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Cayman government hits back at money laundering ‘blacklisting’ by UK

Monday, 18 August, 2014

The Cayman Islands government has expressed astonishment and horror at its inclusion on the UK financial regulator’s list of high-risk jurisdictions for money laundering.

The list was published by the UK Financial Conduct Authority on 18 July, in response to a Freedom of Information Act request from an unidentified person. It does not include any of the other British Overseas Territories or Crown Dependencies. Most of its 95 entries are undeveloped nations with weak economies or unstable political systems, although it also includes Brazil, India, Israel and South Africa as well as Russia and the People’s Republic of China.

The FCA says a jurisdiction’s presence on the list is determined by the prevalence of ‘business relationships with higher risk factors’. These factors include country risk, company structures, political connections, the customer’s or beneficial owner’s reputation, source of wealth, source of funds, expected account activity, sector risk, and involvement in public contracts.

Before the list was even published, the Cayman government said it was ‘astounded’ at the list, which ‘defies logic and the facts’. Financial services minister Wayne Panton demanded the FCA provide an explanation or a correction.

In a letter to FCA chair John Griffith-Jones, Panton expressed ‘great consternation’ at Cayman’s inclusion on the list, which he called ‘wholly arbitrary’. He pointed out that Cayman and the UK are rated equally in the OECD’s latest global tax transparency forum rankings, and that Cayman company regulation is in many ways more stringent than that of the UK.

He also noted that the Cayman Islands is not included in any of the Financial Action Task Force’s list of high-risk and non-cooperative jurisdictions. It does appear on the HM Treasury Sanctions List, but so do the BVI, Jersey and the Isle of Man, which are not on the FCA blacklist.

Panton’s letter also hinted that the FCA’s motives were questionable: ‘The FCA’s statements demonstrate an unexplained reliance on a specially chosen set of indices, the contents of which do not support the inclusion of the Cayman Islands on the list.’

Cayman Chamber of Commerce president Johan Moxam described the listing as an ‘insult’ and a ‘deliberate and misguided attempt to smear Cayman’s reputation and credibility as one of the world’s best regulated jurisdictions.’ Cayman Finance chief executive Gonzalo Jalles said it was ‘hypocritical ... [the FCA] do not practice what they preach.’

In a statement, law firm Maples and Calder said: ‘We agree with the Cayman Islands government that the listing is unreasonable, unfair and does not take into account the facts of the Cayman Islands’ excellent record of cooperation with the international regulatory community and maintenance of international standards in relation to anti-money laundering and exchange of tax information.’

However, the FCA has rejected Panton’s request. In its reply it pointed out that inclusion of a country on the list ‘does not imply that we consider that its authorities do not take seriously their responsibilities to combat money laundering or other financial crimes’. The list is merely ‘one of a number of tools ... to provide us with a guide to countries who may pose risks to our remit to tackle financial crime including money laundering.’

The FCA reply ended by stating: ‘We have concluded that the Cayman Islands should remain on the list. In reaching this decision, we took account of factors including those indices and a range of publicly available information which indicates high levels of money laundering risk remain and potential weaknesses in the Cayman Islands’ AML framework.’

Panton is unhappy with this reply. ‘Having received the FCA’s disingenuous response, rest assured that Government is considering all options available to us, including judicial review which will seek to reverse the FCA’s decision’, he said.

UPDATE: Following publication of this story the original link to the FCA list of high-risk jurisdictions seems to have been disabled and a new page published (as of the afternoon of 18/8/2014 - see link below). Included on this new page is a note stating: 'The list is currently undergoing its quarterly review and an updated list will be published in due course.'

Sources