It is now part and parcel of modern legitimate international commerce that business entities engaging financial service providers (FSPs) in reputable financial centres such as the Cayman Islands must comply with Know Your Client (KYC) requirements.
However, a recent decision of the Financial Services Division of the Cayman Islands Grand Court (Fortunate Drift Ltd v Canterbury Securities Ltd) examined the novel issue as to whether the Court had jurisdiction to compel a party to produce information sought by a FSP to protect it from breaching its statutory obligations under, principally, the Anti-Money Laundering Regulations.
In the Cayman Islands, the legislative regimes imposed by the Proceeds of Crime Law (2015) and the Anti-Money Laundering Regulations (2018) confer no power to compel a client of a FSP to provide information to the latter required for the purposes of its KYC details to enable it to comply with its statutory AML obligations. In the event of a refusal or failure by the client to provide the information required, the remedy of the FSL is to terminate the relationship, to refuse to complete any one-off transaction, and to consider making a suspicious activity report.
In a long and wide ranging analysis of the legislative regime, Justice Kawaley found the Court had no statutory power to order Fortunate Drift to provide Canterbury with KYC information it had requested following a change in the beneficial ownership of Fortunate Drift. The issue arose in the context of a disputed termination of a brokerage agreement, and claims by Fortunate Drift for the return of certain shares and the proceeds of sale of shares held by Canterbury, in which the court had granted orders (substituted by undertakings) requiring Canterbury inter alia not to dispose of the shares that it held.
However, Justice Kawaley held that the court did have inherent jurisdiction and as a condition of continuing the order in which the undertakings were given, to order Fortune Drift, who had the benefit of the freezing of dispositions of the shares, to provide the information that Canterbury legitimately required for compliance with its statutory obligations. The Court was not concerned with any contractual obligations there may have been to provide the information sought.
This is an important decision in the context of the provision of KYC information generally, and in the particular case of the court’s powers in requiring justice and fairness in the context of the discretionary orders that it may make.