The consultation had been drawn up in the wake of UK prime minister David Cameron’s insistence, last year, that 10 of Britain’s overseas territories and crown dependencies begin to make so-called beneficial ownership information about the companies in their borders more readily available “to law enforcement [agencies] and tax collectors”.
Beneficial ownership is generally defined as the full and accurate details of who really owns and controls a company, which in many cases is not publicly stated.
“Put simply…we need to know who really owns and controls each and every company,” Cameron said in a letter sent on 20 May to officials in Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Anguilla, Montserrat, the Turks and Caicos Islands, Jersey, Guernsey and the Isle of Man.
However, argue critics, there are reasons for concern about such a scheme, particularly if it is set up in haste, as some fear it would be. What's more, some say, with respect to the Cayman Islands specifically, it is already capable of providing beneficial ownership information to authorities if it needs to.
"If [the] UK plans were adopted in the Cayman Islands, this would degrade the current efficacy of the Cayman Islands system, given that the UK proposal lacks systemic and effective means for data verification," observed the International Financial Centres Forum, which represents a number of large cross-border professional services businesses and law firms, in a seven-page response to the Cayman Islands government's beneficial ownership consultation paper.
"We also note that [the] Financial Action Task Force (FATF) recommendations…make no provision or recommendation for centralised or public registers of client identity data.
"Data should be collected by regulated and supervised private sector corporate service providers as a means of ensuring routine professional checking of data accuracy at the time it is lodged in the system. This approach, followed in the Cayman Islands and other British offshore centres, is likely to produce more reliable data than that which would be elicited through self-reporting directly to a government agency.
"Accordingly, we recommend that the Cayman Islands continues to adhere to its existing model…[and] we view central and /or public registers as an unwarranted and disproportionate intrusion into personal privacy, not required for the tax and law enforcement rationales for the system."
Submissions by the Law Society of England and Wales and the Institute of Chartered Accountants in England and Wales revealed these organisations "broadly support" its position, the IFCF noted.
Case for staying off the dance floor
Gonzalo Jalles, chief executive of Cayman Finance, which represents the Caymans' financial services industry, prefaced his comments on the idea of a beneficial ownership registry by noting that Cayman is already far ahead of most other jurisdictions in terms of its adherence to key global initiatives aimed at increasing transparency of tax information.
It has, for example, he noted, some 33 tax information exchange agreements in place, including one with the US that was signed in 2001 and updated last year, and has agreed to and signed up to implement the US Foreign Account Tax Compliance Act via a "Type 1" intergovernmental agreement, as well as a ‘FATCA-type’ of intergovernmental information-sharing agreement with the UK. It has also agreed to abide by the principles of the Convention on Mutual Administrative Assistance in Tax Matters (an OECD/Council of Europe convention governing the exchange of tax-relevant information).
But on the subject of creating a beneficial registry, Jalles said he believes that Cayman, this time, should "stay in its chair and watch the dance floor" while others take the lead.
Such a beneficial ownership registry "may be an appropriate solution for those countries that, [unlike the Cayman Islands], have not put their houses in order", he went on.
"The UK, for example, does not regulate [its] service providers; there are thousands of UK companies for which no one, not even the tax authority, knows who the ultimate beneficial owner is. In [the US state of] Delaware, even today you can form a company without declaring beneficial ownership.
"Cayman is years ahead of these countries and most others around the world, regulating [its] service providers and demonstrating as per the FATF reviews that we can and do access and provide beneficial ownership information in a timely fashion when requested [to do so], to the appropriate authorities."
For Gerry Brown, technical manager at Prudential and a longtime observer of the cross-border tax scene, the answer to the beneficial ownership registry debate seems to lie in keeping the register secure.
"One of the fundamental rights of the European Union is that 'everyone has a right to respect for his or her private and family life, home and communications," he observed.
"Although this is an EU 'right', it is surely of universal application.
"On the other hand, tax and regulatory authorities have a duty to ensure that the correct amount of tax is paid, and that money laundering is counter-acted.
"These rights and duties might be reconciled if details of beneficial ownership are maintained by tax and regulatory authorities rather than on a public register.”
Other of the UK overseas territories have begun looking into the beneficial ownership registry issue, including, as reported last year, the Isle of Man.
To read the IFCF's response to the Cayman Island's beneficial ownership consultation, click here.
