This is the accessible text file for GAO report number GAO-08-1028SP 
entitled 'Cayman Islands: Review of Cayman Islands and U.S. Laws 
Applicable to U.S. Persons' Financial Activity in the Cayman Islands, 
an E-supplement to GAO-08-778' which was released on July 24, 2008. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

United State Accountability Office: 
GAO: 

Cayman Islands: Review of Cayman Islands and U.S. Laws Applicable to 
U.S. Persons' Financial Activity in the Cayman Islands, (GA0-08-
1028SP), an E-supplement to GAO-08-778, July 2008): 

Read the Full Report: Cayman Islands: Business and Tax Advantages 
Attract U.S. Persons but Enforcement Challenges Exist [hyperlink, 
http://www.gao.gov/products/GAO-08-778]. 

GAO-08-1028SP: 

Background Information: 

The Cayman Islands is a major center for financial activity and 
entities such as corporations, partnerships, and trusts can all play 
roles in those activities. U.S. taxpayers have a range of 
relationships to those entities, including as owners, as investors, as 
partners, and as beneficiaries of trusts. The activities of Cayman 
Islands entities can have tax consequences for under U.S. law. To 
understand more about the nature of financial activity in the Cayman 
Islands and its consequences under U.S. tax law, we examined relevant 
portions of Cayman Islands and U.S. law. This supplement discusses 
four areas of Cayman Islands and U.S. law. Part I is an overview of 
Cayman Islands law governing corporations, partnerships, and trusts. 
It also discusses the function of the registered office under Cayman 
Islands law. Part II presents an overview of Cayman Islands law 
governing the sharing of information by the Cayman Islands government 
with the U.S. government. Part DI discusses certain Cayman Islands 
monetary authority and anti-money-laundering laws and compares 
specific Cayman Islands and United States regulations designed to 
combat money laundering. Finally, Part IV describes some of the 
obligations that can arise under U.S. tax law for Cayman Islands 
entities and for U.S. owners of Cayman Islands entities. 

Part I: Cayman Islands Law Governing Corporations, Partnerships, and 
Trusts: 

The law governing Cayman Islands corporations, partnerships, and 
trusts is derived from English common law, but is now largely 
statutory. Under Cayman Islands law, each entity form has a variety of 
types which are described below. 

A. Corporations: 

The fundamental feature of a corporation under Cayman Islands law, 
like in the United States, is the limited liability of its 
shareholders, who are referred to as "members" under Cayman Islands 
law. A corporation is a legal person that must be created in 
conformance with formal statutory requirements including registration 
with the government. All Cayman Island corporations are governed by 
the Cayman Islands Companies Law (2007 Revision). To form a 
corporation, a memorandum of association must be filed containing the 
name of the proposed corporation, the location in the Cayman Islands 
of its registered office, the number of shares each shareholder takes, 
and the objects or purposes of the corporation. The memorandum of 
association is filed with the Cayman Registrar. 

All Cayman Islands corporations must have a registered office in the 
Cayman Islands. U.S. states typically have similar requirements for 
registered offices or registered agents. Cayman Islands law, like many 
U.S. states' laws, does not require or presume that any business 
activity of the corporation occurs at the registered office other than 
the receipt of service or other notices and keeping of certain 
records. The requirements of a registered office are discussed in 
further detail below in Part I(D) of this supplement. 

All Cayman Islands corporations must maintain certain records, 
although not all must be filed with the Registrar or kept at the 
registered office, as discussed below. A Cayman Islands corporation 
must maintain a register of shareholders, a register of mortgages and 
charges, a register of directors, proper books of account, and minutes 
of all proceedings and resolutions of its shareholders, directors, or 
managers. Proper books of accounts must be able to give a true and 
fair view of the state of the corporation's affairs and explain its 
transactions. 

Cayman Islands corporations can be ordinary, exempted, or foreign 
companies. The differences among these types of companies are 
explained below. 

(1) Ordinary companies: 

Ordinary companies are subject to both the Cayman Islands Companies 
Law and the Local Companies (Control) Law (1999 Revision).	The name of 
ordinary companies must include "Limited" or "LTD." Each year the 
company must file with the Registrar its list of shareholders and 
directors and hold a general meeting of shareholders. The list of 
shareholders must include the names, addresses, and number of shares 
held by each shareholder. In addition, ordinary companies must keep a 
register of shareholders including names, addresses, amounts paid for 
shares, and dates when shareholders became and ceased to be 
shareholders. This register must be open to the public during certain 
hours every business day at the registered office of the ordinary 
company upon payment of certain fees. The register of directors and 
officers must also be kept at the registered office. 

Ordinary companies can be resident or non-resident. An ordinary 
resident company is usually formed to engage in business in the Cayman 
Islands. An ordinary resident company may conduct business in the Cayman
Islands but an ordinary non-resident company may not. A resident 
company may become a non-resident company if the Cayman Islands 
Financial Secretary is satisfied that the corporation will not conduct 
business in the Cayman Islands and grants a certificate of non-
residence to the corporation. While both ordinary resident and non-
resident companies must file a list of shareholders annually with the 
Registrar, ordinary resident companies must also file an annual list 
of shares held by Cayman Islands residents with the relevant Cayman 
Islands Immigration board to enforce the Local Companies (Control) Law 
requirement that 60 percent of shares of an ordinary resident company 
have Cayman Islands ownership. 

(2) Exempted companies: 

When being formed, any Cayman Islands corporation can apply to the 
Registrar to be an exempted company. Unless granted a license under 
Local Companies (Control) Law, an exempted company is prohibited from 
engaging in business in the Cayman Islands except in furtherance of 
the business of the corporation carried on outside the Cayman Islands, 
and must make annual declarations to that effect. This restriction 
does not prevent exempted companies from making contracts in the 
Cayman Islands or from offering goods, services, or information over 
the Internet. An exempted company cannot offer stock to the Cayman 
public unless it is listed on the Cayman Islands Stock Exchange. 

An exempted company is excluded from a number of requirements 
applicable to ordinary corporations. An exempted company is required 
to keep a register of shareholders, including names, addresses, 
amounts paid for shares, and dates when shareholders became and ceased 
to be shareholders. The names and addresses of directors and officers 
must be maintained at the registered office and filed with the 
Registrar. However, unlike an ordinary company, an exempted company 
need not open this register to the public, keep it in the Cayman
Islands,[Footnote 1] or send the list of shareholders to the 
Registrar. Additionally, an exempted company need not hold an annual 
general meeting of shareholders. 

An exempted company may issue shares in bearer form, a type of share 
whose certificate does not record the owner's name and that is owned 
by whoever holds the certificate. However, since April 2001 Cayman 
Islands law has sharply curtailed the use of bearer shares; they may 
only be issued to or held by licensed or recognized custodians such as 
a holder of companies service license. As of April 2002, all 
companies, unless granted an extension, were to ensure that all bearer 
shares were deposited with a custodian or the shares would become null 
and void. 

An exempted company may also apply to be registered as an exempted 
limited duration company. The exempted limited duration company form 
was created mainly to qualify for partnership tax treatment in other 
jurisdictions; however, the special features of the exempted limited 
duration exempted company are no longer necessary to qualify for 
partnership treatment under the U.S. Internal Revenue Code. The 
memorandum of association of exempted limited duration companies must 
limit the duration of the corporation to 30 years or less. An exempted 
limited duration company is considered to have commenced a voluntary 
winding up and dissolution when the period of duration is complete, 
when the members pass a special resolution to wind up voluntarily, or 
90 days from certain events such as the death, resignation, or 
bankruptcy of a member. An exempted limited duration company must have 
at least two members and include "Limited Duration Company" or "LDC" 
in its name. 

Exempted companies, including exempted limited duration companies, and 
any company applying to be an exempted company, can also apply to be a 
segregated portfolio company. Some of the assets and liabilities of a 
segregated portfolio company are divided into separate "portfolios"; 
assets in one portfolio are not available to meet liabilities and 
creditors of other portfolios. Assets of a segregated portfolio 
company not assigned to a portfolio are general assets and are 
available to meet the liabilities of any portfolio. A portfolio is not 
a separate legal entity. To apply to be a segregated portfolio 
company, a corporation must file with the Registrar a statement 
setting out the assets and liabilities of the company and recent 
transactions or events causing material changes to the assets or 
liabilities; the name of each portfolio; which assets and liabilities 
will be held by which portfolio; assurances that each portfolio will 
be solvent; and the written consent of all creditors of the company to 
the creation of segregated portfolios.[Footnote 2] A segregated 
portfolio company must include "SPC" or "Segregated Portfolio Company" 
in its name. In addition to the normal annual fees paid to Cayman 
Islands authorities, a segregated portfolio company must pay a special 
segregated portfolio company fee and fees for each portfolio. 

(3) Foreign companies: 

Foreign companies are companies that are organized under the law of a 
jurisdiction other than the Cayman Islands, but have chosen to 
register with the Cayman Registrar.[Footnote 3] Any corporation 
incorporated under the law of another jurisdiction which establishes a 
place of business or commences in carrying on a business in the Cayman 
Islands must register in the Cayman Islands as a foreign company. To 
register in the Cayman Islands, a foreign company must pay an annual 
fee and provide the Registrar a certified copy of its organizing 
instrument in English; a list of directors; and the name and address 
of a registered agent present in the Cayman Islands.[Footnote 4] 
Service of legal process or notice on the registered agent of a 
foreign company is deemed legally sufficient. 

B. Partnerships: 

Partnerships, other than limited partnerships discussed below, are 
different from corporations in that their existence does not depend on 
registration with the government. Under Cayman Islands Partnership 
Law, a partnership exists between two or more persons carrying on a 
for-profit business in common unless the business is incorporated. In 
general, under both U.S. and Cayman law, a fundamental difference 
between partnerships and corporations is that the liability of 
partners in a partnership is not limited. 

Cayman Islands law also allows for limited partnerships, a familiar 
concept in many U.S. states. Limited partnerships have at least one 
general partner with unlimited liability and at least one limited 
partner with limited liability. Unlike an ordinary partnership, a 
limited partnership must register with the Cayman Islands Registrar. 
The registration documents must include the name of the partnership, 
the general nature of the business, the principal place of business, 
the names and residences of the general partners, the term of 
partnership if any, a statement that the partnership is limited, and 
the contribution of each limited partner. Cayman Islands law prohibits 
limited partners from engaging in some activities, such as management 
of the partnership, that general partners can undertake. 

Cayman Islands law also allows limited partnerships to register as 
exempted limited partnerships. An exempted limited partnership is 
prohibited from undertaking business with the public in the Cayman 
Islands except in furtherance of carrying on business outside the 
Cayman Islands and is governed by the Exempted Limited Partnership Law 
(2007 Revision). Corporations and partnerships can be partners in an 
exempted limited partnership. However, at least one general partner 
must be an individual resident of the Cayman Islands or a corporation 
or partnership registered in the Cayman Islands. A non-Cayman Islands 
corporation can satisfy this requirement by registering as a foreign 
company with the Cayman Islands Registrar. Exempted limited 
partnerships must register with the Cayman Islands Registrar just like 
ordinary limited partnerships. 

Limited partnerships must have a registered address and maintain at 
that office the names and addresses of each partner and the partners' 
contributions to and receipts from the partnership. 

C. Trusts and trust companies: 

Trusts are a unique legal concept originating in the common law, and 
are recognized in both the United States and the Cayman Islands. A 
trust is a fiduciary relationship rather than a separate legal entity. 
A trust is created when the settlor, or creator of the trust, 
transfers property to the trustee to be held for the benefit of the 
beneficiary. A trust is sometimes said to divide ownership of the 
trust property into two parts: legal ownership, which goes to the 
trustee, and beneficial ownership, which goes to the beneficiary. A 
trustee under Cayman Islands law has the same power as an ordinary 
owner of property to sell, transfer, mortgage, invest, insure, or take 
any other action with respect to the trust property, subject to the 
trustee's fiduciary duties. A trustee has a fiduciary duty to act with 
the highest degree of honesty and integrity with respect to the trust 
property and the beneficiary, and is liable for violations of this 
duty. 

Trusts in the Cayman Islands are governed by the Trusts Law (2007 
Revision). Like partnerships and unlike corporations, the existence of 
a trust, other than an exempted trust as described below, does not 
depend on registration with the government. Under Cayman Islands law, 
a settlor can reserve the power to revoke or amend a trust, give 
binding directions to trustees, appoint or remove trustees or 
beneficiaries, and restrict the powers and discretion of trustees. A 
settlor of a trust also can be a beneficiary of the trust and a 
director or officer of a company owned by the trust. Courts in the 
Caymans Islands, when determining which jurisdiction's law governs a 
trust, will first look to the terms of the trust and the intentions of 
the parties regardless of whether the property in question is present 
in the Cayman Islands. A clause of a trust document that expressly 
selects the laws of the Cayman Islands to govern a trust is valid, 
effectively and conclusively, regardless of any other circumstances. A 
trust governed by Cayman Islands law will not be invalid in the
Cayman Islands because of a foreign law that does not recognize the 
legal concept of a trust, or because the trust avoids or defeats 
rights of other persons in the trust property under foreign laws based 
on personal relationships or heirship.[Footnote 5] 

Cayman Islands trusts can be ordinary, exempted, or special. An 
exempted trust differs from an ordinary trust in that it may be given 
a tax-exemption certificate from the Cayman Islands government stating 
that no Cayman Islands tax or duty relating to income, capital gains, 
inheritance, or estate, should such tax be introduced in the future, 
would apply to the trust property for 50 years. As is the case in 
relation to all persons, current Cayman Islands law imposes no such 
tax or duty on either ordinary or exempted trusts. Unlike ordinary 
trusts, an exempted trust must be registered with the Registrar. 
Registration includes the filing of trust documents with the Registrar 
and the payment of a fee. The Registrar's file on an exempted trust is 
open to inspection by trustees or other persons authorized by the 
trust documents to inspect the file, but not to the general public.
Also, an exempted trust cannot have any beneficiaries who are 
domiciled in or residents of the Cayman Islands.[Footnote 6] 

A special trust, also called a STAR trust, differs from an ordinary 
trust in several ways. First, a beneficiary of an ordinary trust has 
the right to seek enforcement of terms of the trust in court, while a 
beneficiary of a special trust does not have such a right. Instead, a 
special trust has one or more persons called "enforcers" who are 
either named in the trust documents or appointed by the court. 
Enforcers may be beneficiaries, but need not be, and are generally 
presumed to have a fiduciary duty for the proper execution of the 
trust. An enforcer of a special trust has the same rights as a 
beneficiary of an ordinary trust to bring administrative and other 
legal actions, make applications to the court, be informed of the 
terms of the trust, receive information concerning the trust and its 
administration from the trustee, and inspect and copy trust documents. 

Second, a trustee of a special trust has the power to resolve 
uncertainties as to the trust's objects or mode of execution, while a 
trustee of an ordinary trust must seek judicial intervention to 
resolve such uncertainties. Reciprocally, Cayman Islands courts can 
vary or revoke an ordinary trust or enlarge the power of trustees upon 
application by certain beneficiaries, whereas they do not have such 
power over special trusts. However, trustees of special trusts can 
apply to Cayman Islands courts under some circumstances to reform the 
trust. 

In addition, every special trust must have at least one trustee which 
is a trust company licensed under the Cayman Islands Bank and Trust 
Companies Law (2007 Revision). Finally, a special trust cannot hold 
real estate in the Cayman Islands, but may hold an interest in a 
corporation, partnership, or other entity which owns land in the 
Cayman Islands. A special trust may also apply to be an exempted trust. 

Anyone can serve as a trustee of a trust. However, under Cayman 
Islands law, any company engaged in the business of acting as a 
trustee, executor, or administrator must be licensed and regulated as 
a trust company and is subject to Cayman Islands anti-money-laundering 
and know-your-customer requirements. To be licensed, a trust company's 
principal office must be in the Cayman Islands and have a Cayman 
Islands corporation or two Cayman Islands residents as local agents. 
There are two types of trust company licenses in the Cayman Islands. A 
holder of an unrestricted trust company license can act as trustee for 
any trust. A holder of a restricted trust company license is 
restricted to the activity specified in its approved business plan and 
can only be a trustee for trusts listed on the license application, 
typically limited to 20 trusts or less. A nominee trust company is a 
wholly owned subsidiary of a licensed trust company whose sole purpose 
is to act as the trust company's nominee. All license holders must 
have annual audits by a professionally qualified audit firm approved 
by LIMA. 

D. Registered offices and company management businesses: 

Cayman Islands corporations and exempted limited partnerships must 
have a registered office located in the Cayman Islands, whose address 
is publicly available from the Registrar. U.S. states have similar 
requirements. The registered office is the place where all official 
communication with the entity must be sent, including any legal writ, 
notice, order, or other legal document. Proper service by another 
party, such as a creditor, of legal documents on a corporation or 
exempted limited partnership, a necessary step in legal proceedings, 
can be accomplished by delivery of the documents to its registered 
address. Other documents that can be sent to the corporation's 
registered office include a creditor's demand for payment, shareholder 
proxies and powers of attorney, and a shareholder statement of 
dissention from winding up. A primary function of a registered office 
under Cayman Islands law is the protection of creditors of a 
corporation. 

Cayman Islands law does not require or presume that any business 
activity of the entity occurs at the registered office other than the 
handling of the communications discussed above and keeping of some 
records. Specifically, under Cayman Islands law, all corporations must 
keep at their registered offices (1) a register of all mortgages on 
the property of the corporation, which is open to members and 
creditors of the corporation; and (2) an up-to-date list of the names 
and addresses of directors and officers of the corporation. Ordinary 
companies must keep a register of shareholders, including names, 
addresses, amounts paid for shares, and dates when shareholders became 
and ceased to be shareholders at the registered office. This register 
must be open to the public during certain hours every business day 
upon payment of certain fees. Limited partnerships must have a 
registered address and maintain at that office the names and addresses 
of each partner and the partners' contributions to and receipts from 
the partnership. 

There are businesses in the Cayman Islands, as there are in the United 
States, that provide registered office services for a fee. In the 
Cayman Islands, as in the United States, the address of the firm 
providing registered office services is usually the registered address 
for the firm's clients. Under the Companies Management Law (2003 
Revision), a business that provides registered office services must be 
licensed by the Cayman Islands Monetary Authority (CIMA). These 
company service providers must also follow the requirements of Cayman
Islands law with regard to anti-money-laundering and "know-your-
customer" laws, which are discussed in Part III of this supplement. In 
brief, Cayman Islands law requires company service providers to keep 
records of the beneficial ownership of entities to which they provide 
services. 

Under Cayman Islands law, there are two types of company management 
licenses: a corporate services license and a companies management 
license. The holder of a corporate services license may only act as a 
company formation agent; provide registered office services; file 
statutory forms, resolutions, returns, and notices; and accept legal 
service of process for a foreign company. The holder of a companies 
management license can provide for their clients all the services of a 
corporate services license and, in addition, can provide nominee 
shareholders and officers and directors; act as a custodian of bearer 
shares; and control all or a substantial part of the assets of the 
corporation. Nominee shareholders are individuals whose names appear 
on the corporate forms filed with the Registrar but are not the 
beneficial owners. The existence of nominees does not relieve the 
company service provider from its obligation to know the beneficial 
owner under Cayman Islands anti-money-laundering and know-your-
customer rules. 

In addition to holders of corporate services licenses and companies 
management licenses, holders of trust company licenses, insurance 
managers licenses, and mutual fund licenses may provide registered 
office and other services consistent with the terms of those licenses. 

Providing such services without a license is a criminal offense and 
can result in fines and imprisonment. To receive a license, the 
applicant must satisfy CIMA that it has sufficient expertise to carry 
on the business and that the business will be conducted by persons who 
are "fit and proper" for their roles as directors, officers, or 
managers. To assess whether a person is fit and proper, the statute 
requires CIMA to assess the person's honesty, integrity, and 
reputation; competence and capability; and financial soundness. 
License holders undergo annual audits by a CIMA-approved auditor who 
is a member of a major auditing professional organization. Every year 
the license holder must also submit to the regulator copies of its 
accounts and the results of the audit. CIMA has the power to conduct 
reviews, including on-site reviews, of the business of any license 
holder. CIMA can also inspect the records of anyone it reasonably 
suspects of carrying on a company management business without a 
license. 

Part II: Cayman Islands Law Governing Sharing of Information With 
Foreign Governments: 

A. MLAT and implementing statute: 

In July 1986, the United States and the United Kingdom, including the 
government of the Cayman Islands, signed a Mutual Legal Assistance 
Treaty (MLAT) that requires the United States and the Cayman Islands 
to provide legal assistance to each other at the request of the other 
party in criminal matters. However, assistance is generally not 
provided under the MLAT if the request deals with alleged criminal 
activity relating to the imposition, calculation, and collection of 
taxes, or if the criminal matter is not punishable by at least one 
year of imprisonment. Assistance can be provided under the MLAT if the 
alleged criminal activity concerns willfully or dishonestly obtaining 
assets by committing fraud in connection with benefits available under 
tax laws or concerns willful or dishonest false statements about a tax 
matter concerning the unlawful proceeds of a criminal offense. Legal 
assistance may include taking testimony of individuals, providing 
documents or other evidence, locating persons and transferring persons 
in custody, executing searches and seizures, and freezing assets. 
Additionally, if one party has reason to believe the proceeds of a 
criminal offense are located in the territory of the other party, 
assistance may include forfeiture of the proceeds of the criminal 
offense, payments of restitution to the victim, and the collection of 
fines. Requests for assistance must originate from the Attorney 
General or his designees in the United States and from the Cayman 
Mutual Legal Assistance Authority in the Cayman Islands. 

Senate ratification of the MLAT did not occur until October 1989, with 
the treaty entering into force under U.S. law in March 1990. However, 
the Cayman Islands began providing legal assistance immediately after 
the September 1986 enactment of their implementing statute, known as 
the Mutual Legal Assistance (United States of America) Law (1999 
Revision). This law established the Chief Justice, or another Judge of 
the Grand Court, as the designated Cayman Mutual Legal Assistance 
Authority. Additionally, the statute gives the Cayman Authority the 
power to compel persons to testify or produce documents, and it 
requires confidentiality from individuals who are involved in a legal 
assistance request. Failure to produce documents or maintain 
confidentiality can result in criminal penalties. 

Subsequent to the MLAT agreement with the United States, the Cayman 
Islands enacted in 1997 what is now titled the Criminal Justice 
(International Cooperation) Law (2004 Revision), thereby permitting 
the Cayman Islands to provide similar legal assistance to most 
countries in the world. Under the law, mutual legal assistance may be 
provided if there is a criminal offense under Cayman Islands law or if 
there is conduct which would have constituted a criminal offense had 
it occurred within the Cayman Islands. Upon receiving a request for 
assistance, Cayman Islands authorities may take statements, serve 
documents, execute searches and seizures, provide evidence and 
documents, identify and examine objects and sites, freeze assets, and 
assist in proceedings related to forfeiture and restitution. 

B. TIEA and implementing statute: 

In November 2001, the United States and the United Kingdom, including 
the government of the Cayman Islands, signed a Tax Information 
Exchange Agreement (TIEA) designed to facilitate the exchange of tax 
information between the United States and the Cayman Islands. Each 
party agreed to provide, at the request of the other, information 
relating to the administration and enforcement of domestic federal 
income tax laws, although other types of tax laws may also be included 
by later agreement. Each party to the agreement is required to ensure 
it has the domestic legal authority to obtain information from 
financial institutions regarding nominees, trustees, beneficial 
owners, units of interests of investment funds, and other similar 
information. While requests can be made concerning the activities of 
any individual regardless of residency or nationality, the request 
must be specific enough to identify the taxpayer and the tax purpose 
for which the information is sought, as well as state the reasonable 
grounds for believing the information is in the territory of the other 
party. In some circumstances, representatives from one party may enter 
the territory of the other party in order to interview persons and 
examine records. Requests for information must originate from the 
Secretary of the Treasury or his designees in the United States and 
from the Tax Information Authority in the Cayman Islands. All 
information provided or received by either party must be kept 
confidential and may only be used for the enforcement of tax laws. The 
agreement entered into force for criminal tax evasion matters on January
1, 2004, and for all other noncriminal tax matters on January 1, 2006. 

The U.S. Department of Treasury performs U.S. obligations under the 
agreement pursuant to existing authority in U.S. law. In March 2005, 
the Cayman Islands passed a domestic implementing statute, the Tax 
Information Authority Law, 2005. Under this law, the Cayman Islands 
Financial Secretary was designated the Tax Information Authority. His 
functions and powers under the Law were formally delegated to an 
administrative unit of the same name, including the power to take 
testimony, provide evidence, serve documents, and execute searches and 
seizures. Individuals who fail to produce required information or 
maintain confidentiality are subject to criminal penalties. 

Part III: Cayman Islands Monetary Authority Law; Cayman Islands and 
U.S. Anti-Money laundering Laws: 

A. CI Monetary Authority Law: 

In 1997, the Monetary Authority Law (2004 Revision) established the 
Cayman Islands Monetary Authority (CIMA) as the Cayman Islands primary 
financial services regulatory body. Led by a Board of Directors, CIMA 
has four primary areas of functional responsibility. First, pursuant 
to its monetary functions, CIMA is the sole issuer of the legal tender 
of the Cayman Islands and manages the country's Currency Reserve. The 
Monetary Authority Law specifies that the official currency is the 
Cayman dollar, the value of which is tied by order to the American 
dollar. Second, CIMA regulates and supervises financial services 
businesses, monitors compliance with anti-money-laundering 
regulations, issues and amends rules and statements of guidance 
including relating to money laundering, and performs other regulatory 
duties. The Guidance Notes on the Prevention and Detection of Money 
Laundering in the Cayman Islands are considered to be issued under 
this grant of authority. Third, CIMA is responsible for providing 
assistance to overseas regulatory authorities. In deciding whether to 
provide assistance, CIMA is instructed to consider whether 
corresponding assistance would be given by the requesting party, 
whether the request relates to a breach of law which has an equivalent 
within the Cayman Islands, and other factors. If it provides 
assistance to an overseas regulatory authority, CIMA may disclose 
information within its possession as well as direct any other person 
that it considers has relevant information to provide specific 
information, documents, or other assistance as may be needed. Fourth, 
CIMA provides an advisory function by advising the government on the 
regulatory laws and cooperative functions. 

As part of its general powers, CIMA may open and maintain accounts 
with banks, purchase and sell foreign currencies and foreign Treasury 
bills, purchase and sell securities and other investments, borrow 
money, and more. CIMA activities are led by a Board of Directors and a 
Management Committee, and CIMA is fully and solely responsible for all 
licensing and enforcement activity. The Governor-in-Cabinet appoints 
all directors and may provide general directions on policy as it may 
consider necessary in the public interest, after consultation with the 
Board. The Monetary Authority Law includes a schedule of fees for 
certain CIMA activities, including fees for the issuance of letters 
that confirm the registration and licensing of regulated entities. 

B. Anti-Money-Laundering Laws: 

The Proceeds of Criminal Conduct Law (2007 Revision) was first enacted 
in 1996 and, along with the Terrorism Law, 2003, forms the basis of 
the Cayman Islands anti-money-laundering and antiterrorist financing 
legal framework. Under the Proceeds of Criminal Conduct Law, criminal 
"money laundering" involves the possession, use, concealment, or 
transfer of the proceeds of criminal conduct, or an act which assists 
another retain the proceeds of criminal conduct. Proceeds from 
criminal conduct performed outside the territory of the Cayman Islands 
also fall within the definition if the act would have been an offense 
had it been performed within the Cayman Islands. 

Additionally, "tipping off" an individual that he or she is being 
investigated for money laundering or is the subject of a suspicious 
activity report (SAR) constitutes a criminal offense, as does the 
failure to report a case of suspected money laundering unless the 
information was obtained under privileged circumstances.[Footnote 7] 
The law also establishes a financial intelligence unit called the 
Financial Reporting Authority which is responsible for the receiving, 
analyzing, and onward disclosure of information related to proceeds of 
criminal conduct. The Financial Reporting Authority must retain 
information for a minimum of 5 years and may enter into agreements 
with overseas financial intelligence units. 

Pursuant to the authority granted in the Proceeds of Criminal Conduct 
Law, regulations were promulgated to further strengthen the money 
laundering framework. Known as the Money Laundering Regulations 
(current version is the 2006 Revision), these regulations were first 
enacted in April 2000 and apply to all relevant financial business as 
defined by the Financial Action Task Force Recommendations, such as 
those involved in banking, trust business, insurance, mutual funds, 
company formation and registered office services, and other designated 
activity in the Cayman Islands. To facilitate interpretation of the 
requirements this law imposes on financial institutions and other 
relevant financial business, CIMA has also issued supplementary 
enforceable Guidance Notes that provide further clarification on what 
is required to be compliant with the Regulations. 

The Regulations and Guidance Notes include a number of important 
provisions designed to combat money laundering and terrorist 
financing.[Footnote 8] For example, the Regulations require financial 
businesses to know the identity of their customers[Footnote 9] and to 
maintain identity records for at least 5 years. The Guidance Notes 
indicate that to comply with the Regulations, the information obtained 
should include name, address, date and place of birth, nationality, 
occupation, purpose of the account, estimated level of turnover for 
the account, the source of funds, and, in some cases, a reference from 
another financial institution. In relation to legal entities, 
underlying beneficial ownership and control must be identified and 
verified as must, in relation to trusts, the settler and any 
ascertainable beneficiaries[Footnote 10] and the source of trust 
property. The Regulations also require financial businesses to create 
an internal report if there is knowledge or a suspicion that an 
individual is engaged in money laundering or terrorist financing. If, 
after considering all information and following certain procedures, 
the financial business knows or suspects money laundering, then a 
suspicious activity report must be submitted to the Cayman Islands 
Financial Reporting Authority. The Guidance Notes offer examples of 
potentially suspicious activity and a sample Suspicious Activity 
Reporting Form used to report such activities to the Financial 
Reporting Authority. There is no monetary threshold for reporting 
where there is knowledge or suspicion of money laundering or terrorist 
financing—any such knowledge or suspicion must be reported, regardless 
of the amount of money involved.[Footnote 11] 

These laws are similar to U.S. regulations, which require financial 
institutions to implement Customer Identification Programs intended to 
allow the institutions to form a reasonable belief as to the true 
identify of each customer. Under U.S. regulations, financial 
institutions must verify the identity of customers by collecting 
certain information, maintain identification records for at least 5 
years, and cross-reference customers against lists of known or 
suspected terrorists. Additional enhanced procedures apply for 
accounts held by non-U.S. persons, such as mandatory attempts to 
ascertain the beneficial owners of accounts, the source of funds 
deposited into accounts, and additional procedures for monitoring 
accounts for evidence of money laundering. 

Cayman Islands regulations also require financial businesses to create 
an internal report if they have knowledge or suspicion that an 
individual is engaged in money laundering. If, after considering all 
information and following certain procedures, the financial business 
knows or suspects money laundering, then a suspicious activity report 
must be submitted to the Cayman Islands Financial Reporting Authority. 
The Guidance Notes offer examples of potentially suspicious activity 
and a sample Suspicious Activity Reporting Form used to report such 
activities to the Financial Reporting Authority. 

In the United States, financial institutions are required to file two 
different types of reports with the Department of the Treasury. The 
first, Currency Transaction Reports (CTRs), are required for a single 
cash transaction of more than $10,000, or multiple smaller cash 
transactions that appear to be related and total more than $10,000. 
The second, type of report, a Suspicious Activity Report (SAR), is 
triggered by transactions that involve, in the aggregate, at least 
$5,000 if the financial institution has reason to suspect that the 
transaction involves funds derived from illegal activities, is 
designed to evade the law, or is unusual for the customer and there is 
no reasonable explanation for it. Financial institutions are not 
permitted to disclose to any person involved in the transaction that a 
SAR has been filed regarding the transaction. 

Part IV: U.S. Tax Obligations and Cayman islands Entities: 

In general, the U.S. Internal Revenue Code (the Code) taxes income 
earned worldwide by U.S. citizens, U.S. residents, and U.S. 
corporations wherever earned. Nonresident aliens and foreign 
corporations are subject to U.S. taxation on certain amounts received 
from sources within the United States and income which is effectively 
connected with a trade or business in the United States. 

U.S. income tax obligations exist in relation to entities organized in 
the Cayman Islands in two main circumstances. The first is when the 
activities of the entity trigger U.S. income tax obligations, such as 
when a Cayman Islands corporation earns income that is effectively 
connected to a trade or business in the United States. The second 
circumstance is when earnings of an entity trigger obligations on 
behalf of its owners, such as when a Cayman Islands corporation makes 
a dividend payment to a U.S. taxpayer. 

A. Classification of entities for U.S. tax purposes: 

How a Cayman Islands entity is classified for purposes of the U.S. tax 
system affects its obligations. A business entity organized as a 
corporation or a partnership under Cayman Islands law may be treated 
as such or may elect to be treated otherwise under U.S. tax law. 
Similarly, Cayman Islands trusts may or may not be treated as trusts 
for purposes of U.S. tax law, as discussed below. 

Whether an entity is treated as a partnership or a corporation is 
determined by the Department of the Treasury's "check-the-box" 
regulations. 26 C.F.R §§ 301.7701-1 to -4. Under these regulations, 
eligible entities,[Footnote 12]12 both foreign and domestic, may 
choose their classification as a corporation, partnership, or a single 
member entity.[Footnote 13] Only business entities are governed by the 
"check-the-box" rules. Some business and investment trusts meet the 
definition of a business entity. Eligible entities with two or more 
members may choose to be treated as partnerships or corporations. 
Eligible entities with only one member may choose to be treated as 
single member entities or corporations. Certain entities are not 
eligible to choose their classification; they are always taxed as 
corporations. 

Corporations are separate legal entities and the United States imposes 
the U.S. corporate income tax on their profits. Partnerships and other 
disregarded entities are generally not taxed; the income earned by the 
entity is taken into account on the owners' tax returns. The tax 
obligations of trusts [Footnote 14] are handled separately by the Code 
and will be discussed below. 

B. Taxation of entities: 

(1) Corporations: 

If a foreign corporation conducts a U.S. trade or business, the income 
that is effectively connected to that trade or business (ECI) is taxed 
as if the corporation was a U.S. corporation. 26 U.S.C. § 882. Foreign 
corporations that own and operate businesses in the United States that 
sell services, products, or merchandise, are, with certain exceptions, 
engaged in a U.S. trade or business. Generally, any income from such a 
business is considered to be ECI and subject to the U.S. corporate 
tax. Foreign source income attributable to an office or fixed place of 
business in the United States, such as rents and royalties for the use 
of certain intangible personal property, is treated as ECI. Foreign 
corporations engaged in a trade or business in the United States must 
file a tax return every year even if they have no ECI. 26 U.S.C. § 
6012. 

(2) Partnerships: 

Partnerships, whether foreign or domestic, are not taxed on 
partnership income; the partnership is disregarded and the income is 
imputed to the partners, who owe taxes on their share of the 
partnership income at their own applicable rates. In general, a 
domestic partnership must file a Form 1065, the "U.S. Return of 
Partnership Income," reporting on the partnership's income, but a 
foreign partnership only files a Form 1065 if it has ECI or income 
derived from sources in the United States. 26 U.S.C. § 6031(e). 

(3) Withholding taxes on investments: 

Foreign corporations and non-U.S. partners may also be subject to a 
tax on U.S.-source investment income not effectively connected to a 
trade or business. Fixed or determinable annual or periodical gains, 
profits, and income (called investment income or FDAP income) from 
U.S. sources earned by a nonresident not in connection to a trade or 
business is typically subject to a 30 percent tax.[Footnote 15] 26 
U.S.C. §§ 871(a), 881. Since this tax may be difficult to enforce 
against a foreign taxpayer with few assets in the United States, the 
U.S. payer of such income may be required to withhold 30 percent to 
pay this tax. 26 U.S.C. §§ 1441, 1442. A withholding agent who fails 
to withhold becomes personally liable for the tax and any penalties or 
interest. The withholding tax on FDAP income is a tax on gross income, 
unlike the tax on income effectively connected to a U.S. trade or 
business, which is a tax on net income. A non-U.S. recipient of FDAP 
income must file a form with the payer (for example, a W-8BEN) stating 
the amount to be withheld. 

(4) Transfer pricing: 

The Internal Revenue Service (IRS) is authorized to allocate gross 
income, deductions, credits, and allowances between related taxpayers 
to the extent necessary to prevent the evasion of taxes or to clearly 
reflect the income of the taxpayers. 26 U.S.C. § 482. This authority 
applies both to domestic and foreign taxpayers. IRS examines transfer 
prices between related taxpayers using the arm's length standard (i.e. 
in comparison to what transfer prices between unrelated taxpayers for 
comparable transactions would be), so the transfer pricing rules are 
governed by complex economic and legal principles. In the case of any 
transfer or license of intangible property between related tax payers, 
the income with respect to such transfer or license must be 
commensurate with the income attributable to the intangible. In some 
cases, taxpayers and IRS negotiate advance pricing agreements. The 
Advance Pricing Agreement Program provides a voluntary process whereby 
the IRS and taxpayers may resolve transfer pricing issues (under 
section 482 of the Code, the regulations thereunder, and relevant 
income tax treaties) on a prospective basis. 

C. Taxation of owners: 

(1) Corporations: 

As stated above, the United States generally taxes U.S taxpayers on 
their worldwide income. When a U.S. taxpayer owns part of a Cayman 
Islands corporation, distributions, such as dividends to the owner, 
are part of the owner's taxable income. In general, the United States 
does not tax or place reporting burdens on foreign corporations solely 
because they have U.S. taxpayers as shareholders. If a shareholder of 
a Cayman Islands corporation is a U.S. taxpayer, that U.S. taxpayer is 
obligated to report any income earned from the Cayman Island 
corporation, typically dividends. Shareholders may also earn capital 
gains from the sale of stock. Unless an exception applies, as 
discussed below, a shareholder is not taxed on earnings of a 
corporation in which he owns shares until the corporation makes a 
distribution, such as a dividend. This can allow some taxpayers to 
defer some tax obligations. 

The Code has a number of exceptions to the general rules regarding the 
taxation of U.S. shareholders of foreign corporations, including the 
accumulated earnings tax, the controlled foreign corporations (CFC) 
rules, and the passive foreign investment companies (PFIC) rules. Some 
of these exceptions treat the foreign corporation as a disregarded 
entity or partially disregarded entity and impute the earnings of the 
foreign corporation to the U.S. taxpayer. Other exceptions allow for 
the deferment of income but impose additional tax penalties or burdens 
by converting capital gains into ordinary income or by charging 
interest. 

In addition to the ordinary corporate tax, Cayman Islands corporations 
may be subject to an accumulated earnings tax of 15 percent tax, in 
addition to the ordinary corporate income tax, on accumulated earnings
"beyond the reasonable needs of the business". 26 U.S.0 § 531. This 
accumulated earnings tax will apply to a Cayman Islands corporation 
that meets several conditions. First, the corporation must be formed 
for the purpose of avoiding shareholders' income tax by permitting 
earnings and profits to accumulate instead of being divided or 
distributed; and it must not be a personal holding company, tax-exempt 
corporation, or passive foreign investment company. Second, the 
foreign corporation's shareholders must be subject to U.S. tax on the 
distributions of the corporation because they are U.S. citizens or 
residents, nonresident alien individuals receiving FDAP, or foreign 
corporations owned directly or indirectly by any shareholder described 
above. Further, the accumulated income tax applies to income derived 
from sources within the United States. 

Cayman Islands corporations may also meet the definition of a PFIC. 
Generally, a foreign corporation is a PFIC if 75 percent of the 
corporation's income is passive income or if 50 percent of the 
corporation's assets are passive assets. 26 U.S.C. § 1297. Unlike 
other types of foreign corporations discussed herein, the definition 
of a PFIC does not depend on any level of stock ownership. Each U.S. 
shareholder of a PFIC can choose to be taxed in one of two (or, in the 
case of marketable stock, one of three) ways. A U.S. shareholder of a 
PFIC may make a qualified electing fund election or, with respect to 
marketable stock, a mark to market election with respect to the PFIC. 
U.S. shareholders of qualified electing funds are taxed currently on 
the PFIC's earnings. Alternatively, U.S. shareholders of a qualified 
electing fund may choose to defer the tax on the PFIC's earnings but 
will pay an interest charge. U.S. shareholders of marketable stock who 
make a mark to market election are taxed annually on the appreciation 
in the value of the stock, or are allowed a deduction in the case of 
depreciation in the value of the stock, but only to the extent that 
they have had prior year inclusions under the mark to market election. 
Special rules prevent an amount that is taken into account under the 
qualified electing fund or mark to market elections from being taken 
into account again upon a payment of a dividend by the PFIC or a 
disposition of the PFIC stock by the U.S. shareholder. A U.S 
shareholder of a PFIC that does not make a qualified electing fund 
election or a mark to market election is not taxed until the PFIC 
makes a distribution or until the U.S. shareholder disposes of the 
PFIC stock, but is taxed at top rates and is charged interest. 

A Cayman Islands corporation may be considered a CFC. 26 U.S.C. §§ 
951, 957. Certain U.S. shareholders of CFCs are taxed on their pro 
rata share of certain income and other amounts of the CFC immediately, 
not when the CFC makes a distribution. An entity is a CFC if "U.S. 
shareholders" own more than 50 percent of the total combined voting 
power of its stock or more than 50 percent of the stock's total value. 
To be considered a "U.S. shareholder" for the purposes of this 
definition, a U.S. person must own at least 10 percent of the total 
combined voting power of the corporation's stock.[Footnote 16] In 
calculating ownership, the statute considers direct, indirect, and 
constructive ownership. U.S. persons are deemed to own stock held by 
their wholly owned subsidiaries or by certain related persons. If a 
Cayman entity is a CFC, then each U.S. shareholder owning 10 percent 
or more of the voting stock must include in income his share of 
certain income of the CFC. The income of the CFC to be includible to 
the U.S. shareholder includes the income defined in subpart F (often 
called Subpart F income) and earnings of the CFC invested in U.S. 
property. MAjor types of Subpart F income include income from passive 
investments, income from transactions with entities related to the 
CFC, and insurance income. There are special rules discussed below 
that alter the definition of CFC for foreign insurance companies 
making it more likely that foreign insurance companies will qualify as 
CFCs. 

Certain individual or corporate shareholders, officers, and directors 
of foreign corporations are required to file Form 5471, the 
"Information Return of U.S. Persons with Respect To Certain Foreign 
Corporations." U.S persons who control a foreign corporation or U.S. 
shareholders of a CFC must file a Form 5471. Direct and indirect PFIC 
shareholders must file a Form 8621, the "Return by a Shareholder of a 
Passive Foreign Investment Company or Qualified Electing Fund," if 
they (1) recognize gain on the sale of PFIC stock, (2) receive a PFIC 
distribution, or (3) make an election on Form 8621. For stock of a CFC 
that is also a PFIC, PFIC shareholders do not have to file Form 8621 
if they include in income subpart F income, which is generally done by 
filing Form 5471. 

(3) Partnerships: 

U.S. taxpayers who are partners in a Cayman Islands partnership will 
owe taxes on their share of the partnership income no matter what the 
source of the income is. Foreign partners of a Cayman Islands 
partnership will only owe tax on the portion of the partnership income 
that is ECI. Partners in a partnership are engaged in a U.S. trade or 
business if the partnership is so engaged. A partnership is engaged in 
a U.S. trade or business if a partner is so engaged and is acting as 
an agent of the partnership. Partnerships that have ECI must pay a 
withholding tax generally at a rate of 35 percent for corporate 
partners and 35 percent for other partners on the ECI allocable to 
those partners. If the partnership fails to withhold, any general 
partner can be liable. 

(4) Tax-exempt entities: 

There are also tax consequences for U.S. tax-exempt entities, such as 
pension funds and university endowments, who are shareholders in 
Cayman Islands corporations. In general, if a tax-exempt entity is a 
partner in a for-profit partnership engaged in a trade or business 
unrelated to the tax-exempt entity's purpose, then the tax-exempt 
entity is subject to the unrelated business income tax (UBIT) on 
income from that partnership. 26 U.S.C. § 512. However, tax-exempt 
entities that are minority shareholders in corporations are generally 
not subject to UBIT on dividends. While domestic corporations are 
subject to the U.S. corporate income tax, which decreases the amount 
available to be paid out to shareholders, foreign corporations are 
generally not subject to U.S. corporate income tax on income that is 
not effectively connected to a U.S. trade or business. Therefore, U.S. 
tax-exempt entities may secure tax advantages with respect to dividend 
income from foreign corporations that is not ECI. 

(5) Insurance: 

The Code contains special rules for the treatment of foreign 
corporations' insurance income. 26 U.S.C. § 953. First, insurance 
income is a type of subpart F income, which means that U.S. 
shareholders of foreign corporations qualifying as CFCs are taxed on 
the CFC's insurance income. Second, foreign insurance companies are 
more likely to be considered CFCs because the definition of a CFC is 
different in the context of insurance. A foreign corporation not 
otherwise considered a CFC may qualify as a CFC if U.S. shareholders 
own 25 percent or more (rather than more than 50 percent) of the 
corporation's stock and it receives 75 percent if its premium-type 
income from insuring risks outside the Cayman Islands. Third, foreign 
corporations that insure the risks of related persons, such as captive 
insurance companies, are even more likely to be considered CFCs 
because for these companies, the definition of "U.S. shareholder" is 
different. In the normal determination of whether a foreign 
corporation is a CFC, only U.S. shareholders directly or indirectly 
owning 10 percent or more of the corporate stock are counted. However, 
for insurance companies insuring related parties, any U.S. shareholder 
is counted. The altered definition of "U.S. shareholder" further means 
that the subpart F income of the CFC will be included to all U.S. 
shareholders, not just those owning 10 percent or more. Certain 
foreign corporations may choose to pay U.S. corporate taxes on related-
party insurance income to save their U.S. shareholders from owing tax 
on included income. IRS has also contested payments made to captive 
insurance companies under section 162 as not being actual insurance 
payments, but capital contributions. 

Trusts: 

Distributions paid by foreign non-grantor trusts to U.S. beneficiaries 
are generally taxable income to the beneficiaries. Income earned by a 
grantor trust is taxed to the grantor, the Code disregards the trust 
as a separate taxable entity. Some foreign trusts may be business 
entities to which the "check-the-box" rules apply, and will be taxed 
as partnerships or corporations. 

Transfers by a U.S. person to a foreign non-grantor trust are treated 
under the Code as a sale, which means that the U.S. person will owe 
tax on any capital gains and the basis in the property is adjusted. 26 
U.S.C. § 684. However, there are exceptions to this rule. 

Generally, any U.S. person who, during the tax year, creates a foreign 
trust or transfers money or property to a foreign trust must file a 
Form 3520, the "Annual Return to Report Transactions with Foreign 
Trusts and Receipt of Certain Foreign Gifts." The return must be filed 
whether or not the trust has a U.S. beneficiary and whether or not the 
trust has a U.S. owner. Foreign trusts with U.S. beneficiaries are 
required to file Form 3520-A, the "Annual Information Return of 
Foreign Trust with a U.S. Owner," although a foreign trustee outside 
the jurisdiction of IRS might not file. 

U.S. "owners" of foreign trusts must file a Form 3520 on their trusts 
for each tax year or partial tax year in which they own the trust 
(including tax years in which they do not create the trust or transfer 
property to the trust). For foreign trusts with U.S. beneficiaries, 
any portion of a trust attributable to a gratuitous transfer by a
U.S. taxpayer is considered to be owned by the taxpayer. 26 U.S.C. §§ 
671, 679. One purpose of this rule is to prevent U.S. taxpayer from 
deferring income tax through foreign trusts. 

Contact Information: 

If you have questions concerning these data, please contact Michael 
Brostek at (202) 512-9110 brostekm@gao.gov. 

[End of section] 

Footnotes: 

[1] The registered office of an exempt corporation may be compelled to 
produce this or other records held outside the Cayman Islands by 
Cayman Islands authorities. 

[2] As an alternative to all creditors consenting in writing, the 
applicant can send written notice to all creditors having a claim 
against the corporation exceeding $1,000. The consent of creditors 
holding 95 percent of the liabilities of the corporation is then 
sufficient. 

[3] One reason a corporation might choose to register as a foreign 
company is to be a general partner in a Cayman Islands partnership. 
Cayman Islands law requires exempted limited partnerships to have at 
least one general partner registered in the Cayman Islands. 

[4] Foreign companies have registered agents. Other types of entities, 
including ordinary companies, exempt companies, and exempt 
partnerships have registered offices. 

[5] Personal relationship means any relationship by blood or marriage, 
including former marriage. Heirship right means any right, claim, or 
interest in or against property of a person because of that person's 
death other than a right created by a will or other voluntary 
disposition. 

[6] This excludes objects of charitable trusts and non-resident 
companies and exempt companies registered under the Companies Law. 

[7] These relate to the provision of legal advice to a client or to 
any person in contemplation of legal proceedings or for the purposes 
of such proceedings, except where a criminal purpose is being 
furthered. 

[8] Cayman Island regulators refer to these requirements as AML/CFT or 
anti-money-laundering/combating the financing of terrorism 
regulations. Both the anti-money-laundering and the combating 
terrorism financing tracks include know-your-customer requirements. 

[9] Identity needs to be proven (1) where the parties form an ongoing 
business relationship, (2) where there is a one-off transaction and 
the person handling the transaction suspects money laundering, (3) 
where there is a one-off transaction in the amount of $15,000 or more, 
or (4) where there are two or more one-off transactions which appear 
linked and which total $15,000 or more. 

[10] Some trusts will not have immediately ascertainable beneficiaries 
such as in cases where the beneficiaries have not yet born. 

[11] Cayman Island regulations also cover cross-border cash 
transactions of more than $15,000 and contain specific know-your-
customer rules for wire transfers. 

[12] Certain types of entities, including some foreign entities, are 
per se corporations and do not have the option to be treated as 
partnerships or single member entities. 

[13] A single member entity is a disregarded entity similar to a 
partnership for tax purposes, but has only one member. The activities 
of disregarded entities are taxed in the same manner as a sole 
proprietorship, branch, or division of the owner. 

[14] The Internal Revenue Code has a limited definition of trust. Some 
trusts organized under Cayman Islands law may not be taxed as trusts, 
but as business entities under the "check-the-box" rules. 

[15] The level of withholding may be reduced by applicable income tax 
treaties with certain foreign jurisdictions. However, no such treaty 
exists between the Cayman Islands and the United States. 

[16] If 11 unrelated U.S. shareholders hold all the shares of a 
foreign corporation equally, that corporation is not a CFC because no 
shareholder is considered a "U.S. shareholder."