Cayman Islands’ FATF progress and EU listing update
On 25 February 2021, the Financial Action Task Force (FATF) added the Cayman Islands to its "Monitoring List", ie the list of jurisdictions under increased monitoring in the area of anti-money laundering / countering terrorist and proliferation financing (AML/CFT/CPF), as discussed in our previous client alert.
During its October 2021 plenary, the FATF positively recognized the Cayman Islands’ progress and ongoing efforts to improve its AML/CFT/CPF regime.
The FATF plan required the Cayman Islands to demonstrate effective and dissuasive sanctions for AML breaches, and also for beneficial ownership filing breaches, by January 2022; and to demonstrate AML prosecutions by May 2022. While it does not affect the FATF delisting, the Cayman Islands also is now either "compliant" or "largely compliant" with all 40 FATF Recommendations.
By progressing to completion the final outstanding recommendations arising from the effectiveness assessment, it is reasonable to expect that the Cayman Islands will be removed from the FATF's Monitoring List in the relative short term. It can also reasonably be expected that the proposal to add the Cayman Islands as a non-EU country considered to be at high risk for AML (the EU AML List) will fall away as a result of the FATF delisting. The EU is expected to finalise the EU AML List over the coming weeks.
At this time EU listing will, in accordance with the EU Securitisation Regulation enacted in 2021, prohibit EU financial institutions from using Cayman Islands entities for securitisations. The inclusion of the Cayman Islands on the EU AML List will require EU financial institutions to conduct enhanced due diligence on business relationships and transactions involving non-EU listed jurisdictions. This may include obtaining additional information on customers, beneficial owners, and the source of funds and wealth; and selecting patterns of transactions that need further examination.
There is no immediate impact for investors or clients using Cayman Islands structures and no direct penalties or sanctions would be imposed as a result of the Cayman Islands being added to the EU AML list. It’s also important to note that the EU AML List is unrelated to the EU’s tax blacklist.
Direct discussions will continue to be held with EU officials to determine the timeline and any additional actions to facilitate the jurisdiction’s removal from the list.
A copy of the 24 January 2022 press release from the Cayman Islands Government’s Ministry of Financial Services and Commerce can be found here.