1. Targeted Financial Sanctions- Russia
Targeted Financial Sanctions remains a topic of focus.
Regulated entities must ensure that their sanctions compliance programmes remain fit-for-purpose and contain mechanisms that allow them to quickly respond to the complex, far-reaching and swift changes to Targeted Financial Sanctions.
The legal obligations, include:
- Regularly monitoring sanction lists
- Reviewing clients against sanction lists
- Freezing accounts / funds / resources of designated persons or entities
- Refraining from dealing with funds, assets of designated persons or entities
- Reporting and disclosing designated persons or entities to the Financial Reporting Authority, as soon as practicable
In July 2022, the Financial Reporting Authority (“FRA”) issued a notice with respect to a “Red Alert” on financial sanctions evasions typologies by Russian elites and enablers. The purpose of the alert is to provide information from law enforcement and the legal and financial services sectors on some of the common techniques designated persons and their UK enablers are suspected to be using to evade financial sanctions.
2. Deregistration of Funds
In August 2022, the Cayman Islands Monetary Authority (“CIMA”) issued a new Rule on the “Cancellation of Licenses or Certificates of Registration for Regulated Mutual Funds and Registered Private Funds” which will affect open-ended funds regulated under the Mutual Funds Act and closed-ended funds registered under the Private Funds Act, with respect to their deregistration with CIMA. CIMA has removed the applications for License under Termination (“LUT”) or License under Liquidation (“LUL”) for a fund being deregistered, which means that the fund will be liable for CIMA’s full annual registration fees until it is deregistered.
All new funds preparing for deregistration must:
- Notify CIMA of the intention to deregister within 21 days
- Complete and file its final audit or seek and be granted an audit waiver from CIMA
- Be in good standing before the deregistration documents are filed
These new deregistration procedures will apply for applications made from August 17.
3. General Licence – Russian Sanctions
The Governor of the Cayman Islands issued a General Licence on October 4, 2022, to provide assistance for dealing with frozen funds subject to sanctions. The General Licence is granted under regulation of the Russia (Sanctions) (EU Exit) Regulations 2019 which was extended to the Cayman Islands through the Russia (Sanctions) (Overseas Territories) Order 2020.
Under this General Licence, a Relevant Investment Fund or Fund Manager may redeem, withdraw or otherwise deal with an Investment Interest of a Person that is not a Designated Person, or Owned or Controlled Directly or Indirectly by a Designated Person, provided that the relevant redemption, withdrawal or other dealing is in accordance with this licence and the Relevant Investment Fund’s constitutional and contractual documents.
No funds or economic resources shall be made available directly or indirectly to, or for the benefit of, a Designated Person or any Person which is Owned or Controlled Directly or Indirectly by a Designated Person.
Under this General Licence a Relevant Investment Fund or a Fund Manager may:
- Make payment for the Relevant Investment Fund’s basic needs including payment of insurance premiums; audit and accounting fees; corporate and regulatory fees; corporate services and registered office fees; director fees; professional service provider fees; and any other reasonable routine expenses
- Make payment for reasonable fees or reasonable service charges arising from the routine holding and maintenance of the Relevant Investment Fund’s frozen funds or economic resources
- Make payment of reasonable professional fees for the provision of the Relevant Investment Fund’s legal services, or reasonable expenses associated with the provision of the Relevant Investment Fund’s legal services
A Relevant Investment Fund or a Fund Manager, must report to the Governor - which can be done by email to GovernorsOffice.Cayman@fcdo.gov.uk - as soon as practicable the first time this General Licence is relied upon, and, subsequently, must report to the Governor on the 16th day of every month setting out any activities carried out in the preceding month.
A Relevant Investment Fund or a Fund Manager must, in respect of a fund that is regulated by CIMA, notify CIMA of its use of this General Licence within three business days of such use.
This General Licence takes effect from October 4, 2022, and expires on April 4, 2023.
4. Updated Economic Substance Guidance
The Cayman Islands Department for International Tax Cooperation (“DITC”) has published an updated version 3.2 of the Economic Substance for Geographically Mobile Activities Guidance dated July 2022, which replaces the previous version issued on June 30, 2021.
It has been updated for entities that are not 'relevant entities' for the purpose of the economic substance (“ES”) legislation because they are tax resident outside the Cayman Islands (“TRO”). The Cayman Islands Tax Information Authority (“TIA”) requires that any entity claiming to be tax resident outside the Cayman Islands needs to provide documentary evidence to support this claim.
Failure to provide the relevant tax evidence, will subject the entity to be treated as a 'relevant entity' for the purposes of the ES legislation and the TRO exemption will not be applied.
5. FATF List
On 21 October 2022, FATF released their updated Grey List and the Cayman Islands remains on the list of jurisdictions which require increased monitoring. The Cayman Islands has taken steps towards improving its AML/CFT regime, including by imposing adequate and effective sanctions in cases where relevant parties (including legal persons) do not file accurate, adequate and up-to-date beneficial ownership information in line with those requirements. FATF advises that the Cayman Islands should continue to work on implementing its action plan to address its strategic deficiencies, including by demonstrating that they are prosecuting all types of money laundering cases in line with the jurisdiction’s risk profile and that such prosecutions are resulting in the application of dissuasive, effective, and proportionate sanctions.
FATF urges the Cayman Islands to swiftly complete its action plan as all deadlines have now expired and to address the above-mentioned strategic deficiency by February 2023.
6. Trends
We would like to remind our clients to consider:
- Environmental crime indicators, specifically in relation to the following sectors:
- Commodities including country risk across the origin of commodities
- Forestry, mining, waste related services, trade finance, gold and precious metals
- Transaction and portfolio level exposure, particularly in light of the current exposure to Russia
- Transaction flows to circumvent Russian sanctions, including through virtual assets
7. Useful dates and reminders
November 1 Date by which a strike off application must be submitted for an entity to avoid 2023 fees
December 31 Documentation must be filed with CIMA by this date to have its status changed to “license under termination” or “license under liquidation” to qualify for a reduction or avoid the annual fees payable to CIMA in 2023
January 15
- Pay annual fees to CIMA
- SIBs to file Annual Declaration with CIMA
- CIMA-registered/licensed directors to file their annual declaration with CIMA and pay their annual fee. Filing to be completed by the registered/licensed director personally through the CIMA director portal: https://gateway.cimaconnect.com/
January 31 Cayman Islands entities to pay their annual fees and file their annual return with the Cayman Islands General Registry. Failure to file annual returns by 31st March will result in penalties
How Apex can help
- Assistance with developing and monitoring virtual assets Business Risk Assessments
- Supply chain and vendor due diligence solutions
- Managed due diligence investee and portfolio level diligence solutions
- Apex ESG AML Business Risk Assessments
- Apex ‘Green KYC’ Policies and Procedures
- Apex ESG Training Modules
- AML/CFT Training
Staying ahead
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