Why has the Cayman Islands introduced Beneficial Ownership Legislation19/07/2017
Why has the Cayman Islands introduced the Legislation?
The implementation of the legislation demonstrates the Cayman Islands’ continued commitment to meeting the highest standards of due diligence and transparency imposed by the international financial services industry and reflects similar international initiatives implemented by European Union member states, British Overseas Territories and Crown Dependencies.
Which companies are required to maintain a Beneficial Ownership Register?
- companies incorporated or registered by way of continuation in the Cayman Islands under the Companies Law; and
- limited liability companies formed under the Limited Liability Companies Law;
together in this guide known as ‘companies’.
Who is a “registrable person”?Any beneficial owner (including any “deemed beneficial owner”) of a company (X) and any “relevant legal entity” that holds a direct interest in X that would satisfy the first three criteria in the following paragraph and through which any beneficial owner or relevant legal entity indirectly owns an interest in X is a registrable person. Their details must be included in the Beneficial Ownership Register of the company.
Who is a “beneficial owner”?An individual (natural person) that directly or indirectly meets one or more of the following criteria:
- holds, in aggregate, more than 25 per cent of the shares or membership interests in the company;
- holds, in aggregate, more than 25 per cent of the voting rights in relation to the company; or
- holds, in aggregate, the right to appoint or remove a majority of the board of directors/managers of the company.
If there is no individual that meets any of the above conditions, the beneficial owner of the company is the individual who has the absolute and unconditional legal right to exercise (or actually exercises) significant influence or control over the company through the ownership structure (other than solely in the capacity of a director (or manager), professional manager or professional advisor).
If no individual satisfies any of the conditions above, but the trustees of a trust or the members of another legal vehicle that is not a legal person (such as a partnership) satisfy one of the conditions (i) to (iii) set out above in relation to a company in their capacity as trustees or members of the partnership or other entity, then such persons will be beneficial owners for the purposes of the legislation if such persons have the absolute and unconditional legal right to exercise, or actually exercise, significant influence or control over the activities of that trust or other vehicle, other than solely in the capacity of a director (or manager), professional advisor or professional manager.
What is a “relevant legal entity”?A relevant legal entity is:
- a legal entity that is incorporated, formed or registered (including by way of continuation or as a foreign company) in the Cayman Islands; and
- one that would be deemed a beneficial owner (as identified above) of the company if it were an individual.
Who is a “deemed beneficial owner”?As noted above, the legislation anticipates that there may be circumstances in which the beneficial owner of a company is not an individual (but will be deemed to be a beneficial owner under section 244(2) of the Companies Law (deemed beneficial owner)). Those circumstances are where interests (direct or indirect) in a company are held by:
- a corporation sole;
- a government or government department of a country or territory or a part of a country or territory;
- an international organisation whose members include two or more countries or territories (or their governments); or
- a local authority or local government body.
Where is the Beneficial Ownership Register kept?The majority of Cayman Islands companies must engage a regulated corporate services provider (Harneys Fiduciary will provide this service to companies for which it provides a registered office) to keep their Beneficial Ownership Register at their registered office in the Cayman Islands.
The corporate service provider will provide the information contained in the Beneficial Ownership Register to the Competent Authority in the Cayman Islands on 1 July 2017 with updates on a monthly basis thereafter.
What are the legal obligations of the company?Unless an exemption applies (see below), a company must establish and maintain a Beneficial Ownership Register. In order to do this, companies must take reasonable steps to identify its beneficial owners and relevant legal entities and which of them constitute registrable persons. Even if the company believes that it has this information already it must serve a statutory notice on any person (ie individual or relevant legal entity) that it knows or has reasonable cause to believe is a registrable person to ask them to confirm whether or not they are a registrable person and if they are, to confirm or correct the required particulars which the company may hold in respect of them.
A company may also give informal notices to other persons if the company believes that they have information about beneficial owners in order to obtain information about registrable persons.
If the company is in the process of taking these reasonable steps on 1 July 2017 or at any time afterwards, the Register must say “Enquiries Pending.” If a registrable person has been identified, but the company is waiting for that person to confirm their required particulars, the register should state “Confirmations Pending”. Once the company has received confirmation from the registrable person, those details can be included on the register which can then be provided to the company’s corporate service provider.
A company’s Beneficial Ownership Register must never be empty however it is possible for a company to not have any registrable persons. If, after having made reasonable enquiries, a company determines that it does not have any registrable persons then that should be indicated on the register by the words “No registrable person identified”.
If you would like help identifying your company's registrable persons or in preparing the relevant notices please get in touch with your usual Harneys contact, who will be happy to assist.
What are the legal obligations of registrable persons?Registrable persons must confirm the required particulars to the company on receipt of a request from the company or, if they have not received a notice from the company within one month of becoming a beneficial owner (for all companies this would be by 1 August 2017 as part of the initial registration) and they know that they are a beneficial owner, they must provide the required particulars to the company and update that information as detailed below. Failure to do so is a criminal offence.
What are the consequences if legal obligations are not met?It is a criminal offence not to comply with the provisions of the legislation.
On conviction, fines may be imposed on a company that knowingly and wilfully breaches the legislation. This includes any director, manager or other officer where it is proved that the offence was committed with their consent or wilful default. Penalties of imprisonment for two years and/or fines will apply on conviction of an individual.
Under the legislation, companies (but not registrable persons) will not be prosecuted for any act or omission which would be an offence under the legislation unless that act or omission takes place after 1 July 2018.
A person who fails to comply with a notice served on them by a company within one month of receipt, will also potentially be committing a criminal offence.
If a person, who has a relevant interest in a company, does not respond to or comply with a notice from the company, the company may serve a restrictions notice on that person. The effect of which (in respect of the relevant interest) is as follows:
- any transfer or agreement to transfer the interest is void;
- no rights are exercisable in respect of the interest;
- no shares or additional rights (as the case may be) may be issued or granted (as the case may be) in respect of the interest or in pursuance of an offer made to the interest-holder;
- except in a liquidation, no payment may be made of sums due from the company in respect of the interest, whether in respect of capital or otherwise; and
- other than in a liquidation, an agreement to transfer (a) a right to be issued with any shares issued or a right to be granted additional rights (as the case may be) in respect of the relevant interest or (b) a right to receive payment of any sums due from the company in respect of the relevant interest is void.
What are the legal obligations of the company’s registered office?The corporate services provider which provides the registered office to a company (Harneys Fiduciary) is under no obligation to establish or maintain a Beneficial Ownership Register on behalf of the company or provide any information to the Competent Authority, unless instructed by the company. Once engaged by the company, the registered office must report to the Competent Authority on a monthly basis as noted above.
What are the ongoing obligations of the company and registrable persons?If the company becomes aware of a relevant change, it must serve notice on its registrable persons to ensure that details of any changes to their required particulars are provided and to instruct the registered office as necessary to update the Beneficial Ownership Register.
Registrable persons must notify the company within 1 month of any changes to their required particulars by providing the relevant information to allow the company to update the Beneficial Ownership Register. Failure to do so may be a criminal offence and/or lead to a restrictions notice being served on them by the relevant company.
Who can access the Beneficial Ownership Register information?The Competent Authority has established a secure and confidential platform on which a central register is kept. This central register will not be open to public inspection and will only be accessible pursuant to a proper and lawful request made by the:
- Financial Reporting Authority;
- Cayman Islands Monetary Authority;
- Tax Information Authority; or
- Financial Crime Unit.
Which companies are exempt from the requirement to maintain a Beneficial Ownership Register?A company (or a subsidiary of a company) that is:
- listed on the Cayman Islands Stock Exchange or an approved stock exchange;
- registered or licensed under regulatory legislation in the Cayman Islands (which includes regulated funds under the Mutual Funds Law and Excluded Persons under the Securities Investment Business Law);
- managed, arranged, administered, operated or promoted by an “approved person” as a special purpose vehicle, private equity fund, collective investment scheme or investment fund; or
- a general partner of special purpose vehicles, private equity funds, collective investment schemes or investment funds each of which must be managed, arranged, administered, operated or promoted by an approved person.
This information does not constitute and should not be taken as legal advice. If you would like legal advice please contact your usual Harneys contact.