Main Story: Guidelines regarding beneficial ownership
At the June 2013 G8 meeting, the attendees signed a document that sets out core guidelines for the transparency of ownership and control of companies as discussed in the new Financial Action Task Force recommendations 24 and 25. The document went on to state that all jurisdictions (not just those of the G8) should develop an Action Plan to comply with the FATF recommendations. Listed below are the action plans developed by the Cayman Islands and the United States of America.
Cayman Islands action plan on beneficial ownership
The Cayman Islands has said that it is committed to continue working with other nations towards the full implementation of the revised Financial Action Task Force standards, in order to improve transparency of the ownership and control of companies in a way that ensures a level playing field across the world.
Collection and maintenance of beneficial ownership information by corporate service providers and trustees of express trusts has been a legal requirement in Cayman for more than a decade. The obligation on trust and corporate service providers to collect, update and retain such data is enforced through a regime that mandates a licensing process for trust and corporate service and an ongoing program of supervision and enforcement action that involves onsite regulatory inspections.
The Cayman Islands supports the high standards set by the revised FATF recommendations, including recommendations 24 and 25, and is committed to continue making progress towards the full implementation of these standards by undertaking the following actions:
- Conduct, and share the findings of, a national assessment of money laundering and terrorist financing risks by 2015, through coordinated action by the public and private sectors to assess risks, apply resources and mitigate those risks.
- Further evaluate established policies and legislative measures to ensure that information on the ownership and control for companies and express trusts continues to be effectively and accurately maintained, and that this information continues to be readily available to the appropriate authorities.
- Conduct an assessment of whether a central registry of the beneficial ownership and control of companies is the most appropriate and effective way to improve transparency in support of domestic legal compliance and the implementation of cross border assistance in accordance with internationally adopted and implemented standards during 2015.
- Continue the longstanding supervision of those who execute company formation in the Cayman Islands, and keep the regulatory regime under review.
- Conduct a review of supervision and regulation of the financial services sector, including category A and B banks, during 2015 to establish effectiveness of supervision and enforcement of existing rules on beneficial ownership.
- Further review corporate transparency including the use of bearer shares (all of which are already immobilized and subject to regulation in the Cayman Islands) as recommended in the Phase 2 Peer Review Report by the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, by 2014.
- Maintain high standards of international cooperation, including the timely and effective exchange of basic and beneficial ownership information on legal persons and arrangements.
- Continue to negotiate and enter into international tax cooperation agreements and arrangements under the entrustment of the United Kingdom, where appropriate, including tax information exchange agreements and double taxation agreements; intergovernmental agreements in support of automatic exchange of tax information (such as under the United States Foreign Account Tax Compliance Act); and the Convention on Mutual Administrative Assistance in Tax Matters.
United States action plan for transparency of company ownership and control
In response to the G8 commitment for members to publish national action plans on transparency of company ownership and control, the United States commits to the following actions:
- I Risk assessment: The United States is currently updating its national risk assessment, a public document assessing major money laundering conduits and methods, which will specifically address abuse of legal entities.
- II Advocate for comprehensive legislation: Continue to advocate for comprehensive legislation to require identification and verification of beneficial ownership information at the time a company is formed. One possible approach could include the following provisions:
- Definition of beneficial owners – Define beneficial owner as a natural person who, directly or indirectly, exercises substantial control over a covered legal entity or has a substantial economic interest in, or receives substantial economic benefit from, such legal entity, subject to several exceptions.
- Collection and verification of documentation – Include two options for covering legal entities depending on whether the applicant forms the legal entity directly or uses a regulated company formation agent. Both cases would require the collection and verification of the documentation associated with beneficial ownership.
- Regulation of company formation agents – Extend anti-money laundering obligations to company formation agents, including an obligation to identify and verify beneficial ownership information.
- Accessibility of information – Ensure law enforcement authorities, including tax authorities, will be able to access beneficial ownership information upon appropriate request through a central registry at the state level. Although all states currently make some basic information available through public registries, states may choose to make beneficial ownership information publicly available.
- Transfers – Mandate that entities update information filed with a State or a formation agent within 60 days following any change of beneficial owners.
- Exemptions – Include, but not limit exemptions to, publically-traded companies in the U.S., federally regulated financial institutions and operating companies meeting certain employee or revenue requirements.
- Liabilities – Mandate civil and criminal penalties for knowingly providing false information or documentation to a State or formation agent.
- III. Clarify and strengthen customer due diligence standards for U.S. financial institutions: The United States is currently engaged in rulemaking to develop an explicit customer due diligence obligation for U.S. financial institutions, including a general requirement to identify the beneficial owners of legal entity customers.
- IV. International cooperation: Assess the effectiveness of existing means for complying with requests for mutual legal assistance and other forms of international cooperation related to beneficial ownership of companies.