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Money Laundering Regulations Amended to Include India and China

12 October 2012

India and the People's Republic of China have recently been added to the Third Schedule ("Schedule 3") of the Money Laundering Regulations (2010 Revision) ("Regulations").

Schedule 3 jurisdictions are those which have been assessed by the Cayman Islands Monetary Authority ("CIMA") as having equivalent anti-money laundering legislation to the Cayman Islands.

Both India and the People's Republic of China are members of the Financial Action Task Force ("FATF").

This client update explains the anti-money laundering and other regulatory advantages arising from a jurisdiction being listed on Schedule 3. 

Anti-Money Laundering

A number of due diligence exemptions are available under the Regulations and Guidance Notes on the Prevention and Detection of Money Laundering in the Cayman Islands ("Guidance Notes"), where the applicant for business ("Client") is based in a Schedule 3 jurisdiction.

Essentially, full due diligence (i.e. obtaining identification verification documentation) may be avoided where;

1. Funds of the Client are transferred from a bank that is regulated in and is either based, incorporated in or formed under the laws of a Schedule 3 jurisdiction.

2.  The Client is acting as agent for a principal and has given a written assurance that the evidence of identification of the principal has been obtained and recorded and the Client is regulated by a regulatory authority in a Schedule 3 jurisdiction.

3. The Client is acting in the course of a business regulated by an overseas regulatory authority and is based, incorporated in or formed under the law of a Schedule 3 jurisdiction. This exemption does not apply where there is knowledge or suspicion of money laundering.

In addition to the due diligence exceptions, a financial service provider can utilise Schedule 3 for the purposes of determining the level of ongoing monitoring and frequency of review. A Client based and/or regulated in a Schedule 3 jurisdiction may be rated as being lower risk.

Under the Guidance Notes, a Cayman financial service provider can also delegate the maintenance of anti-money laundering procedures to a delegate that is based in and subject to the anti-money laundering regime of a Schedule 3 jurisdiction. Such delegate is permitted to apply their home anti-money laundering rules and requirements on behalf of the Cayman financial service provider.

It is also understood that a Cayman licensed branch of an entity that is regulated in a Schedule 3 jurisdiction may be permitted to apply anti-money laundering policies and procedures in accordance with such Schedule 3 jurisdiction's requirements.

Further Regulatory Advantages

Aside from anti-money laundering, Schedule 3 is occasionally referenced in relation to broader prudential requirements. For example, under the Retail Mutual Funds (Japan) Regulations (2007 Revision) (as amended), a retail fund can appoint a custodian regulated, or an investment advisor incorporated or conducting business, in a Schedule 3 jurisdiction, and an Administrator of a retail fund may delegate its functions or duties to any person incorporated or conducting business in a Schedule 3 jurisdiction.

CIMA may also use the fact that a Cayman Islands financial service provider has its head office or operations in a Schedule 3 jurisdiction to determine the risk rating of the financial service provider, which may impact the frequency of inspections and level of supervision.

Conclusion

It is evident that the addition of India and the People's Republic of China to Schedule 3 will provide significant benefits to the Cayman Islands investment funds industry, as well as other financial service industries. It should also increase the volume of business from, and provide for incidental benefits to, Indian and Chinese entities investing through Cayman Islands vehicles. 

For further information, please speak with your usual Maples and Calder contact or one of the above.


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