Business licensing bill targets fronting

Proposed law introduces ticket offenses, strengthens enforcement

In an attempt to stamp out the practice of fronting, a new Trade and Business Licensing Bill would require companies that apply for renewal of their licenses to submit a statement of effective control and beneficial ownership. 

The measure aims to prevent the use of agreements or instruments to circumvent the statutes of the Local Companies (Control) Law which prescribe that locally operating businesses have to be at least 60 percent Caymanian owned, unless they are exempt.  

Companies already have to submit an annual return and a shareholder return to renew their business licenses as a matter of Trade and Business Licensing Board policy. Under the proposed law, applicants would also have to present a statement confirming that the effective control and benefit of the company is not in any way altered from the return of shareholdings. 

This return includes the number and par value of each class of shares owned by both Caymanians and non-Caymanians and the voting rights attached to each class of shares. 

If the bill becomes law, licensees would have to obtain the written approval of the board before any increase or decrease in shareholdings or interests can take effect. This applies also to the sale, transfer or charge of a significant interest in a company, defined as 10 percent of voting rights, dividends or distributed surplus assets. 

Pension and health insurance compliance 

Under the bill, which was gazetted on Oct. 31, the trade and business licensing process would become the enforcement mechanism for a range of other laws governing businesses. For instance, it is proposed that license renewal applicants be required to submit evidence that they are complying with pension and health insurance provisions, planning laws and, where necessary, that they have obtained the approval by relevant authorities to carry out their business in public places. In addition, applicants must submit evidence of Caymanian status, police clearance and a bank reference. 

Anyone who knowingly provides false or misleading information, if convicted, would be liable for a fine of $5,000, a one-year prison term, or both.  

The bill increases the fine for anyone operating without a license to $10,000, one-year imprisonment or both for the first offense and $20,000, two years imprisonment or both for subsequent offenses. 

The Trade and Business Licensing Board currently relies on the cooperation of the Immigration Department to enforce the Trade and Business Licensing Law. If the new bill became law, trade officers would be able to request a warrant from a magistrate or justice of the peace to search the premises of anyone reasonably suspected of operating without a license. If such a warrant is granted, Department of Commerce and Investment trade officers, equipped with the rights and powers of a constable, would be allowed to enter the premises to examine or seize any documents, equipment or other evidence indicating violations of the Trade and Business Licensing Law. 

The destruction or altering of such evidence is classed as a criminal offense by the bill and is subject to a $5,000 fine, one year imprisonment or both. 

In the case of a conviction, anything seized would be considered forfeited and sold. 

In contrast to the current law, the bill gives the board the right to suspend or revoke licenses of companies that are not in compliance with the law.  

For smaller offenses, the bill introduces fixed fines that, similar to a traffic ticket, could be issued by trade officers on the spot. Such offenses would not lead to court proceedings if the fine was paid within 28 days. 

The fines range from $100 for failing to display a license or failing to inform the board of a change of address, to $2,500 for obstructing trade officers or failing to answer questions relating to any register or other record when required to do so by the board. 

The application of ticket offenses are seen as one way to help crack down on illegal street vendors without blocking the court system. Now, the Department of Commerce and Investment first has to obtain a summary court order before it can act. 

The proposed law also provides for the creation of a five-member Appeals Tribunal, which would hear any appeals to decisions by the Trade and Business Licensing Board. 

Delegated powers 

The bill would also allow the board to delegate its powers in a move that could result in the Department of Commerce and Investment making the vast majority of licensing decisions administratively. In practice, the board would then deal only with complicated or contentious matters.  

The composition of the Trade and Business Licensing Board would also change under the bill and include a chairman, deputy chairman, four members from the private sector, the director of commerce and investment, the director of planning and the director of environmental health or their designates. However, the board would no longer include the chief immigration officer. 

A subcommittee of the board, comprising three members, would be empowered by the bill to make expedited licensing decisions within five working days for an extra fee. The bill could be debated in the Legislative Assembly as soon as the end of this month. 

3 COMMENTS

  1. The 60 – 40 percent Fronting has been going on in Cayman Islands for more than thirty five years, that was how most Caymanians got a business kick-start back then, and all parties were happy..
    Too much red tape now; however something must have cause a wanted poster to be put on all Caymanians head..

  2. Looks like another good reason for foreign business owners to close up shop and fire their workers, ex-pat and Caymanian alike.

    I have some experience with another island jurisdiction, Singapore, as my son has his business there.
    As most people are aware, Singapore has a thriving economy and is also known as one of the least corrupt places one can do business. Better than the USA.

    There is low taxation and a foreigner can start a business without any local ownership. However there is a requirement for those businesses to employ a certain number of native Singaporeans.

    The laws against crimes are very tough. With the death penalty for drug dealing. You can be caned for spraying graffiti or vandalism.

    After a number of years a foreigner can apply for a Singapore passport, without major hassle provided they have been law-abiding.

    Foreigners are not allowed to own LAND. They can buy a condo in certain areas only. There is a large amount of decent public housing available at reasonable costs, also for Singaporeans only.

    They have a policy of trying to ATTRACT foreign capital and smart foreigners who can help their economy grow.

    On the other hand, freedom of speech is very limited and insulting the government is punished.

  3. The bill increases the fine for anyone operating without a license to 10,000, one-year imprisonment or both for the first offense and 20,000, two years imprisonment or both for subsequent offenses. Wow! There are no jail large enough for this particular law to be applied. Who do you expect, will turn their relatives or neighbors in? The people who’s job it is to enforce this law will never get the backup from their supervisors.

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