INTRODUCTION
In an effort to enhance transparency and align with international standards, the Cayman Islands has introduced significant changes to its Beneficial Ownership Reporting Regime. This article aims to provide investment managers, corporate entities, and family offices with a clear understanding of these changes, their implications, and the necessary steps to ensure compliance.
BACKGROUND & PURPOSE
The Beneficial Ownership Transparency Act (BOTA) represents a pivotal step in the Cayman Islands’ ongoing commitment to combating money laundering, tax evasion, and terrorist financing. Historically, the Cayman Islands has maintained a robust framework for beneficial ownership reporting. However, the introduction of BOTA consolidates and enhances these requirements, ensuring greater transparency and alignment with global standards.
The primary objectives of BOTA are to:
- Enhance the transparency of beneficial ownership information.
- Strengthen the fight against financial crimes.
- Ensure compliance with international regulatory standards.
KEY CHANGES INTRODUCED BY THE BENEFICIAL OWNERSHIP TRANSPARENCY ACT
The BOTA introduces several key changes aimed at broadening the scope and improving the efficiency of the reporting regime:
- Expansion of Reporting Scope: The Act now includes limited partnerships and removes certain exemptions, thereby increasing the number of entities required to report.
- Consolidation of Reporting Requirements: All beneficial ownership reporting requirements are now consolidated into a single statute, simplifying compliance for entities.
- Reduction of Reporting Duplication: Entities holding reportable interests in other Cayman Islands entities will experience reduced duplication in their reporting obligations.
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Alternative Route to Compliance: Entities that were previously exempted from the BORR, CIMA regulated entities, now have the option to appoint a Contact Person as liaison between the Legal Person and the Competent Authority.
REVISED SCOPE OF THE REPORTING REGIME
The revised Beneficial Ownership Reporting Regime (BORR) under the Beneficial Ownership Transparency Act (BOTA) has expanded its scope to include a broader range of entities.
The following entities are now required to report their Registrable Beneficial Ownership (“RBO”) information:
- Cayman Islands Companies: All companies incorporated in the Cayman Islands, including exempted companies and ordinary resident companies.
- Limited Liability Companies (LLCs): Entities formed under the Limited Liability Companies Law.
- Limited Liability Partnerships (LLPs): Partnerships registered under the Limited Liability Partnership Law.
- Foundation Companies: Companies registered as foundation companies under the Foundation Companies Law.
- Exempted Limited Partnerships (ELPs): Partnerships registered under the Exempted Limited Partnership Law.
- Limited Partnerships (LPs): Partnerships registered under the Limited Partnership Law.
Entities that remain out of scope include:
- Trusts: Trusts are not required to report under the BOTA.
- Registered Foreign Companies: Companies registered as foreign entities in the Cayman Islands are also excluded from the reporting requirements.
This expansion ensures that a wider array of entities operating within the Cayman Islands are subject to beneficial ownership reporting, thereby enhancing transparency and compliance with international standards.
WHO OR WHAT IS A REGISTRABLE BENEFICIAL OWNER?
A Registrable Beneficial Owner (RBO) in relation to a Legal Person is either an individual Beneficial Owner or a Reportable Legal Entity (RLE).
Beneficial Owners are individuals who:
- Ultimately own or control, whether directly or indirectly, 25% or more of the shares, voting rights, or partnership interests in a Legal Person.
- Exercise ultimate effective control over the management of the Legal Person, either through a chain of ownership or other means of indirect control.
- Are identified as having control over the Legal Person through other mechanisms.
The above criteria are collectively referred to as the “Specified Conditions” under the Beneficial Ownership Transparency Act (BOTA).
Individuals acting solely in a professional capacity, such as lawyers, accountants, or financial advisors providing advice, or professional managers like liquidators, receivers, or restructuring officers performing statutory functions, do not meet the Specified Conditions.
Governments, government departments, international organizations with members from multiple countries or governments, and public authorities are all considered individuals for these purposes.
If no individual meets the Specified Conditions, but trustees of a trust do in relation to the Legal Person, those trustees are deemed the Beneficial Owners, provided they have ultimate effective control over the trust’s activities, excluding roles solely as Professional Advisors or Professional Managers.
In cases where no individual qualifies as a Beneficial Owner based on the specified criteria, the Legal Person’s Senior Managing Official should be identified instead. This could be a director or the chief executive officer of the Legal Person. Unlike individual Beneficial Owners, a Senior Managing Official can be a Professional Advisor or Professional Manager. Typically, only one director, usually the one with the most authority, will be designated as the Senior Managing Official.
Reportable Legal Entity (RLE):
An RLE is another Legal Person that, if it were an individual, would be considered a Beneficial Owner. This includes entities that directly hold a relevant interest in a Legal Person or meet one or more of the Specified Conditions. It also encompasses entities through which an individual Beneficial Owner or another RLE indirectly holds partnership interests, shares, voting rights, or has ultimate effective control over management.
For further clarity, an RLE can only be reported if it is a registered entity within the Cayman Islands. If an entity outside of the Cayman Islands holds relevant interest in a Legal Person, the beneficial owners of the non-Cayman entity must be reported.
Legal Persons are not required to report individual Beneficial Owners of such RLEs, as the RLE will have its own reporting obligations under the Beneficial Ownership Reporting Regime (BORR), through which the individual Beneficial Owners are identified to the Registry.
REPORTING REQUIREMENTS & DEADLINES
Under the revised Beneficial Ownership Transparency Act (BOTA), entities must adhere to specific reporting requirements and deadlines to ensure compliance.
Here are the key details:
Information to be Reported
Entities are required to report detailed information about their beneficial owners, including:
- Full Name: The complete legal name of the beneficial owner.
- Date of Birth: The exact date of birth of the beneficial owner.
- Nationality: The nationality or nationalities of the beneficial owner.
- Residential Address: The current residential address of the beneficial owner.
- Nature and Extent of Interest: A detailed description of the nature and extent of the beneficial interest held by the owner, including the percentage of ownership or control.
Verification Requirements
Entities must verify the accuracy of the beneficial ownership information provided. This involves:
- Documentary Evidence: Collecting and maintaining copies of identification documents, such as passports or national ID cards.
- Regular Updates: Ensuring that the information is kept up-to-date and accurate, with periodic reviews and updates as necessary.
Deadlines for Reporting
- Initial Reporting: Entities must complete their initial reporting under the new regime by January 1st 2025. This includes submitting all required beneficial ownership information to the competent authority.
- Ongoing Obligations: As Registered Office, we are mandated to submit monthly reports to the Competent Authority. For any updates, entities are required to update their beneficial ownership information with their Registered Office whenever there are changes. This includes any changes in ownership or control that affect the beneficial ownership details. Updates must be reported within a specified timeframe, typically within 30 days of the change.
Alternative Route to Compliance (Contact Person)
To facilitate compliance, entities must appoint a Contact Person. This alternative route applies to CIMA regulated Mutual, Private and Licensed funds, along with entities that are listed on the Cayman Islands or other approved Stock Exchanges, as these entities were previously deemed exempt from reporting obligations. The Contact Person is responsible for:
- Liaison Role: Acting as the primary point of contact between the entity and the Competent Authority.
- Information Management: Ensuring that all beneficial ownership information is collected, verified, and reported accurately and on time.
- Compliance Oversight: Monitoring ongoing compliance with the reporting requirements and ensuring timely updates are made.
Entities that fall under the scope of the ‘Alternative Route to Compliance’ requirement must ensure that the appointed individual is suitably qualified and capable of fulfilling these responsibilities. This approach can streamline the compliance process and provide a clear line of communication with the authorities.
Penalties for Non-Compliance
Failure to comply with the reporting requirements can result in significant penalties, including:
- Fines: Monetary fines imposed on the entity and potentially on its directors or officers.
- Legal Action: Potential legal action against the entity and its responsible persons.
- Reputational Damage: Negative impact on the entity’s reputation and its ability to conduct business.
ALTERNATIVE ROUTES FOR COMPLIANCE
CIMA Regulated Entities (Contact Person)
Entities that are regulated by the Cayman Islands Monetary Authority (CIMA) can utilize an alternative route to compliance. This approach requires these entities to provide their Corporate Services Provider (“CSP”) with the contact details of a Contact Person, instead of directly identifying and reporting their beneficial owners. The eligible entities include:
- CIMA-Registered Mutual Funds
- CIMA-Registered Private Funds
- CIMA-Licensed Entities: Entities licensed under a regulatory law by CIMA, such as insurance companies, banks, and other financial institutions.
Entities Listed on the Cayman Islands or Other Approved Stock Exchanges
Entities listed on the Cayman Islands Stock Exchange (CSX) or other approved stock exchanges can also use an alternative route to compliance. This includes:
- Listed Companies: Companies listed on the CSX or other recognized stock exchanges are generally considered to have sufficient transparency and regulatory oversight, reducing the need for detailed beneficial ownership reporting.
- Subsidiaries of Listed Companies: Subsidiaries that are 75% or more owned by a listed company can also benefit from this alternative route.
These entities need to provide prescribed information to their CSPs to avail of this benefit, ensuring that the CSP has the necessary details to comply with the Beneficial Ownership Transparency Act.
UNDERSTANDING HOW THE CONTACT PERSON APPROACH WORKS
Only entities that are licensed by or registered with CIMA for providing beneficial ownership information (typically a CSP) or a fund administrator that holds a Mutual Fund Administrators Licence under the Cayman Islands Mutual Funds Act, such as Catalyst, is eligible to be appointed as a Contact Person.
The Contact Person approach is designed to streamline compliance by appointing a dedicated individual or service provider to manage beneficial ownership reporting. The Contact Person is a liaison between a Legal Person and the Competent Authority. The Contact Person, is not required to maintain the Register of beneficial ownership information for the Legal Person to which it is appointed, but they must have access to this information in order to provide the Competent Authority with any requested beneficial ownership information in an expeditious manner – specifically 24 hours of the request being made or any such timeframe as the Competent Authority may stipulate.
Here’s how it works:
- Appointment: The entity formally appoints a Contact Person who will act as the primary liaison with the Competent Authority.
- Information Collection: The Contact Person is responsible for collecting all necessary beneficial ownership information from the entity.
- Verification: The Contact Person verifies the accuracy of the information, ensuring it meets the required standards.
- Reporting: The Contact Person submits the verified information to the competent authority within the specified timeline.
- Ongoing Compliance: The Contact Person monitors any changes in beneficial ownership and ensures that updates are reported promptly.
To effectively fulfil their role, the Contact Person needs constant access to the following information:
- Beneficial Owners’ Details: Full names, dates of birth, nationalities, and residential addresses of all beneficial owners.
- Nature and Extent of Interests: Detailed descriptions of the nature and extent of the beneficial interests held by each owner.
- Identification Documents: Copies of identification documents such as passports or national ID cards for verification purposes.
- Corporate Records: Up-to-date corporate records, including any changes in ownership or control that affect beneficial ownership.
- Communication Channels: Direct lines of communication with the entity’s management and beneficial owners to facilitate timely updates and information gathering.
It is essential that the appointed Contact Person has routine access to this information and that the source information is kept up to date in order for the reporting entity to remain compliant and avoid any potential penalties for non-compliance. Once a request for beneficial ownership information has been issued by the Competent Authority, in this case the Cayman Islands Registrar of Companies, the Contact Person has 24 hours to provide the requested data.
NEXT STEPS
As a CIMA Regulated Mutual Fund Administrator and Company Manager, Catalyst is acting as a Contact Person for clients who are eligible for the Alternative Route to Compliance. For those entities who are not eligible to utilize the alternative route to compliance, Catalyst’s Corporate Services team will continue to provide ongoing monthly Beneficial Ownership filings. Regardless of the reporting approach, Catalyst will be working closely with clients to ensure that they are compliant with the new regulations when they come into force on January 1st.
Should you need any further information about how these changes impact your business, your compliance with the updated regime or to update your beneficial ownership information, please don’t hesitate to contact a member of Catalyst’s Relationship Management Team.
DISCLAIMER
The information provided here is for general informational purposes only and is not intended to be formal legal advice. Please consult with a qualified legal professional for specific legal guidance. cIt is important to note that non-compliance with the measures and obligations outlined under the revised BORR can result in significant fines and legal action. It is crucial that all entities ensure their beneficial ownership information is accurate and up-to-date and should communicate Catalyst about these changes, ensuring that such data complies with current legal and regulatory requirements.
In the event that the Client fails to provide the necessary information or updates in a timely manner, Catalyst shall not be held liable for any legal or financial consequences arising from such omission.