East End representative Arden McLean has advocated company ownership rules that would disqualify non-Caymanians from owning shares in local businesses, to deal with the issue of fronting.
Speaking in Finance Committee last Wednesday Mr. McLean said, “The only way to address fronting is 100 percent Caymanian ownership.”
Mr. McLean said current rules requiring a Caymanian to own at least 60 percent of a local business and limiting non-Caymanian ownership to 40 percent, unless exempt under the Local Companies Control Law, are no longer needed because the country now has sufficient financial means to develop the economy.
“The day of 60-40 and LCCL … done. That was when we did not have the financial resources in this country to assist with development and to build it,” Mr. McLean said. “All those people who assisted us received their just reward for that. “We got plenty Caymanians … We got plenty of us now; we can deal with that.”
Fronting covers cases where a Caymanian partner is the majority owner of a local business on paper only, and certain contractual arrangements or other instruments allow the non-Caymanian shareholder to exercise financial and management control.
The topic of fronting emerged during a discussion of the use of public docks by dive operators which interfere with Caymanian fishermen.
When Minister of Financial Services Wayne Panton pointed out that many of the dive firms are owned by Caymanians, opposition benchers shouted: “Fronters!”
West Bay MLA Captain Eugene Ebanks said, “There is a lot of fronting going on, there is no question in my mind about that. Unfortunately, the Caymanians are not the ones who really benefit in a significant way from these fronting operations.”
Mr. Panton responded that the new Trade and Business Licensing Law contained significant enhancements, including specific provisions that will address the issue of fronting.
Under the new law, applicants for the renewal of a trade and business license have to present, in addition to an annual return and a shareholder return, a statement confirming that the effective control and benefit of the company is not in any way altered from the return of shareholdings.
Significant changes in ownership or interests in a company have to be pre-approved in writing by the Trade and Business Licensing Board.
“I am not going to tell you that it will have a 100 percent success, but I imagine that there is a far greater chance that it will address some of the issues in connection with that than under the old law,” Mr. Panton said.