FRA targets the money launderers

Justice Kipling Douglas, Acting Director

by Shurna Robbins

Monday, April 11, 2005

Although most people may not have heard about it, the Financial Reporting Authority (FRA) was formed just over a year ago to gather intelligence on money laundering and terrorist financing. 

Anti-money laundering and anti-terrorist financing have become critical initiatives around the world in the march toward transparency and accountability in offshore financial sectors. Acting Director Justice Kipling Douglas, came out of retirement as a judge to serve the public once again as legal advisor to the FRA. Mr Douglas talked with Cayman Net News about how the FRA works and how it fits in the global arena.

“The FRA is not a police unit,” said Mr Douglas. “It doesn’t do any investigations.

It receives, analyzes and disseminates financial information to see if there is prima facie evidence or cause to believe there are proceeds of criminal conduct. Then we disseminate that information to the Financial Crime Unit (FCU) and, when required, to overseas financial intelligence units, which many countries have, with the consent of the Attorney General.”

The intelligence unit used to be the FCU, which was a unit of the police force, but Government decided to disband it after the Eurobank trial and make it a civilian unit. Today, the FRA is part of the Attorney General’s portfolio.

Mr Douglas explained that information typically comes from banks and other financial services, lawyers and real estate agents.

“Generally, a banking officer will discover an account that he suspects or believes to contain proceeds of criminal conduct. Very often, dirty money is moved around from country to country and bank to bank until it eventually goes back to their own country.”

Or a financial service provider may read in the papers or hear in the news that a client is involved in criminal conduct and suspects that the money in their account is from the proceeds of that conduct and files what is called a Suspicious Activity Report (SAR), which is disclosed to the FRA.

Mr Douglas explained that no one is exempt from reporting suspicious activities.

“Anyone who knows or who has a reasonable grounds to suspect that someone is engaged in money laundering, whether this information comes in trade or business or any form is obliged to file a Suspicious Activity Report. Failure to do so is a criminal offence.”

Mr Douglas went on to explain the circumstances in which individuals may find themselves faced with someone involved with financial criminality and their reasons why they may not report their suspicions.

“Perhaps a real estate agent has a client who buys five houses in cash for several million dollars, the real estate agent may have reason to believe the proceeds are from criminal conduct but because of the large amount of commission involved with the sale, some are reluctant to file a SAR,” he said. “But what the real estate agent should know is the SAR can be filed as well as collecting the commission.”

The FRA receives intelligence on all the proceeds of criminal conduct and financing of terrorism, wherever in the world it occurs, as long as it constitutes an offence in the Cayman Islands. Consequently, it does not receive disclosures on tax evasion or non-criminal information. Another exception is any offence on drug trafficking.

Financing terrorism is a bit trickier, because the money could be clean to begin with. 

“Terrorism financing is usually associated with countries recognized as terrorist countries. It usually arises from a connection being made from a list of designated names put out by the United Nations. Financing terrorism always comes as a result of some name or company on the list connected to the money,” Mr Douglas explained.

“If a foreign country makes a request where criminal action has been filed, we can go to the court and seek its consent to have the account restrained for 21 days. They can’t move it for that period. In that time, we can pass the information on to the FCU. After that, it is up to them and the country involved.

“In addition, the FRA has the power to require information from any person in writing that will clarify and amplify whatever disclosures we have on the matter,” said Mr Douglas.

No matter what sophisticated systems are in place to combat money laundering and what system of terrorism financing is used, it still begins with people in the financial and legal sector doing due diligence, and the entire community reporting suspicious activities to the FRA. 

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