Recently released Cayman Islands Common Reporting Standard (CRS) Regulations added significant criminal enforcement sections which include the imposition of administrative and criminal fines on individual account holders providing self-certificates and individuals connected to an entity violating the Cayman CRS Regulations and Tax Information Authority (TIA) Law.
The changes were made through the Cayman Islands issuing the Tax Information Authority (International Tax Compliance) (Common Reporting Standard) (Amendment) Regulations, 2016. These regulations amend the Tax Information Authority (International Tax Compliance) (Common Reporting Standard) Regulations, 2015 which were created to implement the Tax Information Authority Law (2014).
Cayman CRS Regulations
The Cayman CRS Regulations apply to individual and entity account holders as well as Cayman Financial Institutions (FIs). These regulations expand upon the TIA Law by providing details regarding compliance requirements and punishment for failed compliance.
Account Holders and Other Persons
An account holder is in violation of Cayman law if the account holder provides a false CRS self-certification. The offense consists of the account holder making a CRS self-certification that is materially inaccurate and a Cayman FI being given the CRS self-certification for any purpose for which the self-certification was made or purports to have been made.
The regulation is strict in that it does not matter if the:
Self-certification was made outside the Islands;
Person did not know, or had no reason to know, that the self-certification was false; or
Self-certification was given to the institution by someone else.
It is also an offense if a person provides the TIA with information that is materially inaccurate and does so intentionally to cause, or the person knew the act was likely to cause, a violation of section 20A of the TIA Law. Section 20A requires that all information provided to or received by the TIA “for the facilitation of the automatic exchange of information or otherwise for tax purposes shall be kept confidential.”
Additionally, a person will be in violation of the Cayman CRS Regulations if he:
Tampers with or authorizes, advises or counsels someone else to tamper with information; or
Hinders the TIA in performing a function under the Cayman CRS Regulations or the TIA Law.
Section 5 of the TIA Law provides a laundry list of TIA functions which range from taking testimony of any person to entering into agreements with Competent Authorities.
The regulations subsequently state that one accused by the TIA of violating the Cayman CRS Regulations may defend himself by proving that he had a reasonable excuse for the above violations. It is important to note that the Cayman CRS Regulations make clear that insufficiency of funds or reliance on a third party is not a reasonable excuse.
Cayman Financial Institutions
The second category of offenses applies to Cayman Reporting FIs. A Cayman Reporting FI will be in violation of the Cayman CRS Regulations if it fails to abide by the following requirements:
Establish policies and maintain procedures designed to identify Reportable Accounts.
Notify the TIA if the Cayman FI has reporting obligations under the Cayman CRS Regulations.
Make a return setting out the information required to be reported under the CRS for each Reportable Account. [Note that the TIA does require nil reporting for CRS.]
Submit the return electronically.
A Cayman FI will also have committed an offense if it provides the TIA with Inaccurate information. Specifically, the Cayman FI gives the TIA that is materially inaccurate; and
Knew of the inaccuracy when the act was done;
In doing the act, behaved fraudulently, intentionally, negligently or recklessly;
In doing the act, contravened its policies or procedures; or
Discovered the inaccuracy after doing the act, but did not tell the TIA about the inaccuracy as soon as practicable after making the discovery.
The offense is not attributed to the Cayman FI in the abstract. Instead, if the Cayman FI commits an offense, then the guilt will be imputed to some or all of following individuals:
Corporate directors, managers, secretaries
LLC members
Limited Partners participating in management and General Partners
Trustees
However, it is a defense for the defendant to prove that the defendant exercised reasonable diligence to prevent the Cayman FI’s violation.
Punishment
Depending upon the offense, an individual may be liable for a civil or criminal fine of $20,000 or $50,000.
The TIA may impose further penalties on the party of $100 for each day the violation continues.
Additionally, the TIA may share information about a penalty (but not including any reasons for the TIA decision stated in the relevant penalty notice) with other Government authorities and regulators, both within the Cayman Islands or abroad.
The Cayman CRS Regulations differ from the Cayman FATCA Regulations with respect to punishment. The Cayman FATCA Regulations provide that a person is liable on summary conviction to a fine of $5000 or, in certain situations, to imprisonment for a term of 2 years, or to both.
Immediate Steps to Take
The Cayman CRS Regulations should serve as a wake-up call to account holders, FIs and others involved in Cayman CRS compliance. I recommend that the following steps be taken:
Undertake (or follow up on previous) CRS training to emphasize the specific types of non-compliance that can occur which may have significant repercussions for individuals and the organization.
Check your Directors and Officers (D&O) insurance coverage.
Review third party service provider contracts.
You can expect similar offense and punishment regulations in other jurisdictions. Please contact me if you would like additional information related to the Cayman Islands CRS implementation or for an assessment of other CRS jurisdictions.
Guidance Coming
It is expected that the Cayman TIA will issue updated CRS Guidance Notes and an updated AEOI Portal User Guide in the first quarter of 2017. Given the expected high volume of activity in the Cayman portal in 2017, it will be important to register Non-Reporting FIs as soon as possible after the Cayman TIA releases its updated CRS Guidance Notes and Portal User Guide
The deadline for Cayman Islands CRS and FATCA reporting is May 31, 2017.
For assistance, please contact me via my contact page or at elizabeth@elizabethmcmorrowlaw.com.