(CNS): More than 40% of property developers and real estate agents selected last year by the Department of Commerce and Investment for inspection for their anti-money laundering processes were found to be non-compliant with the regulations. According to both the DCI’s 2021 Supervisory Report and the National Risk Assessment 2021, which have both been made public, the local property sector remains highly vulnerable to both money laundering and terrorist finance abuse, given the lack of restrictions on foreign ownership.
In May last year, CNS reported on the risk property development poses, creating a weak link in Cayman’s anti-money laundering regime. However, it appears from these latest reports that work is still needed to address the vulnerabilities.
Real estate agents provide money launderers with the appearance of respectability and normality for large transactions, which frustrates detection and investigations, the 2021 NRA report said. Property here is a very high-value commodity that is attractive for both money laundering and the investment of criminal proceeds. And there are a large number of transactions involving overseas buyers, which the risk assessment found provides fertile ground for laundering cash.
The property sector is seen as even more high risk here than dealers in precious metals and stones and jewellery shops, despite their inherent appeal to financial criminals given the high value and portability of the goods. Those dealers have mitigated their risk by sourcing inventory from reputable entities with GIA certificates and selling face-to-face to customers, primarily from cruise ships.
The DCI supervises precious metal and stone dealers as well as real estate agents and developers, collectively known as Designated Non-Financial Business and Professions (DNFBPs). Of the two categories, property dealers face a greater risk of abuse because of the more complex nature of their business.
Of the DCI’s 60 inspections last year, just four were of jewellery dealers; the rest were property related. Of those, just one entity was completely compliant with the rules and 22 were only partially or non-compliant. The report does not differentiate between the two categories, but given the domination of the property sector in the reviews, it appears that the failings documented by the DCI were largely down to realtors or developers
Of the long list of compliance requirements checked, 23 entities failed to properly collect and maintain Customer Due Diligence records, 46 failed to carry out an independent audit of their systems, 18 had no effective staff training, 22 had no or deficient policies to screen new workers, 12 could not vet clients against sanctions lists and 19 had no monitoring systems in place against potential financial abuse.
“The Inspection Teams continue to find some deficiencies,” the DCI found, with the most significant being the lack of procedures to train new employees and to conducted independent audits They also found that in several cases there was no one in the organisation who was responsible for anti-money laundering prevention. Although things have improved since 2019, the DCI said, “The Non-Compliant registrants remain a concern and improvement plans have been implemented.”
According to the NRA report, there are 164 property developers and real estate agents that are classified as DNFBPs. The report concluded that Cayman’s real estate sector is vulnerable to abuse as the exposure to international influences is significant.
“The appeal of Cayman Islands real estate to High-Net-Worth and Ultra High-Net-Worth international purchasers and investors for development is particularly noteworthy, given the risk that the local market may be abused by foreign criminal elements,” the report stated.
“It is not uncommon for a nominee to be used and the beneficial owner to be added to the sale and purchase agreement at the last minute,” the authors said and explained how buyers can place a purchase in the name of a trust. “This presents challenges in identifying the true beneficial owner or effective controller of the customer,” they stated.
See the reports below:
