General Licence issued to protect fund investors

(CNS) The governor has issued the first General Licence under the Russia Sanctions Regime for the Cayman Islands, which officials said allows multiple parties to undertake specified activities that would otherwise be prohibited by the Modified Regulations. An industry expert told CNS that, subject to certain requirements, this licence allows relevant investment funds to redeem, withdraw or otherwise deal with the business held by their non-sanctioned investors and to pay fees and expenses for the remaining frozen funds.

Since the Russian Sanctions Regime was implemented, close to US$8.5 billion worth of assets held here by named Russian oligarchs or related entities has been seized. But some of those on the sanctions list invest in the same funds as people who are entirely unconnected to them. This licence will enable offshore firms here to assist those innocent parties to access their cash and continue to collect the money for the work they do.

Governor Martyn Roper issued the first licence of its kind on 4 October with the consent of the UK’s latest overseas territories minister, Jesse Norman, and it is currently set to expire next April. It will help local service providers, including lawyers and finance companies, to get paid in some circumstances, even where funds have been partially frozen, and for government to collect relevant fees.

Premier Wayne Panton said it was a significant move for the Cayman Islands’ commitment to maintaining high international standards.

“Whilst as a global partner it is incumbent on us to strictly uphold all imposed sanctions and prevent funds from foregoing compliance with statutory obligations, we must also ensure that as far as possible, the interests of innocent parties are protected from unfair impacts,” he said. “The issue of a General Licence can mitigate impacts for example on affected indirect minority shareholders, and minimise negative consequences on our financial services industry.”

The premier added that the local Russia Sanctions Task Force and other Cayman agencies, such as the Financial Reporting Authority, have continued the robust enforcement of the Russia Sanctions and were working diligently to issue this licence.

The governor does not accept applications for general licences, but any party using it must report to his office as soon as possible the first time it is relied upon. It is the responsibility of any party using it to ensure the activities they undertake fall within the terms and conditions.

Any act carried out by anyone knowing that it will result in funds or economic resources being made available in breach of the Russia Regulations or with reasonable grounds for suspicion is still prohibited. Breach of that prohibition is a serious offence, punishable upon conviction on indictment by a maximum of seven years imprisonment or a fine or both, and on summary conviction, a maximum of six months imprisonment or a fine of up to the CI equivalent of £5,000.

One industry expert working at a leading firm explained that without this General Licence some funds had been effectively locked up and unable to redeem non-sanctioned investors whose assets are held on a commingled basis within an investment fund structure.

“They have faced difficulty maintaining their service providers,” he explained. “This has contributed to a number of innocent parties having their assets frozen as an unintended consequence of the extant sanctions regime, which is principally designed to effectuate the freezing of isolated or segregated assets such as the bank account of a Designated Person.”

This will assist offshore service providers here in a number of areas, such as future redemptions, withdrawals, restructurings or winding-up proceedings where a fund becomes a ‘relevant Investment fund’ beyond applicable ownership and control thresholds triggered as a consequence.

“Accordingly, the General License will allow the return of capital to non-sanctioned investors while ensuring that a Designated Person’s interest remains securely frozen in isolation as intended by the sanctions regime,” the lawyer stated.

Leading local law firm Maples also has an explanation on its website about how the licence will work, which is largely aimed at Cayman Islands investment funds “owned or controlled directly or indirectly” by a Designated Person and whose assets are frozen as a result.

Those affected should seek legal advice before taking any action potentially permitted by the General Licence. While this licence can allow actions that would otherwise have been prohibited, it does not authorise any act potentially resulting in funds or economic resources being made available to those on the sanctions lists.

The governor’s issuing of the General Licence is the result of collaboration between the Financial Reporting Authority, the Attorney General’s Chambers, the Governor’s Office, the Foreign, Commonwealth and Development Office (FCDO), as well as members of the local legal community.

See copies of the General Licence and the accompanying notice from the Governor’s Office below:
General Licence GL/2022/0001
Publication Notice – General Licence GL/2022/0001