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by Alric Lindsay
While some stakeholders in the financial services industry may simply see the case of The Queen v Canover Norbert Watson and Bruce Andrew Blake as another piece of evidence, I believe the outcome has other, far-reaching implications.
One prediction, for example, is that the Financial Action Task Force (FATF) may now consider putting the Cayman Islands back on its good books regarding the Cayman Islands’ approach and attitude to the prosecution of money-laundering cases of money.
As for why the Cayman Islands are seeking the FATF’s good graces, those in the financial services industry will recall that the FATF noted at the conclusion of the plenary session on 21 October 2022 that the Cayman Islands will remain on the gray list of FATF. ie, the list of countries subject to enhanced monitoring, until the Cayman Islands can address certain strategic deficiencies, including demonstrating that the Cayman Islands is prosecuting all types of money laundering cases consistent with the jurisdiction’s risk profile and that such prosecutions are resulting in the application of convincing, effective and proportionate sanctions.
The FATF also called on the Cayman Islands to expeditiously complete an action plan by February 2023 after all deadlines have expired and address the aforementioned strategic deficiencies.
While the FATF did not state what the impact would be of the Cayman Islands not curing the strategic deficiencies by the February 2023 deadline, I believe any failure to do so could result in the Cayman Islands remaining on the gray list or even being put on the blacklist. the black list.
Now that the Cayman Islands have the Watson-Blake prosecutions in hand, however, the Cayman Islands may have repositioned itself to become a fully compliant jurisdiction with respect to the October FATF plenary requirements, in particular, by demonstrating a strong anti-income stance. for the crime and successfully obtaining a conviction in a money laundering case.
Unfortunately, the Watson-Blake prosecutions may also have inadvertently cast somewhat of a dark cloud over the legal profession.
This is because Mr Blake is a lawyer and is said to have worked as a lawyer in the structured finance department of a magic circle offshore law firm in the Cayman Islands and overseas before and around the time of the offences.
As Mr Blake is part of the Cayman Islands legal profession and the breaches occurred while working for a very large law firm, I think the FATF and/or the Caribbean Financial Action Task Force (CFATF) might consider approaching a lot. see the legal profession on their next visit to the Cayman Islands.
One of the outcomes of such an exercise may be for the FATF or CFATF to determine whether the “medium-high risk” rating in relation to the inherent risk rating of International and Domestic Supervised Firms stated in the National Islands Risk Assessment Cayman remains eligible. (see table below).
Unbundled risk assessment from the Cayman Islands National Risk Assessment
The FATF or CFATF may also consider whether there are any other weaknesses inherent in the legal profession.
Regarding such vulnerabilities, the March 2022 Cayman Islands National Risk Assessment document said:
The inherent weaknesses of the legal profession must be seen in the context of the jurisdictional weaknesses facing the Cayman Islands. These have been identified as a risk that the Cayman Islands financial system could be used as a conduit for the proceeds of financial crime in general, and fraud, bribery and corruption, tax evasion and drug trafficking in particular. These threats are usually based on the commission of crimes abroad and the decision to funnel those proceeds through structures, transactions and accounts in the Cayman Islands. The most important risk to the legal community is the direct participation of firms in that movement of funds through their involvement in such transactions and or the use of their accounts.
See also
One such inherent weakness, in my view, is the prevalence of non-Cayman Islands persons who are practicing Cayman Islands law outside the jurisdiction without a Cayman Islands practicing certificate.
The FATF and CFATF will no doubt find this ongoing practice surprising and note that there is no substantive mention of it in the National Risk Assessment in terms of potential impacts on the overall risk assessment for the legal profession. .
Making matters worse is that there does not appear to be any plan to apply penalties or fines or prosecute anyone for practicing Cayman Islands law outside of Cayman for decades without a Cayman Islands legal practice certificate.
Instead, it may be the case (and it’s scary to imagine if it happens) that the regulations could be passed to the grandfather of these people by the Cabinet of the Cayman Islands government, without any fines or prosecution.
In my view, such action, if taken by Cabinet, would run counter to FATF’s substantive point that strategic deficiencies should be addressed in a number of ways, including prosecuting cases in line with the risk profile of jurisdiction and ensuring that such prosecutions result in the application of convincing, effective and proportionate sanctions.
In these circumstances, the Caymanian authorities should be encouraged not to turn a blind eye to this area of risk and, instead, to address it adequately to determine how it may affect the overall risk assessment for the legal profession.
Failure to do so could result in the FATF or CFATF launching criticism of the Cayman Islands’ national risk assessment process and possibly leaving the Cayman Islands on the gray list or worse come February 2023 (the FATF deadline that the Cayman Islands respect regarding the strategic deficiencies noted at the October plenary).
