• Disclosure of Confidential Information within the Cayman Islands¿ Financial Services Industry - A Changing Landscape.
  • January 18, 2017
  • Law Firm: Stuarts Walker Hersant Humphries - Grand Cayman Office
  • The Government published The Confidential Information Disclosure Bill on 11 May 2016 which will come into force by September 2016. In doing so, it will repeal and replace The Confidential Relationship (Preservation) Law (2015 Revision) (“CRPL”) which some might say has been unfairly termed the “Secrecy Law”, by other jurisdictions. The effect of this change is to facilitate and promote a greater degree of transparency within the financial services industry.

    CRPL- A summary

    The main features of the CRPL are as follows:

    • Broad application and scope:  “this Law has application to all confidential information with respect to business of a professional nature which arises in or is brought into the Islands and to all persons coming into possession of such information at any time thereafter whether they be within the jurisdiction or thereout”, s3(1).
    • Section 5 provides for criminal liability in the event that a person is guilty of any one of the disclosure related offences specified, for which penalties such as fines, disgorgement of profits or even imprisonment may be given.
    • Section 3(2) provides a number of exceptions as to when the CRPL will not apply and accordingly, when disclosure can be given without fear of criminal charges, but only after directions from the Grand Court have been obtained which permits the disclosure, s4(1).
    • Section 4 requires any person who intends or is required to give confidential information as evidence in any proceedings (inside or outside of Cayman) to apply for directions from the Court before making the said disclosure.

    The Court retains a wide and unfettered discretion as to when disclosure may be permitted, in every case, without exception. Any unlawful disclosure will be met with criminal sanctions and, as a result, the privacy of users of the Cayman Islands financial services industry have the benefit of privacy being automatic, unless ordered otherwise. The presumption is therefore in favour of privacy and will only to be rebutted if the interest of all parties involved justifies permitting disclosure.

    In the case of a bank (s3 (2)(b)(v)) it must be “reasonably necessary” for the protection of the bank’s interests (Re Ansbacher (Cayman) Limited [2001] CILR 214).  When the Court is considering whether to permit disclosure under section 4(1), as in the case of Re I and R [1994-1995] CILR Note 9“the Court should examine the background, merits and shortcomings of the action for which the information is sought, in the light of any public policy issues raising by the Attorney General and the legal and beneficial interests of innocent third parties likely to be affected by the directions”. It is important to note that under section 4(1), if there isn’t a “proceeding being tried, inquired into or determined by any court, tribunal or other authority”, then the Court cannot order disclosure.

    The Confidential Information Disclosure Bill (“CIDB”)

    The CIDB repeals and replaces the CPLR; the most noticeable feature is that it automatically decriminalises any unauthorised disclosure. The other main changes are as follows:-

    Clause 3(1) makes provision for 10 circumstances where confidential information may be disclosed by a person who owes a duty of confidentiality without that person incurring civil liability. Amongst the 10 circumstances listed where disclosure can be given, these can be subcategorised as follows:

    • In compliance with a Court Order pursuant to section 4 (similar to the former CPLR section 4(1));
    • In the normal course of business or with consent; and
    • To a regulatory power, authority, government body or official, pursuant to their  assigned statutory power or right to make such requests and receive such disclosure in the course of their respective capacities (e.g. The Financial Reporting Authority under the Proceeds of Crime Law (2014 Revision)).

    Clause 3(2) provides that a person who gives disclosure on wrongdoing or in relation to serious threat to life, health, safety of a person or environment shall have a defence for breach of duty of confidentiality so long as they acted in good faith and held a reasonable belief that the information was true.

    Clause 4(2) replicates section 4(1) CRPL, such that in circumstances where a person is or intends to give evidence in proceeding and it does not fall within the automatic exceptions within 3(1), they must apply to court for directions. Subsections 3 to 9 contain further procedural guidance and requirements when applying, the considerations that the Court must have regard to and the options available for the Judge when making the appropriate Order, such as methods to protect against wider use of the evidence/information.

    Of specific interest is Clause 4 (9) which states that “in considering what order to make under this section, a judge shall have regard to:

    1. whether the order would operate as a denial of the rights of any person in the enforcement of a claim;
    2. any offer of compensation or indemnity made to any person desiring to enforce a claim by any person having an interest in the preservation of confidentiality;
    3. in any criminal case, the requirements of the interests of justice

    Conclusion: A change on the horizon

    The Minister for Financial Services, Mr. Wayne Panton has stated that: “the bill’s overarching aim is to confirm, beyond doubt, that this legislation is not secrecy legislation; but rather maintains a respect for privacy whilst providing appropriate gateways to information by local competent authorities”.

    The main effect in practice is that, where there is an ongoing investigation or an enquiry by any of the listed regulatory bodies and authorities, or an official request is made which is permitted under statute; the Court’s permission will not need to be sought. The person who holds the information can give the requested disclosure without the risk of any criminal or civil liability.

    However it must still be noted that in any private dispute, in any jurisdiction, it will remain necessary for any person who intends to give evidence and, in doing so, would disclose confidential information, they will still need to apply to the Court for directions. The Court’s permission would still be required to give disclosure and to absolve themselves of any civil liability for what would otherwise be a breach of confidentiality and/or other breaches. The introduction of the “appropriate gateways” is to assist in the prevention of crimes such as money laundering, but also to facilitate other jurisdictions such as the United States in combating unlawful tax evasion, see Clause 3(1)(e).

    It is likely to be viewed by competing international jurisdictions as a change which is long-overdue and that has been the cause of resentment from those jurisdictions who consider that the CRPL directly or indirectly prevented the retention or otherwise of taxable revenue.  In addition to the CIDB, the Cayman Islands has entered into two intergovernmental agreements to improve international tax compliance and the exchange of information (one with the United States (commonly referred to as “US FATCA”) and one with the United Kingdom (commonly referred to as “UK FATCA”))  and has also committed, along with 95 other jurisdictions, to implement the OECD Standard for Automatic Exchange of Financial Account Information ¿ Common Reporting Standard. This is a clear indicator of the Cayman Islands’ strong intent to correct any such views.

    However the CIDB still seems to uphold the privacy previously afforded for those individuals and entities who use the Cayman Islands Financial and Corporate Services legitimately and in compliance with the applicable regulatory policies and procedures that they must adhere to here and in any other relevant jurisdiction.