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Should company benefactors be public knowledge?

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By Richard Addlestone, Solomon Harris – In response to the push towards greater global transparency on beneficial ownership, the UK has proposed a public register of ownership interests in companies, which could be searched by anyone, anywhere in the world. It hopes the other G8 members will copy its model, but has left it to the Cayman Islands Government (‘CIG’) to decide if it wants to follow suit.

The CIG has published a public consultation document on whether a central registry of beneficial ownership of interests in companies is the most appropriate and effective way to improve transparency. Currently, the legal requirement in Cayman is for trust and corporate service providers to collect, update and retain beneficial ownership information on all vehicles (not just companies). That information is available to appropriate authorities in the 31 jurisdictions, including the US, UK, and many of the EU member states with which Cayman has bilateral agreements.
The G8’s rationale is that transparency will help fight tax evasion and criminal activity. It is not clear how providing public access to that information to which the relevant authorities already have access will help these aims, particularly if beneficial ownership registers are only for corporate entities. The logical next step must be registers of the beneficial ownership of trusts, partnerships, real estate, bank accounts, and other assets. If that standard were to be copied by the G8 members, leaving aside the Orwellian overtones, the mechanics of allowing anyone to search any G8 database would be so vast as to be unmanageable. There are many concerns including:

  • Who will prevent official abuse of this information?
  •  It will no longer be possible to protect personally or commercially sensitive, confidential, information.
  •  Investment strategies could be impaired if the world can see everyone’s holdings.
  • Private information on legitimate wealth is available to family, friends, competitors, kidnappers, tabloid journalists and beggars.

A better way forward could be to refine the existing regime, which allows governments to share this information, and restrict access to those who need it. This was the standard originally proposed by the UK in June, and such a regime already largely exists in place in Cayman.
Cayman has just signed a FATCA Model 1 IGA with the US, and a new Tax Information Exchange Agreement. In April 2013, it signed up to the G5 pilot on multilateral automatic exchange of information. It has signed Memoranda of Understanding on exchange of tax information with 25 of the 27 countries of the EU. It is taking steps toward the FATF standards, including on the transparency and beneficial ownership of legal persons and legal arrangements. In June 2013, CIG committed to OECD’s Convention on Mutual Administrative Assistance in Tax Matters.
Although there is pressure on CIG from the UK government to change Cayman’s procedures for transparency, the potential benefits of a public register of beneficial owners would seem to be outweighed by the negative aspects.
Cayman will not be alone in questioning the need for unfettered public access, and a global system will only work where there is a level playing field. As Cayman already achieves a high level of transparency enabling the relevant authorities to access information they might need to fight crime, it is hard to see the benefit in adopting the UK’s new proposals, or that others will accept it as the global standard. All that said, watch this space. 

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