Introduction
Until 2 January 2025, a defence was available where if a person suspected that property they intended to deal with was criminal property, thereby risking committing a money laundering offence under the Proceeds of Crime Act (as amended) ("POCA"), they would not commit a Core Money Laundering Offence under POCA if they had first made a disclosure, also known as a suspicious activity report ("SAR"), to the Financial Reporting Authority ("FRA").
This defence was revised when certain expected amendments to POCA pursuant to the Proceeds of Crime (Amendment) Act, 2023 came into force on 2 January 2025. In order not to commit a Core Money Laundering Offence they must also have received consent, known as a defence against money laundering ("
DAML"), from the FRA following the making of the SAR.
What are the Core Money Laundering Offences?
Sections 133, 134 and 135 of POCA set out the money laundering offences of: (i) concealing, disguising, converting or transferring criminal property or removing criminal property from the Cayman Islands; (ii) entering into or becoming concerned in an arrangement which that person knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of any other person; and (iii) acquiring, using or having possession of criminal property (together, the "Core Money Laundering Offences").
Other key money laundering offences
Other key money laundering offences are, in summary, as follows.
A person commits an offence under section 136 of POCA if they have reasonable grounds to know or suspect criminal conduct, having come by such information in the course of their business, and fails to make the required disclosure to a nominated officer of FRA (the "Failure to Disclose Offence").
A person commits an offence if they know or suspect criminal activity has taken place, is taking place, or will take place, and makes a disclosure which is likely to prejudice any investigation (the "Tipping Off Offence").
Practical considerations
Legitimate businesses may develop suspicion in relation to a customer, investor or counterparty such that they consider they may be exposed to criminal property. As well as being required on a mandatory basis to make a SAR in order to avoid committing the Failure to Disclose Offence, the business may also want to make the SAR to obtain a DAML, in order not to inadvertently commit one or more of the Core Money Laundering Offences – such as retaining or transferring criminal property.
Often, the first instinct of a business which finds it is exposed to a potential criminal is to exit the relationship. However, this could result in it committing a transfer of criminal property offence unless a DAML is first obtained.
The business must also avoid committing the Tipping Off Offence. Based on experience of other countries with consent requirements, businesses can find themselves in a difficult position if, say, a customer or investor has asked to withdraw or redeem funds and the business has not yet received consent from the FRA to do so.
Deemed consent
In order to address potential practical difficulties which could arise from a consent requirement absent deemed consent provisions, the FRA has issued an Industry Advisory on 10 January 2025, introducing a deemed consent regime, similar to that in other countries. The FRA intends to consult on draft regulations shortly.
The FRA has a seven working day period (the "Notice Period") to consider all DAML requests, unless the FRA considers that the request is incomplete, when it may specify a longer Notice Period. The Notice Period starts from the first working day after the SAR is submitted. The FRA will analyse the DAML request, consulting with domestic and international law enforcement partners as necessary. During this period the activity that is the subject of the request should not be carried out, otherwise the person risks committing a Core Money Laundering Offence.
If the FRA does not respond to the DAML request during the Notice Period, then DAML consent is deemed to have been given.
Should a request for a DAML be refused, the FRA will notify the business. A "Moratorium Period" of 30 calendar days then begins, starting on the first working day after the FRA provides notice that the DAML request has been refused. During this time law enforcement will be working to take positive enforcement action against the criminal property identified in the SAR. This could include property freezing orders or restraint orders.
The FRA requires certain information to be disclosed in a SAR in order to make an informed decision on requests for a DAML and the SAR must provide full details of the activity that the DAML consent is being sought for. It is important, when submitting a SAR, to highlight to the FRA that a DAML is required (as opposed to only to avoid committing the Failure to Disclose Offence), so that the FRA can prioritise those SARs which require a DAML. The SAR should state in the ‘Reason for Suspicion’ section of the form the reason for the DAML request.
Conclusion
The introduction of the deemed consent regime is to be welcomed and will help to mitigate practical difficulties for businesses where consent to a transaction is urgently required.
Walkers can assist with the preparation of SARs and requests for DAMLs, and all aspects of compliance with the anti-money laundering, counter-financing of terrorism and prevention of proliferation financing regime applicable in the Cayman Islands.
