Opinion: Cayman’s critics are missing the point and misleading the public

By Julian Morris

As the Compass reported last week, in the build up to the Joint Ministerial Council meeting in London, various British politicians, NGOs and journalists claimed that public beneficial ownership registers are the “only way to stop dirty money that underpins crime,” as a Guardian headline put it. This is simply untrue.

Moreover, it overlooks the nuanced and effective measures already in place, particularly in the Cayman Islands, and the potential adverse consequences of mandating public disclosure.

Cayman has rightly rejected the demand to create such public registers, opting instead to provide access to those with a ‘legitimate interest’. It is important that such legitimate interest be narrowly construed; otherwise, it will be no different from making the register public. 

Cayman’s proactive approach to combatting illicit activities

The Cayman Islands have long recognised the importance of preventing the misuse of our financial system by criminals. As far back as 1986, in response to concerns that Americans were attempting to evade taxes and launder money through entities within the jurisdiction, Cayman entered into an agreement with the United States to provide legal assistance in identifying criminals. 

Since then, the Cayman Islands government and the financial services industry have significantly enhanced the jurisdiction’s ability to assist authorities in the US and elsewhere. In 2001, the government implemented regulations requiring financial service providers to collect and verify information about the ultimate beneficial owners of entities and accounts established by their clients.

This was followed by a series of bilateral agreements under which beneficial ownership information was exchanged in response to requests from law enforcement and other legitimate authorities in those other jurisdictions. Then, in 2014, Cayman became party to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, through which authorities in any of the other 148 parties are able automatically to obtain information from the registry.

The establishment of a world-class verified beneficial ownership register in 2016 marked a significant advancement in Cayman’s efforts to ensure accurate and reliable information is available to authorities here and in other jurisdictions. This register is not public, but is accessible to law enforcement and tax authorities through proper channels.

The legislation and related regulations and guidance governing the register have been regularly updated to enhance its effectiveness, ensuring that beneficial ownership information is reliably added to the register and shared when legitimately requested.

Whereas the information in Cayman’s beneficial ownership registry is verified using documents such as passports and utility bills, the reliability of information in many public registers is questionable.

A quick search of the UK Companies House register, for example, identifies a company called Spypriest Limited, which was registered in 2021 by ‘Lord Truman Michael Spypriest’, who remains listed a the beneficial owner. It seems to have gone through a slew of directors, including ‘Joseph Smith’, ‘Victor Hugo’ and ‘Adolf Tooth Fairy Hitler’.

This is not an isolated incident – a report in February found that 750 companies had been registered at Companies House using fake information in the previous six weeks.

By focusing on ensuring the accuracy of information and on collaboration with overseas authorities, the government and private sector have demonstrated a commitment to prevent Cayman from being exploited by criminals, while also safeguarding the legitimate privacy concerns of individuals and businesses.

The importance of privacy in a global context

Privacy is not a luxury; indeed, for many, it is a necessity. Cayman is a very safe place compared to many other parts of the world –  and we all want it to stay that way. We are fortunate to have a well-trained and competent police service and judges who are not susceptible to bribery.

The rule of law is strong in Cayman and that underpins not only our safety but the jurisdiction’s effectiveness as a place to domicile businesses, which in turn has enabled the remarkable economic development that has touched the lives of everyone who lives here. And it has improved the lives of billions around the world who have benefited from investments and insurance channelled through Cayman entities. 

Unfortunately, few places are as safe as Cayman. In many countries, including our neighbours Mexico and Venezuela, kidnap and ransom are common. Moreover, these dangers and the risk of government expropriation have been increasing. People who live in such countries rely on privacy to protect themselves and their families from these bandits. 

In jurisdictions where the rule of law is weak, the ability to keep personal financial information confidential is a matter of life and death. Cayman helps thousands of entrepreneurs, investors and others who have acquired wealth legitimately, but who are at risk from kidnappers and government expropriation. It does so by providing a rule-of-law-based legal system and by ensuring that their information is not shared with those who mean them harm. 

But privacy is not the same as secrecy. As already noted, there are legitimate reasons for jurisdictions to collect information about beneficial ownership and share that information with authorities in other jurisdictions if those authorities have good reason to suspect the individuals have been involved in criminal activities. But neither I nor Andrew Mitchell, nor the Guardian, nor Tax Justice Network should have an automatic right to access such information. We do not have a legitimate interest. 

Public beneficial ownership registers risk exposing sensitive information to unscrupulous actors. Unlike controlled disclosures to law enforcement, public registers make data accessible to anyone, including criminals who might use the information for nefarious purposes. The unintended consequence is that law-abiding individuals seeking legitimate privacy protections may become vulnerable, while criminals find new ways to obscure their activities.

Why public registers are counterproductive

Mandating public beneficial ownership registers would paradoxically undermine the very goals they aim to achieve. Part of the drive for introducing public registries has come from organisations such as the International Consortium of Independent Journalists (ICIJ) who were involved in distributing the information stolen from various firms in the Caribbean and Europe.

The ICIJ and others, such as the Tax Justice Network, point to these thefts and say, “If only all that information had been on public registers, we would have known about those misdeeds so much earlier.”

But that is nonsense. To the extent that the theft and sharing of that information succeeded in identifying illicit activity, it did so precisely because those illicit actors believed that the information would not be disclosed publicly. Its disclosure was a surprise.

When an illicit actor thinks a jurisdiction might introduce public beneficial ownership registries, they are unlikely to wait around and be caught. They will adapt. They might shift their activities to jurisdictions without such requirements. Or they might employ proxies and complex ownership structures to conceal their identities. But make no mistake – real criminals have almost certainly already done this. 

In case you are not familiar with the term ‘proxy’ in this context, consider a wealthy criminal, let’s call him Boris, who has access to an army of hit men. Boris has several ‘friends’ who are British, German and Italian citizens. He nominates those friends to become the ‘beneficial owners’ of companies that, thanks to wire transfers from outside ‘investors’ are able to acquire shares in shell corporations domiciled in Mauritius.

The shell companies then make investments in hundreds of electronically traded funds through brokers in dozens of countries. Boris still directly owns his superyacht and his houses in London, New York, and Cap d’Antibes, but most of his assets are now distributed among these proxies – people who owe him allegiance at the point of a gun.

The point is this: it is highly unlikely that the introduction of a public beneficial ownership register in Cayman would uncover many criminals. But it would ensure that criminals in other jurisdictions are able more effectively to target victims for kidnapping and ransom. And it would ensure that the stationary bandits that control many corrupt and despotic regimes are able to expropriate more wealth.

The point is that the Guardian headline claiming that public beneficial ownership registers are the “only way to stop dirty money that underpins crime” is not merely wrong, it is backwards. Foisting public registers on Cayman would help criminals and despots, while endangering the lives and livelihoods of thousands of individuals who live or whose families live in countries that lack the rule of law upon which Britain and its overseas territories can so dependably rely. 

A call for measured solutions

Cayman already has a highly effective register of beneficial owners that is accessible to those with the most legitimate interest – authorities in other jurisdictions who have reason to believe an individual is using Cayman entities for illegal activities. Could more be done? Of course. The reliability of the information in the registers can be improved, for example, through greater use of electronic KYC. And the speed with which information is shared can also be increased.

Beyond that, the Cayman government has committed to expanding access to the registers, while protecting the privacy of those at risk of serious harm. Cabinet approved the latter on 14 Nov. The former Legitimate Interest Access regulations are due to be considered soon. The definition of legitimate interest will be crucial. Expanding it willy nilly to journalists and NGOs would be a mistake, inviting similar problems to those that arise from public registers. It should be narrowly construed and thus highly circumscribed.

Misguided approach

The push for public beneficial ownership registers may be well intentioned but it is ultimately misguided. It overlooks the sophisticated measures already in place that effectively balance the demands of law enforcement with the rights of individuals to privacy. 

Mandating public beneficial ownership registries or enabling relatively wide access to ‘journalists’ and ‘NGOs’, even with limits on disclosure of information on people at risk of serious harm, would compromise the safety and privacy of law-abiding citizens.

A more nuanced approach that builds on existing systems, emphasises international cooperation, and respects legitimate privacy concerns will better serve the global community’s interests. It is crucial to recognise that in the complex battle against financial crimes, simplistic solutions may do more harm than good.

• Julian Morris is a Senior Scholar at the International Center for Law and Economics and a Fellow of the Royal Society of Arts and a long-time resident of the Cayman Islands.