November 18, 2019

Fury over FCA including Cayman Islands on its “High Risk List”

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The logo of the new Financial Conduct Authority is seen at the agency's headquarters in the Canary Wharf business district of LondonThere has been much fury from the Cayman Islands over the ’s () placing the Cayman Islands on their High Risk List.

The FCA states on its website:

“We regulate the financial services industry in the UK. Our aim is to protect consumers, ensure our industry remains stable and promote healthy competition between financial services providers. We have rule-making, investigative and enforcement powers that we use to protect and regulate the financial services industry. We are fair and principled in our approach to regulation.”

Hon G Wayne Panton MLA 1

Hon G Wayne Panton MLA

“How we are governed

“The Board sets FCA policy, but day-to-day decisions and staff management are the responsibility of our Executive Committee.

“We are accountable to the Treasury and, through them, to Parliament.

“We are operationally independent of Government and funded entirely by the firms we regulate.

“We are an open and transparent organisation providing information for firms, consumers and others about our objectives, plans, policies and rules.

Screen Shot 2014-08-16 at 2.41.24 PM“We also ask the difficult questions, that sometimes regulators shy away from asking, of firms, ourselves and consumers.”

For more go to: http://www.fca.org.uk/

Cayman Islands Government details its response to FCA’s ‘High Risk’ List

Before the UK’s Financial Conduct Authority (FCA) published its list of ‘high risk countries’ on 18 July, the Cayman Islands Government had written to authority officials to officially request a justification of the FCA’s methodology, or an immediate correction.

Government sent the letter to the FCA on 8 July, after it learned days earlier that this list existed with Cayman on it and that it was to be released following an FOI request, said Minister of Financial Services Wayne Panton.

‘Government is astounded that the UK would put Cayman on the list, as both Cayman and the UK have been rated equally in the OECD’s 2013 Global Forum on Transparency and Exchange of Information for Tax Purposes rankings’, he said, noting that Cayman also ranked higher than most of the G8 countries.

Screen Shot 2014-08-16 at 2.41.39 PM‘Furthermore, there are areas in which Cayman has been ahead of the UK for more than a decade –for example, collection of KYC information on legal structures’, the Minister said.

He added that Government questions the FCA’s motive for including Cayman on the list, particularly in light of consistent third-party acknowledgements of the robustness of Cayman’s regime.

‘It defies logic and the facts’, he said. ‘However, regardless of the FCA’s motive, Government must deal with this matter in a responsible manner. Matters of diplomacy are often difficult to conduct in the public sphere. While Government wants to be in the position of airing important matters, such as this one, to the public at an early stage, we do have to assess whether, on balance, the interests of our country is better served by attempting to resolve such matters quietly’.

Minister Panton said that although the list is not a ‘black list’, it does have reputational implications.

‘We take this matter seriously. Having recently received the FCA’s disingenuous response, rest assured that Government is considering all options available to us, including judicial review which will seek to reverse the FCA’s decision to include Cayman on the list’.

The Cayman Islands included on list of High Risk Countries by the UK Financial Conduct Authority

Statement From MAPLES

We are aware that the Cayman Islands has been cited on a list of 95 “high risk” countries, as defined by the UK’s Financial Conduct Authority. In light of the published criteria to make the determination as to which countries are included, we agree with the Cayman Islands government that the listing is unreasonable, unfair and does not take into account the facts of the Cayman Islands’ excellent record of cooperation with the international regulatory community and maintenance of international standards in relation to anti-money laundering and exchange of tax information.

We are confident that the Cayman Islands government is doing everything in its power to address the situation and ensure that the report is corrected to effectively and immediately remove our jurisdiction from the list.

See attached links, wherein the Cayman Islands has demonstrated its commitment to international cooperation and transparency, and includes various rankings, ratings and memberships with global regulators.

To download the links in the attachments:

Cayman Islands: Report on the Observance of Standards and Codes, FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism: http://www.imf.org/external/pubs/ft/scr/2009/cr09324.pdf

IOSCO Membership: Cayman Islands http://www.cimoney.com.ky/about_cima/about_feed.aspx?id=2090

CFATF listing: Cayman Islands: https://www.cfatf-gafic.org/index.php?option=com_content&view=category&layout=blog&id=357&Itemid=542&lang=en

FATF Listing: Cayman Islands: http://www.fatf-gafi.org/countries/a-c/caymanislands/

Moodys Rating: Cayman Islands: https://www.moodys.com/research/Moodys-Affirms-the-Cayman-Islands-Aa3-Sovereign-Rating-Maintains-Stable–PR_266123

OECD Reports: Cayman Islands: http://www.oecd.org/countries/caymanislands/

US FATCA and the Cayman Islands:           https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FINAL%20US%20-%20Cayman%20Islands%20-%20Cayman%20alternat.pdf

UK FATCA and the Cayman Islands            http://www.hmrc.gov.uk/fatca/cayman.pdf

Ugland House Explained: http://www.uglandhouse.ky/regulators.html

GAO REPORT: Cayman Islands: http://www.uglandhouse.ky/PDF/GAO_Report.pdf

Sound bites: http://www.uglandhouse.ky/PDF/GAOReport_SoundBites.pdf

About Maples and Calder

Maples and Calder is a leading international law firm advising financial, institutional, business and private clients around the world on the laws of the Cayman Islands, Ireland and the British Virgin Islands. Maples and Calder has offices in the Cayman Islands, the British Virgin Islands, Dubai, Dublin, Hong Kong, London and Singapore.

With a reputation as an innovative, entrepreneurial firm, Maples and Calder is known worldwide as a market leader with highly qualified lawyers who are specialists in their respective practice areas.

About MaplesFS

MaplesFS is a leading specialised fiduciary and fund services provider. MaplesFS has offices in the Cayman Islands, Delaware, Dubai, Dublin, Hong Kong, Luxembourg, Montreal, New York and Singapore.

MaplesFS is led by a team of experienced professionals and is committed to providing a high level of service tailored to specific client requirements.

END

A transcript of Mr Panton’s letter to the Financial Conduct Authority in London follows:

TO: Mr John Griffith-Jones

Chairman of the Board, Financial Conduct Authority

25 The North Colonnade

Canary Wharf

London E14 SHS

FROM: G Wayne Panton

Minister of Financial Services, Commerce and Environment

Cayman Islands Government

Your Ref: FOI3320

Dear Mr Griffith-Jones,

The Cayman Islands Government has noted, with great consternation, the inclusion of the Cayman Islands on the list of the Financial Conduct Authority’s ‘High Risk Countries’, as released to the applicant on 24 June 2014 as part of a Freedom of Information (Fol) request.

Based on our review (as attached) of the sources you’ve cited, Cayman’s inclusion on this list is wholly arbitrary. Furthermore, it is contrary to our consistent adherence to international AML-CFT standards­ a practice for which we have been favourably assessed by independent, supranational organisations.

Our engagement and support for the UK in its transparency agenda places our jurisdiction among the vanguard,as underscored in current reports issued by organisations including the Global Forum on Transparency and Exchange of Information for Tax Purposes, the Financial Action Task Force, the Financial Stability Board, and Moody’s; and also by countries, including the US and the United Kingdom itself.

Moreover, UK Prime Minister David Cameron himself, in comments before the House of Commons in September 2013, spoke unambiguously about the fairness and openness of Cayman’s tax system.

I also remind the FCA that for more than a decade, Cayman has collected and maintained information on the beneficial ownership on Cayman Islands-registered companies; and that independent reviews of Cayman’s regime have found that this information is indeed easily accessible, in a timely manner, to legal, regulatory and tax authorities. Many countries, including the UK, do not currently have this high degree of robustness in their systems.

Although this information about our regime is readily available, it appears that FCA management and/or staff did not engage in a reasonable consideration of our actions; nor did they logically consider the various third-party assessments that support the quality of our regulatory environment. Indeed, the FCA’s statements demonstrate an unexplained reliance on a specially chosen set of indices, the contents of which do not support the inclusion of the Cayman Islands on the list.

It also appears that the FCA’s answer is more expansive than the FoI query requires. The questioner asked the FCA to name jurisdictions that it considers to be ‘high risk’ to the integrity of the UK financial system in terms of money laundering or terrorist financing.

Without   justification, the FCA’s response veers outside of this parameter by including the FCA’s assessment of the impact presented by a given country by way of the size of its economy (GDP) or financial markets. There is no explanation provided regarding why this criterion was included in the response, or its relevance.

Based on the above, this letter is an official request for the FCA to either justify its methodology, or to issue an immediate correction. We await your response.

Minister of Financial Services, Commerce and Environment

cc: Parliamentary Under Secretary of State for Foreign and Commonwealth Affairs, Mark Simmonds, MP

Financial Conduct Authority

FOI Request Analysis

Analysis

1.   The assessment considers the impact presented by a given country by way of the size of its economy (GOP) or financial markets1 -N/A

2.   Countries are assessed using publically available indices from HM Treasury Sanctions List2- the Cayman Islands appears twice on this list for companies that have been targeted for sanctions regarding Iranian (nuclear proliferation). The entities listed are First Person Equity Fund and Mehr Cayman Ltd. Both entities were added to the list on 27/7/2010 and have not been updated since. The following countries appear on the sanctions list but are not included in the FCA’s ‘High Risk

Countries’ list:

i.   BVI appears on the HM Treasury Sanctions List 4 times;

ii.   Jersey appears on the HM Treasury Sanctions List 3 times; and

iii. Isle of Man appears on the HM Treasury Sanctions List 14 times.

3.   Financial Action Taskforce high-risk and non-cooperative jurisdictions3 – the Cayman Islands is not included in these lists at all.

4.   MoneyVal evaluations4 – No mention of the Cayman Islands on this web page.

5.   Transparency International Corruption Perception lndex 5 – the Cayman Islands is not included in this list.

6.   FCO Human Rights Report6 – the Cayman Islands is not included in any negative lists in this regard.

In the report the Cayman Islands is discussed for its steps in positively addressing human rights and democracy. Such as the a successful election held in May 2013 that met international standards for democratic, genuine and transparent elections, request for extension of Convention on the Elimination of all forms of Discrimination Against Women (“CEDAW”) to the Cayman Islands, Cayman Islands child protection law and the undertaking of a public campaign to tackle child abuse, and a 5 year prison strategic plan following Her Majesty’s Inspectorate of Prisons review.

7.   UK Trade and Investment overseas country risk pages7 – the Cayman Islands is not included in this list. The following countries in the Americas region are included:

i.   Brazil (not on FCA’s ‘High Risk Countries’);

ii.   Barbados (not on FCA’s ‘High Risk Countries’);

iii.   Chile (not on FCA’s ‘High Risk Countries’);

iv.   Colombia;

1 http://data.worldbank.org/a bout/country-classifications/country-and-lending-groups#Low_income

2 http://hmt-sanctions.s3.amazonaws.com/sanctionsconlist.pdf

3 http://www.fatf -gafi.org/topics/high-riskandnon-cooperativejurisd ictions/

4 http://www.coe.int/t/dghl/monitoring/moneyvalf s http://cpi.transparency.org/cpi2013/results/

6 http://www.h rd report.fco.gov.u k/

7 http://www.ukti.gov.uk/export/howwehelp/overseasbusinessrisk/countries.html

v.   Dominican Republic;

vi.   Ecuador;

vii.   Jamaica;

viii.   Trinidad & Tobago (not on FCA’s ‘High Risk Countries’);and

ix.   Venezuela.

8.   Quality of regulation8 – Web page no longer available.

END

 

A transcript of Martin Wheatley from Financial Conduct Authority’s letter to Wayne Panton Cayman Islands Minister of Financial Services, Commerce and

Environment follows:

 

TO: G. Wayne Panton

Minister of Financial Services, Commerce and Environment

Government Administration Building

133 Elgin Avenue, Box 126

Grand Cayman

KY1-9000

Cayman Islands

 

FROM: Financial Conduct Authority

London

12 August 2014

Your Ref:        FOI3320

Dear Minister Panton,

Thank you for your letter of 8 July 2014 to our Chairman, John-Griffith-Jones, regarding the inclusion of the Cayman Islands on the FCA’s Financial Crime High Risk Country List. John has asked me to reply. Kindly note that I have sent a similar letter to Mrs Cindy Scotland, Managing Director of the Cayman Islands Monetary Authority, following her letter of 30 July.

Please allow me to clarify the purpose of our list. Inclusion of a country on this list does not imply that we consider that its authorities do not take seriously their responsibilities to combat money laundering or other financial crimes. It also does not imply that the authorities do not recognise their obligations stemming from relevant international standards. Indeed, there are a high number of countries that feature on it, 95 currently.

The list serves to provide us with a guide to countries who may pose risks to our remit to tackle financial crime including money laundering. These responsibilities are an integral element of our statutory duties as a financial regulator. The list is one of a number of tools utilised by our Authorisations division to help inform the effective assessment and processing of applications from firms. It does not serve to exclude firms operating from, or being active in, the jurisdictions that feature on it.

We acknowledge the steps that the Cayman Islands has taken in order to improve the robustness of its money laundering regulation in recent years. We also note initiatives such as the recent consultation on a public database on beneficial ownership of Cayman Islands-Registered Companies1. To our knowledge, the Ministry has yet to announce whether or not to proceed with such a public database.

We have carefully considered the contents of your letter, in particular your comment that the Cayman Islands does not feature on all the indices we study when assessing country risk. At present, we have concluded that the Cayman Islands should remain on the list. In reaching this decision, we took account of factors including those indices and a range of publicly available information which indicates high levels of money laundering risk remain and potential weaknesses in the Cayman Islands’ AML framework.

We note that the U.S. Senate Sub Committee report vulnerabilities to money laundering, drugs and terrorist finances alleges that Cayman Island legal entities have been used as vehicles for money laundering2. This is echoed in the US Homeland Security Report U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing, which references US dollar accounts in the Cayman Islands which were used for money laundering3. We also note that the U.S. State Department report on narcotics control which lists the Cayman Islands as a jurisdiction of primary concern, particularly in light of the size of its financial sector4.

In common with all other countries assessed, we also considered the size of the Cayman Islands’ economy and financial markets. This is because we consider that the size of a country’s financial sector is correlated to risk as the larger the financial sector, the greater the risk that it will be used to facilitate money laundering. As you can appreciate, we are unable to comment on the risk status of other jurisdictions.

As with our wider regulatory and supervisory responsibilities, we take our financial crime responsibilities extremely seriously and we will continue to use a variety of open source information to help us make balanced decisions. We apply this approach to all jurisdictions, whether they are included in our list or not.

Transparency is at the heart of the FCA’s approach and we are committed to disclosing information in a way that can be clearly understood.            As such, our financial crime high risk country list, together with an explanation of how we compile and use the list, is now live on the FCA external website:

http://www.fca.org.uk/about/what/protecting/financial-crime/high-risk-country-list .

1http://www.caymanfinance.gov.ky/pls/portal/docs/PAGE/PRUHOME/LIBRARY/PUBLICATIONS/ BENEFICIALOWNERSHIPCONSULTATIONDOCUMENT/CAYMAN%20ISLANDS%20PUBLIC%20CO NSULTATION%20ON%20BENEFICIAL%20OWNERSHIP%20-

%2025%20NOVEMBER%202013.PDF

2 http://www.hsgac.senate.gov/subcommittees/investigations/hearings/us-vulnerabilities-to- money-laundering-drugs-and-terrorist-financing-hsbc-case-history

3 REPORT: U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC

Case History (2.38 MB)

4 http://www.state.gov/j/inl/rls/nrcrpt/2013/vol2/204065.htm#Cayman_Islands

Our list will be periodically reviewed in light of legislative and regulatory developments within the jurisdictions concerned.

Yours sincerely

Martin Wheatley

Chief Executive

Cc:       Parliamentary Under- Secretary of State for Foreign and Commonwealth Affairs, James Duddridge, MP

END

 

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