Governments and authorities worldwide are placing increased emphasis on stricter financial controls tackling money laundering, terrorist financing and proliferation of weapons trafficking. As a leading global financial hub, the Cayman Islands is at the forefront of this arduous challenge.

An example of its success is the introduction of a rigorous beneficial ownership regime (BOR). Under its BOR legislation, which came into force in 2017, the following types of entities must establish and maintain a register of beneficial ownership, unless exemptions apply:

1. Companies incorporated or registered by way of continuation under the Companies Act (as revised);
2. Limited liability companies formed under the Limited Liability Companies Act (as revised); and
3. Limited liability partnerships formed under the Limited Liability Partnership Act (as revised).

The register must record details of beneficial owners of each entity at its registered office, with such information accessible by a competent authority, but not available publicly.

KEY UPDATES

In February 2021, the global money laundering and terrorist financing watchdog called the Financial Action Task Force (FATF) acknowledged that the Cayman Islands had met 60 out of 63 of its recommended actions, rating compliant or largely compliant with 39 out of 40 of the Caribbean FATF’s technical compliance points. However, the FATF placed the Cayman Islands on its “grey list” under increased monitoring for certain high-risk areas of compliance.

Subsequently, the European Commission (EC) also placed the Cayman Islands on its anti-money laundering blacklist, citing beneficial ownership information as an area requiring continual work; namely, that adequate and effective sanctions should be imposed in cases where relevant parties (including legal persons) do not file accurate, adequate and up-to-date information.

The Cayman Islands reacted to this scrutiny by introducing updated guidelines on its BOR legislation, imposing significant penalties on those not compliant with the requirements. Such efforts demonstrate that the jurisdiction is willing to adapt, and is committed to the global cause of high standards in fighting financial crime.

In October 2022, the FATF recognised that the Cayman Islands had satisfied two additional recommended actions, specifically on effective supervisory sanctions and on beneficial ownership, bringing the tally to 62 out of 63 with its endeavours.

The Cayman Islands is now close to being removed from the grey list once the final FATF recommended action on money laundering investigations and prosecutions is met. Assuming positive progress continues, it is expected that the Cayman Islands will be removed from the EC’s blacklist once removed from the FATF grey list.

THREE TAKEAWAYS

Without repeating the BOR mechanism in detail, it is useful to bear in mind certain important information, given the latest developments resulting from heightened compliance obligations.

1) Duty to file meaningful data. Entities are obliged to maintain accurate, adequate and up-to-date information, including giving notice (as soon as reasonably practicable) should any information result in a change to its register. Required particulars to be entered in relation to each registrable person are:

Beneficial owner

• Full legal name;
• Residential address and, if different, address for service of notices;
• Date of birth;
• Information identifying the individual from their unexpired and valid passport, driver’s licence or other government-issued document, including identifying number, country of issue and date of issue and expiry, and
• The date on which the individual became or ceased to be a registrable person in relation to the relevant in-scope entity.

Relevant legal entity

• Corporate or firm name;
• Registered or principal office;
• Legal form of the entity and law by which it is governed;
• If applicable, the register of companies in which it is entered and its registration number in that register; and
• The date on which it became or ceased to be a registrable person in relation to the relevant in-scope entity.

These guidelines have been created in response to FATF requirements, on one hand complying with the recommended actions and, on the other, not imposing an excessive onus of disclosure.

2) Strong safeguard of data with limited access to the register. In a delicate balancing act of fulfilling its obligations towards compliance while preserving the privacy of data, the Cayman Islands Ministry for the Financial Services and Commerce (as the competent authority) opted to establish a secure and confidential platform with restricted access.

As it currently stands, the platform is only accessible by the competent authority, to verify the accuracy of information provided by entities, or if formally requested to do so by a senior official designated by the minister representing one of:

• The Financial Intelligence Unit under the Proceeds of Crime Act (2020 revision);
• The Financial Reporting Authority under the Proceeds of Crime Act (2020 revision);
• The Cayman Islands Monetary Authority;
• The Anti-Corruption Commission established by the Anti-Corruption Act (2019 revision);
• The Tax Information Authority designated under the Tax Information Authority Act (2021 revision);
• Any other body assigned responsibility for monitoring compliance with money laundering regulations under the Proceeds of Crime Act (2020 revision); or
• The Financial Crime Unit of the Royal Cayman Islands Police Service, under certain circumstances.

There is little risk of abuse as only limited persons can access the register for specific reasons.

3) Penalties for non-compliance. Significant penalties are imposed for breaches of the BOR Legislation, including:

• For failure to establish or maintain a register:
• First offence, penalty of about USD30,000;
• Second offence, penalty of about USD120,000; and
• Third offence, the entity may be struck from the register of companies.

For failure to comply with notices (including knowingly or recklessly making a statement that is materially false):

• On summary conviction, penalty of about USD6,000 and/or 12 months’ imprisonment; and
• On conviction on indictment, first offence penalty of about USD30,000; second offence penalty of about USD60,000 and/or 2 years’ imprisonment.

For failure to provide information (including knowingly or recklessly making a statement that is materially false):

• On summary conviction, penalty of about USD6,000 and/or 12 months’ imprisonment; and
• On conviction on indictment, first offence penalty of about USD30,000; second offence penalty of about USD60,000 and/or 2 years’ imprisonment.

The Cayman Islands has commenced and continues to enforce penalties for non-compliance with BOR legislation, consistent with the FATF assessment. It is worth noting that directors, managers, officers and partners of an offending entity may also be liable to the same penalty as such entity or beneficial owner.

MOVING FORWARD

The Cayman Islands remains committed to upholding its reputation as a centre of excellence for international financial services, continuing its momentum in remedial efforts and improvements towards a global standard of compliance, especially in establishing robust anti-money laundering, countering terrorist financing and proliferation of weapons of mass destruction.

Even though the Cayman Islands has effectively satisfied the FATF recommended action relating to beneficial ownership, the competent authority is continuing its work on BOR. New legislation is currently in consultation with industry associations and the general public, and it will not be long before an all-inclusive and enhanced legislation is introduced consolidating queries flagged to date, such as extending the reach of BOR to include exempted limited partnerships.

This will further strengthen the existing BOR and maintain the Cayman Islands’ competitive edge as a jurisdiction of choice for financial services.

Meet our global Cayman Islands law corporate team, here. 

An original version of this article was first published by Asia Business Law Journal, December 2022.