Maples wins legal battle over CIMA’s AML rules
A Grand Court judge ruled largely in favor of financial services group Maples in a complex legal ruling after it challenged the regulator, CIMA, over new rules surrounding the recording of clients’ details under regulations rolled out in 2020 as part of the enhanced local anti-money laundering regime. The decision comes against the backdrop of Cayman’s fight to be removed from the FATF’s grey list, and government officials have stated that an appeal is being explored.
Following an on-site investigation at both Maples Corporate Services Ltd and MaplesFS Ltd in 2020, CIMA published a report concluding that both firms had failed to meet their AML obligations in some areas.
The Maples Group, on the other hand, requested a judicial review of how the new laws were being applied, namely clarifying the interpretation of Regulation 12 of the Anti-Money Laundering Regulations (2020 Revision). Maples contended that CIMA had gone beyond basic anti-money laundering legislation and had misconstrued the regulation, which was unreasonable and commercially onerous.
While the court emphasized its understanding of the “genuine and well-founded concern” about the importance of strengthening the Cayman Islands financial system and the rigorous approach CIMA had taken in carrying out its statutory duties, Justice Ian Kawaley, who presided over the case, said the regulator should have been more flexible in dealing with disagreements that arose during the inspection process.
“In my judgment, flexibility ought ideally to be the norm because the statutory framework is clearly based on the notion that FSPs will primarily regulate themselves on an individual basis and/or through the Supervisory Authorities of DNFBPs designated under Regulation 55B of the AMLRs, with enforcement action as a last resort,” Justice Kawaley determined. “The Guidance Notes themselves clearly suggest that FSPs are expected to exercise their own judgment in relation to both risk assessment and the CDD measures deployed.”
The judge sided with Maples on five of the seven issues addressed in the judicial review, implying that the regulator had taken an overzealous approach and interpretation of the amount of information required for Maples to meet its regulatory obligations in relation to all of its clients.
Maples said that the quantity of information CIMA expected it to gather and preserve, such as independent confirmation on all of their clients’ business dealings, exceeded the regulations’ actual needs. The Maples Group also claimed that CIMA went too far in requiring it to verify that anyone claiming to act on behalf of its client were properly authorized, claiming that this was based on an incorrect interpretation of the rules.
The lawsuit asserted that CIMA’s claim that the two Maples firms had not reviewed all of their clients’ transactions was also in violation of the regulations, and that the rules did not, as CIMA had argued, compel it to verify the source of wealth of all of its clients in every case. Among other things, Maples claimed that the restrictions do not “create a duty to scrutinize their customers’ third-party transactions.”
Maples stated that as a result of the new laws, it has made considerable efforts to ensure compliance, including a 50% increase in compliance staff. Nonetheless, CIMA determined that the enterprises had not completed all of their compliance duties.
The judge determined, however, that the literal meaning of “obtain information on” as specified in the regulations does not always entail an obligation to keep a record of the information collected or independent documented proof to corroborate that information.
The judge stated that CIMA had chosen a construction that deviated from the actual meaning of the legislative terms for no persuasive reason. As he invalidated the regulator’s findings, the court determined that this risked generating uncertainty in the marketplace about how the regulations were being administered.
He also discovered that CIMA had chosen a “overly prescriptive and rigid construction” of rules meant to be adequately elastic and adaptable to the specific conditions of the business partnerships they pertained to.
The judge’s decision to throw out most of the text of CIMA’s report on the Maples enterprises and the alleged compliance flaws has alarmed CIMA and the government. CIMA had asked the court to keep the ruling secret because it could jeopardize present efforts to remove this jurisdiction from the FATF grey list.
However, because CIMA did not provide a particular explanation why publicizing the judgment would harm Cayman’s fragile international regulatory position, the judge concluded in favor of open justice and approved the publication of his judgement.
The Ministry of Financial Services and Commerce stated in a statement following the ruling’s release that the judicial review addressed “the manner in which decisions by public bodies were made,” but not necessarily the choices themselves. “[T]he judicial review process demonstrates the Cayman Islands’ respect for the rule of law,” according to officials. “In response to the ruling, CIMA is considering its options, including an appeal.”
The ruling was limited to certain AMLR rules, according to the ministry’s statement, and while it awaited further results from the judicial review, it commended regulators and industry for supporting compliance in the jurisdiction.
A Maples representative told CNS that the issue was about clarification, and that the company was appreciative to the court for its assistance in interpreting and applying the regulations.
“The Maples Group takes regulatory compliance matters very seriously, with Group entities regulated in a number of jurisdictions,” stated a spokeswoman. “The Group fully supports the work of the Cayman Islands Government and the Cayman Islands Monetary Authority in protecting and enhancing the integrity of the Cayman Islands’ financial services industry.”
