Opinion: A beneficial ownership public register could prove costly to Cayman

By Peter Gibbs

A public register of beneficial ownership could cost each and every Cayman household $100,000 or more. Before explaining this extraordinary cost, we must first examine the issues at stake.

A register of beneficial ownership is essentially a spreadsheet showing who ultimately owns the shares of any Cayman-registered company. It is currently a confidential register, accessible by the Cayman Islands government and UK law enforcement. Each entry contains some 39 fields, many of which constitute personal private information as defined under the Data Protection Act and numerous conventions protecting privacy.

On 8 April 2016, the UK entered into an Exchange of Notes with the Cayman government upholding the confidential status of the register. Ministers gave assurances that the public was entitled to rely on the commitment to privacy being upheld.

However, following a parliamentary vote on 1 May 2018, the UK government made it clear that if overseas territories did not introduce laws to mandate a public register of beneficial ownership, then such a register will be enforced on them by an Order in Council.

Since the text of the UK vote did not disclose the 39 fields containing private information, those voting had no idea that they were voting for a breach of convention rights to privacy.

Whilst that alone should make the vote ultra vires, there is also the question of the Human Rights Act. Amongst its many provisions, this makes it “unlawful for a public authority to act in a way which is incompatible with a Convention right” and provides for an affected person to “bring proceedings against the offending authority”.

It further requires that a minister of the Crown in charge of a bill must make a “statement of compatibility” demonstrating that it is compatible with Convention rights. It is not clear that this was done in respect of UK’s legislative provision to enforce public registers onto its overseas territories.

International convention

Any arrangement to institute an international regime for public registers can only be properly done through an international convention that applies a common standard across the world’s financial centres operating in multiple jurisdictions. Amongst its provisions, such a convention would institute requirements for the obtaining, sharing and ultimate erasure of information, complete with inspections and verification.

The UK considered pioneering such a convention, but then realised that the global appetite for this was weak to non-existent. Instead, it sought to impose a unilateral standard whilst pronouncing it a global standard.

Global standard

This claimed ‘global standard’ is being imposed without any evident consideration as to what the remaining 150+ countries in the world think about the inherent infringement of human rights through public disclosure of private information.

A register of beneficial ownership is logically little different to a register of dental records, maintained as confidential medical records that are nonetheless available to law enforcement for such purposes as cadaver identification.

Plainly, there has been no push to make all dental records public on the basis that, because there are some bad people with teeth and even bad people with bad teeth, everyone’s records on the dental register should be made public.

There are also bad people with bank accounts. Does this mean that all bank accounts should also become public records? Once the trick is employed to declare private information as public information so it is no longer protected, there is no limit as to how far down the vortex this logic will eventually lead. Indeed, prevention of such outcomes was a principal reason for convention rights to privacy in the first place.

US position

In interpreting exactly the same international convention obligations as apply to the UK, the US has made it a jailable offence to divulge the very same information that the UK is requiring we disclose to the public.

Nonetheless, the US operates a confidential register that meets the requirements of law enforcement whilst protecting citizens’ rights.
This US position is in line with the European Court of Justice judgment below and, for as long as the applicable conventions remain in force, the US position is not going to change.

European Court of Justice position

In a judgment delivered on 22 Nov. 2022, the EU’s top Court of Justice struck down a European Union mandate to maintain public registers of beneficial ownership.

The justices said that public registers infringed upon fundamental rights of privacy, respect for private life and the protection of personal data, enshrined in Articles 7 and 8 of the Charter.

They ruled as invalid the provision that makes information on beneficial ownership accessible to the public.

UK position

In contrast to the US, the UK has a somewhat chequered history of upholding the supremacy of convention obligations over domestic law. Consider how it tried this recently in Northern Ireland.

Remember that the Vienna Convention on the Law of Treaties precludes the use of domestic law to override a treaty obligation. Treaties include international conventions.

In the case of beneficial ownership, the UK’s approach has been to take what has been ruled as private information, declare it to be public, and then claim that, since it is now public information, it is no longer protected, either by international conventions or by domestic law.

The only exception is to allow beneficial owners to apply not to go onto the register where, subject to a $1,000 application fee and review by a committee, they may, for reasons considered valid by that committee, be granted an exemption.

The process first removes convention rights to privacy and then, at the discretion of a third-party commission, may (or may not) grant them back. Clearly, this mechanism represents privacy at a price but not as a right.

The flaw in this logic is that the mere act of declaring private information to be public information is a breach of both the international convention rights of the public and the convention obligations on the administrator. No amount of repetition of pronouncements unsupported by facts is going to change this.

International strategic perspective

A lot of water has flowed under the bridge since the UK voted to impose pubic registers, five prime ministers ago.

We now live in an era of economic conflict which is very different to what pertained when the register was first mooted in 2014.

Accordingly, it becomes ever more vital not to act in any way that gives competitors an economic advantage through an ability to collate our clients’ information, now to be massively enhanced by artificial intelligence.

None of the BRICS countries will be amenable to public registers – this would place them at a disadvantage to the US – noting that the BRICS poses the greatest economic threat to the West.

Any discussion with security services will reveal that the highest level of security would be achieved by maintaining registers as confidential whilst granting free access to the security and law enforcement services. Certainly, that is the US position.

There are many people who have managed to accumulate sufficient monies to make them targets for kidnap and ransom, extortion and other nefarious criminal activities. In large parts of the world, the level of wealth needed to qualify as a target is perhaps as little as $25,000. Many millions of people fit this category and a public register will certainly facilitate criminal targeting.

In a jurisdiction such as the Cayman Islands where privacy is weighed against the public interest, surely, it cannot be in the public interest to make the world a more dangerous place by granting public access to private information. This is certainly the US view and that of many other jurisdictions.

These problems are not transient. They have been developing for a long time, but only more recently are they becoming manifest in the public’s awareness, particularly the power of AI.

Risks to Caymanians

The Cayman Islands has a considerable number of multi-billion-dollar clients. If, as a consequence of public disclosure of private information, there is an incident that proves costly to property, life or limb of the client, his family, employees or other associated persons, there could be a serious claim against both the Cayman Islands and UK.

All the risk issues set out in this article could be used to substantiate claims. In addition, a client could go to the UN Human Rights Commission for a ruling in respect of the conventions for which the UN acts as repository.

Given the purpose and intent of the conventions, the interpretation of the European Court of Justice, the US and other jurisdictions, the commission is virtually guaranteed to uphold convention rights to privacy and their supremacy over any domestic law erosion of those rights.

When a UN Human Rights Commission delegation visited the Cayman Islands to review constitutional advancement, its members gave an open invitation for the public to engage with them directly, should convention issues arise.

The upshot is that there is a very real risk of a significant judgment award against the Cayman Islands government.

For every $1 billion award, the cost to be covered by some 20,000 households would amount to $100,000 per household if spread over, say, 16 years with interest. Awards for claims amounting to $10 billion would translate to $1 million per household.

The question to be determined is whether inviting the inordinate cost and consequent loss of business to the islands is what this or any other British overseas territory deserves, not only for ourselves, but also for our children and grandchildren who will ultimately pay the price.

The remedy is simple. If we retain the register as confidential, in line with global best practice, then these enormous risks go away.

A detailed paper on this matter was delivered on multiple occasions to senior politicians on behalf of the Company Managers’ Association, whose members work daily at the coal face of beneficial ownership.

In each case, there was no response and no call for action, such as meeting with the private sector to discuss.

This behaviour begs the question – why the consistent refusal to engage (contrary to constitutional obligations) when the financial risk to current and future generations is so high? Is government listening to the public it serves?

It is understood that King Charles is continuing the pledge made by his mother aged 21 in South Africa to champion the needs of Commonwealth nations. The question arising is: Is the King’s concomitant mandate to serve and uphold the legitimate rights and interests of the people of the Cayman Islands being discharged in this case, given all the attendant risks herein demonstrated and noting that it is the King’s representative in the Islands who submits the velums?

Related risks

These are not the only risks attaching to the use of domestic law to override international conventions. Ships in foreign ports are regulated under international conventions. If a ship fails to meet statutory seaworthiness as a result of domestic sanctions legislation, its insurance coverage ceases.

If the uninsured vessel then causes or contributes to an incident, the coastal state will have a case against the flag-state for failing to uphold its convention obligations. Amounts could be substantial.

For example, consider a shipborne explosion from which arises a Bhopal pall of toxic smoke that drifts inexorably across the city centre and residences of multi-billionaires in, say, Monaco. In the case of a Cayman-registered ship, again, the people of the Cayman Islands will ultimately have to pay a huge price. A remedy was presented to the UK in 2022. Now in 2025, a response has yet to be forthcoming. Meanwhile, the peoples of the Islands remain at risk.

Quantification of risk

For those inclined to refute these risks, I invite you to ask Lloyds of London to quote the annual insurance premium for government to protect the public against the cited risks. This exercise was done when Cayman was considering establishing an oil transhipment zone in its waters.

The premium cost of the oil pollution risk to our tourist industry far outweighed any income to be generated from the project and it was cancelled. Clearly, the quantification of risk can be a very revealing and sobering exercise.

By way of background, many years ago, my work for the UK government involved the identification of strategic risks relating to defence issues. It was always important to elicit the unexpurgated facts so as to yield unbiased decisions. Sometimes, that is not an easy process and, for those with an agenda, may not yield a palatable outcome.

Meanwhile, the people of the Cayman Islands remain at risk.

Peter Gibbs is a former head of Cayman’s maritime administration, at which he had a duty to incorporate the provisions of 35 international conventions affecting shipping. He is currently a director of Pensum, a firm involved in the registration of companies, ships and yachts, and consults to governments and to the private sector.