Many clients approach us with concerns about the recent introduction of the Beneficial Ownership Register rule in the Cayman Islands. The topic deserves your attention as it is directly linked to the broader agenda of jurisdictions’ technical compliance with the 40 FATF AML/CFT Recommendations. Moreover, it sheds the light on the key issues of privacy vs transparency of information on companies’ beneficial ownership. The Caymans’ challenges and progress to date, the nature of national and international policy commitments, the verification and prosecution measures, are gaining a lot of attention from many analysts, entrepreneurs, and lawmakers.
- Compliance of the Cayman Islands with the FATF AML/CFT criteria
- Who is In Scope of the Beneficial Ownership Register Rule in the Cayman Islands?
- Who is not obliged to keep the Beneficial Ownership Register in the Caymans?
- Obligations of companies exempt from maintaining a Beneficial Ownership Register in the Cayman Islands
- Obligations of In Scope entities to maintain the Beneficial Ownership Register in the Cayman Islands
- Information to be contributed to the Beneficial Ownership Register in the Cayman Islands
- Obligation to keep the Beneficial Ownership Register in the Cayman Islands up to date
- Liabilities of registered agents
- Who can have access to the Beneficial Ownership Register in the Cayman Islands?
- Offenses and penalties
- Administrative penalties
Let us detect and review the implementation track records of the new Beneficial Ownership Regime in the Cayman Islands. On the one hand, it obliges some entities to enter their beneficial owners’ details in a Register and defines the responsibilities of such In Scope companies. On the other hand, it specifies the types of “exempted entities” that can be free from this liability. The new rule also explains who can get access to the Register. Read on and find answers to the most relevant questions on this topic.
For more details, advice, and assistance in registering companies in the Cayman Islands and opening corporate accounts with foreign banks and payment systems, please contact our Cayman experts. You can find our email address and messengers at the top of this page.
Compliance of the Cayman Islands with the FATF AML/CFT criteria
The Cayman Islands have been for years monitored by FATF for technical compliance with its internationally endorsed global AML/CFT standards. These are known as the 40 Recommendations drawn up in 1990. The aim of this FATF initiative was to combat the misuse of financial systems and to direct and facilitate the effective implementation of legal, regulatory, and operational measures countering money laundering, terrorist financing, and other massive threats to the financial security of jurisdictions.
In February 2021, the FATF assessed the Cayman Islands and stated that the country was Partially Compliant (PC) with the Requirements (39 of the 40 criteria). In October 2021, following the implementation of the new legislation, the Cayman Islands were re-evaluated and re-rated as Largely Compliant (LC) or Compliant (C) with all the 40 FATF Recommendations. The FATF recognized the positive trend in the Caymans and encouraged the further implementation of the strategic action plan.
As of today, the 2 following issues remain unresolved and are being worked on:
- effective implementation of the Cayman’s Beneficial Ownership Regime
- demonstration that money laundering cases are effectively prosecuted and sanctioned.
The Cayman Islands continue to work on the above-stated objectives. The next FATF plenary meeting is scheduled for October 2022.
Who is In Scope of the Beneficial Ownership Register Rule in the Cayman Islands?
The Beneficial Ownership Register rule applies to all Cayman Islands companies, limited liability companies, and limited partnerships unless they are entitled to some exemptions.
As of today, this Regime is not relevant to Cayman Islands trusts, other forms of partnerships or companies registered abroad.
The Beneficial Ownership Register rule imposes obligations on corporate service providers, such as providers of registered offices in the Cayman Islands.
Who is not obliged to keep the Beneficial Ownership Register in the Caymans?
There is a wide range of exceptions that can free a legal entity from the Beneficial Ownership Register liabilities. Fore example, a company may be exempted from the Regime in the following situations:
- when the entity is listed on the Cayman Islands Stock Exchange or on any other approved stock exchange
- when the entity is registered or licensed under the regulatory laws, such as the Mutual Funds Act, the Private Funds Act, the Securities Investment Act, and the Banks and Trust Companies Act
- if the entity is managed, organized, administered, operated, or promoted by an “approved person” as a special purpose vehicle, private equity fund, collective investment scheme or investment fund, including where the institution, fund or scheme is an exempted Cayman Islands limited liability partnership
- if the entity is subject to regulatory laws of an equivalent jurisdiction that complies with the anti-money laundering and countering terrorist financing measures equivalent to those of the Cayman Islands
- when the general partner of the entity or fund is registered or licensed according to the regulatory laws or is managed, organized, operated, administered or promoted by an approved person
- when the entity holds a legal or beneficial interest in shares of a legal entity which holds a license under such regulatory laws as the Banks and Trust Companies Act, the Companies Management Act, the Insurance Act, Part III of the Mutual Funds Act or the Securities Investment Act
- when entities are otherwise exempted legally by some regulations on beneficial owners.
The “approved person” mentioned above means an entity or its subsidiary which is regulated, incorporated, or licensed in the Cayman Islands under the regulatory law. This can also be an entity or its subsidiary regulated in an equivalent jurisdiction or listed on the Cayman Islands Stock Exchange (or another approved stock exchange).
Obligations of companies exempt from maintaining a Beneficial Ownership Register in the Cayman Islands
An organization exempt from the requirement to maintain the Beneficial Ownership Register in the Cayman Islands needs to provide its Corporate Services Provider, i.e. the registration agent, with written confirmation of that specific exemption. It will also authorize the CSP to submit the written confirmation to the Registrar of Companies in the Cayman Islands.
The written confirmation must specify the nature of the exemption that it uses. For example, if an investment fund wishes to take advantage of an exemption, it needs to mention the name of the approved person, the regulator or the stock exchange relevant to the approved person, and the jurisdiction of incorporation of that regulator or stock exchange.
If the exempted entity is aware of the inaccurate or outdated information in the written confirmation of the exemption, it is obliged, within 1 month, to provide its CSP with an amended copy.
Obligations of In Scope entities to maintain the Beneficial Ownership Register in the Cayman Islands
Companies that are In Scope (i.e. those not exempt from maintaining a Beneficial Ownership Register) in the Cayman Islands are required to establish and maintain a Register with details of their registrable persons. It must be kept in their registered office (i.e. with the CSP).
As part of this process, non-exempted organizations must identify the registrable persons. These include beneficial owners and relevant legal entities.
An In Scope organization needs to identify and verify its beneficial owners. The beneficial owner of the company is expected to meet at least one of the 3 verification criteria:
1. the private person owns 25% or more of the property, voting rights, or the right to appoint/remove a majority of the board of directors/managers (or equivalent officers in case of limited liability companies and limited partnerships);
2. the private person has an absolute and unconditional legal right to exercise (or actually exercise) significant influence or control over the company through an ownership structure other than a director (or the equivalent CEO), professional advisor or professional manager;
3. the trustees of a trust meet the first criterion or the second criterion with respect to an LLC or partnership, or these individuals have/has an absolute and unconditional legal right to exercise (or actually exercise) significant influence or control over that trust, except for the cases when they are solely in the capacity of as a director, professional advisor or professional manager.
The above-mentioned criteria should be exercised in 3 consecutive steps. There is no need in detecting the applicability of all the 3 verification criteria to any particular case. For example, you should refer to the second verification criterion only if the first one fails, and the third criterion should be referred to only if the second one does not yield any facts).
An In Scope organization must also identify all “relevant entities”. For this purpose, a “relevant legal person” is an entity that:
- is incorporated, created or registered under the laws of the Cayman Islands
- would be a beneficial owner if it were a private person.
Information to be contributed to the Beneficial Ownership Register in the Cayman Islands
The Beneficial Ownership Regime prescribes what type of data should In Scope entities feed into the Register. Information about private individuals needs to include each person’s name, address, date of birth, passport details, and the date when this private person became (or ceased to be) the beneficial owner. For legal persons, it includes the name, registered or principal office address, legal form, registration number (if applicable), and the date on which the entity became (or ceased to be) the relevant legal person.
If an In Scope organization takes reasonable steps to verify whether there is anyone who is a registrable person, the Register should make the “Inquiries Pending” statement. If the In Scope organization identifies the registrant but all required information about that person has not yet been confirmed, the Register may state the “Confirmations Pending.”
When the company knows or has reasonable cause to believe that it has no registrable beneficial owner, it can submit the “No registrable person identified’ record.
Obligation to keep the Beneficial Ownership Register in the Cayman Islands up to date
If the In Scope legal entity learns about any changes relevant to a registrable person, it needs to immediately request the relevant registrable person/s to confirm the change as soon as possible. Having received this confirmation, the entity needs to feed the updates into the Register as required. A change is deemed authentic if the registrable person ceases to be one in relation to the company or in case of any other change in the registrable person’s personal data.
Liabilities of registered agents
The In Scope entity may commission its registered agent (CSP) to act in compliance with the Beneficial Ownership Regime. In this case, as soon as the CSP gets involved, the CSP becomes liable for the following obligations:
- to establish or maintain a Register on behalf of an In Scope company
- to advise the company if he has reasons to believe that it neglects certain obligations without good cause, including the company’s failure to update its Register, or if it has made a false, misleading, or deceptive statement
- to notify the company of restrictions imposed on shareholders or participants as a means to compel them to provide information allowing the In Scope entity to verify its beneficial owners and any relevant persons; to forward a copy of the notice to the Registrar of Companies within two weeks of issuance
- to submit beneficial owners’ data to the Register on a regular basis
- to respond in due course to each of the Registrar’s request for additional information.
Who can have access to the Beneficial Ownership Register in the Cayman Islands?
The competent authority (Registrar) maintains a centralized electronic platform for registers. The platform is not publicly open. It can only be accessed by the Registrar. Otherwise, the access can be provided to the following bodies in case it submits a proper lawful request:
- the Financial Reporting Authority
- the Cayman Islands Monetary Authority
- the Anti-Corruption Commission
- the Tax Information Authority
- the Financial Crime Unit.
Offenses and penalties
|Offenses/breach of legal provisions||Fines or penalties|
|Failure to establish and/or maintain the Register||1st offense: 25,000 KYD.|
2nd or subsequent offense: 100,000 KYD.
3rd offense: a court ruling to strike the entity from the register of companies
|Failure to comply with a notice (including failure to comply with notices of restrictions); a deliberate and negligent statement that is false substantially||Aggregate sentence:|
5,000 KYD or 12 months in jail.
Conviction on indictment:
First offense: 25,000 KYD.
Second or subsequent offenses: 50,000 KYD or 2 years in jail.
|Failure to provide information (including the registrants’ failure to provide relevant information).|
5,000 KYD or 12 months in jail.
Conviction on indictment:
First offense: 25,000 KYD.
Second or subsequent offenses: 50,000 KYD or 2 years in jail.
|Failure to provide in due time additional information requested by the Registrar of Companies.||500 KYD and, if the violation was deliberate and intentionally conspired or authorized, an additional fine of 1,000 KYD, plus a daily fine of 100 KYD.|
|Notice of breach of restrictions.||Aggregate sentence: 5,000 KYD.|
In addition to the above, the Registrar of Companies in the Cayman Islands is entitled to impose additional administrative fines for failure to comply with various aspects of the beneficial ownership regime. The administrative fines are 5,000 KYD for each violation, plus an additional 1,000 KYD fine imposed for each month in which the violation continues until the total amount due $25,000 KYD.
If the administrative fine remains unpaid within 90 days, the Registrar of Companies may strike the company, limited liability company, or limited partnership from the register, which will lead to the liquidation of the legal entity.
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