Cayman’s Financial History

Beneficial Ownership The Cayman Islands has implemented the highest global standards for transparency and cross-border co-operation which are regularly reviewed and enhanced.

In 2017, the Cayman Islands passed legislation to establish a centralised platform for beneficial ownership information. The legislation requires companies, limited liability partnerships (LLPs) and limited liability companies (LLCs) to engage a corporate services provider to assist them in establishing and maintaining a beneficial ownership register. Companies, LLPs, LLCs and other persons may be subject to fines and imprisonment for breaching the laws relating to establishing and maintaining beneficial ownership registers.

Only the competent authority is able to search the beneficial ownership registers for information and can do so only upon a lawful request by a specified Cayman Islands or UK law enforcement authority.

The UK is spearheading an international campaign to encourage more countries to commit to publicly accessible registers by 2023. It believes that action on beneficial ownership information in the overseas territories should be complemented by improved public access to beneficial ownership information internationally. The Cayman Islands Government has been clear that it will not consider the introduction of a public register of beneficial ownership unless and until that becomes the accepted and implemented international standard.

Legislation to Meet Client Needs Cayman’s regulatory framework is continuously enhanced to ensure it meets the needs of regulated entities and their clients and investors. Cayman has amended its anti-money laundering, terrorist financing, proliferation financing and financial sanctions requirements to ensure it remains in line with developing global standards, in particular those of the Financial Action Task Force (FATF).

In 2016, the Limited Liability Company was introduced at the request of US clients. In 2017, the Foundation Companies Act was introduced, which provides clients with a flexible vehicle for offshore structuring.

Following consultation with the OECD, the EU and Cayman Islands stakeholders, the Cayman Islands and other international financial centres adopted economic substance requirements in 2019. Cayman was assessed by the OECD as fully compliant. In 2020, the Cayman Islands amended the existing Mutual Funds Act and enacted a new Private Funds Act to provide a regulatory regime for smaller closed ended investment funds. The Cayman Islands had already introduced legislative changes to allow the funds sector to participate in the EU’s Alternative Investment Fund Managers Directive.

More recently, the Cayman Islands has introduced the Virtual Assets (Service Providers) Act (2020) which sets out the legal and regulatory framework for virtual assets service providers seeking to do business in and from the Cayman Islands.

Cayman’s Financial History On the dark and moonless night of 8th February 1794, a navigational error resulted in ten British ships, including a Royal Navy vessel, being wrecked on the treacherous coral reefs off East End, Grand Cayman. Local people saved everyone aboard the ships, including, so the story goes, a royal prince. When Britain’s King George III heard of this act of gallantry, he is said to have decreed that the people of the Cayman Islands should forever be free from taxes and war conscription. There is no doubt that the Wreck of the Ten Sails actually took place, but there is no documented evidence of the royal decree, however, this has not stopped the story from becoming one of Cayman’s favourite legends.

The real reason for the Cayman Islands being a tax-free jurisdiction is rather more prosaic. Until the mid 1960s, the population was less than 8,000 and most Caymanians made their living from subsistence farming, fishing, turtling, schooner building and making thatch-rope, while many of the men served as merchant seamen on oceangoing ships, usually flying the American or Liberian flag.

This basically meant that most of the residents in Cayman were living on meagre earnings, there were few companies at the time and capital gains were virtually non-existent, so there was nothing worth taxing. But in 1952, an aircraft runway was constructed and the following year Barclays Bank opened a branch in Grand Cayman. In fact, Cayman’s status as an international financial centre derives from the foresight of some early legal practitioners and a receptive government who, in the mid 1960s, drafted and enacted legislation together to build on this modest beginning.

In the following decades, more international banks were attracted to Cayman, together with law and accounting firms. When the Bahamas became independent from the UK in 1973, a number of expatriate workers from that jurisdiction were attracted to Cayman as a stable place to do business. Cooperation between the Government and the private sector has continued to this day. This, combined with a policy of welcoming expatriates with special skills to the Islands and a population of welleducated Caymanians, has kept Cayman in the forefront of the international financial industry.

Jurisdiction of Choice To be successful in the highly competitive global financial industry requires political and economic stability, tax neutrality, a responsive legal system, reliable service providers, a sound regulatory regime, a stable banking environment and absence of exchange controls. In addition to these factors, Cayman’s status as an overseas territory of the United Kingdom and its international cooperation regimes in the areas of tax information exchange, regulation and law enforcement, provides the necessary level of confidence in Cayman’s sophisticated, hospitable and predictable financial environment. That confidence is built on Cayman’s status as a transparent, cooperative jurisdiction that already meets or exceeds the full range of globally-accepted standards for