The Beneficial Ownership Transparency Bill, 2023 (BOT Bill) was passed by the Cayman Islands Parliament on 23 November 2023. Careful observers noted that certain amendments to the BOT Bill were made from the floor of Parliament during the debate, so the version that passed the necessary three readings in Parliament is not identical to the version that was previously gazetted. Please contact Barbara Padega of Appleby's Knowledge Management team if you would like a copy of the BOT Bill showing those changes.
THE BOT BILL IS NOT YET LAW
The passing of a bill by the Cayman Islands Parliament is just the first step in the process of enacting new legislation in the jurisdiction. The BOT Bill is not yet in force, and implementation is expected to take place in phases over the course of 2024. This phased implementation is intended to allow for the publication of supporting regulations and guidance notes, and to permit impacted Cayman entities ample time to ensure that they become (or remain) compliant with the new provisions.
Appleby will be producing a series of articles throughout the implementation process to keep you informed. In the meantime, here is what you need to know now.
CONSOLIDATION OF EXISTING LEGISLATION
The Cayman Islands beneficial ownership registration requirements are currently housed in different laws that are specific to each type of entity. For example, the beneficial ownership registration provisions relating to companies are found in the Companies Act, and those relating to limited liability companies are in the Limited Liability Companies Act. To further complicate matters, separate regulations were promulgated under each primary statute setting out the nuts and bolts of beneficial ownership registration for each type of entity, respectively. This natural result of the way in which international standards around beneficial ownership registration developed amounted to a complicated tangle of similar-but-not-identical provisions in different places.
The BOT Bill will unify the beneficial ownership provisions into a single piece of legislation (the Beneficial Ownership Transparency Act (BOT Act)) and one set of regulations will be promulgated under that primary legislation. This consolidation will make it easier to read and understand the law relating to beneficial ownership registration and will assist in ensuring that a consistent approach is taken to the treatment of each type of in-scope entity. For most clients, there will be no practical impact other than the backfilling of two additional data points mentioned below and other than that care will need to be taken in documents that refer to the legislation to ensure that the correct provisions are cited.
EXPANSION OF IN-SCOPE ENTITIES
The current beneficial ownership registration regime applies only to companies, limited liability companies and limited liability partnerships. Once operative, the BOT Act will bring into scope foundation companies, limited partnerships and exempted limited partnerships. Again, this will be done in phases that should allow newly in-scope companies and partnerships time to assess their obligations and, where required, establish the register.
Foundation companies and partnerships should expect to hear from their Cayman corporate services providers in the coming months to ensure that they prepare for compliance. The importance of having a responsive, competent and up-to-speed registered office will be greater than ever, and Appleby Global Services (Cayman) Limited stands ready to assist any clients who require services in this area.
RECONCILIATION OF THE DEFINITION OF BENEFICIAL OWNER
Cayman's anti-money laundering regime requires that, unless an exemption applies, verification of the identity of certain beneficial owners must be obtained by relevant financial businesses as part of the "know your customer" requirement. This means that corporate services providers have long been gathering information and documentation pertaining to beneficial owners under the anti-money laundering regime. Confusingly, the definition of 'beneficial owner' under the existing beneficial ownership registration regime is slightly different from that used in the anti-money laundering context. In most cases, this mis-alignment did not result in any practical irregularities, but it did add an unnecessary layer of complexity to the on-boarding process. The BOT Bill aligns the definition of beneficial owner with that seen in the anti-money laundering context, providing welcome consistency1.
Once the BOT Act is in force, "Beneficial Owner" will mean an individual who meets any of the following specified conditions —
(1)(a) the individual ultimately owns or controls, whether through direct or indirect ownership or control, twenty-five per cent or more of the shares, voting rights or partnership interests in the legal person;
(b) the individual otherwise exercises ultimate effective control over the management of the legal person; or
(c) the individual is identified as exercising control of the legal person through other means, including as a senior managing official, where there is no individual who exerts control pursuant to paragraph (a) or (b).
(2) An individual that meets one or more of the specified conditions under subsection (1) is considered a beneficial owner except where that individual operates solely in the capacity of a professional advisor or professional manager.
(3) Where, in relation to a legal person —
(a) no individual meets any of the specified conditions under subsection (1); and
(b) the trustees of a trust that is the beneficial owner of the legal person meet one of the specified conditions under subsection (1) in relation to the legal person in their capacities as trustees of a trust, the trustees of the trust are the beneficial owners of the legal person if they have ultimate effective control over the activities of the trust other than solely in the capacity of a professional advisor or professional manager.
Where there is no individual who meets the definition of a beneficial owner pursuant to subsection (1) or (3), the senior managing official shall be identified as the contact person.
Cayman entities that already maintain a register of beneficial ownership will wish to consider whether these subtle changes to the definition of "Beneficial Owner" have any practical impact on the register's contents.
NEW DATA POINTS TO BE ENTERED ON THE REGISTER
Entities already maintaining a register of beneficial ownership will also need to backfill two additional data points: (i) nationality; and (ii) the manner or method in or by which ownership or control of the in-scope entity is established.
The phased implementation timeline should allow sufficient opportunity to obtain and enter this newly required information, but clients must be prepared to work cooperatively with their corporate services providers to get this done.
CHANGES TO EXEMPTIONS AND A NEW ALTERNATIVE ROUTE TO COMPLIANCE
The BOT Act will remove most of the previous exemptions that permitted certain entities not to maintain a beneficial ownership register. The BOT Act will also provide an alternate route to compliance for certain structures.
These changes will require all in-scope entities currently claiming an exemption to review the basis of that claim and determine whether or not the exemption will continue to exist, or whether they are eligible to take advantage of the alternative route to compliance. This topic will be the subject of a separate Appleby article once the regulations have been gazetted.
NO PUBLIC ACCESS
The Number 1 question we are being asked is whether, under the new regime, beneficial ownership registers will be available to the general public, particularly in light of the recent decision of the European Union Court of Justice, which held that public registers are an infringement of fundamental privacy and data protection rights. The answer is No.
Cayman remains fully committed to global efforts to tackle illicit financial flows through increased transparency. For that reason, beneficial ownership information is readily available to competent authorities and the jurisdiction offers its full cooperation in this regard. Should public access become the global standard, the Cayman Islands has already made its commitment clear. The BOT Bill contains a provision that would enable Cabinet to make regulations providing for public access, subject to affirmation by a resolution of Parliament. This provision essentially streamlines the legislative process, meaning that the jurisdiction will be able to act quickly and efficiently should the day come when public access is the global standard.
Please watch for future Appleby alerts on this topic, and feel free to contact the Regulatory team or your usual Appleby contact for further information on how the BOT Bill may impact you, your business or your clients.
Footnotes
1. One primary difference remains between the definitions: Under the anti-money laundering regime, the threshold of ownership or voting control to be considered a beneficial owner is 10%. Under the BOT Bill, the threshold of ownership or voting control will remain at 25%. This means that a shareholder with, for example, 18% of the shares of an entity would be a beneficial owner for anti-money laundering purposes but would not be listed as a beneficial owner on the register.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
