The European Court of Justice (ECJ) ruling in LBR/Sovrim resolves the longstanding conflict in the EU between the opinions of the EU Data Supervisor on data protection for individuals and the EU Commission’s 5th EU Anti Money Laundering Directive.
It affirms the view of the former and of many practitioners[i], that public access to a Beneficial Ownership Register (BOR) offends an individual’s rights of privacy set out in Articles 7 and 8 of the European Union Charter of Fundamental Rights. The ECJ found public access to a BOR to be “a serious interference with the fundamental rights of respect for private life and the protection of personal data”. These precise words are critical to the Cayman Islands position and that of other Overseas Territories, as is the further finding of the ECJ that public access to a BOR is “neither limited to what is strictly necessary nor proportionate to the objective pursued”. (See further below on the Cayman Islands Constitution).
It may have been overlooked by those with a Euro centric focus that this is but the second of two fatal blows on the subject of public access to BORs. In addition, the US has now published its final rules for the implementation of a Central Beneficial Ownership Register (BOSS) pursuant to the Corporate Transparency Act 2021 (although caveated in its effect an astonishing act of catch up by the hitherto wholly opaque USA) which under regulations published on 22 September 2022 is set to come into effect under the auspices of FinCEN from 1 January 2024[ii]. These new US rules, which, not incidentally, have been specifically designed to comply with Financial Action Task Force (FATF) transparency standards, also dictate that FinCEN is not permitted to open BOSS to public access in the United States. That we would have supposed, if we apply the ethics of reciprocity favoured by “Mrs Do-as-you-would-be-done-by”[iii], if not actually international law, should now dispose of the issue of the public access to anyone’s BOR.
These two remarkable outbreaks of common sense and legal analysis, although from different roots, will hopefully spare us in the Cayman Islands and the Overseas Territories from any further mindless virtue signalling on the subject of the rights of NGOs and the public, to access private data from Dame Margaret Hodge[iv], her sometime acolyte, Mr. Andrew Mitchell MP, and the renegade band of marginally employable but entirely supportive Guardian hacks (and now supported, but surely not entirely seriously, by the Financial Times)[v]. So where does the ECJ ruling leave the Cayman Islands and the Overseas Territories in terms of the legal process, having committed by way of Undertaking with the UK government to introduce public access to BORs by 2023 in a manner consistent with the now invalid provisions of the EU 5th Anti Money Laundering Directive?[vi] Three points:
Firstly, Brexit should be irrelevant. The provisions of Article 7 and 8 of the EU Charter of Fundamental Rights, which grant a right of respect for everyone’s private and family life and their correspondence and which are specifically regarded as paramount by the ECJ decision, are mirrored in current UK law in Article 8 of the Human Rights Act 1998 and as importantly in the Cayman Island Constitution in s.9 of its Bill of Rights. Notably, also in a manner that mirrors the abovementioned ground of the ECJ decision, s.19 of that Bill of Rights requires the acts of all public officials in the Cayman Islands to be “lawful proportionate (emphasis supplied) and fair”.
Secondly and paradoxically, this leaves the United Kingdom as something of an outlier if it continues to seek public access to private data. To answer the question posed by Filippo Noseda in “Why did the UK get it wrong”[vii], very possibly because what we find affecting the political classes in the UK is an hysterical outbreak of the “holier than thou” zeal of those recently converted, and here, late in the day, to the seemingly blindingly obvious point that an unedifying percentage of the world’s laundered funds, for which the FATF are hunting in vain, are residing comfortably in three London postcodes. But that is not a good reason to persist with the findings of The House of Commons Research Briefing of 6 April 2022 “Registers of Beneficial Ownership” which, for no sound reason, concluded in favour of public access to BORs in the Overseas Territories where notwithstanding world leading standards of transparency from which law enforcement agencies benefit, no statistically relevant investment of the proceeds of money laundering has been detected.
Thirdly, as for the legislative process in the Cayman Islands, the Bill to implement public access to its BORs is not yet before the Cayman Islands Legislature but has been circulated for consultation and in that process universally condemned. It should now, and urgently, be withdrawn and for a further very specific reason. The Undertaking signed on behalf of the Cayman Islands Government to introduce public access to BORs by 2023 was specifically conditional on such access becoming the international standard and particularly referenced it first becoming the standard within the EU Members States (which, not incidentally, was not even close to being the case before the ECJ ruling). Given verified and documented information is available to all onshore law enforcement and tax authorities on all Cayman beneficial owners within an hour, no coherent argument could be made for the introduction of public access to BORs in the Cayman Islands prior to the decision of the ECJ.[viii] Less so now. We can only hope that common sense and logic will now prevail upon the Cayman Islands legislators who now must urgently review the position. The oft repeated shibboleth (by Hodge and Mitchell) that the UK government may legislate by Order in Council in the Cayman Islands on the issue of public access to BORs will be shown to contravene the Cayman Islands Constitutional position on privacy.
But from the perspective of the Cayman Islands and other Overseas Territories, the ECJ ruling has only bumped off one head of a multi-headed hydra. To the surprise of no one in the Cayman Islands financial services industry save possibly those Government representatives tasked with representing it before the FATF Plenary in Paris on 20 October 2022, the FATF determined to maintain the Cayman Islands position on the “grey list” of jurisdictions subject to increased monitoring for money laundering and terrorist financing. For those not familiar with the consequences, this may involve a level of increased due diligence and, at the least, ongoing reputational damage to the Cayman Islands financial services industry. This, altogether too neatly to be mere coincidence, plays into the EU handbook by enabling the EU to automatically designate the Cayman Islands as a “High Risk Third Country” under Directive (EU) 2015/849, the intention of which, ostensibly, is to protect the European Union financial system and assist the proper functioning of the internal market. The precise detail of whether or not enhanced due diligence should therefore be applied to Cayman Islands financial structures is obscured in the detail of EU regulation and is unclear, but the ongoing reputational damage is intentional and very clear. Apparently, no such concerns arise in relation to terrorist financing in Nicaragua and Pakistan which are now given a clean bill of health by the FATF.
We should spare a thought in all this for the astonishment of the Cayman Islands Government representatives, well-schooled in and constitutionally required to apply the Christian principles of right and wrong and having applied to a fault in their cooperative stance those inherited legacies of British influence in the Overseas Territories, the Rules of Natural Justice and the Rule of Law. It is a sad commentary indeed that reliance on these principles left them ill-equipped to deal with the machinations of Mr. Marcus Pleyer, former President of the FATF, and his newly appointed successor, Mr. T Raja Kumar. What we know for a fact, is that the Cayman Islands financial services industry satisfies 62 out of 63 of the FATF recommended actions in relation to anti-money laundering and the countering of the financing of terrorism. What we also know is that law enforcement and indeed, tax authorities, have access to the 10 per cent ultimate beneficial owner of any Cayman Islands vehicle which information is documented and verified and within one hour of enquiry. And what we also know is that with this unrestricted right of transparency long established there is not one shred of evidence that suggests that the Cayman Islands financial services industry is in any way involved in statistically relevant money laundering activity, terrorist financing or anything like it. Indeed, those of us who have actual experience of practicing in the Islands[ix] know that to launder money through the Cayman Islands, given the manner and the functioning of correspondent banking system, is virtually impossible. After the FATF Plenary, the Minister of Financial Services of the Cayman Islands described the inclusion of the Cayman Islands on the FATF and EU grey list as a “legacy image challenge not a standards and effectiveness difficulty”. He is a polite man. The perverted logic applied by the FATF is deserving of more damning criticism than that. What the FATF now adopts as its justification for inclusion of the Cayman Islands on its grey list, represents a reversal of every principle of Natural Justice and the Rule of Law. In the “Outcomes of the FATF Plenary 21st October 2022”, the FATF has the effrontery to cite as a strategic deficiency and as its rationale for the inclusion of the Cayman Islands on the “grey list” “the failure of the Cayman Islands to prosecute all types of money laundering cases in line with the jurisdiction’s profile”. What this means is that the FATF in accordance with its politically driven agenda, determines that the absence of money laundering convictions (in a jurisdiction that has unrestricted transparency for law enforcement) is to be taken as conclusive evidence of money laundering. Whilst we anticipate this kind of Euro logic from his predecessor, Mr. T Raja Kumar, as a student of philosophy, should be ashamed of himself. The FATF have very neatly created a construct in which the Cayman Islands must now prove a counterfactual. At what point did the FATF descend into Wonderland? Little wonder as an organisation, it interdicts only 1 per cent of the US$2 trillion we are told is laundered annually. The principles that it applies are hopelessly disconnected from the realities of money laundering and it is blinded by EU politics to the failings of its inherently flawed structure. It is worryingly close in its guiding philosophy to the musings of Humpty Dumpty, “When I use a word, it means just what I choose it to mean, neither more nor less.”
There is a broader lesson in this. We have here demonstrated by a European Union institution (we can regard the FATF as such), as good a reason as any for the independence of the UK legal system and the Overseas Territories from that of the EU. It seems the maintenance of English principles the Rule of Law are fundamentally inconsistent with the corrupt logic that routinely pervades EU institutions and which EU bureaucrats, unaccountable as they are, feel empowered to adopt. In the long run, of course, the transparency which applies through every layer of the Cayman Islands financial services industry will establish the truth and the incompetence of the FATF[x] will, in time, become increasingly apparent. In the short term, the FATF and the EU have ensured that Cayman Islands investment vehicles are, by way of reputational damage, excluded from consideration from within the EU. Fortunately whilst the position of the EU and the FATF in grey listing the Cayman Islands is in no way defensible and is defamatory, the statistical evidence allows us to conclude that the Cayman Islands financial services industry remains not merely robust but continues to strengthen[xi]. The ECJ decision will doubtless now assist.
[i] None more so than Filippo Noseda of Mischons. See “Too much information: Why did the UK get it wrong.” Jersey & Guernsey Law Review 182.2017 and who acted for one of the appellants in this case.
[ii] It is unlikely that these two events are other than coincidental as to timing. The US position is driven by the more constitutionally sound penumbra to the 4th Amendment and the Privacy Act 1974.
[iii] The Water Babies, Charles Kingsley
[iv] See “A Reply to Dame Margaret Hodge” The Author, IFC Caribbean 2019
[v] Perhaps the lesson here for the good Dame is that the embarrassment one might feel personally on the subject one’s family’s Liechtenstein Trust is not at all deflected by the simple expedient of noisily mischaracterising the well-functioning and legitimate legal systems of a perfectly transparent offshore financial centre like the Cayman Islands.
[vi] And having no doubt suffered damage to its private client industry as a result of the suggested timetable for its introduction.
[vii] Footnote 1 supra
[viii] The reader must be as tired of reading this as I am of writing it.
[ix] Some of us for a very long time.
[x] See the author: “The Financial Action Task Force – Yet Another French Farce” IFC Review 8 September 2021
[xi] See the author: “An Ill Wind” IFC 31 March 2022
Anthony Travers OBE
Anthony Travers OBE is the Senior Partner of Travers Thorp Alberga, former Chairman of Cayman Finance and former President of the Cayman Islands Law Society. The former Managing and Senior Partner of Maples and Calder, he has extensive experience in all aspects of Cayman Islands law and has worked closely with the Government and prepared the Cayman Islands legislation for Mutual Funds and Private Equity vehicles, in the Private Trusts area, the Asset Protection Legislation and drafted the Cayman Islands Stock Exchange Law. Anthony was made an Officer of the Most Excellent Order (OBE) for his services to the Government and the Financial sector in August 1998. Anthony has written numerous articles and has spoken regularly at conferences and seminars.