This article explores the evolving connection between Anti-Money Laundering (AML) compliance and insolvency proceedings in the Cayman Islands. It discusses the legal and practical challenges faced by insolvency practitioners and highlights the role of AML experts in mitigating financial crime risks during corporate failures.
Introduction
The Cayman Islands, as a leading offshore financial centre, has long maintained a robust legal and regulatory framework to combat money laundering and financial crime. However, the convergence of AML obligations with insolvency law presents unique challenges, particularly when a company enters liquidation under suspicion of facilitating or failing to prevent illegal financial activities.
Recent enforcement trends, together with headline cases, such as the misuse of customer funds in the Safe Hands Plans case1, have underscored the importance of integrating AML compliance into the insolvency process. This article considers the Cayman Islands position in addressing these issues and the implications for practitioners navigating this complex area.
Cayman Islands AML and Insolvency Framework
The Cayman Islands continues to evolve its AML and counter-terrorist financing regime to meet international standards and local enforcement priorities. The jurisdiction's AML framework is principally anchored in the Proceeds of Crime Act (as amended) and the Anti-Money Laundering Regulations (as amended) and supported by detailed Guidance Notes issued by the Cayman Islands Monetary Authority ("CIMA").
Key Legislative and Supervisory Developments (2024–2025):
- EU Delisting: The Cayman Islands was removed from the EU's AML high-risk third country list, reflecting enhanced supervisory practices and legislative reforms.
- FATF Monitoring: The Financial Action Task Force acknowledged Cayman's progress in addressing strategic deficiencies, but the jurisdiction remains under enhanced follow-up and should continue to work with the Caribbean Financial Action Task Force ("CFATF") to sustain its improvements in its AML/CFT system.2
- CIMA Enforcement: CIMA has increased its oversight of AML compliance, particularly in the context of insolvency and restructuring. This includes scrutiny of suspicious activity reporting ("SAR") practices and beneficial ownership disclosures during liquidation.
AML Duties in the Insolvency Context:
- SARs: Practitioners are required to file SARs
where there is reasonable suspicion of money laundering, even if
the insolvency is not directly linked to criminal conduct. The
Proceeds of Crime (Amendment) Act, 2023 came into force on 2
January 20253 and introduces several key changes that
directly affect how SARs are handled. The key implication for
liquidators include the introduction of the Defence Against Money
Laundering ("DAML")/Consent Regime:
- Liquidators may proceed with certain actions after filing a SAR if no objection is received within the statutory timeframe (7 day window);
- In practice, the DAML regime has significant implications for cash-flow management and stakeholder expectations. The grant or refusal of consent often dictates the sequence in which assets can be monetised and claims satisfied; and
- Practitioners should be aware of the Financial Reporting Authority Advisory published in January 20254, which provides updated guidance on the operation of the DAML regime in the Cayman Islands, including best practices for SAR submissions and the consent process. Reference to this advisory is essential for ensuring compliance with the latest regulatory expectations.
- Beneficial Ownership and KYC: Liquidators who have gained control of the legal person must verify and disclose the beneficial ownership information, particularly when dealing with complex structures or cross-border assets. This obligation, in accordance with the beneficial ownership guidance, must be reported every 90 days to the competent authority.
- Cross-Border Coordination: The Cayman's AML regime interacts with foreign enforcement bodies, for example cases involving Hong Kong, the PRC, the UK, and the US which confirms that the AML Duties are not only domestically robust but also internationally integrated.
Case Spotlight: The Safe Hands Plans Scandal
The collapse of Safe Hands Plans, a UK-based prepaid funeral company, has become a landmark case in demonstrating the intersection of AML compliance and offshore insolvency. The scandal left over 46,000 customers facing a £60 million shortfall, with investigations revealing that customer funds, intended to be held in trust, had been diverted to a Cayman Islands mutual fund, Navigator.
The Safe Hands Plans Trust was originally settled by Safe Hands by a Trust Deed dated 6 March 2014, to safeguard the payments made by Plan Holders in respect of their funeral plans entered into with Safe Hands to ensure that such proceeds would be available to meet Safe Hands' liability to provide funerals for Plan Holders upon their death.
Fund Diversion and Misuse: According to FRP Advisory, the administrators of Safe Hands, a substantial portion of trust assets was funneled into Navigator, which then loaned approximately £28.7 million to SHP Capital Holdings, Safe Hands' parent company. These funds were used for high-risk, illiquid investments, loans to connected entities, and even to finance a film titled The Chelsea Cowboy.
FRP estimates that only £7.06 million to £9.39 million of trust assets may be recoverable, far below the £64 million to £70 million in estimated claims from funeral plan holders.
Cayman Islands Legal Response: In July 2023, JIM Nominees Limited submitted a winding-up petition against Navigator in the Cayman Islands, citing the misuse of trust funds. The Grand Court, presided over by Justice Kawaley, granted the petition and placed Navigator into liquidation. This legal action transferred control from Navigator's directors to licensed insolvency practitioners in the Cayman Islands, who are now tasked with investigating Navigator's affairs and ensuring that any distributions are properly applied.
Relevance to AML and Insolvency Practice:
- Illustrates how offshore structures can be exploited to obscure fund flows and evade regulatory scrutiny.
- Underscores the importance of early AML risk assessments and forensic reviews during insolvency proceedings.
- Validates the role of licensed Cayman insolvency professionals in restoring transparency and protecting investor interests.
- Highlights the need for cross-border coordination, especially when foreign entities and trust structures are involved.
In recent Cayman Islands insolvency matters, a consistent theme has emerged; the courts are increasingly responsive to insolvency petitions driven not by traditional cash flow insolvency, but by regulatory and reputational risks arising from suspected AML breaches. Petitioners have sought the appointment of provisional or official liquidators to mitigate exposure to potential criminal liability under the Proceeds of Crime Act. These cases often involve Cayman entities with substantial operations or assets in foreign jurisdictions, where conflicting legal advice and opaque fund flows may heighten the risk of AML non-compliance.
The Grand Court has shown a willingness to intervene early, recognising that even a low threshold of "suspicion" can justify protective relief. This evolving jurisprudence underscores the importance of early AML risk assessments, cross-border coordination, and the proactive engagement of insolvency professionals in safeguarding both legal compliance and stakeholder interests.
The Role of AML Specialists in Insolvency
AML specialists play a pivotal role in identifying red flags, conducting forensic reviews, and advising on suspicious activity reporting (SAR) obligations. Their involvement is particularly critical when:
- The insolvent entity has complex international structures.
- There are allegations of fraud or misappropriation.
- Liquidators must navigate conflicting legal advice across jurisdictions.
The Safe Hands Plans scandal exemplifies the need for AML expertise in insolvency cases involving potential misuse of client funds through Cayman structures.
Strategic Considerations for Practitioners
Practitioners should consider the following strategies:
- Early engagement with AML experts to assess exposure and guide SAR filings.
- Participant in continuous regulatory engagements and industry collaborations to keep well-informed of on-going regulatory enforcement trends and expectations.
- Cross-jurisdictional coordination, especially where foreign subsidiaries or assets are involved.
- Documentation and disclosure to maintain clear records of AML assessments and decisions to support transparency and regulatory compliance.
- Ongoing professional development by training and certification to enhance the ability to manage complex AML-insolvency intersections.
Conclusion
The integration of AML compliance into offshore insolvency is no longer optional, it is essential. Cayman practitioners must remain vigilant, informed, and proactive in addressing the legal and reputational risks that arise when financial crime and corporate failure overlap, as the legal, financial and reputational stakes are simply too high to treat AML compliance as a secondary concern.
Footnotes
1 a href="https://www.gov.uk/sfo-cases/safe-hands-plans-limited" target="_blank">https://www.gov.uk/sfo-cases/safe-hands-plans-limited – Safe Hands Plans Limited (in administration) ("Safe Hands") is a company incorporated in England. Safe Hands' business (before entering administration) consisted of providing pre-paid funeral plans to individuals in the United Kingdom. Its directors placed safe Hands into administration in England on 23 March 2022, with Ben Stanyon and Nedim Ailyan of FRP Advisory Trading Ltd appointed. A key aspect of the case is the alleged misuse of customer funds, with investments made into Navigator Global Fund Manager Platform SPC ("Navigator"), managed by Mollitium Investment Management, registered in the Cayman Islands. The Serious Fraud Office (SFO) is investigating potential fraud at the company and its parent, SHP Capital Holdings Ltd. The FRP (appointed administrators for Safe Hands) filed a winding-up petition against Navigator, citing alleged misuse of trust funds.
4 https://fra.gov.ky/industry-advisory/
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.
