Maples Corporate Services Ltd and MaplesFS Ltd win judicial review against Cayman Islands Regulator over AML
In a landmark decision, the Cayman Islands Grand Court ruled in favour of Maples Corporate Services Ltd (MCSL) and MaplesFS Ltd (MFS) in their judicial review challenges against the Cayman Islands Monetary Authority (CIMA). The ruling, delivered by Justice Kawaley on 30 March 2023, quashes all findings and requirements imposed by CIMA, but rejects the contention that CIMA has no power at all to impose requirements on financial services providers.
Background and key findings
The case, Maples Corporate Services Ltd and MaplesFS Ltd v Cayman Islands Monetary Authority, was centred around findings by CIMA that MCSL and MFS had breached the Cayman Islands Anti-Money Laundering Regulations (AML Regulations). The decision is of considerable importance for Cayman Islands financial service providers, particularly those providing registered office and related services.
Justice Kawaley's judgement provides an in-depth analysis of the Cayman Islands anti-money laundering regime, the AML Regulations, statutory requirements of due diligence, and the function and powers of CIMA. His decision primarily turns on the construction of Regulation 12(1) of the AML Regulations.
In summary, Justice Kawaley found that CIMA's approach was based on too rigid a construction of the AML Regulations, which he found were intended to be flexible to the particular circumstances and risks involved in specific clients' cases.
Implications and recommendations for the future
Justice Kawaley's decision offers guidance for providers of registered office and related services, as well as financial service providers in general about what compliance with the AML Regulations may require. In particular, it provides a reminder that the AML Regulations provide that a risk-based approach should be adopted by financial services providers to their compliance programmes, with flexible procedures depending on the client relationship and risk level assigned to a client.
Among the suggestions included in the judgment were:
- Ensuring that a contractual relationship exists with clients requiring notification of any material change in business activities to the financial services provider
- Putting in place arrangements with other service providers to share information about client due diligence concerns regarding unusual transactions (subject, of course, to confidentiality obligations)
- Taking into account the extent to which it is reasonable to rely on third-party service providers with more visibility of the client's transactions to monitor them when carrying out risk assessments
- For high-risk clients, conducting periodic high-level reviews of documents filed to identify any obvious red flags for further enquiry
- Using an appropriate risk assessment programme to focus compliance efforts on higher risk clients
The decision emphasises that it is for the corporate service provider to properly risk assess all clients and then to develop solutions that are bespoke for each particular business relationship. It is then for CIMA to stress-test those solutions with a suitably flexible yet firm approach to inspection.
This significant ruling in favour of MCSL and MFS underscores the importance for financial service providers of adopting a risk-based and flexible approach to compliance with the AML Regulations. While the court did find that CIMA had the power to impose requirements on financial services providers, the decision calls for a more nuanced interpretation of AML Regulations and due diligence obligations by the regulator.
The Court ruling can be found here.
CIMA issued a press release in response to the judgment on 5 April 2023, which can be found here.
Our Offshore Litigation Blog post can be found here.