Clearly, the hot topic right now in the Cayman Islands business community is the U.K. government forcing its overseas territories, Cayman included, to provide a public registry of beneficial ownership by 2020. I believe that Great Britain has behaved very poorly in this regard because it has chosen not to include its Crown Dependencies, i.e., Jersey, Guernsey and the Isle of Man, in this change of legislation, which shows the agenda is disingenuous and is a redirection of business, effectively doing little more than to cast aspersions on offshore jurisdictions.
Harmful to the Cayman Islands economy
The Cayman Islands derives much of its revenue from being a tax neutral environment and generates sufficient revenue to be pretty much self-sufficient financially, without the need for financial support from Britain. Impacting Cayman’s financial services industry in this way will surely be to its detriment and will almost certainly damage this important pillar of Cayman’s overall economy.
As far as its impact on Cayman’s local real estate industry is concerned, I believe ultimately that there are a number of reasons why people use companies to hold assets for completely legitimate reasons, including privacy, as a lot of people do not necessarily want others knowing what they own, and also protection from liability. I believe that this is a fundamentally important aspect for investors in Cayman and without it the result will be that people realize that if their property ownership is not kept private then there really is no point in having a company in Cayman at all other than for protection against liability.
I believe that if investors can get over the above issue and accept the fact that their beneficial ownership is being made public, then they will still go forward with their property transactions and the effect will be minimal. But I see a secondary and more impacting effect of the U.K. legislation. If the financial services industry as a whole is impacted detrimentally then there will be a knock-on effect on the real estate industry. The financial services industry and property ownership go hand in hand in my opinion – either people who own property here then use our financial services industry or people come here for our financial services industry and then end up purchasing property.
But the overall knock-on effect will reach further than just our financial services industry; I believe it will spread to all our industries, with local buying power, in general, is affected by this U.K. legislation. Local residents have invested heavily in their properties over the past 15 to 20 years, whether those properties at worth $200,000 or $5 million and the industry has been particularly buoyant in recent years, but taking away important business will no doubt impact local homeowners.
No reason for change
The Cayman Islands has led the charge when it comes to allowing access to our beneficial ownership information, having introduced a centralized register last year. If a country or regulatory authority has issues with a particular beneficial owner then they have the mechanics to find the owners using qualified legal channels, the results of which will be provided to them within a speedy time frame. While this register is not open to the public it allows for the access needed to deal with problems and at the same time prevents fishing expeditions.
In my opinion, this legislation does nothing to prevent fraud and just mimics the U.S. with FATCA and other KYC legislation whereby criminals can still open bank accounts in the U.S. and also the U.K. with ease. I also fail to see why it is that everyone seems to need to know everyone else’s business. Cayman’s current regulatory framework more than adequately allows for the investigation of problems while balancing the legitimate rights of people seeking privacy and protection when it comes to their investments.
Note: I would love to hear from you if there are any points of interest as they relate to Cayman’s real estate industry that you would like me to discuss in future articles, or if there are any questions you would like me to answer. Email: James.Bovell@bovell.ky