THE Cayman Islands is to be included on the European Union's (EU) list of high-risk countries for money laundering in two weeks.
The inclusion of Cayman on the high-risk list is due to the fact that the EU has adopted a regulation to update its anti-money laundering (AML) list in line with the changes to the Financial Action Task Force's (FATF) grey list of jurisdictions whose anti-money laundering (AML) practices are under increased monitoring.
The European Commission adopted the regulation on January 7, 2022. Cayman was listed by the FATF in February 2021 for deficiencies in its AML framework and therefore will cause the Caribbean territory to be added to the EU's list of high-risk countries for money laundering.
However, most Cayman-based investment or other structures are not impacted by the listing, but it does affect certain securitisation vehicles that involve Cayman.
While Cayman is one of the few jurisdictions that is compliant with all 40 FATF technical criteria, the criticism of the island's AML regime is centred on the practical outcome of its rules in three of 11 monitored areas. Cayman has committed to working with the FATF, the international standard-setter on AML matters on implementing an action plan to address any outstanding issues.
The plan focuses on applying effective sanctions, penalties, and enforcement actions to ensure that breaches are quickly remediated. To be removed from the FATF list, Cayman must also demonstrate that all types of money laundering are prosecuted and that such prosecutions result in proportionate penalties.
The earliest opportunity for Cayman to be removed from the FATF grey list is at the end of 2022, but the delegated directive, which does not need to be transposed into the national laws of EU member states will come into effect provided the EU Parliament and council have no objections during a 30-day period.
The list will then take effect three weeks after publication in the official gazettes. In April 2021, the EU Securitisation Regulation came into effect, which prohibits the use of special purpose vehicles (SPVs) in EU AML-listed high-risk Third World countries.
However, this may, for example, prevent EU investors from investing in US collateralised loan obligations (CLOs) which typically use Cayman Islands SPVs. Cayman Islands CLO issuers have voiced such concerns since Cayman's FATF grey listing.