The Cayman Islands Tax Information Authority has issued Enforcement Guidelines in relation to CRS and Economic Substance Regulations. Enforcement Guidelines Issued - Common Reporting Standards and Economic Substance The Ministry of Financial Services ...
The UK, US and EU have all introduced unprecedented sanctions in the last month following Russia’s invasion of Ukraine against individuals and companies connected to Russia.
The UK’s sanctions are automatically implemented in the Cayman Islands since the Cayman Islands is an Overseas Territory of the UK.
However, as the sanctions are not the same in the UK, US and EU a number of funds are experiencing complications working through the new rules. Existing debt may be acceptable, but shares held by named individuals or connected persons may need to be liquidated and frozen.
Service providers in the Cayman Islands who are doing business with designated persons and/or entities who have been sanctioned will need to get advice on any appropriate action which may include making a report to the FRA, as soon as practicable, ceasing that business and freezing any Russian assets that are held by any Cayman Islands stakeholders (individuals or corporations).
Breaches of financial sanctions are a serious criminal offence in the Cayman Islands. For example, the offences under the Orders in Council typically carry a maximum of seven years imprisonment on conviction on indictment or a fine (or both). As such, Funds should be extra vigilant and have robust screening systems in place that capture and suitably highlight potential hits. It is recommended that Funds have a clear process for dealing with freezing assets or ceasing transactions including whether and how to communicate with the relevant customer
It should also be noted that clear evidence that assets are 'owned, held or controlled' by or would be made available to a designated person or entity is not necessary – if there is a suspicion that an individual or entity has breached, or is subject to sanction measures, or that one of the above two points apply, this can trigger reporting obligations.
The Cayman Islands Monetary (“CIMA”) issued an important Notice on Targeted Financial Sanctions – Russia/Ukraine Regime on 16 March 2022 which advised Financial Service Providers (“FSPs”) and Virtual Asset Service Providers (“VASPs”) that a comprehensive set of sanctions were swiftly imposed by various countries, including the United Kingdom, the European Union and the United States of America.
FSPs and VASPs are reminded of their legal obligations to:
- regularly monitor the sanctions applicable to the Cayman Islands, including local designations made by the Governor;
- review their clients against the lists of designated persons or entities and the consolidated list, maintained by the Office of the Financial Sanctions Implementation in the United Kingdom;
- freeze any accounts, other funds or economic resources belonging to, owned, held or controlled by designated persons or entities;
- refrain from dealing with funds or assets or making them available to designated persons or entities, unless licensed by the Governor;
- report to the Governor, through the Financial Reporting Authority (the “FRA”), as soon as practicable, if they know or have reasonable cause to suspect that a person is a designated person or has committed an offence under the legislation; and
- disclose to the Governor, through the FRA, via the Compliance Reporting Form, details of any frozen funds or other assets or actions taken in compliance with the prohibition requirements of all applicable sanctions, including attempted transactions.
Breaches of financial sanctions are a serious criminal offence in the Cayman Islands and incur significant penalty.
Our compliance team can advise on the new rules and assist with finding and adopting suitable policies for your entities going forward.