Highest company registrations since the financial crisis

The British government announced a new public register that from 2021 will require overseas companies that own or buy property in the U.K. to identify their beneficial owners.

Cayman’s company formations sector grew in 2017, with the number of new incorporations and total companies on the registry having increased at the year’s end over 2016.

According to statistics released by the General Registry, there were 99,327 Cayman-registered companies active at the end of 2017, a 3.2-percent increase over 2016.

The number of active companies reached a record 102,369 in Sept. 2016 before taking a dip when around 8,500 were struck off the registry shortly thereafter.

The territory saw 13,046 companies register in Cayman last year, which was a 17-percent increase over 2016 and the most since at least 2007. Just over 10,000 companies were terminated from the registry. Of the 13,046 company formations, 11,138 were exempt companies, 25 were non-resident, 583 were resident, 589 were foreign, and 711 were limited liability companies.

In February, the total number of Cayman-registered companies may once again exceeded the 100,000 mark.

The steady growth of Cayman’s incorporations comes as the British Virgin Islands, which is the leading offshore jurisdiction for company formations, has seen a drop in its business in recent years.

Whereas the BVI has seen its number of registered companies decline by nearly half, from around 800,000 in the mid-2000s to 413,273 as of the third quarter of 2017, Cayman has seen an increase from 83,532 in 2006 to around 100,000.

The BVI’s decline has been especially sharp since the second quarter of 2016, when international media outlets published stories on the “Panama Papers,” a trove of more than 10 million leaked documents from the trust firm Mossack Fonseca that allegedly showed BVI companies being used for money laundering and other illegal purposes.

The total number of active companies has apparently also declined in other offshore jurisdictions. The corporate services firm Vistra stated earlier this year that the number of active companies in the major offshore jurisdictions – Cayman, BVI, Samoa, Seychelles, Mauritius, Anguilla and Jersey – decreased in 2017 for the first time in 25 years.

Much of that business is going to “midshore” jurisdictions such as Hong Kong and Singapore, according to Vistra.

Ministry updates financial services industry on EU graylist commitments

The Ministry of Financial Services met with members of Cayman’s financial services industry associations to discuss several commitments made to the European Union Code of Conduct Group for Business Taxation (EU COCG) as part of its evaluation of jurisdictions for tax purposes.

During last year’s EU COCG screening process, Cayman avoided being included on a blacklist of non-compliant countries in tax matters. Cayman was assessed as a transparent jurisdiction but placed on a graylist of cooperative jurisdiction for tax purposes that had committed to addressing certain shortcomings by the end of 2018. According to the EU Council, Cayman has fallen foul of a fair tax criterion aimed at tax regimes that facilitate offshore structures which attract profits without real economic activity.

The assurances given by the Cayman Islands relate to concerns expressed by the EU Code of Conduct Group in relation to ring-fencing of exempted companies.

Government has committed to revising Cayman’s exempted companies regime, which will allow these entities to operate in the local economy, provided that local participation requirements are met.

In addition, Cayman and the EU also are discussing enhanced accounting and regulatory reporting obligations; and the definition of economic substance for relevant businesses.
“This meeting is part of the government’s plan of engagement, which encompasses dialogue with international bodies and discussions with our local stakeholders, to achieve the best outcome for the jurisdiction,” Minister of Financial Services Tara Rivers said. “Our communication with the EU on Cayman’s tax regime is ongoing.”

In March, the EU Council removed Bahrain, the Marshall Islands and Saint Lucia from the tax blacklist and added the Bahamas, Saint Kitts and Nevis and the U.S. Virgin Islands. In addition, six other countries – American Samoa, Guam, Namibia, Palau, Samoa and Trinidad and Tobago – remain on the blacklist. Eight of the original 17 blacklisted jurisdictions were delisted on Jan. 23.

At the same time, the EU Council decided to add Anguilla, Antigua and Barbuda, the British Virgin Islands and Dominica to its graylist of jurisdictions that have made sufficient commitments to address deficiencies identified by the EU.

UK plans new beneficial ownership register for properties

The British government announced a new public register that from 2021 will require overseas companies that own or buy property in the U.K. to identify their beneficial owners to tackle money laundering through property transactions.

More than 75 percent of properties currently under investigation use offshore vehicles, a tactic to hide the true owners that is regularly seen by investigators pursuing high-level money laundering, the U.K. government said.

More than US$252 million worth of property in Britain has been brought under criminal investigation as the suspected proceeds of corruption since 2004.

The Department for Business, Energy and Industrial Strategy’s register will require overseas companies that own or buy property in the U.K. to provide details of their ultimate owners.
“This will help to reduce opportunities for criminals to use shell companies to buy properties in London and elsewhere to launder their illicit proceeds by making it easier for law enforcement agencies to track criminal funds and take action,” the prime minister’s office said in a statement.

Business Secretary Greg Clark said, “We are committed to protecting the integrity and reputation of our property market to ensure the U.K. is seen as an attractive business environment – a key part of our Industrial Strategy.”

He added, “this world-first register” will build on the U.K.’s reputation for corporate transparency, as well as helping to create a hostile environment for economic crimes, like money laundering.

The register will also provide the government with greater transparency on overseas companies seeking public contracts, he noted.

Government committed to publishing a draft bill this summer and introducing it in parliament by next year. Following legislation, the register would go live by early 2021.

The U.K. government had committed to creating a register to disclose the beneficial owners as early as 2016 at the Anti-Corruption Summit in London.

Lord Ahmad, the Foreign and Commonwealth Office Minister, explained during a debate in the House of Lords in January that the Department for Business, Energy and Industrial Strategy has sent more than 100 pages of drafting instructions to the Office of the Parliamentary Counsel, and work preparing the clauses for the bill is under way.

Specific provision will have to be made for Scotland and Northern Ireland, which have different land registration systems and their own land registries.

Lord Ahmad noted that the department commissioned research on the potential impact of the policy on investment decision but work on the impact assessment was ongoing.

He added that the register would warrant a separate bill. “The register will be first of its kind in the world and will affect people’s property rights. A robust enforcement mechanism will be essential.”

The U.K. government believes that criminal sanctions may not be sufficient in isolation, but that additional enforcement through land registration law will also be needed if the register is to have teeth.

“A key proposal is that those who own property who do not comply with the register’s requirements will lose the ability to sell the property or create a long lease or legal charge over it. This will be reflected in a restriction on the register of title,” Lord Ahmad said.

Cayman aims to capitalize on blockchain boom

The Cayman Islands is aiming to be one of the business-friendly jurisdictions that attract blockchain entrepreneurs who look to develop their ventures from startups to successful companies and where they can raise funds and develop their products.

Cayman Enterprise City CEO Charlie Kirkconnell said at a January “d10e” blockchain conference that some 50 blockchain companies have established or are in the process of setting up shop at “Cayman Tech City” – the recently branded branch of the special economic zone that caters to tech-related entities.

Now, about 25 percent of the total Cayman Enterprise City tenants are companies developing or using blockchain technology.

Despite competition from other countries like Puerto Rico, Cayman officials are confident that this jurisdiction has more to offer than others.

For Sensay co-founder Crystal Rose, the choice to domicile for her company here was a no-brainer.

“We’re taking Bitcoin from places around the world, and America would tax that instantly as income … but that money is going to be circulated back into the company as an investment,” said Rose, whose company creates blockchain-based smart contracts.

Additionally, Cayman’s straightforward regulations made the jurisdiction more attractive than staying in the United States, she said. Blockchain companies are subject to know-your-client and other anti-money laundering rules, but Rose said that the U.S. Securities and Exchange Commission issued two conflicting statements about fundraising rules within the span of five months.

Kirkconnell said that Cayman Tech City is trying to make setting up businesses here as easy as possible. Cayman Tech City officials will help entrepreneurs obtain all necessary licenses and permits, and can usually have them ready to do business from the territory within four to six weeks of an application, he said.

That was the experience of Hercules SEZC President Cynthia Blanchard.

“[Cayman Enterprise City] helps guide you through the process, and makes it easy as possible,” said Blanchard, whose company uses blockchain for supply chain management. “Now, we have a community here.”

Cayman Enterprise City’s rules are also flexible in that entrepreneurs can travel and do business around the world while still maintaining a legal presence here.

“There’s no requirement to spend a specific number of days in the jurisdiction,” Kirkconnell said. “We want you to spend as many days as you can here because we want the knowledge transfer and your expertise in the jurisdiction, but the requirement to be here [for example] six months – that doesn’t exist.”

Like other jurisdictions, Cayman is still trying to iron out details about how a blockchain industry might be regulated.

“That’s the kind of thing we’re going to have to build this year,” said Department of Financial Services Senior Legislative Policy Advisor André Ebanks, referring to the regulatory issue. “There are going to be some issues that we have to work through and think about.”

Among the issues policymakers are grappling with is how to make sure “tokens” (a common word for a single unit of cryptocurrency) are not used as bearer shares (shares that belong to whoever physically owns them, which allows for anonymity).

To illustrate his point, Ebanks said that he was recently on a conference call with five major law firms who were discussing legal issues surrounding blockchain and cryptocurrencies.
Normally, these fiercely competitive law firms would not be working together on legal matters, he said. But when it comes to an undeveloped industry, Ebanks said that doing so is for the benefit of all.

“Because this space is so new, it’s going to take education and collaboration to grasp,” he said.

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Michael Klein
Michael Klein Editor Compass Media Ltd. PO Box 1365, Grand Cayman, KY1-1108, Cayman Islands T: 345-326-1720C: 345-815-0064 E: [email protected] Michael is a financial journalist and copywriter.  In the past he has been responsible for the Risk Management and Corporate Finance sections of a British monthly Corporate Treasury publication.  He has written various financial handbooks, notably on European Banking and Cash Management and the Debt Capital Markets.   In addition he has worked as a copywriter for banks and investment funds and served as corporate communications consultant to US and European blue chip companies.   Michael holds an MA in Political Science and International Law from the University of Bonn in Germany. 

Compass Media Ltd

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