Cryptocurrency property sale overseen by CIMA

(CNS): A real estate agent raised eyebrows across the community after conducting the first-ever sale of property where a buyer used cryptocurrency. The details of the sale and buyer haven’t been released, but the Cayman Islands Monetary Authority (CIMA) has said that the multi-million dollar deal conducted using virtual assess was above board because the specialist escrow provider that processed the sale is registered with the authority. But the sale of luxury property to overseas investors and cryptocurrencies remain two of the top concerns for money laundering risk, according to the government.

Michael Joseph, the agent who sold the property using Parallel Limited, a virtual asset service provider (VASP), said this was a game changer and a “big evolution” for Cayman but “undoubtedly raises questions”.

He said that while this is the first transaction conducted using virtual currency it won’t be the last, but the potential money laundering or other risks relating to the beneficial owners or origins of the money are mitigated because of the due diligence conducted by the escrow firm.

“The standard requirement remains for the agent to complete their KYC [know your customer] process as usual,” Joseph told CNS in answer to our questions about the potential risks. “No oligarchs or drug dealers would survive the process.”

Laura Birrell from Parallel, which is the only firm of its kind in Cayman registered with the regulator, agreed with Joseph. “Nefarious players would be unlikely to survive the diligence process that not only Parallel carries out, but the real estate agents and lawyers carry out too,” she said.

Until now, without this type of go-between, described as gate-keepers by government officials, investors have not been able to buy property using cryptocurrency as it was impossible to satisfy the source of funds and compliance requirements, Joseph said.

Although property sales are regulated by the Department of Commerce and Investment, cryptocurrencies are regulated by the Cayman Islands Monetary Authority, so this sale fell under CIMA supervision. CIMA said that it has consulted with other government agencies, and will continue to do so where legally permissible and necessary, to provide proper oversight of these types of regulated and registered entities.

“In accordance with the Anti-Money Laundering Regulations, Parallel is subject to AML/CFT supervision by CIMA and is, therefore, obligated to comply with such regulatory requirements, including the Travel Rule, which requires all VASPs to obtain, hold and share specific information on virtual asset transfers,” CIMA officials told CNS. “As with all regulated entities, CIMA will continue to monitor Parallel’s business activities to ensure compliance with the VASP Act and AML legislation.”

The DCI said registered entities, such as the broker in this transaction, are supervised to ensure they are AML/CFT compliant, as required by the AML regulations. “As part of this supervision, transactions such as the recent sale of property by way of cryptocurrency are reviewed for compliance with AML legislation and forms part of the ongoing monitoring carried out by DCI’s compliance team for its regulated entities,” a spokesperson stated.

Nevertheless, virtual assets and cryptocurrency transactions as well as the sale of property to overseas buyers remain key areas of vulnerability for the Cayman Islands, according to its own experts. Both the DCI’s 2021 Supervisory Report and the National Risk Assessment 2021, which were recently made public, noted the risk posed by the real estate sector.

The NRA found that virtual assets present a high risk, and despite a global transaction volume of some US$3 trillion in cryptocurrency and its integration into the mainstream economy, criminals can transfer, integrate and layer illicit funds into virtual assets, and then back to fiat currency, to obfuscate the original source and purpose of the asset.