US LABELS CAYMAN 'MAJOR MONEY LAUNDERING COUNTRY'

A major US government report has included the Cayman Islands in a
worldwide list of major money laundering countries.

The report, prepared by the United States Department of State Bureau
for International Narcotics and Law Enforcement Affairs and entitled
'International Narcotics Control Strategy Report', concedes that the
Cayman Islands have made serious inroads into the threat of their
offshore status being used for laundering drug money but warns that
"The complex nature of money laundering transactions today makes it
difficult in many cases to distinguish the proceeds of narcotics
trafficking from the proceeds of other serious crime. Moreover,
financial institutions engaging in transactions involving significant
amounts of proceeds of other serious crime are vulnerable to
narcotics-related money laundering."

The report includes the legal definition of a major money laundering
country as one "whose financial institutions engage in currency
transactions involving significant amounts of proceeds from
international narcotics trafficking."

The 2008 list of major money laundering countries includes all
countries and other jurisdictions whose financial institutions engage
in transactions involving significant amounts of proceeds from all
serious crime.

The Cayman Islands are part of the Caribbean/Central American area
that also includes Antigua and Barbuda, the Bahamas, Belize,
Colombia, Costa Rica, the Dominican Republic, Guatemala, Haiti,
Mexico, Panama and Venezuela.

Globally, major countries like Australia, Canada, China, France,
Germany, India, Israel, Italy, Japan, Russia, the United Kingdom and
the United States all find themselves listed.

Listing the countries individually, the report notes that "The Cayman
Islands, a United Kingdom (UK) Caribbean overseas territory,
continues to make strides in strengthening its anti-money laundering
and counter-terrorist financing regime.

"However, the islands remain vulnerable to money laundering due to
their significant offshore sector. Most money laundering that occurs
in the Cayman Islands is primarily related to fraud (particularly
securities fraud), drug trafficking, and tax evasion."

The report identifies the Cayman Islands as home to a well-developed
offshore financial centre that provides a wide range of services,
including banking, structured finance, investment funds, various
types of trusts, and company formation and management.

It says there are approximately 450 banks and trust companies, 8,600
funds, 740 captive insurance companies, and 62,572 exempt companies
licensed or registered in the Cayman Islands.

The report continues by dealing with restrictions, confirming that
"Shell banks are prohibited, as are anonymous accounts. Bearer shares
can only be issued by exempt companies and must be immobilized.
Gambling is illegal; and the Cayman Islands does not permit the
registration of offshore gaming entities" and making reference to
recent revisions in the Proceeds of Criminal Conduct Law (PCCL).

After listing in detail the role of Cayman Islands Monetary Authority
(CIMA) in fulfilling the islands' anti-money laundering and
counter-terrorist financing (AML/CTF) obligations, the report deals
with levels of suspect activity.

In the 2006/7 financial year, 219 Suspicious Activity Reports (SAR)
were filed and, as of August 2007, nine requests for information from
outside the Cayman Islands had been dealt with and seven disclosures
to foreign law enforcement organisations had been prepared.

The report also states that there have been five money-laundering
convictions in the Cayman Islands since 2003 and over US$120 million
in assets has been frozen or confiscated in the same period.

Dealing specifically with terrorism, the report acknowledges that the
Cayman Islands is subject to the United Kingdom Terrorism (United
Nations Measure) (Overseas Territories) Order 2001 but goes on to
point out that the United Kingdom has yet to extend the application
of the International Convention for the Suppression of the Financing
of Terrorism to the Cayman Islands.

It continues, "The Cayman Islands criminalised terrorist financing
through the passage of the Terrorism Bill 2003, which extends
criminal liability to the use of money or property for the purposes
of terrorism. It also contains a specific provision on money
laundering related to terrorist financing."

But then reports that "There have been no terrorist financing
investigations or prosecutions to date in the Cayman Islands."

Quite what impact the report, which was made public on 29 February,
will have is unclear, at the time of going to press it had proved
impossible to get an official response to the contents.

However, the Cayman Islands Financial Services Association (CIFSA)
recently expressed its concern that, despite the efforts of Cayman's
service providers and that of the Regulatory Authority, there remains
the failure of certain international financial centres to recognise
the Cayman Islands' Anti Money Laundering (AML) regime.

"This situation is difficult to understand given that Cayman's AML
framework is among the strongest in the world and is more robust than
many onshore countries. When the AML regulations were introduced
internationally they were universally to be applied retroactively,"
said Eduardo Silva, Chairman of CIFSA.