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Anti-money laundering: Dos and Don’ts

9 October 2019

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Based on our experience working with clients on new Anti-money Laundering Regulations (AMLRs), Steffany Pratcher, Vice President AML Reporting and Compliance, and Laura da Ascenção, Vice President, provide their top tips to staying compliant and their pitfalls to avoid if your Cayman Islands entity is in scope for AMLRs.

DO DETERMINE WHETHER YOUR ENTITY IS IN-SCOPE

In short, AMLRs require financial services providers (FSPs) engaging in relevant financial business to establish systems to detect things like money laundering and terrorist financing. Determine whether you’re conducting relevant business by reviewing activities listed under Schedule 6 of the Proceeds of Crime Law.

DO UNDERSTAND THE ACRONYMS

  • AML: Anti-Money Laundering
  • AMLCO: Anti-Money Laundering Compliance Officer
  • MLRO: Money Laundering Reporting Officer
  • DMLRO: Deputy Money Laundering Reporting Officer
  • CFT: Countering Financing of Terrorism Act
  • CIMA: Cayman Islands Monetary Authority
  • KYC: Know Your Client
  • PEP: Politically Exposed Persons
  • SAR: Suspicious Activity Reporting

DON’T FORGET TO FORMALLY APPOINT YOUR OFFICER

Ensure that the AML officers are formally appointed. If the FSP is a CIMA regulated entity, ensure that the AML officers’ details are submitted to CIMA via its REEFs portal. The MLRO/DMLRO should communicate the procedure to report suspicious activities to the fund’s employees and stakeholders.

DO KEEP YOUR POLICIES AND PROCEDURES IN TIP TOP SHAPE

Your policies and procedures (P&Ps) should be reviewed by your AMLCO to ensure they’re up to date and compliant. This includes those of the administrator in case of reliance. The AMLCO should also assess whether the administrator’s AML standards are equal or lower to Cayman standards. Additionally, ensure that your AMLCO conducts an initial risk assessment of the entity and its structure, pursuant to AMLRs. Document and communicate the assessment to those charged with governance.

DO INVITE YOUR AMLCO TO AT LEAST ONE BOARD MEETING YEARLY

Annual reporting is imperative. Including the AMLCO in board meetings ensures the annual report details any changes to the entity’s risk assessment. The report should present the outcome of sample testing and the status of any remediation, if necessary. The AMLCO should also provide an update on regulatory changes and/or market trends.

DON’T ASSUME YOUR AML OFFICERS ARE IN CHARGE OF COLLECTING DUE DILIGENCE ON YOUR INVESTORS

In practice, we’ve observed some FSPs assuming that the AML officers are in charge of collecting due diligence information on investors. It’s the FSP who is ultimately responsible for ensuring all required due diligence is in place. Simply put, the FSP cannot delegate its regulatory responsibility.

DO EMBED INTERNAL CONTROLS INTO YOUR ROUTINE

Applicable risks should always be assessed. If you outsource the AML officers functions, always assess the arrangement on the onset of the relationship and regularly ensure it’s following outsourcing guidelines. Clearly state the obligations of both parties, including in the event of default, in an outsourcing agreement.

DO ENSURE YOUR FSP IS COMPLIANT

Ask yourself:

  • Does the entity have AML P&Ps?
  • Is a proper audit/control function in place?
  • Have AML officers been appointed?

In the event of an audit, it’s helpful to have this information readily available.

DON’T FORGET TO INFORM RELEVANT PARTIES OF ANY CHANGES

Ensure any changes are communicated to those charged with governance, should there be a change in circumstances, such as the resignation of an AML officer or changes to the P&Ps.

DO HAVE A CLEAR UNDERSTANDING OF WHO YOUR SERVICE PROVIDER IS

Some things to think about:

  • Are fees transparent?
  • Are they experienced with qualifications in AML?
  • Do they have a clear understanding of deadlines and service delivery expectations?

DO REACH OUT TO US WITH ANY QUESTIONS

As experts in AMLRs with experience working with Cayman entities across the globe, we have the answers. Always consult an expert to make sure your entities are compliant and following the new and ever changing regulations.

We’re gatekeepers. Focusing on compliance, business ethics and transparency, we take care of the legal administrative and regulatory duties of our clients. Get in touch to find out more.