Sanctions 2024 Comparisons

The Cayman Islands takes its sanctions regime from the United Kingdom, as it is a British Overseas Territory that is self-governing domestically, but for which matters of defence and foreign relations, including sanctions, are the responsibility of the United Kingdom. The Cayman Islands sanctions regime is therefore governed by the United Kingdom’s Sanctions and Anti-Money Laundering Act 2018 (the “Act”). Sanctions relating to particular nations, persons or subject matters are enacted through secondary regulations promulgated under that Act (eg, the Russia (Sanctions) (EU Exit) Regulations 2019 and the Counter-Terrorism (Sanctions) (EU Exit) Regulations 2019). These regulations are applied in the Cayman Islands by Orders in Council, which give effect to them in the Cayman Islands (eg, the Russia (Sanctions) (Overseas Territories) Order 2020 and the Counter-Terrorism (Sanctions) (Overseas Territories) Order 2020).

The Orders in Council impose applicable Regulations on the Cayman Islands, ordinarily with modifications or amendments to adapt the regulations to the Cayman Islands. These amendments typically revise references in the original Regulations to the territory, regulatory bodies or specified offices of the United Kingdom so that they become equivalent references for the Cayman Islands (eg, amending the Regulations so that the Governor of the Cayman Islands can grant sanctions licences, rather than the Secretary of State of the United Kingdom).

As in the United Kingdom, sanctions can be targeted at specific countries or at issues that are not specific to a particular country (such as terrorist activities, cyber-attacks or human rights violations). Sanctions are implemented by the United Kingdom (through its Secretary of State) designating specific entities or individuals, or categories of entities or individuals, as “designated persons”. The United Kingdom maintains a list of those persons it has designated (and who are therefore sanctioned in the Cayman Islands).

The Act specifies six types of sanctions that can be imposed by regulations:

• financial sanctions;
• immigration/travel sanctions;
• trade sanctions;
• aircraft sanctions;
• shipping sanctions; and
• other sanctions for the purposes of UN obligations.

The most commonly applicable of these categories in the Cayman Islands is financial sanctions. The primary financial sanction imposed in the Cayman Islands is an asset freeze. The standard form of asset freezing sanctions prohibits any person subject to the sanctions regime from dealing with the funds or economic resources of a designated person, including by the designated person themselves. They also prohibit making funds or economic resources available to or for the benefit of a designated person. These prohibitions have a broad application, and also include any entities majority held or controlled, directly or indirectly, by a designated person.

Trade sanctions prohibit or restrict the export or import of certain goods, the transfer of specified technology, and the provision of certain services to designated persons or, in some cases, to persons connected with Russia, whether or not they are designated persons. These prohibitions can include specific goods, services or technologies, specific industries and specific sub-regions of particular countries.

Aircraft and shipping sanctions include restrictions on specified aircraft or ships, including ships or aircraft owned, controlled, chartered or operated by a designated person, or by other targets of the sanctions regime. Typically, they prohibit such ships or aircraft from accessing ports in the Cayman Islands or being registered in the Cayman Islands, and may provide for the detention of such ships or aircraft should they be in the Cayman Islands. They can also include restrictions on owning, chartering or operating specified aircraft or ships.

Finally, a person to whom the sanctions regime applies is prohibited from circumventing the sanctions regulations by participating in activities knowing that the object or effect of them is (including indirectly) to circumvent those regulations or to enable or facilitate their contravention. Any person who does so is subject to the same penalties as they would be for a primary breach of the regulations (see 2.2.2 Breaching Sanctions).

The Cayman Islands sanctions regime applies to:

• transactions within the territory or territorial sea of the Cayman Islands; and
• conduct by a Cayman Islands person wholly or partly outside the territory.

A Cayman Islands person is:

• a body incorporated or constituted under the law of any part of the Cayman Islands; or
• an individual ordinarily resident in the Cayman Islands who is:
1. a British citizen, a British overseas territories citizen, a British National (Overseas) or a British Overseas citizen;
2. a person who under the British Nationality Act 1981 is a British subject; or
3. a British protected person under the British Nationality Act 1981.

Sanctions also apply to any Cayman Islands ship or Cayman Islands aircraft, meaning any ship or aircraft that is registered in the Cayman Islands, or that is not registered outside of the Cayman Islands and is wholly owned by Cayman Islands persons (whether or not it is registered in the Cayman Islands).

Sanctions are imposed in the Cayman Islands through the Orders in Council promulgated by the United Kingdom, which extend the United Kingdom’s sanctions regime to its Overseas Territories, including the Cayman Islands.

These sanctions are imposed at a domestic level by the applicable Orders in Council, but such Orders also impose supranational measures (including UN and UN Security Council sanctions), which are therefore also in force in the Cayman Islands.

Breaches of the Cayman Islands sanctions regime are criminal offences, the prosecution of which is the responsibility of the Cayman Islands Director of Public Prosecutions. In practice, a referral to the Director of Public Prosecutions to investigate (with the assistance of the Royal Cayman Islands Police Service, if necessary) and, if appropriate, prosecute a breach of the sanctions regime would be made by the Financial Reporting Authority.

Breaching the Cayman Islands sanctions regime is a criminal offence. The applicable penalties are set out in the relevant Order imposing the sanction that has been breached. In general, the maximum penalties are a fine at the discretion of the Grand Court of the Cayman Islands (which may be unlimited in amount, but cannot be excessive or unreasonable in the circumstances of the breach) and up to seven years’ imprisonment.

These penalties are specifically extended to the directors or controllers of a company that has breached the sanctions regulations ,and also apply to any conduct that circumvents or is intended to circumvent the sanctions regime.

There is no difference in the maximum penalties applicable for a primary breach of the sanctions, a director or controller of a company that has breached the sanctions regime, or for conduct with the effect or intention of circumventing the sanctions regime.

No mitigating steps are specified in the Cayman Islands sanctions regime. However, the penalties for any breach have a discretionary component, with the specific penalties for any breach to be determined by the Grand Court of the Cayman Islands following conviction.

Where a person has only inadvertently breached sanctions, has taken steps to mitigate the breach, and has reported the breach and co-operated with the relevant regulatory bodies, it would generally be expected that the Court may determine in its discretion to impose lower penalties. Conversely, deliberate breaches, any steps that aggravate the breach, attempting to conceal any breach or failing to co-operate in any investigation would generally be expected to lead the Grand Court to impose greater penalties following conviction.

The sanctions regime in the Cayman Islands does not operate on the basis of “strict liability”.

A number of the relevant Orders provide for the Governor of the Cayman Islands to issue licences to permit derogation from certain specified sanctions. The Governor can issue a licence only if specified purpose requirements are met, and will almost certainly impose conditions and reporting requirements on any licence she issues. As set out in 2.1 Primary Regulators, the Governor may generally only issue a licence with the consent of the United Kingdom Secretary of State.

The grounds on which a licence can be issued depend upon the specific Order imposing the relevant sanction in the Cayman Islands, and on the specific sanction for which a licence is sought, and can include the following:

• to enable the basic needs of a designated person or any dependent family member of a designated person to be met;
• to enable the payment of reasonable professional fees for the provision of legal services, or reasonable expenses associated with the provision of legal services (including to a designated person or a person controlled directly or indirectly by a designated person);
• to enable the payment of reasonable fees or services charges arising from the routine holding or maintenance of frozen funds or economic resources;
• to enable an extraordinary expense of a designated person to be met;
• to enable, by the use of a designated person’s frozen funds or economic resources, the implementation or satisfaction of a judicial, administrative or arbitral decision or lien made or established before that person was designated;
• to enable anything to be done to deal with an extraordinary situation;
• to enable, by the use of a designated person’s frozen funds or economic resources, the satisfaction of an obligation of that person which arose before that person was designated;
• to enable anything to be done in order that the functions of certain diplomatic missions or consular posts, or of an international organisation enjoying immunities in accordance with international law, may be carried out;
• to enable anything to be done in connection with the performance of any humanitarian assistance activity;
• to enable anything to be done in connection with the provision of medical goods or services for the benefit of the civilian population of a country, or the import, export or use of medical goods;
• to enable anything to be done in connection with the production or distribution of food for the benefit of the civilian population of a country;
• subject to specific conditions, to enable a Cayman Islands entity to divest itself of funds or economic resources located in a sanctioned country, or to buy out any interest in the entity held by the government of a sanctioned country or a designated person, or to take steps to enable another person to undertake such steps;
• to enable anything to be done by, or on behalf of, a relevant financial authority for the purposes of the functions of that authority;
• to enable anything to be done by a person, following consultation by that person with the central monetary authority of the Cayman Islands, that is necessary or expedient in order to protect or enhance the stability of the financial system of the Cayman Islands;
• to enable anything to be done by a person, following consultation with the authority responsible for the regulation of financial services in the Cayman Islands, that is necessary or expedient in order to promote the safety and soundness of a firm which is supervised by that authority; or
• to enable the carrying out of projects exclusively in support of hospitals, other public health institutions or civilian education establishments, or the provision or maintenance of supplies or equipment for medical use, or to prevent or mitigate an event likely to have a serious and significant impact on human health or safety, infrastructure or the environment, in certain specified territories (in particular, occupied territory of Ukraine).

Licence applications can take a significant period of time to process, and must be made as early as possible before any proposed transaction is due to take place. The relevant regulatory authorities often have questions, or seek clarification of particular points of transactions before granting a licence. In addition, the significant increase in sanctions imposed, persons designated and licence applications as a result of the Russian invasion of Ukraine has led to significant delays in the processing time for licence applications. While historically licences could be granted in two to three months, the current expected timeframe for any application is significantly longer.

The Cayman Islands regulatory authorities and the United Kingdom regulatory authorities both prioritise licence applications that are made on humanitarian grounds, and can also process urgent applications in life-threatening circumstances where they arise. However, such applications are rare in practice.

Any person applying for a sanctions licence must provide a comprehensive and detailed explanation of any transaction for which they are seeking a licence. This explanation must include the value and currency(ies) of any transaction, the purpose of the transaction and the route for any payment(s) necessary for the transaction (including the sender and receiver of all funds or assets being transferred for the transaction, and any intermediaries or other beneficiaries who have any role in the transaction), and must specify how any funds or assets will be accounted for.

Any person who wishes to apply for a sanctions licence must submit a licence application form, and it is strongly advisable that they also submit a detailed explanation of why the licence is necessary, containing the details set out above. The licence application form is available at www.fra.gov.ky.

The Governor of the Cayman Islands has issued a number of general licences in relation to the sanctions regime regarding Russia. These licences apply:

• to allow for the provision of legal services to designated persons, subject to certain caps and restrictions;
• to certain investment funds, to allow the fund or its manager to:
1. pay expenses necessary for the maintenance and existence of the fund (eg, annual Registered Office fees); and
2. redeem non-sanctioned investors from a fund that is frozen;
• to allow providers of trust services to take actions necessary to terminate the provision of those services; and
• to allow the supply or delivery of oil at a unit price at or below the price cap specified in sanctions relating to Russia.

The Governor has not issued any general licences in relation to any other applicable sanctions regimes.

Any person to whom the Cayman Islands sanctions regime applies is prohibited from circumventing the sanctions regulations by participating in any activities if they know that the object or effect of those activities is (directly or indirectly) to circumvent the sanctions regulations, or to enable or facilitate their contravention.

Circumvention is a criminal offence, and carries the same penalties as a primary breach of the regulations (a fine at the discretion of the Grand Court, and up to seven years’ imprisonment).