IMPLICATIONS FOR CAYMAN AS EU COURT BLOCKS PUBLIC ACCESS TO COMPANY OWNERSHIP

By Michael Jarvis, UK Correspondent

The Cayman Islands Government (CIG) and the British government are assessing the ramifications of a landmark European Court ruling on the requirement for public disclosures of beneficial owners of companies registered in the jurisdiction.

The decision by the Court of Justice of the European Union (CJEU) has struck down a provision of the 5th EU Anti-Money Laundering Directive that guaranteed public access to information on companies’ real owners.

The case stems from challenges in Luxembourg questioning the compatibility of the EU anti-money laundering directive on public disclosures with the right to privacy.

The British government has been pressuring the Cayman Islands and other overseas territories, especially those with offshore financial centres, to comply with the previous EU directive by enacting legislation to allow for public access to company ownership information; the registries of beneficial ownership.

CIG REACTION

In an initial comment on the EU court judgement, the Cayman Islands Government (CIG) said: “At present, the Ministry of Financial Services and Commerce is preparing draft legislation to consolidate beneficial ownership legislation into one Act and is currently in the consultation phase with a wide cross-section of the financial services industry and considering their feedback to date.”

According to the statement, “the intent of the draft legislation is to enhance the transparency framework for legal persons by providing clarity to all users of the beneficial ownership legislation, to reduce the possibility of misuse of our entities as well as ensure efficiency in the framework.”

It also explains that there is also a component of the draft legislation that sets out a proposed approach to introduce public beneficial ownership registers in line with the request of the United Kingdom.

Ministry of Financial Services and Commerce also said that with the assistance of external counsel, is currently reviewing the ECJ judgement to determine if there are any implications with respect to the proposal to introduce public beneficial ownership registers.”

INDUSTRY IMPACT

Elsewhere, the EU court ruling has triggered a wave of reactions in the offshore financial services industry.

In a statement, the global offshore law firm Harneys which has a major presence in the Cayman Islands, remarked that it would appear that the effect of the judgment is that the provisions of the Fourth AMLD(anti-money-laundering-directive) now apply such that a legitimate interest needs to be proved.

“Interestingly,” it noted, “the ECJ commented that the fact that the legitimate interest concept may be difficult to define was not a reason to do away with it. There is a suggestion, therefore, in the judgment that care needs to be taken to delineate that concept carefully when applying it. However, it is also clear that the ECJ considers the prevention of money laundering and terrorist financing as an objective of general interest and one that would justify a certain level of interference with fundamental rights of privacy and protection of personal data.”

According to Harneys, “Almost immediately, EU member states have started blocking access to their beneficial owner registers for companies. It remains to be seen whether the AMLD may be further amended in an attempt to allow public access in situations beyond where there is a legitimate interest.”

Meanwhile, the global offshore sector watchdog, Transparency International, said the EU Court ruling set back the fight against cross-border corruption by years.

“However”, it added, “not all appears lost. The court did recognise that civil society and the media have a legitimate interest in accessing such information, given their role in the fight against money laundering.”

 UK DRAFT LEGISLATION

Meanwhile in a release dated, November 24th - a few days after the EU court ruling was handed down - the UK government, while not directly commenting on the EU court ruling, noted that in the 2021 budget it had already committed to implementing the Organisation for Economic Co-operation and Development’s (OECD) ‘Model Mandatory Disclosure Rules for Common Reporting Standard (CRS) Avoidance Arrangements and Opaque Offshore Structures’.

“The model rules require taxpayers and intermediaries to disclose information on these types of arrangements and structures to HMRC. These regulations will replace similar EU rules introduced previously. The government will review the draft regulations in light of the responses received, and amend them as necessary. The final regulations will then be laid before Parliament.”

The matter had been put out for public consultation in the period 30 November 2021 to 8 February 2022.

“This consultation seeks views on the design of draft regulations requiring disclosure of certain arrangements to HMRC (His Majesty’s Revenue and Customs).”

However, with the ruling by the Court of Justice of the European Union (CJEU), coming on the heels of the recent political upheavals in the UK’s ruling Conservative party government which have led to leadership changes and significant policy reversals, it’s left to be seen what changes will be forthcoming.

https://docs.google.com/document/d/1aWvlUPxQDJqih7JrbyOg51j2NOd3y1X6i1ks6kkiQRE/edit?usp=drivesdk