Guidance Notes on the Prevention ... - Cayman Islands dollar

1 Guidance Notes on the Prevention and Detection of Money Laundering, Terrorist Financing and Proliferation Financing in the Cayman Islands 5 JUNE 2020 Guidance Notes ML/TF/PF Page 2 of 240 Guidance Notes ON THE Prevention AND DETECTION OF MONEY LAUNDERING, TERRORIST FINANCING AND PROLIFERATION FINANCING IN THE Cayman Islands Issued by the Cayman Islands Monetary Authority Pursuant to Section 34 of the Monetary Authority Law (2020 Revision) [June 5th 2020] These Guidance Notes replace the Guidance Notes on the Prevention and Detection of Money Laundering, Terrorist Financing and Proliferation Financing issued in December 2017 (the December 2017 GNs );and related amendments.

2 This document is intended to establish the minimum requirements in addition to providing general Guidance to Financial Service Providers ( FSPs ). It should therefore, not be relied upon as a source of law. Reference for that purpose should be made to the appropriate statutory provisions. However, FSPs should be aware of the enforcement powers of the Supervisory Authorities under the Anti-Money Laundering Regulations (2020 Revision) (as amended) ( AMLRs ) as they relate to supervisory or regulatory Guidance . Contact: Cayman Islands Monetary Authority SIX, Cricket Square Box 10052 grand Cayman KY1-1001 Cayman Islands Tel:345-949-7089 Fax: 345-945-6131 Website: Email: Guidance Notes ML/TF/PF Page 3 of 240 FOREWORD The Cayman Islands , being one of the leading international financial centres, has framed its regulatory system around international standards of supervision and co-operation with overseas regulatory authorities in the fight against financial crime.

3 The Islands seek to maintain their position as a premier jurisdiction, while at the same time ensuring that their institutions can operate in a competitive manner. The Cayman Islands Monetary Authority ( Monetary Authority ) is particularly aware of the global nature of the fight against money laundering, terrorist financing and other financial crime, and the consequent need for all jurisdictions to operate their Anti-Money Laundering and Countering the Financing of Terrorism ( AML/CFT ) and regulatory regimes co-operatively and compatibly with each other. This is both to limit opportunities for "regulatory arbitrage" by criminals and to promote an internationally level playing field for legitimate businesses.

4 These Guidance Notes establish the requirements and provide guidelines that should be adopted by FSPs in order to maintain the integrity of the Cayman Islands financial sector in respect of preventing and combating money laundering ( ML ), terrorist financing ( TF ) and proliferation financing ( PF ) The Guidance Notes are based on the AML/CFT legislation of the Cayman Islands and reflect, so far as applicable, the 40 Recommendations and Guidance papers issued by the Financial Action Task Force ( FATF ). The Monetary Authority stands ready to discuss individual cases with FSPs to assist in the practical implementation of these Guidance Notes .

5 We hope that you find the enclosed content of assistance. Cindy Scotland Managing Director Guidance Notes ML/TF/PF Page 4 of 240 TABLE OF CONTENTS FOREWORD .. 3 PART I .. 6 SCOPE AND GENERAL MATTERS .. 7 Cayman Islands LEGISLATIVE AND REGULATORY FRAMEWORK ..16 PART II ..20 GENERAL MATTERS ..21 COMPLIANCE PROGRAMME, SYSTEMS AND TRAINING OBLIGATIONS ..22 ASSESSING RISK AND APPLYING A RISK BASED APPROACH ..27 CUSTOMER DUE DILIGENCE ..39 SIMPLIFIED DUE DILIGENCE MEASURES ..56 ENHANCED CDD MEASURES ( EDD ) ..63 POLITICALLY EXPOSED PERSONS ..66 RECORD-KEEPING PROCEDURES ..69 MONEY LAUNDERING REPORTING OFFICER ..72 OTHER INTERNAL CONTROLS.

6 79 IDENTIFICATION AND RECORD-KEEPING REQUIREMENTS RELATING TO WIRE TRANSFERS .. 85 CORRESPONDENT BANKS ..90 SANCTIONS COMPLIANCE ..92 COUNTER PROLIFERATION FINANCING ..94 TARGETED FINANCIAL SANCTIONS ..103 ONGOING MONITORING ..116 SECTOR SPECIFIC Guidance PART III - BANKS AND OTHER DEPOSIT TAKING FINANCIAL INSTITUTIONS ..123 RETAIL BANKS AND NON-RETAIL BANKS ..124 CREDIT UNIONS ..135 BUILDING SOCIETIES ..140 PART IV - FIDUCIARY (COMPANY FORMATION AND TRUSTS) ..145 COMPANY FORMATION AND MANAGEMENT ..146 TRUSTS ..152 PART V - INSURANCE SECTOR ..160 INSURANCE BUSINESS ..161 INSURANCE MANAGERS ..171 PART VI - MUTUAL FUNDS AND MUTUAL FUNDS ADMINISTRATORS.

7 174 MUTUAL FUNDS AND MUTUAL FUND ADMINISTRATORS ..175 PART VII - MONEY SERVICES BUSINESS, OTHER REGULATED FINANCIAL INSTITUTIONS AND UNSUPERVISED LENDERS .. 184 MONEY SERVICES BUSINESS ..185 Cayman Islands DEVELOPMENT BANK ..200 Guidance Notes ML/TF/PF Page 5 of 240 LOANS BY UN-SUPERVISED LENDERS ..204 PART VIII - SECURITIES INVESTMENT BUSINESS ..207 SECURITIES INVESTMENT BUSINESSES ( SIBS") ..208 PART IX - VIRTUAL ASSET SERVICE PROVIDERS ..216 VIRTUAL ASSET SERVICE PROVIDERS ..217 GLOSSARY AND ACRONYMS ..228 APPENDIX A - ELIGIBLE INTRODUCER'S (ASSURANCE) FORM ..232 APPENDIX B - REQUEST FOR VERIFICATION OF CUSTOMER IDENTITY.

8 234 APPENDIX C - FLOW CHART WHERE APPLICANT IS INTRODUCED BY EI ..235 APPENDIX D - EXAMPLES OF UNUSUAL OR SUSPICIOUS ACTIVITIES ..236 APPENDIX E - FSP INTERNAL (SUSPICIOUS ACTIVITY) REPORT FORM ..240 Guidance Notes ML/TF/PF Page 6 of 240 Guidance Notes ON THE Prevention AND DETECTION OF MONEY LAUNDERING, TERRORIST FINANCING AND PROLIFERATION FINANCING IN THE Cayman Islands PART I AML/CFT FRAMEWORK OF THE Cayman Islands Guidance Notes ML/TF/PF Page 7 of 240 SECTION 1 SCOPE AND GENERAL MATTERS A. INTRODUCTION 1. Money Laundering is a global phenomenon that affects all countries to varying degrees.

9 By its very nature it is a hidden activity, and therefore the scale of the problem, and the amount of criminal money being generated and laundered either locally or globally each year is impossible to measure accurately. Failure to prevent the laundering of the proceeds of crime allows criminals to benefit from their actions, making crime a more attractive proposition. 2. Having an effective AML/CFT regime has become a major priority for all jurisdictions from which financial activities are carried out. Being used for Money Laundering ( ML ), Terrorist Financing ( TF ) and Proliferation Financing ( PF ) exposes FSPs to significant operational, regulatory, legal and reputational risks.

10 The adoption and effective implementation of appropriate control processes and procedures by FSPs is not only a principle of good business but is also an essential tool to avoid involvement in ML, TF and PF. 3. It is important that the management of FSPs view Prevention of ML, TF and PF as part of their risk management strategies and not simply as a stand-alone requirement that is being imposed by the legislation. ML, TF and PF Prevention should not be viewed in isolation from an institution s other business systems and needs. 4. The AMLRs require relevant financial businesses to establish systems to detect ML/TF, and therefore assist in the Prevention of abuse of their financial products and services.