Cayman government halts company law reform at eleventh
hour
10 September 2012
The Cayman Islands government has suspended
enactment of the Companies Amendment Law 2012 after financial
industry representatives protested it would cause a bureaucratic
disaster for foreign firms operating in the jurisdiction.
The legislation was rushed through parliament
late in August to meet the demands of the Organisation for Economic
Coordination and Development (OECD) Global Tax Transparency Forum,
which was preparing to conduct a peer review inspection. An earlier
peer review had identified shortcomings in Cayman Islands company
law that made international tax information exchange agreements of
limited value, because the jurisdiction did not force companies to
keep the relevant records. Thus the new bill includes sanctions
against companies and partnerships that do not maintain adequate
ownership and identity information; a requirement for exempted and
non-resident companies to maintain registered offices with Cayman
licenced service providers; and provisions for heavy fines on
non-compliant private trust companies.
It was reported on 31 August ready for assent
by the jurisdiction's governor, which would have brought it into
full effect.
But before that could happen, the Cayman
financial industry suddenly woke up to the implications of the new
regime. Clause 20 of the new Companies Law, though only 22 words
long, has a dramatic effect. It requires a Cayman company that
administers IFC firms to keep copies of these international
businesses' full account ledgers, including all transaction
records, at its own registered office in the Cayman Islands.
According to one commentator, local accountant
Chris Johnson, this requirement would be ‘nothing short of a
disaster for the Cayman Islands which will quickly bring about the
demise of the financial industry’. It would force local company
service providers to recruit ‘hordes’ of new employees, mostly from
abroad, to manage the ‘mountain’ of paperwork for the 80,000
companies registered in the jurisdiction.
No other financial centre imposes this
requirement, said Johnson. The widely drawn implication is that the
Cayman government was pushed by OECD negotiators into making
unnecessary concessions - and then failed to consult the financial
industry about them.
Paul Harris of the Cayman Islands Company
Managers Association said existing Cayman practice was the same as
the UK's, in that only the registers of directors and shareholders
and similar documents needed to be held locally, not records of
every financial transaction. ‘To require Cayman companies to do
differently would impose an insurmountable disadvantage on the
desirability of Cayman as a corporate base,’ he said.
Last week the storm broke and the financial
sector insisted on a series of emergency meetings with the
government to stop the bill receiving the governor's assent. On
Friday afternoon the government duly announced that the bill is not
in effect and that it is working to address ‘industry concerns’
about clause 20.
The question is now whether the government can
itself amend the bill by issuing some suitably drafted supporting
regulations - or whether the process of parliamentary scrutiny has
to be followed again, by referring the bill back to the legislative
assembly.
Sources
CNS
Business
CNS Business
(2)
Cayman Islands Official Gazette (Bill as passed, PDF file)