The battle over 'beneficial ownership'

On the front page of Wednesday’s newspaper, we published a photograph of Cayman Islands Premier Alden McLaughlin standing side by side with U.K. Overseas Territories Minister James Duddridge, the host of the Joint Ministerial Council meeting in London.

In public, Premier McLaughlin, British officials and leaders of other U.K. territories may be all smiles (That’s “red-carpet diplomacy.”), but in private, you can be assured that conversations took on a more serious tone. (That’s “behind-doors discussions.”)

Although not on the formal agenda for the annual meeting between Overseas Territories leaders and U.K. ministers, the topic of “beneficial ownership” is, for many of the jurisdictions including Cayman, the primary issue defining current relations with our common Colonial Mother.

To put the matter as concisely as possible, “beneficial ownership” refers to which individual (or individuals) ultimately enjoys the benefits of owning a company (or other financial entity), even if that individual’s name doesn’t appear on that company’s ownership documents.

For example, a person named John Smith might create “Company A,” which in turn sets up a subsidiary “Company B.” The ownership documents of “Company B” might only refer to a director, attorney or other agent of “Company A” — but in reality the “beneficial owner” of “Company B” is John Smith.
Needless to say, these sorts of structures can quickly become complex, as various jurisdictions and entities enter the equation, and with the introduction of cross- and partial-ownership. Complex structures can reflect the reality of complex business arrangements but can also present opportunities for malfeasance or criminal wrongdoing.

Currently, Cayman provides beneficial ownership documents to law enforcement agencies when they ask for them, subject to a number of requirements.

The U.K. has been pressuring Cayman and other territories to go another step entirely, and for each to create a centralized register containing beneficial ownership information that can be electronically accessed by law enforcement as they wish.

There are professionals within our financial services industry who are crying out that revealing beneficial ownership information will be a death blow to Cayman’s economy, and will make Cayman non-competitive – in terms of privacy – with our rival jurisdictions.

Others, such as former Cayman Finance CEO Gonzalo Jalles, have been more bullish. In June 2014, Mr. Jalles wrote in the Cayman Islands Journal, “While the current and upcoming transparency initiatives are capable of reshaping the industry in ways one can only speculate about, Cayman has the potential to emerge as the undisputed leader in the region. Only the political decisions of each of the leaders in these Territories will determine if the potential is realized by Cayman or taken away by another jurisdiction.”

Cayman leaders argue that the standard of financial transparency set by registers of beneficial ownership goes beyond norms in the G-8 countries, and none of those had established public registers of their own. Accordingly, it is unfair and nonsensical to insist that Cayman and other small territories “go first.”

Well, beginning next year, the U.K. will indeed “go first” – setting up a centralized register of beneficial ownership information of companies, that will be searchable by the public, not just police.

That may erode some of the rhetorical ground upon which Cayman’s initial argument was based. And so the discussions continue.

As far as the Compass is concerned, we remain champions of privacy rights, but we are also realists when it comes to the powers the Crown exercises over us. If and when the U.K. determines that a beneficial ownership register is mandatory for Cayman — it will become so.

Until such time, we trust that our political representatives, such as Premier McLaughlin, will continue to act in the interests of Cayman’s financial sector, the ultimate “beneficial owners” of which, are, of course, the people of the Cayman Islands.

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8 COMMENTS

  1. Frankly speaking; life is a "Game of chance" and in so saying I wish to compliment the words of former Finance CEO Gonzalo Galles:
    That, while the current and up-coming transparency initiatives are capable of reshaping the industry in ways, one can only speculate; about Cayman has the potential to emerge as the undisputed leader of the region. So as far as I see, it is only the political decisions of our Leaders, that will determine if the position is realized by Cayman, or can be taken away by another jurisdiction.
    Cayman has been doing pretty good for the past twenty five years, however we must be careful about choosing "wishy-washy" Leaders,
    One thing that is not amazing to me is that we were fore-warned by Opposition Leader Bush that there would be days like these.
    Of course we thought he was radical and never wanted to take his warning. So where do we stand now?

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  2. I can go to the US or Uk and open a Company with directors for hire and hide my beneficial ownership… so why don’t THEY start the precedence and clean up their own back yards before demanding others to do so…?? Blatant hypocrisy!

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  3. I’ve been out of the profession a long time now, but the old axiom still applies: "The difference between tax-avoidance and tax-evasion is the price of a good lawyer". I’m sure that axiom applies to disclosure and non-disclosure of beneficial ownership, too. All the enforcement will achieve is to weed out the amateurs.

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  4. Mike Carp, I don’t think you can. Ownership is the shareholders and not the directors. In the UK shareholding of a private company is public information on companies house. Anyone can obtain it.

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  5. Well Mike Carp, first off the US has nothing to do with it. They aren’t calling for it, the UK is. As the article states next year the UK is starting the precedent and so are asking their overseas territory to do the same. And for the record, I don’t think it’s a good idea in any case, just pointing out the flaw in your comment.

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  6. Just because the UK has crazily decided to destroy the financial privacy of persons owning UK companies doesn’t make it a good idea.
    Except of course for kidnappers and burglars as they will be better informed who to target.

    Certainly of great benefit to nosy neighbors and con men too.

    Perhaps even to gold diggers wanting to check out how rich their boy or girl friend is.

    Perhaps Cameron would also like to require all citizens to allow anyone who wished to wander through their homes too to see what "stuff" they have.

    Total craziness for an international financial center like ours to agree to this.

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  7. @ Christopher… The US has a lot to do with it. They have enforced FATCA US upon the world yet refuse to comply with the OECD standards. This non-compliance has made them the 3rd largest tax haven. UK has rolled out FATCA UK and if they included Jersey and Guernsey under their wing the would place about the US as a tax haven.
    My point is they want all this transparency from everyone but they don’t want to play by their rules…

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