In August, the Cayman Islands Trusts Law (2018 Revision) (Trusts Law) was amended for the second time in 2019.
The Trusts (Amendment) (No. 2) Law, 2019 (Amendment Law), among other things, introduces record-keeping obligations for trustees of Cayman Islands trusts and empowers Cayman Islands' authorities responsible for combatting money laundering and terrorism financing to require trustees to provide the authorities with trust information in certain circumstances.
The Amendment Law also empowers the Cabinet of the Cayman Islands Government to make regulations to give effect of the purposes of the Trusts Law. The Cabinet has since published the Trusts (Transparency) Regulations (Regulations), which specify the precise information that trustees are required to keep and maintain.
What do I need to do?
The record-keeping obligations set out in the Amendment Law and Regulations apply to trustees of Cayman Islands trusts irrespective of the location of the trustee. As such, trustees located in Europe and elsewhere who act as trustees of Cayman Islands trusts must review their existing document retention policies to ensure compliance with these new requirements. These new requirements
are explained further below.
It is likely that professional trustees located around the world already have robust document retention policies in place to meet local regulatory and legal requirements. However, in reviewing these policies, particular thought should be given by compliance officers to the manner in which trust information is stored, so that it may be easily retrieved (and is readable) if a trustee is met with a request to provide information to relevant Cayman Islands authorities. As explained further below, the Regulations make clear that trustees are expected to respond to such requests within 48 hours of receipt.
As we are all aware, with the rapid development of technology, IT systems often become redundant all too quickly. As such, trustees should also take appropriate steps to ensure that back up discs and systems are reviewed and updated to safeguard historic data and to ensure that it is retrievable if the need arises.
Objectives of the Amendment Law and Regulations
In its Mutual Evaluation Report of the Cayman Islands for 2019, the Caribbean Financial Action Task Force recommended that the Cayman Islands ensure that appropriate transparency measures are in place to prevent the misuse of trusts that are administered by foreign or non professional trustees. As such, the Amendment Law and Regulations impose certain statutory obligations on all trustees of Cayman Islands trusts, including those located outside the Islands. Trust companies based in the Cayman Islands are already subject to laws that require the retention of trust records.
Trustee's record-keeping obligations
The record-keeping obligations set out in the Amendment Law and Regulations largely codify the common law position and it has always been best practice for trustees of Cayman Islands to retain trust records. In particular, the Regulations aver that trustees are required to keep and maintain, in relation to each Cayman Islands trust for which they are a trustee, current copies of the trust deed or other documents recording:
- the terms of the trust;
- the names and addresses of each of the trustee, settlor, any contributor to the trust, any specifically named
beneficiary, any identifiable class of beneficiary, any protector, and any enforcer; and
- any deed or other document varying the terms of the trust.
The Regulations further confirm that this information must be kept for a period of five years from the date on which the trustee ceases to be the trustee of the relevant trust. A trustee who fails to comply with these record-keeping obligations without reasonable excuse commits an offence that attracts a fine of CI$5,000.
Pursuant to the Amendment Law, a trustee must also keep and maintain accounting records relating to a Cayman Islands trust and an accurate record of the identity and particulars of:
- any service provider (including any investment adviser, manager, accountant or tax adviser); and
- the person exercising ultimate effective control of the trust.
Obligation to share information with authorities
The Amendment Law empowers Cayman Islands authorities charged with combatting money laundering and terrorism financing to direct that a trustee (or other person exercising ultimate effective control over a trust) provide information about Cayman Islands trusts or the activities of the trustee (or other controlling person), if the authority has reasonable grounds to believe that the trustee (or other controlling person) is acting, or carrying on a business, in contravention of financial crime prevention laws enacted in the Cayman Islands. Those laws are:
- the Anti-Corruption Law (2019 Revision);
- the Monetary Authority Law (2018 Revision);
- the Proceeds of Crime Law (2019 Revision); and
- the Tax Information Authority Law (2017 Revision).
The Regulations confirm that a trustee is expected to maintain its trust records in such a manner that will enable the trustee to comply with a direction from a relevant authority within 48 hours. A trustee who knowingly fails to comply with a direction to provide information commits an offence that attracts a fine of up to CI$50,000 plus CI$10,000 per day (up to CI$50,000) for each day or part of a day that the person's failure to comply is ongoing.
Cayman Islands' authorities established under the financial crime prevention laws listed above may also make a written request of the Cayman Islands Registrar of Trusts to provide any information held by the Registrar if it is required for the purpose of discharging any function or exercising any power under financial crime prevention laws. However, as it is not compulsory to
register a Cayman Islands trust with the Registrar, there will be a large number of trusts unaffected by this particular amendment.
The Amendment Law and Regulations are unlikely to require any significant changes to document retention policies of professional trustees who are compliant with local requirements and who already follow best practice. Compliance officers should nonetheless review the policies of their organisations bearing in mind that information must also be stored in a manner that will allow trustees to respond effectively and promptly to a request for information by relevant authorities.
Originally published by ThomsonReuters © ThomsonReuters.