The United Kingdom is seeking direct access by its law enforcement agencies to information about the beneficial owners of companies and other entities in the Cayman Islands and other Overseas Territories.
Speaking in the Legislative Assembly on Thursday, Premier Alden McLaughlin said “the U.K.’s position has evolved yet again,” following a phone call between Overseas Territories Minister James Duddridge and the premiers of Cayman, the British Virgin Islands and Bermuda last week, during which the minister said the U.K.’s law enforcement agencies should have direct access beneficial ownership information.
“I have advised him that this is not something to which the Cayman Islands can agree,” Premier McLaughlin said.
The U.K. government has called for a centralized register of beneficial ownership information in all its Overseas Territories and Crown Dependencies since 2013.
However, in early 2014 a public consultation in the Cayman Islands rejected the idea with 81 percent of the respondents stating they were opposed to it because the existing regime, reliant on corporate service providers, was better than a self-reporting system.
A centralized register would also impose additional costs and create security and privacy risks, respondents said. In its public consultation report, the Cayman Islands government said the existing system adhered to the G-20 High-Level Principles on Beneficial Ownership Transparency and declined to implement a centralized register. But government said it would institute measures to speed up the process.
Corporate service providers in Cayman are required to collect beneficial ownership information and make it available to law enforcement, tax and regulatory authorities under international tax information exchange agreements.
Premier McLaughlin said existing systems worked well “and our position is that they should continue to be the means by which the U.K. and other countries obtain information on beneficial ownership of legal entities in the Cayman Islands.”
He said, “To do otherwise would place the Cayman Islands at a competitive disadvantage with other jurisdictions that do not permit unfettered access to beneficial ownership.”
Yet, it is not clear whether the existing mechanisms work effectively for the U.K., after a number of tax information exchange requests faced legal challenges in Cayman and in other jurisdictions.
Minister Duddridge said in response to a parliamentary question earlier this month, “U.K. law enforcement and tax authorities must be able to access company beneficial ownership information without restriction, subject to relevant safeguards.”
In addition, competent authorities should be able to quickly identify all companies that a particular beneficial owner has a stake in without needing to submit multiple and repeated requests and companies or their beneficial owners must not be alerted to the fact that an investigation is under way, he explained.
Under the existing system, beneficial ownership information has to be requested from Cayman’s Tax Information Authority, which has to ensure that the request complies with the underlying tax information exchange agreement.
When an information request is made as part of a civil proceeding, the taxpayer has to be notified to have the opportunity to challenge the information request and to ensure the taxpayer’s rights to privacy and a fair trial under the Cayman Islands Constitution.
In a criminal proceeding, the taxpayer is not notified to avoid “tipping off,” but Cayman’s Tax Information Authority has to make an application with the Grand Court for a production order.
Service providers who hold the information are potentially in danger of violating the Confidential Relationship Preservation Law if they comply with an information request that was unlawful.
Premier McLaughlin said the information concerned did not belong to the Cayman Islands government and was the property of the owners of the respective legal entities.
“There is no country in the world that allows unrestricted access to beneficial ownership information by the law enforcement agencies of another country,” he added.
“What we are not prepared to do is to adopt a scheme which our competitors (some of whom are G-20 member states) do not subscribe to, put ourselves at a competitive disadvantage and thereby cause our business to migrate to competitor jurisdictions. That will not serve our interest obviously but ironically neither would it serve the interests of those who would have us do that: business would simply move to less well regulated jurisdictions,” the premier said.