Cayman, UK to Enhance Sharing of Beneficial Ownership Information
Press Conference By Premier Hon. Alden McLaughlin, MBE, JP, MLA
10 a.m., Monday 11 April, 2016

Good morning and thank you for joining us today.

Before we begin, on behalf of the entire Government and the Progressives I offer condolences to the Leader of the Opposition, the Hon. McKeeva Bush and his family on the passing of his mother Ms Faith after a long illness. The loss of one’s mother is certainly profound and something with which many of us, including myself, are regrettably familiar. Our thoughts, prayers and considerations are with Mr. Bush and his family during this very difficult time.

This morning I must also make apologies for Financial Services Minister Hon. Wayne Panton who is out of the country attending the RIMS Conference with the Insurance Managers Association of Cayman.

We are here today to update you regarding the results of discussions concerning beneficial ownership between the Cayman Islands and the United Kingdom. I want to thank the Minister for Financial Services, his Chief Officer and Ministry staff for all the hard work they have committed to this effort. I also wish to thank the UK Government officials and the UK Government for their work and for acknowledging what the Cayman Islands has done regarding beneficial ownership and our consistent cooperation in the fight against serious crime.

Today I am pleased to announce that following months of discussions the Cayman Islands and the United Kingdom have signed an agreement on the enhanced sharing of beneficial ownership information – an agreement that the UK Prime Minister announced minutes ago in the House of Commons.

This agreement adds to the number of commitments that Cayman has made previously, all of which build on our capacity to engage in the global fight against serious crimes. This agreement is reciprocal and holds the UK to the same standards in cases where our law enforcement officials may need information on companies incorporated in the UK.

This agreement confirms that the Cayman Islands will implement, as we have said for some time, a central platform that will allow designated Cayman Islands officials to directly obtain and provide details of beneficial ownership of companies incorporated in Cayman to the UK, as required by law and treaty. As previously indicated this is not a central registry as beneficial ownership details will remain with the service providers managing them, but rather information will be accessed via a central technical platform. And it certainly will not be available publically or available directly by any UK or non-Cayman Islands agency.

I must tell you that these matters have occupied the Government for some time. It is part of the reason we cannot spend time in the Legislative Assembly this week.

Before I speak to this latest agreement, allow me to give you the background to our ongoing efforts and demonstrate that from the very beginning of this process we have remained clear, consistent, cooperative and committed:

Since 2013 – the year this Government took office – Cayman and the UK have been discussing the form in which the sharing of beneficial ownership information could take between our respective law enforcement and tax authorities. And from the moment the UK’s plans for a publicly accessible central register of beneficial ownership was raised during the run-up to the G8 summit in June of that year, we have been absolutely clear that we support the global fight against serious crimes, including tax evasion and corruption.

We have also been very clear and consistent in emphasising that we already have a robust system for sharing beneficial ownership information, which has been in place for more than 15 years – far longer than that of many countries, including many of the G20 economies and that of the UK.

As we have explained previously, Cayman’s laws require our corporate service providers to verify the beneficial owners of corporate and legal entities incorporated in the Cayman Islands. And perhaps there is no greater example of our consistency in maintaining the highest standards, cooperation with international partners and commitment to upholding global standards than the decades of engagement with international initiatives against serious crimes, including anti money-laundering and tax evasion, through our multiple mechanisms for exchanges of information on tax and beneficial ownership information.

While they have not received as much media attention in comparison with the cases of criminality, these mechanisms include tax information exchange agreements, the OECD’s Common Reporting Standard, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, the European Union Savings Directive, US FATCA and specifically with the UK, a double tax arrangement and UK FATCA. In all, these mechanisms allow for the sharing of information with more than 90 jurisdictions, including the majority of the G20 countries.

These multiple mechanisms assist other countries with whom we partner in realising the full amount of taxes where they are due. Cayman takes these steps, which are wholly in support of other jurisdictions’ law enforcement and tax regimes, in order to ensure that criminals are not attracted to use our financial services system for illicit means. In other words, we don’t just acknowledge that there is a morality element in fighting global crime. We have been acting on it for years, before it became a global rallying cry.

Rather than allowing illegal activity to take place, then, Cayman’s record on transparency and global law enforcement cooperation is clear to anyone who is willing to recognise our efforts to collaborate globally with law enforcement and tax authorities in the fight against serious crime.

Speaking now of today’s announcement: Cayman’s beneficial ownership regime initially was not understood by our colleagues in the United Kingdom, particularly in light of their preference that we adopt a public, central register. While we always remained clear and consistent in our position during the ongoing discussions, and especially during meetings of the Joint Ministerial Council, it was not until there were several visits to Cayman by UK Ministers and Officials – some at our own request – that they appreciated that our regime already did what they are trying to do.

This all came to a head during the Joint Ministerial Council in December 2015, when it was finally acknowledged that beneficial ownership could be held in our respective jurisdictions via central registers or similarly effective systems such as Cayman’s proposed Central Platform. This marked a significant development in the discussions. It was during these discussions that we invited a visit by the Foreign Commonwealth Office and the National Crimes Agency to Cayman to meet with technocrats and industry and to obtain a fuller understanding of the business that we do.

We know that our planned enhancements to our beneficial ownership information regime are both appropriate for our jurisdiction and moreover – and please allow me to underscore this, because I don’t want it to be overlooked – our enhancements are in line with global standards and the UK’s own position. This is why throughout these discussions we have remained consistent in pointing out that there is no need to adopt any other system. I am glad and proud that our perseverance has finally paid off.

Following the visit at our invitation by the Foreign and Commonwealth Office and National Crime Agency in late February, the Ministry of Financial Services has been negotiating an Exchange of Notes with the UK. This document, along with a Technical Protocol, reaffirms the mutual collaboration between law enforcement and tax authorities in the UK and the Cayman islands; and outlines several operational parameters to this cooperation that will improve the relationship between the relevant authorities.

I acknowledge that these negotiations and indeed the entire process, which began in 2013 has been difficult and complex, but again, it’s the outcome that’s important: The UK has recognised that our system of enhancements meets their criteria for the sharing of information; meets global standards; and is best for this jurisdiction.

It is somewhat ironic that last week’s Panama Papers leak has brought into focus the importance of a global standard in addressing matters of serious crime and tax evasion. Our record shows that Cayman has consistently been cooperative and committed to supporting the implementation of international standards.

Regrettably, despite Cayman’s efforts and clear record, there are those who will look to lump us into the same bucket as places that do not do what we do. Political pressure, combined with influence from some NGOs and the media, continue to wrongly brand Cayman as uncooperative and a part of the problem.

This negative context, however, underscores the significance of today’s announcement of a mutually beneficial agreement with the United Kingdom on the enhanced sharing of beneficial ownership information. In his announcement today of this agreement, PM Cameron said that the Cayman Islands, and our fellow Overseas Territories and Crown Dependencies, are now ahead of many other jurisdictions in relation to the sharing of beneficial ownership information among law enforcement and tax authorities.

To emphasise, the Exchange of Notes and Technical Protocol outline our partnership in the global fight against serious crimes. Importantly, they also recognise that Cayman does not have to go the route of creating a central register. It is a fact that the majority of jurisdictions around the world do not have central registers, and some of these jurisdictions have recently been assessed as compliant with international standards.

The global standard will be ever evolving, as it should be. Some things that may have been acceptable in days gone by are no longer so; and as should be anticipated in matters of serious crime, criminals will always seek to keep one step ahead of the game. For our part, the Cayman Islands will continue to be clear, consistent, cooperative and committed in being part of the solution.

Statement and Potential Q&As
Chief Officer, Dr Dax Basdeo
Exchange of Notes and Technical Protocol Agreement with the UK

Last week the Ministry issued a statement referring to two sets of work in relation to the sharing of beneficial ownership information.

The first set commenced in September 2015, when work began on a series of enhancements to further strengthen Cayman’s legislative and regulatory framework.

The second set commenced this past February, when Cayman and the UK began negotiating the Exchange of Notes and Technical Protocol. These negotiations were initiated in relation to the UK’s request for Cayman to either establish a public, central register; or to prove that its proposed enhancements to its framework would provide a similarly effective system.

Now, with the Premier’s signing last Friday, the 8th of April, of the notes and the protocol, Cayman and the UK agree that Cayman’s proposal to enhance its system, by establishing a centralised platform of non-public beneficial ownership information, will indeed provide a similarly effective system for the sharing of information.

For clarity, the Exchange of Notes states the nature of the agreement between Cayman and the UK. In addition to noting both parties’ continuing commitment to global initiatives against serious crime and reaffirming the quality of the information, it outlines the parameters for our enhanced collaboration. These include that the competent authorities in both countries should be able to quickly identify all companies that a particular beneficial owner has a stake in, and that companies or their beneficial owners must not be alerted to the fact that a law enforcement or tax authority investigation is under way.

The Technical Protocol complements the Exchange of Notes, in that it further details the obligations of the participants – for example, response times; the process for amending the protocol; and importantly, the monitoring of the practical application of this agreement.

Getting to this point of agreement has required significant time and effort.

Government has often said that the Ministry of Financial Services works closely with industry to facilitate the sharing of beneficial ownership information with partner jurisdictions, and that we have done so for many years. However, to provide a quick timeline, this engagement took on a different focus in 2013, when the UK made the sharing of beneficial ownership information a key element of the agenda as part of its presidency of the G8, and said that a public, central register was its preferred approach to accomplishing this.

The following year, in 2014, we conducted a consultation exercise to determine the views of industry, regulators, and the general public, both locally and internationally, on the sharing of this information. The response clearly showed that our present regime is adequate to meet international standards, but that several enhancements were appropriate to ensure that we kept in line with these evolving standards.

In response to the consultation, much work was done in early 2015 by the Ministry and its stakeholders to develop Cayman’s strategy for enhancing our system. We were encouraged to do so in part by the UK’s recognition in March 2015 that there are similarly effective arrangements to their approach of a public, central register.

In September 2015 the Ministry established a working group, which included representatives from industry, to delve into the specific details of amendments to the relevant laws that provide the framework for our regime. The working group has focused specifically on the international standards as expressed by the Financial Action Task Force Recommendations, and the recent changes to this standard.

Throughout the Working Group’s process, as discussions with the UK continued, Cayman considered how to accomplish three distinct objectives: One, alignment with global regulatory standards; two, robustness to support the jurisdictions that have joined or are joining the fight against serious crimes; and three, appropriateness for our jurisdiction. This last point, appropriateness for Cayman, means that we understandably and rightfully took into account the fact that our business model consists primarily of institutional clients.

This is important to note because, in developing our framework, we must account for the set of risks that are relevant to Cayman and our clients. Although it’s obvious, it’s worth acknowledging that there are many different business models among the many jurisdictions that participate in global finance. Precisely for this reason the FATF standards cannot be, and therefore are not, prescriptive. It is more effective for these standards to express the principles to which all jurisdictions should adhere, which allows each jurisdiction to meet these principles while developing the framework that is appropriate for its particular regime.

That said, a milestone in our discussions occurred in February this year, when the Ministry provided a demonstration of the concept of a centralised platform for beneficial ownership information to senior officials from the Foreign and Commonwealth Office and the UK’s National Crime Agency. This satisfied the UK officials that Cayman’s enhanced system would indeed be equivalent to their system; and this resulted in the negotiations of the Exchange of Notes and Technical Protocol. As we informed the public last week, the UK has negotiated similar Exchanges of Notes and Technical Protocols with each Overseas Territory and Crown Dependency.

Now that Cayman and the UK have signed our agreement, the working group’s main task is to complete the design of the enhancements. We expect that the final report of the group will be ready in the next two to three weeks, and it is the Ministry’s intention to solicit the wider views of our industry on the proposed enhancements.

It’s been three years since the G8 Summit, and during this time Cayman, the UK, the CDs and our fellow OTs have invested significant time, energy and effort on this subject. Far from a delayed response, the time spent was necessary to reach understanding. For our part, once we had developed our proposals and demonstrated our system to the UK; and once they recognised that it met their criteria, the remaining negotiations happened rather quickly. The main complexity that we faced was the UK’s desire to have similarities in the agreement among the OTs and CDs.

Regarding the design of our centralised platform, we have been assured by several IT professionals that the concept can be made reality. Not only can we design and build the system, it is likely to be a key competitive advantage for our jurisdiction, as part of an e-business solution that will provide significant value to our clients in terms of convenience and responsiveness to their needs.

The Exchange of Notes and Technical Protocol recognise that Cayman’s proposals are both viable and effective. As the UK has given its support for our enhanced system, this should be taken as a positive signal by our international stakeholders, including media and NGOs, that the Cayman Islands is maintaining its commitment to international standards and to combatting serious crime through the exchange of information between law enforcement and tax authorities.

Q&As

Q: What were the sticking points in the negotiation?

A: The Exchange of Notes and Technical Protocol were drafted by the UK to be a template for use with all Overseas Territories and Crown Dependencies. The difficulty that arose was the drafting of language that accounted for the differences between the legal frameworks of these jurisdictions. A significant amount of time was spent to explain Cayman’s business model, and how our legal framework supports the sharing of beneficial ownership information currently. One of the major points for us was to ensure that appropriate safeguards were referenced. In particular, we felt it important to recognise the Constitutional responsibility to uphold the right to privacy of individuals.

Q: Previous statements suggest that the UK was satisfied with Cayman’s approach. Why the change in attitude?

A: We have been proactive in engaging with the key UK agencies to explain our system and the plans for its enhancement. The visit by the National Crime Agency followed our invitation in December of last year. We have also had some discussion with HMT and HMRC. Every indication from these agencies has been positive, especially once we describe the enhancements that the Ministry has been developing with the assistance of industry stakeholders.

It is clear that the Prime Minister has been under continuous pressure from certain NGOs (such as Global Witness and Transparency International) to take a tough stance on the relevance of a public register of beneficial ownership information. Awareness and understanding of the Cayman regime may be an issue, but certainly the NGO agenda is such that they are unlikely to be satisfied with anything short of a public register despite the challenge this may pose when balanced against privacy as a basic human right.

Q: Given recent cases, is Cayman’s system flawed?

A: Cayman has been successful when assessed against international standards in the past. There have also been several changes over the last decade that have improved Cayman’s regulatory regime and compliance with international standards.

We are aware that there have been at least four other jurisdictions that have successful demonstrated adherence to FATF standards in regards to their beneficial ownership information regime, and that these jurisdictions have done so without having implemented central registries. We are therefore confident in our approach and the enhancements that will allow us to continue to meet international standards.

Q: Why was such an ‘ambitious’ timeline set by the UK?

A: We have been told that the timeline was set so that the Prime Minister would be able to make certain announcements at the Anti-Corruption Summit that he has announced for May.

Q: How can the UK impose its preferred regime on Cayman?

A: The Government has retained Sir Jeffrey Jowell QC as lead counsel in this matter. We are therefore confident that we can take appropriate action no matter what the UK decides to do.

Q: Has the Government yielded to pressure from the UK and changed its position?

A: We have been very clear from the start of discussions on beneficial ownership with the UK that Cayman has met and will continue to meet international standards. We have developed a system that is appropriate for our jurisdiction, and while we will continue to refine and enhance this system as international standards evolve, this is being done on our own terms and with appropriate consultation with our industry stakeholders.

Q: Why has there been so much secrecy with these discussions with the UK?

A: In order to allow a free and frank exchange of views, not all matters are discussed in the public domain. The public has been informed of all major developments, and key industry stakeholder have been more involved as appropriate for the technical aspects of our discussions with the UK.