Cayman Islands' Removal From FATF Grey List: What This Means for India

The Financial Action Task Force (FATF) has removed the Cayman Islands, Panama, Jordan, and Albania from its grey list. This means that these locations are no longer subject to the intense monitoring of the FATF, which is a global money laundering and terrorist financing watchdog.

Experts believe that the removal of the Cayman Islands from the grey list could boost foreign investment inflows into Indian equity markets, as most global equity funds have holding companies in the Cayman Islands.

Many US and European funds choose to establish holding companies in the Cayman Islands to make investments in India, according to the New Indian Express, quoting experts. However, the Reserve Bank of India (RBI) has barred funds from these jurisdictions from holding stakes in non-banking financial companies (NBFCs). The report said that with the latest development, the RBI is likely to allow jurisdictions that were previously on the grey list to invest in NBFCs.

The Cayman Islands have been a preferred jurisdiction for foreign investors, and about 400 foreign portfolio investors (FPIs) are domiciled in the Cayman Islands, according to the New Indian Express report, quoting Manoj Purohit, Partner & Leader – Financial Services Tax, Tax & Regulatory Services.

“Removal of the Cayman Islands from the FATF grey list will reduce the compliance burden for such funds, resulting in a reduction in the cost of funding and compliance costs,” Purohit said.

According to the Department for Promotion of Industry and Internal Trade (DPIIT), the Cayman Islands are the eighth largest contributor of foreign direct investment in India, with over $15 billion invested since 2000.