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Cayman Islands Undergoes Regulatory Revolution

A staff reporter, 29 January 2005

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The Cayman Islands are experiencing a far-reaching overhaul of financial services legislation; John Bourbon, the managing director of the Ca...

The Cayman Islands are experiencing a far-reaching overhaul of financial services legislation; John Bourbon, the managing director of the Cayman Islands Monetary Authority, takes some time off from his busy work schedule to talk to Complinet about his department’s rapid expansion and the issue of money laundering. Complinet: The Caymans are currently on the Financial Action Task Force’s money laundering blacklist and the scene of a $100m seizure of monies allegedly belonging to the fugitive Peruvian ex-intelligence chief Vladimir Montesinos. How did the Peruvians know that the money held at Wiese Bank International belonged to him? Bourbon: I don’t know. I also can’t comment on whether or not it was in the names of Montesinos and his henchmen. I’m not sure how that one was structured. However, I do know that the bank acted rapidly and appropriately as soon as the matter came to light. Complinet: When exactly do you and your team of regulators get involved in seizures? Bourbon: It depends on the circumstances. If somebody wants to inquire about accounts held in a Cayman Island entity and we get a request from a "similar" authority overseas, then (subject to this or that exception) we will share information with it. The request must be very detailed. We will always copy any requests to the islands’ attorney general. This time around, there was already evidence of criminal activity. In such a case we don’t get involved. The Peruvians asked the attorney general directly. If we got a request and thought it was pretty obvious that criminal activity had taken place, we’d pass it on to the attorney general’s office too. Complinet: How does your treatment of "dodgy" banks differ from that of other West Indian jurisdictions? Bourbon: We’ve put a controller into a bank - MA Bank (another case recently covered by Complinet) - because we thought it better to do that than to close it down. If you close a bank’s business off, you’re left with an entity that’s still in being but in free fall. With a controller, you can still do things to protect all the innocent investors who trusted that bank and get your hands on the books. Beyond all that, you are still able to wind it up in the public interest. Only then do you pull the licence. Many other islands in the West Indies have a knee jerk reaction to cases of this kind. All they want to do is limit the bad publicity as quickly as possible. The Bahamas just pulled a couple of licences as soon as the banks were implicated. This is not the responsible way to do it. Complinet: One of the most pressing tasks that the FATF has given offshore states is to cooperate closely with regulators from the great economic powers of the world. What is the state of the Caymans’ cooperation so far? Bourbon: Very good. Most of our dealings are with the USA and the UK. The other main player is probably Spain; in 1999 Banco Santander established itself throughout South America. We are also talking about host country supervision, so we do a lot to help the UK’s Financial Services Authority. The Fed, the OCC and the FDIC are big players too. Complinet: How has your department changed in the last year or so? Bourbon: Nine months ago, when I started here, we had 54 staff; now we’re up to 80. We now have an in-house legal division and a compliance division for the vetting of corporate governance at financial services firms. The new investing division and banking division account for about 30 people each. We’re ultimately going for a staffing figure of 129. The next recruits will be for purely regulatory teams and will all be conducting on-site visits - that’s the prime objective. We’ve been doing on site visits in banking for the last three years and insurance for the last two years. Complinet: What legislation are you in the process of amending? By 30 June we shall have amended some part of every piece of our financial service legislation since 1 January this year; most of that legislation has already been amended in the latter half of last year. I can safely say that the Cayman Islands are undergoing more legislative changes in financial services than any other jurisdiction on earth. Here, off the top of my head, is a list of existing legislation that we are amending for the FATF: the Monetary Services Law; the Building Societies Law; the Credit Union Law; the Cooperative Societies Law; the Bank and Trust Companies Law; the Mutual Funds Law and its regulations; the Money Services Law; the Insurance Law; the Insurance Forms Regulation Law; and the Companies Management Law, which resembles the UK’s Companies Act to a very limited extent. It will immobilise bearer-shares. In other words, if you have a bearer-share which gives you a stake in an institution, you don’t lost your stake but you can no longer transfer the ownership just by handing it over to someone else. We’re also amending the Proceeds of Criminal Conduct Law, which deals with the ability of the financial reporting unit (part of our attorney general’s office) to communicate with other regulators. Schedule three will expand the number of FATF countries we can cooperate with. For some reason, the old law doesn’t have all the FATF countries listed. We will also add another couple of countries to this list. Complinet: And new legislation? The UK’s FSA is very keen to see all regulators in UK dependency territories acting as quangos (quasi-autonomous national government organisations) rather than sections of finance ministries or whatever. Are you doing anything about that? Bourbon: New securities legislation is coming in June and the "independence of the authority" legislation will come in with it. We have no title for the securities legislation as yet. It’s a bill to license securities investment business and for incidental purposes. The independence of the monetary authority (from the government of the British territory) is likely to come at the same time. We’re currently operating under "portfolio finance", a division under a permanent member of the islands’ ruling Executive Council. George McCarthy, a permanent civil servant who has the stature of a minister, will remain ultimately responsible until the new Act is passed and will continue as chairman thereafter. Complinet: When will the new "money laundering guidance notes" come out? Bourbon: They will be issued by 12 April, around Easter. They’ll be very interesting, incorporating a lot of questions and answers and flow charts. They will also contain some appendices which apply to different parts of the financial services industry. We’ve invited industry members to produce these appendices for their own areas.

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