The Cayman Islands is actively preparing for a major international assessment of its financial crime prevention systems, according to the Cayman Islands Monetary Authority.
The Financial Action Task Force (FATF)’s fifth-round mutual evaluation is expected to take place in late 2027, with technical compliance information due earlier that year.
The onsite assessment will be conducted by the Caribbean Financial Action Task Force.
The FATF sets global standards for fighting money laundering, terrorist financing and other financial crimes.
This evaluation brings significant changes from previous rounds, with four key areas receiving enhanced scrutiny, a 13 August press release from the authority explained.
Greater focus on results
The assessment will examine whether Cayman’s anti-crime systems actually work in practice, not just whether laws exist on paper.
The fifth-round mutual evaluations reinforce the focus on effectiveness to measure how well countries are implementing laws, regulations and policies in line with the standards.
The evaluation will place a stronger emphasis on risk and context, the press release said.
Different types of businesses will be assessed separately – traditional financial companies like banks will be evaluated alongside Designated Non-Financial Businesses and Professions such as lawyers, accountants, real estate agents and casinos.
This approach will allow for targeted recommendations for improvement in each sector.
New focus on weapons financing
Countries and territories must now actively prevent money from funding weapons of mass destruction programmes – an area called proliferation financing.
Following revisions of Recommendation 1 in October 2020, jurisdictions and private sector entities are now mandated to identify, assess, understand and mitigate their proliferation financing risks.
This means companies must check their customers against lists of sanctioned individuals and organisations to ensure they are not helping fund weapons programmes.
Revealing true ownership
The evaluation will scrutinise whether Cayman can identify who really owns and controls companies and trusts, beyond just the names on official documents.
The findings of previous rounds evidenced that there is much improvement needed globally around beneficial ownership transparency.
In response, the FATF has revised key recommendations, and particular emphasis will be placed on evaluating countries’ adherence to these provisions.
Seizing criminal assets
New standards demand better performance in confiscating money and property from criminals.
It is estimated that less than one percent of global illicit financial flows is recovered.
Given that one of the core aims of the FATF is to deprive criminals of their illicit assets, the organisation released amendments in November 2023 to strengthen asset recovery at both domestic and international levels.
What companies must do
Financial service providers – including banks, investment firms and insurance companies – face specific preparation requirements.
Companies must demonstrate their anti-crime systems actually work in practice. Since there will be a greater emphasis on effectiveness, financial service providers should ensure they can show how effective their mechanisms are in achieving the intended outcome.
Comprehensive record-keeping has become essential. Companies should maintain information, data, statistics and case studies covering up to five years before the inspection.
The regulatory authority noted that even information on deficiencies or system failures identified and subsequently rectified is useful, as it shows progress made.
Board-level awareness is now required. It is imperative that there is board level awareness of the upcoming process to ensure support for any necessary enhancements to compliance programmes.
Companies must conduct proliferation financing risk assessments and implement screening procedures for customers on an ongoing basis, the press release said.
They must also ensure adequate mechanisms are in place for collecting, verifying and retaining accurate beneficial ownership information that can be easily accessed when requested by authorities.
Before the international evaluation begins, the government will conduct its own national risk assessment of money laundering, terrorist financing and proliferation financing threats.
FSPs are encouraged to take a proactive approach in this upcoming assessment, as the findings will assist companies in conducting their own risk evaluations.
