The Fourth Anti-Money Laundering Directive (4AMLD), published on 5th June 2015, gave EU Member States (including the UK) two years to transpose the requirements of the Directive into national law. The leak of the "Panama Papers" and terrorist attacks in Europe led to proposed amendments to the 4AMLD published in July 2016 and was loosely referred to as the Fifth Anti-Money Laundering Directive (5AMLD). These changes came into effect in June 2017. The 4AMLD (as amended) affects a wide range of businesses involved in the provision of financial services. These include banks, the legal profession, accountancy profession and trust or company service providers.
The move to establish registers of beneficial ownership in the Crown Dependencies and Overseas Territories (CDOTs) is in accordance with a commitment following an Exchange of Notes with the UK in April 2016.
The 5AMLD amendments include a proposal that the registers be open to public access.
So far as the UK is concerned, implementation of EU legislation continues despite Brexit.
The objective of these registers is to tackle money laundering and terrorist financing, recognising an overlap between the two given that both criminals and terrorists use similar methods to move funds, albeit with different motives.
Information is gathered by way of increasingly detailed customer due diligence and know your client enquiries, resulting in a demand for disclosure of the "real" ownership of corporate vehicles, trusts and real estate.
The impact upon jurisdictions such as the Cayman Islands, to which the financial services industry is enormously important, is potentially very significant.
Information in the right hands is a powerful tool for those fighting crime. In the wrong hands, it has the potential to create very real problems for individuals to whom privacy is important for legitimate reasons.
With effect from 1 July 2017, the Cayman Islands introduced legislation establishing its own beneficial ownership register requirements for certain companies. This is by way of two 2017 statutes amending, respectively, the Companies Law (2016 Revision) and the Limited Liability Companies Law and by equivalent sets of Regulations.
The legislation lists a range of companies excepted from the rules, to be expanded by further amending legislation currently in the form of The Companies (Amendment) (No.2) Bill, 2017. The exceptions include:
i. companies listed either in Cayman or on an approved stock exchange (as listed in Schedule 4 of the 2016 Law) or appropriately regulated or licensed,
ii. a company which has solely corporate directors themselves duly licensed, and
iii. private equity or collective investment schemes or investment funds, or a company which is a special purpose vehicle, in each case managed, arranged or administered, operated or promoted by an "approved person".
The meaning of "special purpose vehicle" is not clear but in practice any "legal entity" which is licensed and/or regulated in Cayman is going to be out of scope.
It seems that a company wholly owned by a trust will be treated as a subsidiary of the trustee.
On that basis, if the trustee holds a trust license in Cayman, the subsidiary company will not be in scope.
The new regime will not apply to hedge funds regulated or licensed in Cayman or to hedge funds and private equity funds managed or administered by an approved person (essentially a person registered, regulated or licensed in Cayman). The primary responsibility for compliance is with the company, which is obliged to engage a corporate service provider (CSP) to assist in establishing and maintaining the register, but the corporate service provider and the beneficial owner may also have obligations.
If a company is "in scope", then it has to maintain a register of beneficial owners who may be individuals or legal entities.
The definition of beneficial owner focuses upon the right to exercise control, so the following qualify:
- Holding directly or indirectly more than 25% of the shares or voting rights or the right to appoint or remove a majority of the board.
- Being able, absolutely and unconditionally, to exercise "significant influence or control" other than as director, professional advisor or professional manager, or having that ability through a trust or similar structure.
The information required includes full name, address, date of birth and ID.
The company will request this information by notice in writing to the beneficial owner, who is obliged to provide the required information unless it is protected by professional privilege or otherwise by Cayman law.
If a CSP has reason to believe that a company has failed to comply with obligations, it must notify the company, which must then correct the situation.
There is a transitional period of 12 months designed to allow companies that are in scope to organise their register. During that period no company will be prosecuted for failing to comply. Thereafter there are penalties for a company which fails to comply or a beneficial owner who fails to provide information or provides false information.
In the latter case the company may serve a "restrictions notice" on the person concerned, the effect of which is potentially serious, preventing the shares or other interest from being dealt with other than in a liquidation. Unlike the equivalent UK register, and despite the proposals in the 5AMLD, the Cayman register will not be open to public search.
In fact it is not accessible via any direct network such as the Internet, but is hosted offline as a centralised encrypted registration platform.
Each provider maintains a register which is uploaded to a dedicated government terminal via an encrypted flash drive which is taken physically to the government office.
It is difficult to make a sensible argument against rules designed to assist with the prevention of crime.
It is easier to make the case for personal privacy and safety.
There is, as always, a need to compromise and also to recognise that the scope for misuse of personal information available on a public register is considerable. International financial centres are resisting the call for public access on the basis the information will always be available to those agencies involved in fighting the crime and terrorist financing with which these initiatives are concerned, namely those with an actual legitimate interest.
It is likely that they will continue to do so until such time as there is global agreement on appropriate exemptions and safeguards.
ABOUT THE AUTHOR
Jim Edmondson is Head of International Trusts and Private Client and is based in Cayman office of Mourant Ozannes.
Prior to joining Mourant Ozannes, Jim was joint Senior Partner and head of the private client practice at Farrer & Co.
He has over forty years' experience advising high net worth individuals on a range of non-litigious private client matters and is particularly recognised for his advice on offshore holding structures. He is recommended in Chambers Global 2014 for both Private Client and International Private Client work.
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.