How will breaches of the Cayman Islands beneficial ownership reporting regime be enforced?

In June 2020 we alerted clients to the introduction of fines for breaches of the Cayman Islands beneficial ownership reporting requirements. The client alert can be found here. The new fine system is in addition to the penalties that already exist for committing an offence under the beneficial ownership regime laws.

Under the new fine regime, the Registrar of Companies is the authority that has the power to impose fines. The Registrar recently released a Beneficial Ownership Enforcement Manual which sets out how they will approach enforcement, assess cases and impose fines. The manual applies from October 2020 and can be found here.

The Registrar has stated that it views enforcement of the beneficial ownership regime as being critical to complementing existing compliance standards in the Cayman Islands which is very much in line with Government policy. The Registrar intends to engage national law enforcement agencies and other Cayman Islands authorities for sharing information relating to its enforcement procedures.

When can a company be fined?

A company may be fined where it fails to:

  • Take reasonable steps to identify its beneficial owners or relevant legal entities
  • Give notice in writing to beneficial owners and relevant legal entities
  • Keep its beneficial ownership register at its registered office
  • Provide the confirmed required particulars of registrable persons in writing to the service provider
  • Provide written confirmation of the exemption to the service provider or instructions to file written confirmation to the Registrar, where the company is exempt from the regime
  • Give notice requesting confirmation of a change to a registrable person as soon as reasonably practicable after the company becomes aware of the change
  • Instruct the service provider to update the information in the company’s beneficial ownership register after receiving confirmation of a change
  • Provide the service provider with particulars or an explanation when properly requested
  • Comply with the terms of a restriction notice
  • Respond to a request for additional information from the Registrar within the stipulated time

When can a beneficial owner be fined?

A beneficial owner may be fined where it fails to do either of the following within the stipulated time period:

  • 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
  • Notify the company of any changes to information in respect of them that is/should be included within the beneficial ownership register

Can anyone else be fined?

The new system introduces fines for registered office providers so Harneys will again be reaching out to clients to ensure all beneficial ownership information is up to date.

A registered office provider may be fined where it fails to:

  • Establish and maintain a company’s beneficial ownership register when engaged for the provision of registered office services
  • File beneficial ownership information received from its clients
  • Issue a restrictions notice, where applicable, and file it with the Registrar within two weeks
  • Give notice if it is of the opinion that the company has failed to provide particulars of registrable persons (or changes thereto) without reasonable excuse, or has made a false, deceptive or misleading statement in respect of a material particular
  • Respond to a request from the Registrar for additional information within the stipulated time frame

In addition, any person who incorrectly reports that they are exempt from the beneficial ownership regime may be fined.

What factors will the Registrar consider before imposing a fine?

In determining whether to impose a fine, the Registrar has stated that it will take into consideration the following:

  • Whether a breach has occurred on a balance of probabilities
  • The nature of the breach
  • The explanation provided by the person or entity as a result of a warning notice issued by the Registrar
  • Any other factor relevant to the case

The Registrar has stated that it values voluntary disclosure and any such disclosure will be taken into consideration.

Will warning notices be issued?

Prior to the imposition of a fine, a warning notice may be issued by the Registrar to allow the person or entity in question an opportunity to remedy the breach identified within a specified timeframe. The time frame is discretionary and can range from two weeks to a month.

If the breach is not remedied in time the Registrar may issue the fine notice.

In the initial stages of the new regime, we do expect these warning notices to be issued quite frequently but their use may reduce with time.

What are the fines?

Any breach of the specified provisions attracts an initial fine of US$6,100 per breach. If the breach continues a further fine of US$1,200 per month can be imposed, up to a maximum of US$30,000.

Is there an appeal process?

Yes. The recipient of a fine notice may appeal against the decision of the Registrar in accordance with the procedure set out in the manual. The appeal must be lodged within 30 days of receipt of the fine notice. There is no appeal process against a warning notice.

What happens if the fine is not paid?

If an entity or person fails to pay a fine, aside from the monetary value of the fine increasing, the Registrar may refuse to issue a certificate of good standing and/or direct that the entity is struck from the Register of Companies.

Are fines distinct from the penalties for committing an offence?

Yes. As noted in the introduction the new fine system is in addition to the penalties that already exist for committing an offence under the beneficial ownership regime laws.

What are the offences?

It is an offence for a company to knowingly and wilfully fail to:

  • Take reasonable steps to identify its beneficial owners or relevant legal entities
  • Give notice in writing to beneficial owners and relevant legal entities
  • Keep its beneficial ownership register at its registered office
  • Provide the confirmed required particulars of registrable persons in writing to the service provider
  • Provide written confirmation of the exemption to the service provider or instructions to file written confirmation to the Registrar, where the company is exempt from the regime
  • Give notice requesting confirmation of a change to a registrable person as soon as reasonably practicable after the company becomes aware of the change
  • Instruct the service provider to update the information in the company’s beneficial ownership register after receiving confirmation of a change
  • Give notice to the service provider with particulars or an explanation when properly requested

It is an offence for a person to knowingly and wilfully fail to comply:

  • With a notice confirming whether or not they are registrable persons
  • With a notice confirming any change in their particulars
  • With their duty to notify the company of their registrable person status
  • With their duty to notify the company of any change to their particulars

It is also an offence for a person to make a statement they know to be false, or make a reckless statement, in attempted compliance with any of the above notices or duties.

Can a director or similar officer of a company commit an offence?

A director or other officer concerned in the management of the company or legal entity may be fined where:

  • The company or legal entity is guilty of an offence, and
  • It is proved that the offence was committed with the consent or connivance of, or was attributable to the wilful default on the part of the director or other officer

In such an instance, the director or other officer is guilty of the same offence and liable to the same penalty as the company or legal entity.

What are the penalties for committing an offence?

A penalty of US$30,000 may be imposed for a first offence. In the case of a second offence or subsequent offence a penalty of up to US$122,000 for companies may be imposed, and a penalty of up to US$61,000 or two years imprisonment, or both, imposed for persons. For a company that is convicted of a third offence, the court may order that the company be struck off the register.

Can a breach and an offence be committed at the same time?

Where a breach is also an offence under the law, a fine may be imposed as well as the penalty for the offence.

For information on the obligations of companies, directors, officers and beneficial owners under the beneficial ownership regime please see our client guide. Alternatively please contact your usual Harneys representative if you would like further information on this topic or www.harneys.com/Cayman.