From Solomon Harris
The Cayman Islands Government (‘CIG’) has decided to keep its existing regime for gathering and maintaining legal and beneficial ownership information (‘BOI’). Having considered the issue and following consultation with the financial services industry by the Cayman Ministry of Finance, the CIG has issued a report which concludes that it would be premature for the Cayman Islands (‘Cayman’) to create a new central registry of BOI before global agreement on appropriate exemptions and safeguards, and a central registry becomes the internationally practiced standard. For more than a decade Cayman has used a method endorsed by the global standards body the Financial Action Task Force (‘FATF’), by which licensed and regulated corporate service providers (‘CSP’s) are required to collect, maintain and update BOI.
Who needs BOI and why?
BOI is held and exchanged as part of a global effort to combat money laundering, terrorist financing and other threats to the international financial system. To help countries achieve this goal FATF was established to provide agreed Standards – made up of Recommendations and the accompanying Interpretive Notes. Because each country has a different legal and regulatory regime, FATF recognises that countries should implement these international Standards through measures adapted to their particular circumstances.FATF Recommendation 24 on Transparency and beneficial ownership of legal persons provides that countries should ensure that there is ‘adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities’.
Is it compulsory to hold BOI on a Central Register?
The FATF recommendations recognise that each jurisdiction needs to take its own route to achieve the FATF Standard, and one of the approved routes is usinginformation held by other competent authorities on the legal and beneficial ownership of companies (e.g. company registries, tax authorities or financial or other regulators).Last November’s G20 Communiqué – Level Principles on Beneficial Ownership Transparency also provides that information could be maintained by a register or “…or other appropriate mechanisms.”
What’s wrong with a register?
Access – Where countries have decided to hold this information in a central register there will be arguments that the information held should be available to law enforcement, regulatory and tax authorities. To allow public access to a central register would infringe law-abiding individuals’ right to privacy, which is a fundamental principle at common law. Such a register would cause particular problems for Cayman as the principle is enshrined in the Cayman Constitution.
Accuracy – There are doubts that the information held on a central public register will be accurate, particularly as anyone who is engaged in money laundering or terrorist financing is unlikely to self-report true and correct information.
Attack – There is also the risk that law-abiding individuals who do self-report true and correct information will become victims of cybercrimes such as identify theft.
Why did CIG review the existing regime?
As part of the CIG’s June 2013 Action Plan to Prevent the Misuse of Companies And Legal Arrangements the CIG had committed itself to conduct an assessment of whether a central registry of BOI and the control of companies was the most appropriate and effective way to improve transparency. The results of that assessment and the Ministry’s consultation were published in a report on 30 December 2014 – the Consultation Report on Maintenance of Legal and Beneficial Ownership Information (‘the Report’). The Report considered responses from local and international companies, individuals, and non-governmental organisations, given during a public consultative period held from 15 November 2013 to 28 February 2014 (‘the Consultation’).
Does the current system work?
More than 70% of the respondents to the Consultation noted that Cayman’s financial services regime is already at a level of compliance beyond those of other jurisdictions – including key onshore jurisdictions – some of which do not collect or maintain BOI at all. For more than a decade Cayman’s laws and regulations have required locally licensed and regulated CSPs to obtain and maintain BOI. Furthermore, when Cayman introduced its anti-money-laundering regime in 2000, it required a full retrospective due-diligence exercise on existing client relationships. The current system also has advantages over a self-reporting system as CSPs currently undertake due diligence, and refresh beneficial ownership information following a risk-based analysis.
Will there be any improvements to the system?
The CIG has proposed improvements for the future, to keep the existing regime as efficient as possible. These include:
– amending the Cayman Companies Law to abolish bearer shares in 2015. (Bearer shares have been immobilised in Cayman since April 2001)
– codifying express definitions of ‘beneficial owner’ and ‘control’
– measures to improve the eligible introducers regime
– legislation to introduce a target turnaround time of 24 hours for CSPs to provide BOI
– require CSPs to provide an annual filing of legal ownership information for most Cayman Exempted companies
– Require CSPs to designate a natural person locally to be accountable for the availability of BOI
– Introduce measures for the monitoring and testing of BO information
– legislation to allow Cayman authorities to wind up an entity that has not complied with legal or BOI requirements within a specified timeframe.
Cayman commitment
The CIG says it will continue its programme of active engagement with local and international stakeholders to ensure that Cayman continues to provide an efficient platform for legitimate business and that it remains committed to ‘improve our system, in ways that support sound business growth locally and globally … it simply is the right thing to do’.