In the recent judgment of Maples Corporate Services Ltd and MaplesFS Ltd v Cayman Islands Monetary Authority, Justice Kawaley quashed the findings of the Cayman Islands Monetary Authority (CIMA) following an inspection carried out in 2020 of the businesses operated by the plaintiffs, MCSL and MFS. The plaintiffs are trust and corporate service providers and financial service providers in the Cayman Islands. Following an investigation, CIMA determined that the plaintiffs had breached a number of regulatory obligations pursuant to the Anti-Money Laundering Regulations (as amended) (AMLRs). MCSL and MFS subsequently applied to the Grand Court for judicial review of CIMA’s findings and were successful.

Regulation 12(1)(d) requires a person carrying on relevant financial business to understand and obtain information regarding the purpose and intended nature of a business relationship with its clients. CIMA’s position was that there was a requirement to obtain independent evidence to substantiate the information obtained from the client in every case, regardless of risk. However, the Learned Judge held that “independently verifying and documenting the nature and purpose of the business relationship for well-known commercial brands setting up vehicles to conduct entirely familiar forms of business would be an obvious waste of resources”.

Regulation 12(1)(b) requires a person carrying on relevant financial business to verify that a person purporting to act on behalf of a client is properly authorised to do so and to verify the identity of that person. Justice Kawaley expressed the preliminary view that this requirement only relates to situations in which a service provider is actually engaged in some way with an authorised signatory. He also expressed the view that there is “very arguably no general obligation for registered office providers that merely store or file documents to analyse all documents held on behalf of a client to see whether authorised signatories are mentioned, and if so, to verify them”.

Regulation 12(1)(e)(i) requires a person carrying on relevant financial business to conduct ongoing due diligence on a business relationship. CIMA found that the plaintiffs did not provide sufficient evidence to demonstrate they had reviewed transactions undertaken by their clients to ensure they were consistent with their knowledge of their clients. Justice Kawaley held that transactions that require review depend on the nature of the relationship between the service provider and the client. In the circumstances, Justice Kawaley considered CIMA’s findings were premised on Regulation 12(1)(e)(i) imposing a duty to scrutinise transactions that were not defined by reference to the nature of the underlying relationship. Accordingly, the Learned Judge set CIMA’s finding aside.

Regulation 12(1)(e)(i) requires a financial services provider to obtain supporting documentary evidence to establish the source of funds and/or source of wealth for its clients where necessary. Justice Kawaley determined that the words "where necessary’’ show that the duty of on-going due diligence in relation to the source of funds used to form or operate the client’s business is more limited than the general duty in relation to transactions.

CIMA found that MCSL failed to ensure that documents, data or information was kept current and relevant to client due diligence as it did not review existing records at appropriate times as required by AMLR Regulation 12(1)(e)(ii). Justice Kawaley quashed CIMA’s finding as the breach was parasitic upon AMLR Regulation 12(1)(e)(i).

Justice Kawaley determined it was unnecessary to resolve this issue as it was the plaintiffs fall back if they did not succeed on other grounds. However, he indicated that if he were required to determine the issue, he would have summarily rejected the contention that there was a breach of the Bill of Rights. One important point made by Justice Kawaley was that he would have summarily accepted that to require the plaintiffs with over 40,000 clients to introduce systemic changes within a period of three months was unreasonable.

This final issue was to do with the ability of CIMA to issue requirements to financial service providers at all. After conducting an in depth analysis of the Cayman Islands anti-money laundering regime, the purpose and construction of the AMLRs and the statutory basis for the function and powers of CIMA under the Monetary Authority Act, Justice Kawaley resolved this issue in favour of CIMA: CIMA had clear statutory authority to issue requirements to financial services providers.