Background – Beneficial ownership regime
Reference is made to Sertus E-newsletter dated 30 April 2018 for the subject “Update – Cayman Islands Beneficial Ownership Regime”.
The beneficial ownership regime (“BO Regime”) of the Cayman Islands came into force in July 2017. The BO Regime consists of the Companies Law (2020 Revision), as amended (“Companies Law”), the Limited Liability Companies Law (2020 Revision), as amended (“LLC Law”) as well as the Beneficial Ownership (Companies) Regulations (2019 Revision), as amended and the Beneficial Ownership (Limited Liability Companies) Regulations, as amended. Under such regime, Cayman Islands companies and limited liability companies (“LLC”) (collectively, “Company(ies)”) are required to establish and maintain a register of beneficial ownership (“ROBO”), unless the Company falls within any of the exemption under section 245(1) of the Companies Law or section 71(1) of the LLC Law, as the case may be.
Part XVIIA – BO Registers of the Companies Law or Part 12 – BO Registers of the LLC Law (as the case may be) provides full details of the applicable BO provisions, as well as the legal consequences of breaching those provisions.
Duty of Companies
It is the duty of a Company to identify beneficial owners (“BO”) or relevant legal entities (“RLE”) and to give notices to them. Every Company shall engage a corporate services provider (“CSP”), i.e. the registered office to assist the Company to establish and maintain its ROBO. Such ROBO should be kept at the registered office of the Company. A Company should give written instruction to the CSP for entering the required particulars of the BO and/or RLE into the ROBO of the Company. By taking the instruction from the Company, CSP will update the ROBO and upload the same to the Cayman Islands’ BO online filing system on behalf of the company. It is also the Company’s duty to keep the ROBO up to date.
Offences under Companies Law and LLC Law
Failure of a company to establish or maintain ROBO
(section 274 of Companies Law, or section 100 of LLC Law, as the case maybe)
Any Company that knowingly and willfully contravenes the requirements to establish or maintain the ROBO commits an offence and is liable on summary conviction for each such contravention:
- In the case of a 1st offence, to a fine of CI$25,000; or
- In the case of a 2nd or subsequent offence, to a fine of CI$100,000.
- Where a Company is convicted of a 3rd offence, the court may order that the Company be struck off the register by the Registrar.
Offences by officers and directors
(section 278 of Companies Law, or section 104 of LLC Law, as the case maybe)
Where a company commits an offence under the applicable law of the BO Regime, and it is proved that the offence was committed with the consent or connivance of, or was attributable to willful default on the part of a director or other officer concerned in the management of the company, the director or other officer commits the same offence and is liable to the same penalty as the company.
Beneficial Ownership Enforcement Manual
The BO Regime is an important component of the overall Anti-Money Laundering/Countering the Financing of Terrorism regime of the Cayman Islands. The Registrar views enforcement as playing a critical role in complementing existing compliance standards in the jurisdiction.
Section 281A of the Companies (Amendment) (No.2) Law, 2020 and Section 56A(1) of the LLC (Amendment) (No.2) Law, 2020 provide powers for the Cayman Registrar to impose administrative fines for breaches of certain provisions of the Companies Law and LLC Law that relating to ROBO.
The Cayman Registrar has recently published the BO Enforcement Manual (“Manual”) outlines the procedure for dealing with non-compliance with regards to BO obligations. This newly introduced administrative fine system is in addition to the existing penalties that imposed for contravening the relevant provisions under the BO Regime.
What are administrative fines?
According to section 1.6 of the Manual, administrative fines is “a civil penalty imposed by the Registrar for breaches of certain provisions of Part XVIIA of the Companies Law and Part 12 of the LLC Law”.
Power of the Registrar to impose administrative fines
According to the Manual, the Registrar may impose a fine on a person, including but without limitation, the company, beneficial owner and CSP (i.e. registered office), who breaches a provision of the Companies Law and the LLC Law.
The administrative fine shall be CI$5,000 (US$6,100) for a beach and the Registrar may, in addition to this initial fine, impose a further fine of CI$1,000 (US$1,220) per month for each month the breach continues. Fines are capped at CI$25,000 (US$30,500).
On whom may a penalty be imposed?
A company may be subjected to fines where it fails to:
a) take reasonable steps to identify its beneficial owners (section 247(1)).
b) take reasonable steps to identity relevant legal entities that exist in relation to the company (section 248(1)).
c) give notice in writing to beneficial owners and relevant legal entities identified under section 249(1).
d) keep its beneficial ownership register at its registered office.
e) provide in writing to the CSP or the Registrar of Companies, the required particulars of registrable persons in respect of the company once those particulars have been confirmed (section 253(1)).
f) provide written confirmation of the exemption to the CSP or instructions to file written confirmation to the Competent Authority (section 253(1A)).
g) give notice requesting confirmation of a change to a registrable person as soon as reasonably practicable after the company becomes aware of the relevant change with respect to the registrable person (section 255(1)).
h) instruct the CSP or the Registrar to enter the updated information in the company’s beneficial ownership register after receiving confirmation of a change (section 255(2)).
i) provide the CSP or the Registrar with a response to a notice under section 256(2).
j) comply with the terms of a restriction notice under section 266(1)8.
k) Respond to a request for additional information under section 279A within the stipulated time.
A beneficial owner may be subjected to administrative fines where they fail, within the stipulated time periods, to:
a) notify the company that they are a registrable person in circumstances where they know that to be the case and have no reason to believe that their particulars are already included in the beneficial ownership register (section 250(2)).
b) notify the company of any relevant changes to information in respect of them that is/should be included within the beneficial ownership register (see section 257(2)). In this context, relevant changes relate to required particulars as outlined in section 254 of the Companies Law.
A CSP may be subject to fines where it fails to:
a) establish and maintain a company’s beneficial ownership register when engaged for the provision of registered office services to that company (section 252(2)).
b) file beneficial ownership information for these entities on the basis as prescribed in section 261(2).
c) where applicable, issue a Restrictions Notice to a Registrable Person and provide a copy of that notice to the Competent Authority within two weeks of issuing (section 256 (3)).
d) where applicable, give notice of its opinion if it is of the opinion that the company has failed to comply with sections 253 and 255 without reasonable excuse, or has made a false, deceptive or misleading statement in accordance with section 256(1).
e) respond to a request from the Competent Authority for additional information under section 279A within the stipulated time frame.
Any person who knowingly and wilfully provide misleading or false information may be subject to an administrative fine.
Consequences of the failure to pay administrative fines
Where a CSP, Company or individual fails to pay an administrative fine issued by the Registrar, the Registrar of Companies may:
a) Refuse to issue a Certificate of Good Standing; and/or
b) Direct that the entity is struck from the Register of Companies
What should you do now?
To avoid being fined under the BO Regime, for any “in-scope” Cayman Company whose ROBO remains outstanding, they should take immediate actions to identify the BOs and RLEs, and to provide the required particulars to CSP for establishing and maintaining the ROBO, and to keep the same at the registered office of the Company.
Kindly note that this eNews is not exhaustive but just intended to provide a general reference. This is not a legal advice and should not be regarded as a substitute for a specific legal advice that meet your circumstances. Sertus does not accept any responsibility for any errors or omissions of the contents of this eNews.
If you have any questions regarding the above, please feel free to contact your Sertus Client Services Representative or contact us at firstname.lastname@example.org.