Prosecuting money laundering offenses in the Cayman Islands: A balancing act

All thieves tend to spend the proceeds of their [crime] if they can before being apprehended. […] Alleging that they are also money launderers because they manage to spend some or all of the proceeds of their predicate crime generally adds nothing to the gravity of their conduct. […] I see no necessary public purpose in proceeding with the counts of money laundering on the facts of this case.”

These were the words of the trial judge in a sentence ruling dated Aug. 1, 2016, in a case before the Grand Court of the Cayman Islands. The defendant pleaded guilty to six of 14 counts of a criminal indictment, nine of which related to money laundering offenses under the Proceeds of Crime Law (2014). Among the guilty pleas were two for money laundering offenses.

Many in the financial sector in the Cayman Islands may be familiar with this case. However, few may have given much thought to the potential impact of the judge’s actual approach.

The Cayman Islands has worked hard to establish its reputation as a leading international offshore jurisdiction. It has, with great effort, emerged from the shadows of being considered a non-compliant, secretive jurisdiction, and a haven for financial evil-doers. In this regard, it is well documented that during the third round of mutual evaluations based on Financial Action Task Force standards, the jurisdiction achieved a high degree of compliance when compared with several advanced economies.

The jurisdiction has, over the years, also put in place a framework to protect against the threats of money laundering and terrorist financing to the broader economy and financial system, with the goal to put the Cayman Islands in a position to maintain reputational integrity and security in the financial sector and the economy as whole, and to comply with international standards set by the FATF.1

In 2017, the Cayman Islands will be undergoing a fourth round of mutual evaluation based on FATF standards. In the fourth round, jurisdictions will be assessed not only for technical compliance with the FATF 40 Recommendations, but also on the effectiveness of 11 Immediate Outcomes.

Of particular relevance to the present discussion is how the Cayman Islands will fare on the assessment of the 7th Immediate Outcome that will seek to measure whether: “Money Laundering offenses and activities are investigated and offenders are prosecuted and [made] subject to effective, proportionate and dissuasive sanctions.”

In addition to the 10 other Immediate Outcomes, what the assessors will be primarily focused on is how well the component parts of this 7th Immediate Outcome operate to mitigate the money laundering risks in the Cayman Islands. They will therefore be assessing effectiveness of the jurisdiction’s AML/CFT enforcement mechanisms.

The incidence of prosecutions for all types of money laundering, including self-laundering (i.e. where the person is involved in the predicate offense) will also be reviewed, and an important component will be the extent to which offenses are investigated, prosecuted and offenders convicted of money laundering and sanctioned appropriately.

The relevance of the judge’s comments should now be immediately apparent. While one should always be respectful of the judiciary’s freedoms and cognizant that precedent and sentencing rules may have played in a part in the outcome of this particular case, context must not be overlooked in the consideration of matters such as these.

To this end, the following are particularly relevant: (i) the crime occurred in or originated from the Cayman Islands; (ii) the reputation of the jurisdiction is of utmost importance to our standing in the international offshore financial sector; and (iii) the jurisdiction has a major role to play in, and international commitments relative to, deterring money laundering and countering the financing of terrorism.

Because of these and other factors, prosecuting the money laundering offenses under the Proceeds of Crime Law (2014), (and moving away from the practice of having the charges “lie on the file”) is supremely important, and may well be even more important in the Cayman context.

The judge in our local case referred, inter alia, to judicial guidance offered in R v. GH2, a recent case heard in the Supreme Court of England and Wales, which effectively dissuaded the prosecution of the money laundering offenses in circumstances where guilt is established in the predicate offenses. It would be a national dilemma indeed if the Cayman Islands followed precedent, but were to fail the assessment of the 7th Immediate Outcome as a consequence.

Perhaps the answer lies in a consideration of a broader “public purpose” in the context of the Cayman Islands, since we are but three small islands trying to maintain a large international reputation for compliance, not only with anti-money laundering measures, but also for tax information transparency and international cooperation.

The Cayman Islands should seek to better balance the impact on the gravity of a criminal’s conduct with a clear understanding of the jurisdiction’s reputational risk in the context of compliance with anti-money laundering standards than may have been reflected in the judge’s remarks, to ensure that every aspect of our national framework to deter money laundering and counter terrorist financing should be seen as working cohesively in order to demonstrate effectiveness.

 

ENDNOTES
  1. Although the recent national risk assessment identified a few areas where further strengthening is required, it is notable that steps are being taken to address these and to enhance the legislative framework accordingly.
  2. [2015] UKSC 24.
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Simone Proctor
Simone Proctor is a Regulatory and Listings Consultant with an extensive legal and regulatory background in financial services. She is a co-founder of EMEROLD GRACE LTD in the Cayman Islands.

EMEROLD GRACE LTD, Cayman Islands