Cayman Islands real estate sector poses money-laundering risk, according to national assessment

Monday, 08 August 2022
The Cayman Islands' lack of restrictions on foreign ownership of local real estate makes the sector ‘highly vulnerable’ to both money laundering and terrorist finance abuse, according to a government report.
Cayman currency

The report on designated non-financial business and professions, along with the recently published national money laundering risk assessment for 2021, note that the real estate and property development market boomed since the start of the pandemic, with 2021 outperforming 2020. Previous risk assessments had recognised that high-value Cayman Islands property is attractive for both money laundering and the investment of criminal proceeds, with a large number of transactions involving overseas buyers. The risk assessment found this provides fertile ground for laundering cash, especially during a boom. It also noted that the risk may also have been increased by the government's COVID-19 relief measures, which included permitting individuals to access up to 25 per cent of their retirement pension funds in cash.

The Department of Commerce and Industry audited a sample of 56 property developers and real estate agents for anti-money laundering (AML) compliance and found that 22 of them were lacking in some respect. They most commonly failed to carry out an independent audit of their AML system, but many also lacked policies to deal with politically exposed persons or to properly collect and maintain customer due-diligence records. Twelve could not vet their clients against sanctions lists.

Beneficial ownership regulations were also enforced inconsistently, the report found. Such regulations are often circumvented by using a nominee as purchaser and adding the beneficial owner to the purchase agreement at the last minute, says the risk assessment.

'Given the openness of the real estate market to international client, and the number of products catering to UHNWI [ultra-high-net-worth individuals] and HNWI [high-net-worth individuals], the customer risk is deemed medium-high', it concludes.

In July 2022, the Financial Action Task Force published the results of its recent consultation on AML in the real estate sector and issued new risk-based guidance based on the findings. It found vulnerabilities including exploitation by politically exposed persons, the purchase of luxury real estate, the use of virtual assets, the use of anonymous companies and gatekeepers as instruments to launder the proceeds of crime.

Sources

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