CAYMAN ISLANDS: LAW OF OFFSHORE

Cayman Islands Table of Statutes

This is a non-exhaustive list of the main Cayman Islands statutes affecting offshore and non-resident business. The statutes are listed in alphabetical order - click on the statute for a fuller description of the statute or the legal regime it forms part of.

Banks & Trust Companies Law 1995, amended 2003
Companies Law 1995
Companies Law (2007 Revision)
Confidential Relationships (Preservation) Law 1995
Exempted Limited Partnerships Law 1991
Fraudulent Dispositions Law 1989
Immigration Law 1992
Insurance Law 1979 (as amended)
Local Companies (Control) Law 1995
Maritime Authority Law 2005
Mutual Fund Law 1993 as amended
Partnership Law 1995
Perpetuities Amendment Law 1997
Perpetuities Law 1995
Proceeds of Criminal Conduct (Amendment) (Foreign Offences) Law 1999
Proceeds of Criminal Conduct Law 2008
Registration of Merchant Ships Law 1991
Securities Investment Business Law (2001) as amended
Segregated Portfolio Company Law 1998
Special Trust (Alternative Regime) Law 1997
Stamp Duty Law 1995
Stock Exchange Company Law 1996
Trade and Business Licensing Law (1995 Revision)
Trust (Foreign Element) Law 1997
Trust Law (1996 Revision)

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In early 2006, the Cayman Law Reform Commission set itself the ambitious task of transforming many aspects of the jurisdiction's legal framework, in a bid to bring it up to date with legal practice in other financial centres.

“Cayman is among the world’s leading financial centres and it is therefore paramount that our laws and legal system should endeavour to remain contemporary," the Attorney General, Hon. Sam Bulgin, QC, told the Commissioners when they met with him.

"Political and social stability, and a significant and modern communications and financial infrastructure mean nothing unless we have the necessary and relevant laws available to members of our legal profession so they can advise their clients properly,” he added.

Mr Bulgin noted that the "pioneering" new committee would be responsible for developing new areas in the law, codifying unwritten laws and examining the underlying causes of dissatisfaction with any law or its administration.

The Commission intended over the subsequent two or more years to examine 15 areas of the law, outlined by the Senior Legislative Counsel Cheryl Ann Neblett who heads the Commission’s office. These include: evidence; corruption; contempt of court; proceeds of crime; alternative sentencing; juvenile justice; regulation of legal practitioners; legal aid; consumer protection; maintenance, affiliation and matrimonial causes; landlord and tenant legislation; and children’s legislation.

Thus far, a number of individuals and organisations have been consulted as part of the legal overhaul process, including attorneys-at-law, rental agencies and the Chamber of Commerce. Ms Neblett has also urged members of the public to offer their input into the process.

The Commission has already commenced work on the reform of a number of matters, which include the Landlord and Tenant legislation, the Legal Practitioners Bill and the Legal Aid Bill.

In mid-2006 the Jersey Financial Services Commission added the Cayman Islands to its list of countries and territories considered to have an equivalent anti-money laundering framework.

The move was seen by the Cayman Islands Monetary Authority as being of significant benefit to Cayman-based financial institutions and their clients which do business with financial institutions in Jersey.

The recognition allows Jersey's customer identification procedures to be satisfied if the client has met Cayman's customer identification requirements. This potentially saves time and resources that would otherwise have to be spent processing and supplying duplicate know-your-customer documentation to Jersey.

Jersey's anti-money laundering legislation and guidance provide in certain circumstances for a financial services business to place reliance on another institution to conduct customer identification procedures, where the institution is subject to obligations equivalent to those in Jersey, and where an overseas regulatory authority supervises the institution.

The listing of Cayman came after months of discussion between the Cayman Islands Monetary Authority (CIMA) and its Jersey counterpart, as well as CIMA's lobbying at international forums such as the Overseas Group of Banking Supervisors for reciprocal recognition of equivalent anti-money laundering/counter terrorist financing (AML/CFT) frameworks among jurisdictions.

"We are pleased that Jersey has now added us to its list. The issue of equivalency listings relating to AML/CFT regimes is something CIMA has been concerned about for some time," commented CIMA Managing Director Cindy Scotland.

"We continue to engage in bilateral negotiations with regulators in countries where Cayman is not currently listed as having equivalent AML/CFT regimes," she added.

Mrs Scotland further explained that collaboration between CIMA and the Jersey Financial Services Commission was being further extended through a memorandum of understanding on information exchange and cooperation.

Cayman Islands Trust Law

Cayman Islands trust law is based on the Trust Law 1967, itself very similar to the English Trustee Act 1925. However, there has been considerable subsequent legislation which has distanced Cayman trust law from its English origins. In particular, Cayman has chosen, unlike England, not to adopt the Hague Convention, perferring to maintain the flexibility to set its own path. The most important recent pieces of Cayman trust legislation are as follows:

The Banks and Trust Companies Law 1995 introduced licensing for companies providing trust services; the Law was amended in 2001 and 2003 and revised in 2007. Trust licenses are now as follows:

Trust Licenses require a minimum net worth of USD400,000; Restricted Trust Licences and Nominee (Trust) Licences require a minimum net worth of only USD20,000. The parent of a Nominee Trust company must provide a guarantee of not less than USD200,000. Licensees do not need to be Cayman companies; but foreign licensees will probably have to provide a head office guarantee. All applications include considerable amounts of administrative and financial information.

Companies holding any type of trust licence must have a place of business in the Islands, approved by CIMA, which will be its principal office in the Islands; and must have two individuals or a body corporate, approved by CIMA, resident or incorporated in the Islands, as its agent. Any trust licensee incorporated in the Cayman Islands must submit annual audited accounts to CIMA.

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Cayman Islands Banking Law

Cayman Islands banks need to be licensed under the Banks and Trust Companies Law 1995, as amended in 2001 and 2003. Banking licenses are Class A, Class B restricted or Class B unrestricted:

Continuing supervision is exercised by the Monetary Authority. Quarterly returns and audited annual statements must be lodged. Share transfers, and changes to directors and officers must be authorised. Banks with unrestricted licenses are required to adhere to the Basle Convention Rules.

Banking confidentiality is well-established in Cayman through the common law, and is also enshrined both in the Banks and Trust Companies Law 1995 and in the Confidential Relationships (Preservation) Law 1995. Banking staff and government officials face civil and criminal sanctions if information is disclosed without authorisation. A number of laws permit the enforcement of foreign judgements or the disclosure of information in response to a court order, but normally in the context of criminal activity and drug use or dealing.

Despite mutual assistance treaties, the Cayman Islands will not normally co-operate with fiscal investigations, and does not normally respond to requests for assistance on fiscal matters.

The Proceeds of Criminal Conduct Law, originally passed in 1999, was strengthened in 2000, and requires depositors to provide banks with due diligence documentation - a passport or driving license, proof of their physical address, and an outline of their banking activities. Reaction to the new requirements was mixed: in 2003, as a deadline for conformity with the new requirements drew nearer, Tim Godber, President of the Cayman Islands Bankers Association admitted that he was bemused by objections, saying: 'I really don't understand why people think the request is onerous. Account holders who might have obtained their funds illegally would be putting us at risk, so I think it only fair that we are allowed (to) ascertain for certain the identity of our account holders, and other important information about how they will use the account.' But local attorney-at law, Michael Alberga argued that: 'Privacy is the key to democracy, it's what separates democracy from other forms of government. Why should people who have lived and banked here all their lives have to provide more information about themselves?'

A Bill to Repeal and Replace the Proceeds of Criminal Conduct Law (2007 Revision); to Consolidate the Law relating to the Confiscation of the Proceeds of Crime and the Law Relating to the Mutual Legal Assistance in Criminal Matters; and for Incidental and Connected Purposes was tabled in the Legislative Assembly in 2008. This has brought about new Proceeds of Criminal Conduct Law (PCCL), 2008, which was approved in June 2008.

The 208-page law expands the scope of legislation originally enacted in 1996 and revised several times since. It is based largely on the UK Proceeds of Crime Act 2002 and largely incorporates amendments made to the UK's Serious Organised Crimes and Police Act 2005.

It is one of Cayman's two main statutory means of dealing with confiscation of the proceeds of crime, the other being the Misuse of Drugs Law and the related Misuse of Drugs (Drug Trafficking Offences) (Designated Countries) Order 1991.

Attorney General, Samuel Bulgin explained that in addition to consolidating the different money laundering provisions currently found in different pieces of legislation, the revamped PCCL contains, for the first time, a civil forfeiture component. This means that the Attorney General is able to bring civil proceedings in a court to confiscate property that is obtained through unlawful conduct (civil recovery). This is an entirely new provision and makes it less onerous to obtain a confiscation order as there is no need to first obtain a criminal conviction.

According to the Attorney General the harmonised money laundering legislation "is robust and accords with the international standards and best practice". He declared that is generally be equivalent to the money laundering measures of the countries listed in the recently published European Union "White List".

The new law is one of the several recommendations made by the International Monetary Fund (IMF) in its report on the Cayman Islands released in 2005. The new law also contains provisions for the Summary Court, in addition to the Grand Court, to make confiscation orders and to criminalise certain lifestyles.

Provisions governing the powers, duties and functions of the Financial Reporting Authority and the Anti Money Laundering Steering Group remain unchanged.

However, the new legislation strengthens confiscation and restraint orders. Certain confiscation order procedures are now mandatory; the Grand Court must proceed with them when asked by the Attorney General.

A restraint order has the effect of freezing property that may be liable to confiscation following a trial and the making of a confiscation order, the Attorney General said. Currently, a restraint or charging order may be made only by the Grand Court under certain circumstances. The new law abolishes as unnecessary the power of the Grand Court to make a charging order.

Also, the point at which a restraint order may be made is to be brought forward to any time after the start of an investigation. Previously it was possible only where charges were anticipated within a period of 21 days.

Another notable feature is the broadening of compensation provisions under certain conditions. It has also become possible for the Attorney General to request an asset freeze abroad before any restraint order is made in the Islands, should conditions for making such an order be satisfied. Additionally, the definition of criminal conduct has been expanded, with no restriction on the type of criminal offence to be dealt with under the new law. "The Grand Court would only need to consider whether the defendant has benefited from any conduct which is, or would be, contrary to the criminal law of the Islands," the Attorney General explained.

He noted the new law also expanded the scope for international cooperation to a larger number of countries beyond those currently designated. Additionally, the law addresses, "in a comprehensive way, all the weaknesses identified by the IMF and the FATF (Financial Action Task Force) regional offshoot - the Caribbean FATF - in their evaluation report," he added.

The bill underwent extensive public consultation.

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Cayman Islands Insurance Law

Cayman Islands insurance companies are regulated by the Cayman Islands Monetary Authority (CIMA) under the Insurance Law 1979 as amended in 2004. The following types of license are available:

No insurer’s licence other than a Restricted Class ‘B’ Licence will be granted to any person whose net worth- (a) in the case of an insurer effecting general business but not long term business, is less than one hundred thousand dollars; (b) in the case of an insurer effecting long term business but not general business, is less than two hundred thousand dollars; and (c) in the case of an insurer effecting long term business and general business, is less than three hundred thousand dollars.

The licensing process begins once a company name has been approved; an application incorporating a business plan and details of beneficial ownership is made to CIMA. Capital may be provided either by shares or loans.

Insurers must maintain full and proper records at a fully-staffed office in Cayman; alternatively, a local manager can be appointed to administer the business. The manager must also be licensed under the insurance law. It is usually necessary to appoint Cayman Islands auditors; audited annual accounts must be submitted to the Superintendent within six months of the end of the accounting period.

There are many other detailed regulations; and CIMA has substantial powers to inspect and to apply sanctions when necessary.

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Cayman Islands Mutual Fund Law

Cayman Islands mutual funds are regulated under the Mutual Fund Law 1996 (revised in 2007), and as regards listing they fall under the Stock Exchange Company Law 1996. The Mutual Fund Law requires mutual funds to be licensed, or to be administered by a licensed mutual funds administrator. There are the following exemptions from the requirement to license:

A mutual fund administrator must be licensed; he must have a registered office on Cayman, must be competent, and must have a net worth of at least CI$400,000.

Mutual funds must be audited annually, and the financial statements must be filed with the Monetary Authority within six months of the end of an accounting period.

There are no restrictions on the investment policy of funds in Cayman, whether listed or not.

For listing on the Stock Exchange, certain other originating jurisdictions are 'approved': Bermuda, Canada, all EU member states, Guernsey, Hong Kong, Isle of Man, Japan, Jersey, Malaysia, Singapore, Switzerland, and the USA. For funds which have primary listings on recognised stock exchanges, a secondary listing may be acquired in Cayman quite simply; the services of a listing agent are not mandatory.

Funds to be listed must appoint a custodian who is a separate legal entity from the fund, its operators or its administrators, but may be an associate of any of them. The fund must have an independent auditor. There are some shareholder disclosure requirements; and information is required about the fund's main broker and the regulatory regime applying, in particular for segregation of fund assets. In order to be listed, a fund must have at least 25% of listed securities in public hands, or restrict trading to professional investors. There are detailed rules specifying the contents of the Listing Document.

Listing is possible both for open- and closed-end funds; funds may take various corporate forms, including: investment company, unit trust and partnership. In Cayman Island terms, the entities that may be used include the exempted company, the limited duration exempted company, the ordinary non-resident company, the exempted trust, and the exempted limited partnership. See Forms of Company for details of these entities.

NB: The above is an abbreviated summary of some aspects of the Cayman Islands Stock Exchange listing regime, given for general information only.

In September 2002, Cayman introduced a new law requiring licensing for any one conducting securities investment business except where an exemption is available.

The Securities Investment Business Law, 2001 (the "Law") was passed in March 2002 and came into force in 2003. The aim of the Law is to regulate the business of securities investment in the Cayman Islands and provide an appropriate structure for the regulation of securities brokers, including market makers, arrangers, investment advisors and investment managers. The fundamental objective of the law is to define activity that requires a licence and then to ensure that such activity is undertaken by fit and proper persons in accordance with accepted supervisory standards of conduct for securities investment business. The Cayman Islands Monetary Authority is directly responsible for the licensing, supervision and enforcement of such licences.

The definition of securities investment business ("SIB") includes managing the securities of another person in circumstances involving the exercise of a discretion and advising a person on securities if:

The Law applies to any person, company, foreign company or partnership that is resident in, incorporated in or registered in the Cayman Islands or which has established a place of business in the Cayman Islands and is carrying on SIB. For example, an investment adviser or investment manager that is a Cayman Islands entity or has a physical presence in the Cayman Islands and is conducting SIB from the Cayman Islands, will be covered by the Law. Such an entity will require to be licenced under the Law unless its activities are covered by one of the exemptions contained within the Law.

The exemptions include:

Entities falling within these exemptions will be required to file an annual declaration with the Cayman Islands Monetary Authority confirming that they fall within such an exemption and pay an annual fee of USD1,250. The declaration must be signed by a director or partner of the entity and electronic filing of the form will be accepted on the basis that original forms will be forwarded within one month. When submitting the form, the Monetary Authority must be advised who will be responsible for dealing with queries and the payment of annual fees. If none of the exemptions apply the SIB provider must apply to the Cayman Islands Monetary Authority for a licence otherwise it commits an offence and is liable on summary conviction to a fine and/or imprisonment.

On August 14 2002, the Securities Investment Business Law, 2002 (Commencement) Order 2002 was approved by the Cayman Islands Executive Council. In practical terms this means that the application of the excluded person/registrant regime of the Law came into force from August 14th 2002. It obliges anyone carrying on SIB to examine their status under the Law and consider whether they should now apply for one of the exemptions under the Law, or potentially be subject to its licensing requirements.

Two practical examples of the application of this regime are where:

In November, 2003, CIMA introduced new mutual fund regulations in order to make funds domiciled in the jurisdiction more attractive to Japanese fund distributors. Legal experts explained that the changes were deemed necessary, as although the Japan Securities Dealer's Association had not objected to the distribution of Cayman-registered funds, the guidelines for the selection of foreign unit trusts were vague with regard to the required standards for foreign regulatory regimes, meaning that some Japanese fund distributors had opted not to take the risk.

Although this was by no means a universal position, demonstrated by the fact that currently around 20 funds domiciled in the Cayman Islands are sold to the Japanese public, CIMA decided to introduce new regulations to soothe the fears of more wary distributors. From November 19, fund prospectuses for Japanese markets must reveal the rights and restrictions attached to securities, such as the terms of their issue and redemption, and the method of calculating redemption prices. Funds domiciled in the Cayman Islands and selling to the Japanese public must also be audited in accordance with the standards set out in the new rules.

However, CIMA included a clause in the new regulations exempting existing Cayman funds registered in Japan from the obligation to adopt the more stringent rules if the fund manager does not see the need.

In 2008, funds licensed in the Cayman Islands became subject to three new rules issued by the Cayman Islands Monetary Authority (CIMA) to further enhance regulation of the retail-funds sector.

The rules, which were recently approved by the government, became effective on April 28, 2008, with their publication in the Cayman Islands Gazette. They are: the Rule on the Contents of Offering Documents, which outlines the information to be included in offering documents; the Rule on the Calculation of Asset Values, which requires funds to specify their policy for calculating the funds asset values, and the Rule on the Segregation of Assets for Licensed Funds.

The rules are intended to ensure that prospective retail investors are able to make informed investment decisions, and enhance the overall protection of investors and their assets in the licensed funds. The rules apply to all funds licensed pursuant to s.4(1)(a) of the Mutual Funds Law (2007 Revision) - except those subject to the Retail Mutual Funds (Japan) Regulations 2003 (as amended).

The new rules formalise what has been common practice among Cayman-licensed funds. In codifying these practices, Cayman is now officially in line with the Objectives and Principles of Securities Regulation, the standard issued by the International Organization of Securities Commissions (IOSCO). The new measures also fill regulatory gaps, with respect to the IOSCO principles, that the International Monetary Fund (IMF) identified in its assessment of the Cayman financial sector in 2003.

CIMA's Managing Director, Cindy Scotland, noted that the Authority has a consistent focus on complying with appropriate international regulatory standards and practices - and suggested that this is the latest example.

"These rules meet the relevant IOSCO principles with respect to retail funds, while being adaptable enough to provide for competitive flexibility. The rules also leave the successful regulatory framework for non-public funds unchanged," explained Mrs Scotland.

The Rule on the Contents of Offering Documents stipulates that a fund's offering document describe the fund's equity interests in all material respects. Additionally, the document must contain such other information as is necessary to enable a prospective investor to make an informed decision as to whether or not to subscribe to or purchase the fund's equity interest. It also strengthens the Mutual Funds Law requirements by setting out the minimum information that must be included in an offering document for a licensed fund.

Under the Rule on the Calculation of Asset Values, licensees must now also establish, implement and maintain a net asset value (NAV) calculation policy, and must outline the scope of such a policy. This rule mandates that the policy be "fair, reliable, of high quality and verifiable".

Finally, the Rule on the Segregation of Assets for Licensed Funds calls for a fund's portfolio (i.e., all financial assets and liabilities) to be segregated and accounted for separately from any assets of any service provider.

Also, licensed funds must ensure that service providers do not use the portfolio to finance their own or any other operations in any way. Another requirement is that funds ensure, by contract, that service providers who hold or manage the portfolio are regulated by CIMA or by a recognised overseas regulatory authority or another regulator approved by CIMA.

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