The author of this article says those that are law abiding will suffer the most as they may receive unwanted attention.
Regular contributor Mark Davies, of Mark Davies & Associates, writes here about the recent decision by the British Overseas Territory, The Cayman Islands, to set up a public ownership registry for companies (other UK-linked jurisdictions have taken a similar course). The move is an attempt to head off criticism that such IFCs are hideouts for businesses trying to evade or avoid tax. Never afraid to avoid controversy, Davies addresses such concerns and ponders how the landscape will develop.
As ever, the editors of this news service are pleased to share these views; we maintain the usual disclaimers and invite readers to react if they want to join the debate. Don’t hold back: email email@example.com or firstname.lastname@example.org
In the long distant past the British Overseas Territories were described as “sunny places for shady deals”. However, it was only in 2016 that the United Kingdom introduced a public registry for companies registered in England and Wales. Even now, it is reasonably easy to set up a UK company online, with very few checks of the beneficial owners’ identity and their source of funds. Try to set up a company now in the Crown Dependencies or British Overseas Territories, I can guarantee you that you will need to prove who you are, the source of your wealth, and need to explain to a compliance officer’s satisfaction why you are doing it.
This has been the case for many years. However, the belief still
remains that offshore financial centres are being used for money
laundering, whereas the unpalatable truth is that much of the
world’s money laundering hides in plain sight in onshore
financial centres, such as London. This can be demonstrated in a
recent check by the UK’s Solicitors Regulation Authority, who
conducted a small sample of just 59 law firms providing trust and
company services and found that 44% were non-compliant and placed
into the SRA’s disciplinary processes for inadequate money
The European Union has recognised the need for greater vigilance and implemented the Fifth Anti-Money Laundering Directive on 19 April 2018. The Sanctions and Anti-Money Laundering Act 2018 mirrored these provisions in the UK’s statute books. An amendment was included in the Act to require the Government to enforce public company registers of the UK’s 14 Overseas Territories by 2020.
Originally, both the Crown Dependencies and the Overseas Territories were included on the list, but the Crown Dependencies were withdrawn. Initially this caused fury in the Overseas Territories on the grounds that imposing rules on them is both colonialist and undemocratic. The Foreign and Commonwealth Office interpret the rule as imposing an obligation on them to issue an Order in Council to uncooperative Overseas Territories by 2020, but the law does not specify the date by which public registries must be operational.
The British Virgin Islands were the first respond and instructed solicitors to advise them on a legal challenge to the legislation, and later announced that they were considering an “alternative” relationship to the UK (BVIxit?).
Others, such as the governments of Guernsey, Jersey and the Isle of Man have announced that they will implement these rules voluntarily by 2023 – providing the EU does the same. However, it is not yet completely clear how the EU’s General Data Protection Regulations, which provides data protection and privacy for all individual citizens of the EU and EEA, can reconcile with the Fifth Anti-Money Laundering Directive which demands transparency of beneficial ownership data of companies.
The Cayman Islands are the latest to declare their position. They have announced that they will introduce a public register showing the beneficial owners of companies based in the Cayman Islands by 2023. The Cayman Islands are a favoured jurisdiction to provide the special purpose vehicles for investors to invest jointly internationally. They are probably the Overseas Territory least affected by the new rules, as only the details of investors with significant interests in excess of 25 per cent (or 10 per cent where an entity poses a significant money laundering or tax evasion risk) will need to be reported. Where the Cayman Islands entity is a collective investment vehicle, it is likely that there will be few investors with significant interests.
The register will allow public access to these records, even without the need to demonstrate any kind of legitimate interest. I have never been able to reconcile how the EU can demand data protection for individuals and can impose massive fines on internet giants, while at the same time legislate for financial data to be published for anyone who wishes to see it. Governments and the tax authorities have a legitimate reason to police their citizens. However, by allowing anyone to review the data it means that those wishing to exploit it commercially, criminals, investigative journalists and the plain nosey will access it. At what point did an individual’s right to privacy become less important than transparency?
As always, those that are law abiding will suffer the most as
they may receive unwanted attention. They might choose to invest
collectively going forwards or use less regulated jurisdictions,
such as the USA. Those who wish to hide for illegitimate reasons
will find alternatives. These new Anti-Money Laundering rules are
unlikely to achieve their intended aim.