Compliance Matters

1. Compliance Matters Dena Thompson Manager – Kane (Cayman) Limited October 19, 2011

2. Overview Topics To Be Covered • Money Laundering and Terrorist Financing • Laws • Guidance Notes • Sector Specific Guidance • CIMA’s Role • Summary

3. What is Money Laundering? • Money Laundering is defined as any process or procedure designed to conceal the true origin and ownership of the proceeds of criminal activities so that they appear to have originated from a legitimate source

4. Three Stages • Placement – proceeds of criminal activity entering the financial system without arousing suspicion • Layering – moving the money around, often in a series of complex transactions crossing multiple jurisdictions, so it becomes difficult to identify its original source. • Integration – then move the money back into the financial and business system so that it appears as legitimate funds or assets.

5. What is Terrorist Financing? • The financing of terrorist groups and activities is also considered to be money laundering. However, where traditional methods always have a crime that generates wealth that is laundered, with terrorist financing the methodology is reversed. Wealth that is often legitimate e.g. donations, is transferred to terrorists, to further their terrorist activities e.g. commit crimes. In light of the alternate nature of this crime, it is often called “reverse money laundering” and can be incredibly difficult to detect, which makes it even more important that we know our clients and any third parties linked to them.

6. Cayman Laws • The Proceeds of Crime Law, 2008 • Money Laundering Regulations (2010 Revision) • Guidance Notes of the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands (March 2010) • The Terrorism Law (2009 Revision)

7. Guidance Notes • Whilst the Cayman Guidance Notes are not legally binding, compliance with them will be considered by the courts in determining whether or not a person has complied with the Cayman Regulations. • These notes included guidance on: • Client Indentification procedures • Direction for policies on staff training • Internal reporting • Record keeping • Sector specific Guidance

8. Power to Issue Guidance - CIMA • Pursuant to Section 34(1) of the MAL: After private sector consultation and with the approval of the Governor, the Authority may: • Issue or amend rules & statements of principle or guidance concerning the conduct of licensees and their officers and employees • Issue or amend statements of guidance concerning the requirements of the money laundering regulations; and • Issue and amend rules or statements of principle or guidance to reduce the risk of financial services business being used for money laundering or other criminal purposes.

9. Sector Specific Guidance - Sect 8 • The applicant for business • The product to be underwritten or sold • The nature of the business relationship formed, and • The method of payment of the premium Significant factors that will affect level of risk include:

10. Sector Specific Guidance • Features of High and Low Risk General Products

11. Sector Specific Guidance • Features of High and Low Risk Long Term (Life) Products

12. Sector Specific Guidance • Specific Info that may be requested to supplement info in Section 3 (Identification Procedures)

13. Sector Specific Guidance • Red Flags to be alerted to (mostly Life): • Requests for a return premium to be remitted to persons other than policy holder • Claims payments to persons other than policyholders and beneficiaries • Unusually complex holding company or trust ownership structures • Claims fraud • A change in beneficiaries (for instance, to include no-family members) • A change/increase of the premium payment – in light of income • Use of cash and/or payment of lrge single premium • Payment/surrender by a wire transfer from/to foreign parties • Payment by banking instruments, which allow anonymity of the transaction • Change of address and/or place of residence of policyholder • Lump sum contributions to personal pension contracts • Requests for prepayment of benefits • Use of the policy as collateral/security • Change of the type of benefit e.g. annuity to lump sum • Early surrender of the policy or change of the duration • Requests for multiple polcies for premium below publicised limits for performing checks

14. Sector Specific Guidance • Red Flags to be alerted to (Class B Insurers): • Requests for a premium refund to be remitted to persons other than the policyholder • Dividends paid to persons other than shareholders • Unusually complex holdiong company or trust ownership structure • Concealment of identity of client or the beneficial owner; of the ownership of funds • Incomplete application details and lack of willingness to provide eveidence to answers required • Claims fraud

15. CIMA’s Role with Compliance • Method of Supervision/Enforcement manual of CIMA • On-site inspection and off-site monitoring • Remedial Action: a) Specific directives, imposition of conditions, requirements of special audit, investigation, actuarial report, operational restrictions b) Suspension of license, revocation of license, substitution of Manager, appointment of controller or advisor • Prosecution/Fines & Penalties • Court Order for Winding Up or Dissolution

16. Summary • Items to Remember: • Read Guidance Notes • Sector Specific – Section 8 • Keep in mind Red Flags • Know Your Customer • Continue to monitor • Keep CIMA informed

17. Questions ?