suspicion of money laundering. It also does not apply where the payment concerned is made by the client/customer for the purposes of establishing the relevant bank account in the first place.
2. Where the client/customer is not the principal in the transaction(s) but is acting as agent for another, what constitutes reasonable measures for establishing identification will depend on all the circumstances and in particular on best practice followed in the relevant field of business in such a situation. In particular, if the agent for another is subject to regulation by an overseas regulatory authority and is subject to the law of a country specified in Schedule 3 to the Regulations (ie a country considered to have anti-money laundering legislation equivalent to the Cayman Islands) then it is reasonable to accept a written assurance from the agent that evidence of the identity of his/her principal has been obtained and recorded under client identification procedures maintained by the agent.
3. The identification procedures do not require evidence of a person's identity to be obtained in the following circumstances:
(a) where the client/customer is himself/herself bound by the provisions of the Regulations;
(b) where it is reasonable to believe that the client/customer is himself/herself acting in the course of a business regulated by an overseas regulatory authority and is subject to the law of a country specified in Schedule 3 to the Regulations; or
(c) in the case of a one-off transaction pursuant to an introduction made by a person who has given an assurance that evidence of the identity of the client/customer introduced by him has been obtained and recorded under procedures maintained by him, where the introducing party is himself/herself subject to the Regulations or where there are reasonable grounds for believing that he/she is subject to overseas regulation and is subject to the law of a country specified in Schedule 3 to the Regulations.
4. There are also some other rather more technical exemptions from the general requirement for identification procedures relating in particular to circumstances where the proceeds of one transaction are reinvested in another transaction and also in relation to certain insurance business, on which we would be pleased to advise further.
RECORD KEEPING PROCEDURES
The mandatory record-keeping procedures require:
1. a record to be kept of whatever evidence of a client/customer's identity has been obtained under the identification procedures, including a copy of the evidence of identity itself or a system enabling a copy of the evidence of identity to be obtained (or the details of identity to be re-obtained) in the future; and
2. a record to be kept of details of all transactions carried out by that client/customer in the course of the relevant business.
The Regulations require the records containing details of the identification of the client/customer to be retained for a period of at least five years from the date on which the business with the client/customer concerned was completed.
The Regulations require the records containing details of all transactions carried out by the client/customer concerned to be retained for a period of at least five years from the date on which all activities carried out in the course of the transaction were completed.
In the case of a client/customer who is believed to have become insolvent and steps are taken to recover any debt payable by that client/customer, the five year minimum period for retaining records commences on the date on which such steps to recover payment are first taken.
The Regulations contain provisions for determining when the relevant business activities are completed for purposes of computing the minimum five year period for keeping records and for determining when the relevant client/customer is to be taken to be insolvent.
Maintenance of records
The Regulations also contain provisions concerning the maintenance of the records referred to above where the relevant FSP is acting in a representative capacity and is not himself/itself a licensee under any of the relevant Laws. We would be pleased to advise on this in more detail.
INTERNAL REPORTING PROCEDURES
The Money Laundering Reporting Officer
The Regulations require internal reporting procedures to be maintained. These include provisions for:
1. identifying a specific individual to be the Money Laundering Reporting Officer (the "MLRO") to whom internal reports are to be made by employees/staff of information giving rise to a knowledge or suspicion of money laundering;
2. requiring any such internal report to be considered by the MLRO (or other designated individual(s)) having regard to all other relevant information in order to determine whether the information passed on, does indeed give rise to knowledge or suspicion of money laundering;
3 enabling the MLRO (or other designated individual(s)) to have reasonable access to any other information, which may be of assistance to him/them in considering any such internal report; and
4. ensuring that information contained in any such internal report is disclosed to the FRA if the information concerned is considered to give rise to knowledge or suspicion of money laundering.
Other procedures for internal control and communication
The Regulations require FSPs to maintain such other systems of internal controls and communications as may be appropriate for purposes of forestalling and preventing money laundering. This will require detailed consideration in each case of what other internal procedures are appropriate for the particular type of business, the laying down of clear guidelines, lines of communication and regular review.
EDUCATING AND TRAINING EMPLOYEES
The Regulations require appropriate measures to be taken on a regular basis for the purposes of making employees/staff involved in relevant business fully familiar with the internal practices and procedures established to prevent money laundering and also of all legislation and regulations relating to money laundering. The Regulations also require regular training of employees/staff in how to recognise transactions carried out by or on behalf of persons who are or appear to be involved in money laundering and training in how to handle such transactions.
It is a criminal offence to fail to comply with the Regulations and in particular to fail to comply with any of the mandatory procedures relating to identification, record keeping, internal procedures, employee education and training, etc as summarised above. In the case of summary conviction the penalty is a fine of up to CI$5,000.00, in the case of conviction on indictment the penalty is imprisonment up to two years or an unlimited fine or both.
It is a defence to a charge under the Regulations for the person concerned to show that "he took all reasonable steps and exercised all due diligence" to avoid committing the offence. There is no definition in the Regulations of what is "reasonable" or "all due diligence". Also it is not yet clear whether the onus in this defence lies on the charged person or on the prosecution. These issues will have to be clarified by the Court in the future but clearly it is advisable to avoid having to rely on these defences of uncertain scope if possible.
The Regulations also contain provisions for the reporting of information indicating that a person has or may have been engaged in money laundering to the FRA by the Cayman Islands Monetary Authority ("CIMA"), a Government Minister or an Official Member of the Legislature including any agent or employee of the Monetary Authority or the Government or any secondary recipient of information obtained by the Monetary Authority, a Minister or an Official Member.
CIMA, in conjunction with the major professional associations, has issued Guidance Notes to assist FSPs in implementing procedures for the purposes of complying with the Regulations. While the Guidance Notes should not be relied upon in respect of points of law, the Courts in determining whether the Regulations have been complied with will take them into account.
A copy of the Guidance Notes is available on the CIMA website at www.cimoney.com.ky under Publications
As may be seen from the general summary above, it is a serious criminal offence to fail to report knowledge or suspicion of money laundering as soon as practicable. This includes knowledge or suspicion of activity carried on outside the Cayman Islands, which would constitute money laundering if carried on inside the Cayman Islands.
As may also be seen from the general summary above, it is a serious criminal offence to fail to comply with the Money Laundering Regulations and in particular to fail to have suitable procedures in place for client/customer identification, record keeping, internal control and communication, including internal reporting, and employee education and training.
This is only intended as a general summary of the Law and of the Money Laundering Regulations and does not comprise legal advice. We would be pleased to provide specific advice if required.
Diarmad Murray, Partner
David Whittome, Partner
James Gaudin, Partner
British Virgin Islands
Jack Husbands, 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.