Firms warned to be proactive on beneficial ownership legislation or face consequences


As the implementation date for new beneficial ownership legislation approaches, law firms are urging Cayman Islands companies to take steps to determine their status under the legislation and, unless exempted, to proactively identify and provide notices to beneficial owners.

The Cayman Islands has recently passed legislation requiring certain Cayman Islands corporate entities to maintain beneficial ownership registers at their registered offices and for the information contained in such registers to be stored in encrypted form on a secure standalone search platform established by the Minister of Financial Services.

The principal purpose of the legislation, which will come into force on 1 July 2017, is to make beneficial ownership information normally held by corporate service providers readily accessible in response to proper and lawful requests from specified law enforcement agencies and not to materially expand existing requirements for such information. The Search Platform will not be publicly accessible and may only be searched by the Competent Authority.

Law firm Conyers Dill & Pearman has noted that, unless exempted, each company to which the legislation applies has an obligation to create and maintain a register of its beneficial owners to be kept at its registered office and, in particular, is required to take reasonable steps to identify any individual who is a beneficial owner of the company and all relevant legal entities in relation to the company.

“For the purposes of identifying individuals who are beneficial owners or relevant legal entities, a company is entitled to rely, without further enquiry, on the response of a person or relevant legal entity to a notice sent in good faith by the company, unless the company has reason to believe that the response is misleading or false,” the firm said in a note.

“The notice shall require the recipient to state, within one month of receipt, whether or not they should be included in the beneficial ownership register of the company and to confirm or correct any particulars included in the notice.”

Law firm Walkers also warned that the legislation will be enforced. “If a company is unable to keep its beneficial ownership register up to date due to the failure of a registrable person to provide particulars, the company shall issue a restrictions notice to that person. The effect of a restrictions notice with respect to a relevant interest includes, but is not limited to, making any transfer (or agreement to transfer) void and payment of sums due from the company in respect of the interest being prohibited,” the firm said in a note.

“A person to whom a restrictions notice is issued may apply to the Grand Court to set aside any restriction imposed by the notice. Companies and other persons, including directors and officers, may be subject to robust penalties for breaches of the new requirements.”

An individual is a beneficial owner of a company if he holds, directly or indirectly, more than 25 per cent of the shares or the voting rights in the company or the right to appoint or remove a majority of the board of directors of the company. If no individual satisfies those requirements, an individual is a beneficial owner if he has the legal right to exercise, or actually exercises, significant direct or indirect influence or control over the company through the ownership structure including any trust or partnership (other than solely in the capacity of a director or manager, professional advisor or professional manager).

“All Cayman Islands companies should now take steps to determine their status under the legislation and, unless exempted, should proactively identify and provide notices to beneficial owners,” Conyers Dill & Pearman warned.

Cayman Islands, Legislation, Conyers Dill & Pearman

Cayman Funds