This advisory has been prepared as a summary of the law as at April 2017 and is for general guidance only. It is not intended to be, nor should it be used for, a substitute for specific legal advice on any particular transaction or set of circumstances.
New legislation has been enacted in the Cayman Islands to require certain Cayman Islands companies (including LLCs) to implement beneficial ownership registers (“UBO Registers“) and requiring the Minister charged with responsibility for Financial Services, or a person designated by him (the “Competent Authority“) to establish a search platform enabling the information contained in the UBO Registers to be searched (the “Platform”). The date of implementation is yet to be appointed by Cabinet but is expected to be on or around 26 June 2017 to coincide with the Fourth EU Anti-Money Laundering Directive, which also requires centralised beneficial ownership registers to be implemented by EU member states.
The new regime codifies the agreement made between the governments of the Cayman Islands and the United Kingdom by way of an Exchange of Notes in April 2016 for the provision and exchange of certain information relating to beneficial ownership of certain entities (the “Regime“).
Key Points Summary
- Each Cayman Islands company must keep its UBO Register at its registered office in the Cayman Islands.
- The company’s corporate services provider will provide the information on the UBO Register to the Competent Authority in the Cayman Islands by way of the Platform. Exact details of how the electronic Platform will function have not yet been announced.
- The Platform will be accessible only by the Competent Authority.
- Law enforcement authorities of countries that have entered into an agreement with the Cayman Islands may, acting in furtherance of their functions only, through the Financial Crime Unit of the Royal Cayman Islands Police Service, request the Competent Authority to search the Platform on their behalf. Currently, only the UK has entered into such an agreement with the Cayman Islands. Also, certain Cayman Islands regulatory bodies, such as the Cayman Islands Monetary Authority may, if proper and lawful, request the Competent Authority to search the Platform on their behalf.
- Cayman Islands companies are expected to engage a corporate services provider in the Cayman Islands to assist them to establish and maintain their UBO Registers and to provide the required information to the Competent Authority by way of the Platform.
- There will be a grace period of one year following implementation of the Regime during which companies will not be prosecuted pursuant to the transitional provisions.
- Partnerships and foreign companies are not required to maintain such UBO Registers, nor are certain out of scope companies, such as companies listed on an approved stock exchange or those registered with the Cayman Islands Monetary Authority.
The entities that must comply with the Regime are companies incorporated or registered by continuation under the Companies Law (being exempted companies, limited liability companies, ordinary companies and special economic zone companies) excluding those that are out of scope (“In-Scope Entities“).
The following is a broad summary of companies that are “out of scope”:
- entities listed on the Cayman Islands Stock Exchange or an approved stock exchange;
- entities registered or licensed under a “regulatory law” in the Cayman Islands (being the Mutual Funds Law, the Securities Investment Business Law, the Banks and Trust Companies Law, the Building Societies Law, the Companies Management Law, the Cooperative Societies Law, the Insurance Law and the Money Services Law). Accordingly, mutual funds registered under the Mutual Funds Law and investment managers or advisors registered as excluded persons under the Securities Investment Business Law are excluded;
- special purpose vehicles, private equity funds, collective investment schemes and investment funds which are managed, arranged, administered or promoted by an “approved person” (see below for definition); and
- a general partner of any vehicle, fund or scheme referred to in paragraph (c) above that is managed, arranged, administered or promoted by an approved person.
An “approved person” is a person who is either (i) regulated, registered or holding a licence in the Cayman Islands under a regulatory law (as listed above), (ii) listed on an approved stock exchange (including the Cayman Islands Stock Exchange), (iii) regulated in a jurisdiction that appears in Schedule 3 to the Money Laundering Regulations or (iv) is a subsidiary thereof. (To be a subsidiary, in general terms, requires the out of scope entity to hold 75% of the interests or voting rights or the right to appoint or remove a majority of directors or managers of the subsidiary). For example, a special purpose vehicle or a private equity fund managed by a US SEC registered investment manager would be exempt.
Foreign companies or foreign LLCs and partnership vehicles, whether or not registered in the Cayman Islands, are not required to report under the Regime.
Mechanics to identify beneficial owners and relevant legal entities
“Beneficial ownership” under the Regime is ascertained in a different manner to that contained in standard anti-money laundering regulations.
A beneficial owner:
- is any individual who holds:
- directly or indirectly more than 25% of the shares in a company;
- directly or indirectly more than 25% of the voting rights in a company; or
- the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company; or
- if no individual meets the criteria in (a), is the individual (if any) who has the absolute and unconditional right to exercise, or actually exercises, significant influence or control over the In-Scope Entity, other than solely in the capacity of a director (or manager if an LLC), professional advisor or professional manager; or
- if no individual meets the criteria in (a) or (b) above, is the individual (if any) who has the absolute and unconditional right to exercise or actually exercises significant influence or control over the trustees of a trust or members of another legal vehicle that is not a legal person (such as a general partnership) that, in their capacity as such, meet one of the criteria in (a) or (b) above in relation to an In-Scope Entity, other than solely in the capacity of a director (or manager in the case of an LLC), professional advisor or professional manager.
Each “relevant legal entity” also has to be identified. A “relevant legal entity” is any Cayman Islands company or foreign company incorporated, formed or registered in the Cayman Islands that would meet the “specified conditions” set out at (a) – (c) above if it were an individual.
However, a “relevant legal entity” is only registrable if (i) it directly holds an interest in an In-Scope Entity or meets one or more of the specified conditions directly in respect of that In-Scope Entity, and (ii) through it, any beneficial owner or relevant legal entity indirectly owns an interest in that In-Scope Entity.
Content of the UBO Register
Each Cayman Islands company has to ensure that details of any beneficial owner(s) and any registrable relevant legal entity(s) (together “registrable persons”) are entered in the company’s UBO Register and the Platform. If a company does not have any registrable persons, then a nil return should be entered in the company’s UBO Register and on the Platform.
The information required to be contained in the UBO Register and on the Platform is:
- for an individual beneficial owner, his or her full legal name, residential address (and address for service if different), date of birth, passport or driver’s licence or other government ID identifying number, country of issue, date of issue and expiry of the document and the date on which he or she became a registrable person in respect of the In-Scope Entity and (for former beneficial owners) the date he or she ceased to be so. Governmental or statutory bodies and international organisations are treated as if they were individuals; or
- for a registrable relevant legal entity, its corporate or firm name, registered or principal office, the legal form of the entity and the law by which it is governed, the register of companies in which it is entered (if applicable) and its registration number in that register; and the date on which it became or (for former relevant legal entities) ceased to be a registrable person in relation to the company in question.
A company is also required to keep the UBO Register up to date if it becomes aware of a change with respect to registrable persons.
Action by Cayman Islands companies
All Cayman Islands companies will need to determine whether they are In-Scope Entities. Out of scope entities should take steps to document that they are outside the Regime.
In-Scope Entities are required to take reasonable steps to identify:
- any individual who is a beneficial owner of the company; and
- all relevant legal entities that exist in relation to the company.
Accordingly, In-Scope Entities should commence taking the necessary steps to identify, obtain and hold the information required about their beneficial owners and relevant legal entities.
Specifically, In-Scope Entities should contact any person(s) they know or have reasonable cause to believe is a beneficial owner or relevant legal entity under the Regime, requesting the required information. Such persons are required to respond to such requests within one month, and failure to do so may be a criminal offence.
Similarly, those individuals or legal entities which are aware that they are registrable persons in relation to a company but, inter alia, have no reason to believe they have been entered in such company’s UBO Register are under a pro-active obligation to disclose their details to the In-Scope Entity within one month, and failure to do so may be a criminal offence.
For the purpose of identifying individuals who are beneficial owners and relevant legal entities, a company is entitled to rely, without further enquiry, on the response of a person (or legal entity, in the case of relevant legal entities) to a notice in writing sent in good faith by the company, unless the company has reason to believe that the response is misleading or false.
Consequences of non-compliance
If an In-Scope Entity is unable to maintain and keep its UBO Register up to date due to the failure of registrable person(s) to provide required information, the In-Scope Entity must issue a restrictions notice to such person(s). A restrictions notice in respect of any interest, among other things, makes any transfer of (or agreement to transfer) such interest void and prohibits payment of sums due from the company in respect of such interest. A person to whom a restrictions notice has been issued may apply to the Court for the restriction imposed to be set aside. Companies and other persons including directors and officers may be subject to robust penalties including fines and imprisonment for breach of the Regime.
The registered office service provider for each Cayman Islands company should contact the company with regard to the requirements of the Regime.
If Campbells Corporate Services Limited provides registered office services to a Cayman Islands company, it will contact the company with regard to assisting the company to meet the requirements of the Regime.
Campbells can advise and assist on these matters. For further information on the matters referred to in this advisory, please contact your usual Campbells contact or visit our website for contact information.