UK to force Cayman, territories to make company owners public

Britain’s 14 overseas territories, including the Cayman Islands, will have to introduce public registers of beneficial ownership by the end of 2020. If they do not, the U.K. government will issue an order in council to force Cayman and other territories to do so.

The U.K. Conservative Party government did not oppose an amendment to the Sanctions and Anti-Money Laundering Bill in the House of Commons on Tuesday, after a significant number of rebel Tory MPs supported the proposed changes and would have ensured a government defeat in a vote.

The amendment brought by Labour MP Margaret Hodge and Conservative MP Andrew Mitchell requires the 14 overseas territories, including the British Virgin Islands and the Cayman Islands, to introduce public ownership registers.

It instructs the secretary of state to provide all reasonable assistance to the territories in the process and to “prepare a draft Order in Council requiring the government of any British Overseas Territory that has not introduced a publicly accessible register of the beneficial ownership of companies within its jurisdiction to do so” no later than Dec. 31, 2020.

The amendment defines public registers as broadly equivalent to the U.K. company register.

Last year, the Cayman Islands introduced a centralized beneficial ownership register that provides law enforcement and tax authorities in the U.K. with beneficial ownership information for Cayman-registered entities within 24 hours and in urgent cases within one hour. However, the register is not open to the public.

Mr. Mitchell said the overseas territories “travel under our flag and should share our values.”

He said that much of the money stolen by corrupt governments in Africa ends up in British overseas territories. “We owe it to the poor of Africa as much as we owe it to the taxpayers in the U.K. [to] end this scandal,” he said.

The Tory MP refuted the argument that an order in council was “over the top,” stating the U.K. parliament was “entirely entitled” to take such a step and it would only be “a last resort” if the overseas territories did not act.

He said the amendment had made significant concessions by excluding the U.K. Crown dependencies, Jersey, Guernsey and the Isle of Man, who have a different constitutional structure, and by pushing back the deadline to implement public registers of beneficial ownership in the overseas territories by two and a half years.

Last-minute compromise amendments by the Conservative government, that would have weakened the clause, were rejected by the Speaker of the House of Commons because they were tabled too late.

Alan Duncan, the Foreign Office minister, said while ministers were reluctant to dictate to the overseas territories, “We have listened to the strength of feeling in this house on this issue and accept that it is without a doubt the majority view of this house that the overseas territories should have public registers.”

Interventions by the U.K. government in Cayman’s domestic legislation are rare, but orders in council have been used in the past in connection with the abolishment of the death penalty in 1991 and the decriminalization of homosexuality in 2000.

Ms. Hodge said the importance of the issue justified intervention in the affairs of the overseas territories. “The areas on which we have intervened … are moral issues. I can’t think of another issue which is more moral than trying to intervene to prevent the traffic in corrupt money and illicit finance across the world.”

Responding to the legislative amendment made in the House of Commons Tuesday, Cayman Islands Premier Alden McLaughlin said the “imposition of legislation, through powers that date back to the colonial era, over and above the wishes of the democratically elected legislative bodies of the Overseas Territories represents a gross affront to the constitutional relationship we currently have with the United Kingdom.”

Imposing such an obligation on the Overseas Territories while exempting the Crown Dependencies discriminates unfairly against the Overseas Territories, the premier said.

He also noted the apparent double standard adopted by the House of Commons during the debate on the same amendment bill, when it voted down an amendment to the UK’s Companies Act, which would have required due diligence on beneficial owners of U.K. companies in order to prevent money laundering.

“Since 2013 I have been completely clear that, when public registers become a global standard, the Cayman Islands will adopt them,” he added. “The actions in the House of Commons today seek to impose the U.K.’s own flawed system of unverified public registers upon the Overseas Territories by the end of 2020.”

Opponents of the amendment noted that the existing registers in the overseas territories, which provide access to U.K. law enforcement and tax authorities, were a valuable intelligence resource that would disappear once the registers are made public, because any illicit money will go to “where it is darkest.”

Mr. Mitchell said, “It is only by openness and scrutiny, by allowing charities, NGOs and the media to join up the dots, that we can expose this dirty money and those people standing behind it. Closed registers do not begin to allow us to do it.”

Making registers of beneficial ownership public may be aimed at money laundering and the proceeds of crime, but it also threatens the part of the financial services business in the territories that is based on clients who value their privacy.

Timothy Ridley, former chairman of the Cayman Islands Monetary Authority, said, “Failure to find a solution that protects legitimate privacy will lead to a great outflow of quality business to jurisdictions that still respect data privacy – and there are many.

“It is ironic that, at the time when the EU, including the U.K., and offshore financial centers are implementing data protection laws, basic privacy rights risk being thrown out of the window.”

Mr. Ridley said there was still time to “reach a negotiated settlement with the U.K.” but the overseas territories would have to show leadership and present a united front.

Anthony Travers, senior partner at Travers Thorp Alberga said the legislative proposal was capable of causing significant harm to the financial services industry in the Cayman Islands and no good reason had been established for extending the right to access beneficial ownership information to the public at large.

He urged the Cayman Islands government to challenge an order in council. “Not simply because the Constitution precludes the United Kingdom government from doing so in relation to what is clearly a matter of the internal affairs of the Cayman Islands, but also because any attempt to make the ownership of Cayman Islands entities available to the public at large contradicts the unequivocal protection laid out in the Cayman Islands Constitution with regard to the protection of the legitimate right to privacy,” Mr. Travers said.

“Given the confusion on both points exhibited by the United Kingdom legislators, the Cayman Islands government will, no doubt, need to resort to litigation to establish both points with certainty.”

The Cayman government said in a statement it is considering a legal challenge to the amendment which violated accepted and conventional constitutional relationships between the U.K. and the Cayman Islands.

Paul Byles, president of the Chamber of Commerce, pointed to Cayman’s track record in tax and law enforcement cooperation and recent commitments to exchange tax information under the common reporting standards and FATCA.

“If the refusal to take Cayman’s actual commitments and regulatory framework into consideration is poor, the blatant disregard for the constitutional relationship between the U.K. and its territories is surely the most shameful part of this debacle,” Mr. Byles said.

The Chamber of Commerce president added that the U.K. parliament had shown no regard for the potential economic impact of requiring the territories to implement public registries when most other countries are not required to do so.

The U.K. is currently the only country in the world that has a public beneficial ownership registry, although EU countries are set to establish public registries in the near future.

Former Minister for the Overseas Territories Henry Bellingham noted during the House of Commons debate the dependency on financial services of territories like the Cayman Islands and the BVI. He said a great deal of effort was needed from the Foreign and Commonwealth Office to work closely with the territories, share knowledge and give support in the transition to “this new world that they have to live in.”

The BVI will need support in developing tourism and agriculture to make up for the shortfall of financial services business, he said.

When contacted by the Cayman Compass for comment, Cayman Finance said it was still analyzing the consequences of the vote on the Cayman Islands financial services industry and would issue a statement the following day.