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Context

• The recent removal of the Cayman Islands from the FATF grey list is expected to boost global private equity investors intending to engage in Indian non-banking financial companies (NBFCs).

Details

Key Points

• The Financial Action Task Force (FATF), an intergovernmental organisation that establishes anti-money laundering guidelines, has removed the Cayman Islands from its "grey list."
• In February 2021, the FATF, or Financial Action Task Force, a global money laundering and terrorist financing watchdog, placed the region on the grey list for intensified monitoring.
• The FATF announced last Monday that the Cayman Islands had fulfilled its commitments in its action plan resolving the strategic shortcomings identified in 2021.
• In 2020, the European Union added Cayman to its blacklist of tax havens, citing a lack of necessary tax reforms.
• Aside from Cayman, Panama, Jordan, and Albania have been removed from the list, requiring states to be subjected to enhanced scrutiny until the noted weaknesses in their system are addressed.
• The FATF has put Bulgaria on its grey list.

Why does the FATF include countries on the "grey list"?

• 'Such actions are taken to ensure that governments' anti-money laundering (AML), counter-terrorism financing (CFT), and financing proliferation systems are strengthened.
• This involves imposing appropriate sanctions on those who fail to file accurate beneficial ownership information and pursuing all sorts of money laundering in accordance with the jurisdiction's risk profile.

What does the change signify for India?

• The removal of the Cayman Islands from the FATF grey list would provide relief to NBFCs, payment system operators, and alternative investment funds that face restrictions on giving major stakes to investors from non-compliant FATF jurisdictions.
• The Cayman Islands' removal from the FATF grey list last week will boost global private equity investors eager to engage in Indian non-banking financial companies (NBFCs).
• Cayman is one of the top 15 foreign portfolio investment jurisdictions in India.
• For investments in India, several US and European investors prefer to establish holding corporations and funds in the Cayman Islands.

Key Facts About Cayman Island

History

• The British colonized the Cayman Islands in the 18th and 19th centuries, and they were managed by Jamaica after 1863.
• The islands became a territory of the Federation of the West Indies in 1959.
• When the Federation disbanded in 1962, the Cayman Islands voted to remain a British colony.

Political Status

• The Cayman Islands are a self-governing territory under the sovereignty of the United Kingdom.
• They have their own government and legal system, with a Governor representing the British monarch as the head of state.

Language

• The major language is English; however, many people speak local Creole languages.

Capital

• Its capital is George Town, which is located on Grand Cayman Island.

Geography and Environment

• The Cayman Islands have a tropical climate with warm temperatures throughout the year.
• The islands are susceptible to hurricanes during the Atlantic hurricane season (June to November).
• The Cayman Islands are known for their rich biodiversity and marine life.
• Efforts are made to protect coral reefs, wildlife, and natural habitats through conservation initiatives.

Currency

• The official currency is the Cayman Islands Dollar (KYD), but the US Dollar is widely accepted.

Economy

• The Cayman Islands have a diversified economic structure and are a major offshore financial center.
• The Cayman Islands are regarded as a tax haven since they do not levy a corporate tax, making it an attractive location for multinational firms to locate subsidiary entities in order to shelter some or all of their profits from taxation.
• Residents in the Cayman Islands do not pay taxes. They do not have an income tax, a property tax, a capital gains tax, a payroll tax, or a withholding tax.
• Without tax revenue, the Cayman Islands generate revenue through fees associated with tourism and work permits, banking activities, and import duties.

PRACTICE QUESTION What are the implications of being placed on the FATF's 'grey list' for a country's financial system and international standing? Analyze the challenges and measures necessary for a country to be removed from the FATF's list."(250 words)