Progress has been made in developing a framework to combat fraud and corruption in the Cayman Islands but more needs to be done

The report “Fighting Corruption in the Cayman Islands,” issued by the Office of the Auditor General (OAG) today assesses if the mechanisms for preventing corruption in the Cayman Islands are effective.

The report looks at the progress made in developing a national framework for fraud and corruption, including legislation, anti-corruption bodies and policies and procedures.

“I am pleased to report that progress has been made in developing a national framework for fighting fraud and corruption in the Cayman Islands, including passing legislation, setting up anti-corruption bodies and extending the remit of others, and developing and strengthening government policies and procedures.” Ms. Winspear notes.  “However, these measures do not mean that the Cayman Islands are free from fraud and corruption.”

The report highlights that the Cayman Islands has a range of legislation in place and uses a wide-ranging definition of corruption. It reports that the Anti-Corruption Commission and its work with other agencies, including the OAG and the Royal Cayman Islands Police Service, play a significant role in the fight against fraud and corruption.

“The Cayman Islands now have a wide range of laws that contribute to the fight against corruption, including the Anti-Corruption Law,” Ms. Winspear explains. “However, a key component in the legislative framework is missing. The Standards in Public Life Law, which was passed by the Legislative Assembly in 2014 has still not been brought in to force and I urge the Government to focus on doing this quickly”

The report also looks in more detail at the arrangements in place for preventing fraud and corruption in the planning sector, specifically the Department of Planning, Central Planning Authority and Development Control Board.

The Auditor General adds. “My Office reported a number of risks of corruption in the planning sector in 2015. I am pleased to note that changes have been made and operations are now more transparent, although there is still room for improvement” 

More information about the report can be obtained by contacting Sue Winspear at (345) 244-3201 or Angela Cullen, Director of Performance Audit at (345) 244-3220. 

This report and the original OAG reports on which this report is based are available at www.auditorgeneral.gov.ky.  

Note:

1.        The Anti-Corruption Law 2008 was brought into force on 1 January 2010. A further twelve laws are in place that also have provisions relating to combatting corruption (summarised in Exhibit 5 on pages 16 and 17 of the report).

2.        The Anti-Corruption Commission was established in 2010.

3.        Planning decisions in the Cayman Islands are made by three bodies: Central Planning Authority (CPA) makes planning decisions for Grand Cayman; the Development Control Board (DCB) makes planning decisions for Cayman Brac and Little Cayman; and the Department of Planning (within the Ministry of Commerce, Planning and Infrastructure in the Cayman Islands Government) supports the CPA and DCB and grants some planning permissions.

NOTE: THE FOLLOWING IS AN EXCERPT ONLY FROM THE FULL REPORT

EXECUTIVE SUMMARY
Corruption has been identified as one of the most important problems facing the world today.1 It is a world-wide problem that became an increasing concern in the early 1990s. Since then, addressing corruption has become increasingly urgent. Corruption exists across the public and private sectors; the International Monetary Fund (IMF) estimates that bribery alone siphons between US$1.5 trillion and US$2 trillion annually from the global economy (two per cent of global GDP).2 Corruption has a significant negative effect on human and economic development, as it hinders economic growth, results in lost tax revenues, and contributes to sustained poverty. It can also erode public trust and confidence in governments and can stifle progress and innovation.

Given the extent of corruption, major development and capacity building institutions including the IMF, United Nations, the Organization for Economic Co-operation and Development, Transparency International and the World Bank have been encouraging and supporting countries across the world to do more to strengthen their governance, accountability and transparency arrangements with the aim of eliminating corruption.

The Cayman Islands is not immune to corruption. Since 2011, there have been around 13 high-profile cases of fraud and corruption involving public servants; over the last two years, nine cases of alleged fraud and corruption in the public sector have been reported and are being investigated. Widespread corruption creates a significant reputational risk for the Cayman Islands if government is seen to be ineffective in tackling fraud and corruption.

Since 2007, consecutive governments have introduced measures aimed at combatting fraud and corruption, including passing legislation, setting up anti-corruption bodies and strengthening government policies and procedures. However, actions have not yet been extended across the wider public sector; and it is not yet clear how effective the framework is at preventing corruption.

This audit focuses on the institutional framework for fighting corruption at the national level and within the infrastructure sector, with emphasis on the three planning entities: the Cayman Islands Government’s Department of Planning, Central Planning Authority (CPA) and Development Control Board (DCB). We selected this sector because it is integral to the country’s development and economic prosperity and because there are significant numbers of major infrastructure developments (both public and private sector) currently underway in the Cayman Islands. We have also previously recommended that the National Development Plan be updated to provide a strategic approach to infrastructure in the Cayman Islands.3

The objective of the audit was to assess the effectiveness of the mechanisms for preventing corruption at the national level and within the infrastructure sector. Specifically, we attempted to answer the following audit questions:

How well-designed is the national framework to prevent corruption?

How effective is the national framework in preventing corruption at the national level?

How well-equipped is the infrastructure sector to prevent corruption?

KEY MESSAGES

The Government has made progress in developing a national framework for countering corruption. This includes enacting a range of legislation, the main component being the Anti-Corruption Law. However, some of the legislation has only recently come into force, and some has yet to come into force. The Standards in Public Life Law 2014, a major piece of legislation for the framework of preventing corruption, does not yet have an enforcement date set.

The Anti-Corruption Commission (ACC) was established in 2010. Its remit focuses on investigation and enforcement, and its resources have been significantly increased over the last two years as a result of changes in legislation. A range of other public bodies also have a role to play in combatting corruption; they cooperate on anti-corruption activities, but there is scope to clarify their roles and responsibilities.

Along with this framework, the Cayman Islands Government has started to take a number of actions to strengthen anti-fraud and anti-corruption activities. In 2017 it launched an Anti-Fraud Policy aimed at strengthening controls to prevent, detect and investigate fraud and related offences. To support the policy, the Government also developed fraud awareness training for civil servants. However, as at September 2018 only 19 per cent of civil servants had completed the training; the Government needs to do more to increase staff awareness about anti-fraud and anti-corruption activities. It is promising that the Government has developed its own Anti-Fraud Policy but the policy is not applicable to Statutory Authorities and Government Companies (SAGCs). The Government needs to do more to extend this policy to the whole of the public sector.

The ACC’s resources have significantly increased since 2015, and it now employs one senior investigator, five investigators and one trainee investigator. It also brings in specialist expertise as necessary. The work of the ACC is reactive: it investigates allegations of corruption that are referred to it (although it has thresholds for investigation and refers some allegations to other bodies). Many of the corruption investigations are complex and some can take a long time to complete. It is not clear whether the ACC has the resources it needs to effectively investigate the volume of existing corruption cases. It is currently investigating 14 cases some of which have been ongoing for a number of years. The ACC publicly reports some performance information each year. However, the information published does not give any indication of the time it takes to investigate corruption cases or the cost of doing this. This information may be helpful to inform the public and manage expectations about the work of the ACC.

A range of other bodies also play a role in combatting corruption. These include the Commission for Standards in Public Life (CSPL), the Ombudsman, the Office of the Auditor General (OAG), the Royal Cayman Islands Police Service (RCIPS) and the Financial Reporting Authority (FRA). However, the CSPL is not currently operating as intended, because the Standards in Public Life Law has yet to be brought into force. The ACC has memorandums of understanding (MOUs) with most of these bodies, which set out how they should cooperate with each other. The OAG and RCIPS support the ACC in investigating cases, and the ACC can formally delegate cases to RCIPS. Information is shared by all of these bodies with the ACC and all refer potential corruption cases on to the ACC.

The CPA and DCB are independent of government and make most planning decisions in the Cayman Islands. The CPA is responsible for planning decisions on Grand Cayman and delegates some planning decisions to the Director of Planning. The DCB makes all planning decisions for Cayman Brac and Little Cayman. Since the OAG’s report in 2015, the CPA and DCB have improved the governance and transparency of their operations: registers of interest are now completed and published, meetings are open to the public, and their decisions are publicly available. However, there is scope to further improve transparency and governance. Balancing the membership of the boards to include members that do not have an interest in the infrastructure sector would also help alleviate any perception of corruption.

The Department of Planning is expected to comply with Cayman Islands Government policies and procedures in relation to fraud and corruption, but it does not have a formal corruption risk assessment process in place. In addition, it has its own procedures manual. All Department of Planning staff are expected to complete an annual declaration on notice of interests but we found that almost one third of staff had not done this for 2017. Furthermore, notices of interests are not being used to allocate planning applications to staff in order to minimise the likelihood of any conflicts of interest.

1 2013 World Independent Network/Gallup International annual survey covering 65 countries.

2 IMF Staff Discussion Note – Corruption: Costs and Mitigating Strategies, International Monetary Fund, May 2016 http://www.imf.org/external/pubs/ft/sdn/2016/sdn1605.pdf

3 National Land Management and Government Real Property, Office of the Auditor General of the Cayman Islands, June 2015

CONCLUSION

1. I am pleased to report that progress has been made in developing a national framework for fighting fraud and corruption in the Cayman Islands. Over the last decade consecutive governments have introduced a range of measures, including passing legislation, setting up anti-corruption bodies or extending the remit of others to incorporate this, and developing and strengthening government policies and procedures.
2. The Cayman Islands have various laws that contribute to the fight against corruption. The main piece of legislation is the Anti-Corruption Law, which sets a wide-ranging definition of corruption. However, one key component – the Standards in Public Life Law – which was passed by the Legislative Assembly in 2014 has yet to be brought in to force. This is a major gap in the framework, which severely limits the operations of the commission for Standards in Public Life. I urge government to enact this law as soon as possible.
3. The Anti-Corruption Commission (ACC) was set up in 2010 and its resources have increased significantly over the last few years. The ACC plays a significant role in the investigation and enforcement of corrupt activates but its work is reactive as it responds to potential cases that are referred to it. A number of other bodies also play a role, including my Office and the Royal Cayman Islands Police Service. Together, these bodies may play a role in preventing fraud and corruption but there are no specific activities or requirements relating to the prevention of corruption.
4. The Cayman Islands Government has also taken action over the last few years to develop and strengthen its policies and procedures to fight against fraud and corruption. An Anti-Fraud Policy was introduced in 2017 but more work is needed to embed this policy and raise staff awareness about it
5. My audit looked in more detail at the planning sector as this is integral to the economic development of the Cayman Islands and affects many people. My office previously reported a number of risks of corruption in this sector and I am pleased to note that improvements have been made over the past few years. The Central Planning Authority and Development Control Board have changed some of their practices to address these risks, including opening their meetings up to the public, making decisions public and maintaining registers of interests. However, there is still scope to improve. For example, a more balanced membership of these boards and ensuring that technical advice is taken into account in decision making could help avoid any perception of potential conflicts of interest.
6. I have made a number of recommendations to both the Cayman Islands Government and the Anti- Corruption Commission, which I believe would further strengthen the national framework in place.
7. We have gratefully acknowledged the cooperation and assistance from government officials and the Anti-Corruption Commission in all phases of the work.