CRS: Why Is Cayman Asking for Even More Controlling Persons?
The Cayman Islands announced in March that it updated its CRS self-certifications to require that Passive Non-Financial Entities (NFEs) disclose individuals with direct or indirect ownership or control of 10% or more of the shares or voting rights of the Passive NFE. Previously, the threshold was 25%. Why the significant change?
Quick Review: Controlling Person
Controlling Persons are the natural persons who exercise control over the Passive NFE. This includes the natural person on whose behalf a transaction is being conducted and those persons who exercise ultimate effective control through indirect means.
After doing a review of direct and indirect ownership and voting rights, it may appear that there are no individuals that satisfy the threshold. Alas, it may be a senior managing official who is merely a salaried employee who is ultimately reported as a Controlling Person. [See my March 2, 2017 blog: CRS: What Does Controlling Person Mean for the Unsuspecting Executive?].
It does not appear that the Caymans tax authority (TIA) sought to cast a wider net in requiring additional Controlling Persons to be reported. Instead, the change became necessary upon the TIA’s review of its existing Anti-Money Laundering (AML) Regulations, 2017.
The Caymans specifically referenced the Financial Action Task Force (FATF) Recommendations in the Caymans’ AML legislation. The FATF Recommendations use a 10% threshold.
The OECD advised that for purposes of determining Controlling Persons thresholds under CRS, a CRS jurisdiction must follow its own domestic AML/KYC legislation. The upshot: 10% threshold.
What Is FATF?
The Financial Action Task Force (FATF) was established in July 1989 by a Group of Seven (G-7) Summit in Paris and has since grown to 37 members.
FATF’s seeks to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.
Although the Caymans is not a member of the FATF, it is a member of the Caribbean Financial Action Task Force (CFATF) which is an Associate Member of the FATF.
The Caymans updated its CRS Entity Self-Certification to accommodate the change in Controlling Person threshold. The revised self-certification must be used for new entity account holders as of April 1, 2018.
Previously Existing Accounts
Cayman Financial Institutions (FIs) must identify any Passive NFEs and FIs in non-Participating Jurisdictions that existed prior to April 1, 2018 and request information on Controlling Persons based on the 10% threshold. The deadline to complete this is December 31, 2018 – which is in time for Cayman FIs to report the Controlling Person information in May 2019.