While helping to curb problems with local companies not paying licensing fees, or paying late, proposed enforcement mechanisms under rewritten legislation in the Cayman Islands won’t completely prevent those issues.
That was the conclusion of government auditors who examined difficulties with the Cayman Islands trade and business licensing processes during a period between 2011 and 2013.
As part of the review, auditors looked at a “snapshot” extract of the government Department of Commerce of Investment’s register of business licenses in early 2013.
At that time, eight businesses were identified through site visits by audit staff as still in operation despite not having paid trade and business licenses. Another four companies on the register had paid, but were between two weeks and three months late in making the payments.
Legislation requires payment of an annual trade and business license at least 28 days prior to the expiration of the current license.
Although the specific instances reviewed by internal auditors represent only a handful of the more than 1,140 trade and business licensed companies at the time, it was enough to raise significant concerns in the agency’s report.
Auditors were advised at the time that no staff members with the Department of Commerce and Investment had been assigned to enforcement duties.
“We are in the process of hiring one enforcement officer,” the department noted in its response to the audit, stating that about four were likely needed. “This will reduce, but not eliminate the issue.”
Under the new Trade and Business Licensing Law approved by lawmakers in November 2014, but which has not yet been put into legal effect, the trade and business licensing process is to become the enforcement mechanism for a range of other laws governing businesses. It is proposed that license renewal applicants be required to submit evidence of their compliance with pension and health insurance provisions and planning laws and, where necessary, that they have obtained the approval of 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.
The law 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 is approved, 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 law is essentially government’s attempt to stop “fronting,” the circumvention of the Local Companies (Control) Law, which requires locally operating businesses to be at least 60 percent Caymanian-owned unless they have obtained an exemption from that provision. The law requires companies that apply for renewal of their license to submit a statement of effective control and beneficial ownership.
Local 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.
Under the 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 change of a significant interest in a company, defined as 10 percent of voting rights, dividends or distributed surplus assets.