Constitutional position of the Cayman Islands

Hon McKeeva Bush, Leader
of Government Business

Tuesday, July 13, 2004

Speech by the Leader of Government Business to the EU in Brussels, 8 July 2004

It is a pleasure to have this opportunity to address you here today, to discuss the current constitutional position of the Cayman Islands and their future, as my Government sees it.

Constitutional Position of Cayman Islands

History

The Cayman Islands have much in common with the other EU Overseas Territories, particularly with regard to our commitment to free markets and our joint efforts to combat crime. The latter priority is strongly held, and is clearly demonstrated by our robust regulatory system and commitment to international financial initiatives.

In order to further our shared values and priorities, and to promote awareness of our commitment to them, we - as Overseas Territories - must act together in our dealings with the EU, and in international affairs more generally.

But before I talk about our relationship with the EU and current constitutional initiatives, let me take a brief look at the history of the Cayman Islands and their links with both the United Kingdom and the European Union.

The Cayman Islands' relationship with the UK dates back around 500 years - indeed, last year the Islands celebrated their quincentennial anniversary. Sir Francis Drake first visited the islands during his 1585-86 voyage, and the Islands were later administered as a dependency of Jamaica.

But when Jamaica became independent in 1962, the Cayman Islands decided to retain her direct links to the Crown and became a separate British Crown Colony. We continue to value our links with the UK and with the Crown, and our present constitution took effect in 1972, with revisions made in 1994.

The Cayman Islands have a long and proud history of political stability and economic dynamism, coupled with a strong tradition of political and civil rights. Our Islands have been a parliamentary democracy since 1831, when the first government of the Cayman Islands was established.

The Current Situation

The building of a modern economy on the islands dates from the early 1950s, when air services to the islands began. The country’s successful offshore financial industry dates back to 1966 when the first banking and trust laws were passed, laying the foundation for today’s financial services industry.

The Cayman Islands now has the fifth largest financial services sector in the world, and Caymanians enjoy one of the highest standards of living in the region.

The present constitution, which took effect in 1972, provides for a system of government comprising; a Governor, a Cabinet and a Legislative Assembly. The Governor is appointed by the Queen and is responsible for defence, external affairs, internal security, the police and the civil service. Elections for the 15 seats in the Legislative Assembly take place every four years, with the next scheduled for November 2004.

The Future

The Cayman Islands government applauds the commitment of the British Government to support Overseas Territories in the following principles:

• self-determination;
• mutual obligations and responsibilities;
• freedom for the Territories to run their own affairs to the greatest degree possible; and
• assistance in promoting economic development.

I must emphasise that my government has no desire to seek independence, but our policy - consistent with that of the UK Government - is to achieve greater power for the Islands to determine their own affairs. Needless to say, we would continue to embed our track record of good governance, social development and economic entrepreneurialism.

At the most recent meeting of the Overseas Territories Consultative Council (OTCC), in December 2003, I delivered a joint statement in which the Overseas Territories all recognised the responsibilities incumbent upon them as a consequence of their relationship with the UK. This affirmed the objective, also held by the UK Government, of delivering 'high standards of governance on behalf of all of our citizens.'

However, whilst both parties may share this end, the UK Overseas Territories believe there is room for discussion about the means of achieving it. Whilst there is no desire to seek independence at this time , the OTs do want greater rights for self-determination. Indeed, this is the stated aim of the UK Government's 1999 White Paper entitled "Partnership for Progress and Prosperity: Britain and the Overseas Territories".

The priority, therefore, is improving accountability in our relationship with the UK - democratic accountability so that our people can run their own affairs.

My Government's goal is to achieve full internal self governance for the Cayman Islands.

This means that the powers of the Governor must be addressed.

We believe that he or she should continue as an important channel of communication between the Cayman Islands and the UK, and should maintain a role in monitoring governance and providing advice.

However, the Governor should not be able to override democratically elected leaders or retain total control over any area of domestic policy, and home affairs should be the preserve of elected politicians. In addition, the Leader of Government Business should preside over the governing council in place of the Governor.

We also have some strong objections to the way in which the British Government approaches the application of international treaties to its OTs. We believe that the UK is still not paying enough attention to the views of the elected representatives of the OTs, and would hope to ensure that in future the UK Government will undertake considerably more consultation with ourselves over both the formation and implementation of treaties.

With this in mind, I was pleased to read in the Foreign Office's 2004 Annual Report that UK ministers are to be encouraged to consult the OTs before the UK signs up to international legislation that affects them.

The Cayman Islands and the EU

I now want to look at the European Union. The Cayman Islands - along with the other OTs - are not a part of the EU, but this does not mean that we are unaffected by it.

Unfortunately, many in the EU do not understand how Cayman economically benefits the EU and the rest of the world . Economic growth anywhere is largely dependent upon productive saving and investment - capital formation. Financial capital is necessary to build new plant and equipment, to fund research and development, including medical breakthroughs and to provide the funds to hire workers. Places like Cayman provide highly efficient and low-cost environments for institutions to acquire and invest capital protected by the rule of law. Because Cayman and its competitors exist, institutions and individuals are willing to save more because they know they have a safe haven for their funds until they can find another productive and profitable investment. Cayman is too small to take more than a tiny fraction of the capital that flows through it. Much of the financial capital that comes to Cayman from the EU and the rest of the world, is repackaged in economically efficient ways and sent back to the EU where it creates jobs and economic growth, and provides tax revenue to the EU governments.

The world and the EU would be poorer and suffer more poverty if places, like Cayman, did not exist. Hence when the UK and the EU adopt measures that damage Cayman, they are in effect damaging themselves because they will end up having less productive investment in their own economies.

The relationship between the UK Overseas Territories and the EU is a complex matter, because - with the exception of Gibraltar since the European elections last month - they have no representation in the European institutions except through the UK. This means that, as we see the powers of the EU grow ever greater, the OTs have almost no influence over the regulations and treaties to which they are subjected by the British Government.

Gibraltar is a British Overseas Territory, but geographically close to, and of great political interest to Spain, despite ceasing to be a part of Spain in 1713. Gibraltar makes no contribution to the EU budget, and falls outside many policy areas, but it does have obligations and duties under EU law. I think the people of Gibraltar see themselves as culturally, socially and economically part of the continent of Europe. For the first time, this year, the electorate of 18,000 participated in the European Parliamentary Elections; their votes being added to the South West of England constituency. It makes sense that their very basic right to vote in European elections was recognised.

This solution, however, is not appealing to the Cayman Islands. We are geographically remote from Europe, and our free market approach to economic management is far removed from the continental dirigiste (interventionist) approach. We do not depend economically on Europe. We face the world, and we are also inevitably influenced, in terms of trade and economics, by the $10 trillion economy of the United States which is only 480 miles away. We value our links to the British Crown, but we should have local democratic control over internal domestic matters.

My government believes that it is unacceptable that the British Government has the exclusive power to determine which EU regulations and treaties should apply to the OTs, and which should not. It surely cannot be right that my Government, freely elected by the people of the Cayman Islands, should be obliged to implement the unilateral decisions of the colonial power.

We are not part of the European Union and we receive no benefits from it, but unfortunately the European Union has become very assertive in taking steps to insulate its high tax regimes in recent years.

We have also been disappointed by the lack of consultation on major issues. The EU Savings Tax Directive is an example of where the OTs were not consulted, which, I believe, should be a cause of considerable regret. Nevertheless the OTs have come into line on the Savings Tax Directive, in spite of our scepticism about its efficacy and value.

International Standards

I would now like to take a look at the Cayman approach to international standards.

Some international standards are obvious and unambiguous - for example, United Nation mandates - and therefore relatively uncontroversial. However, there is a need for further clarification as to the exact meaning of 'established international standards'.

Where there are clear and unambiguous global standards - for example in marine or aviation regulation - the OTs accept and recognise these. There are not, however, clear global standards for financial services. The financial services market is truly global, but there is no one regulator to which all jurisdictions in the market commit.

Consequently, 'established international standards' in financial regulation is an ambiguous concept to say the least. And this is why there is a strong case for OTs, and Cayman in particular, to have self-determination on all fiscal policy matters.

The Cayman Islands have a history of international cooperation - we do not need EU interference to enforce international standards. We take our international obligations on regulatory and law enforcement matters seriously. For example, in May 2000, Cayman was one of only six jurisdictions which made an ‘Advance Commitment’ to the OECD to exchange information on civil and criminal tax matters.

Furthermore, in November 2001, the Cayman Islands concluded a Tax Information Exchange Agreement with the US. The agreement provides for exchange of information, upon request, for criminal and civil matters relating to US federal law. The US Treasury Secretary praised the Cayman Islands for emphatically 'demonstrating that those who seek to engage in tax evasion or other financial crimes are not welcome within its jurisdiction.'

It is not possible to build the world's fifth largest financial centre if the standards of governance, regulation and law enforcement are not also world class.

Across the globe, there is improved regulator-to-regulator disclosure, more cross-border transparency, improved application of the principles of corporate governance, more rigorous auditing requirements and the application of resources to prosecute and convict wrongdoers. These are developments we should all welcome.

Conclusion

Cayman is fully committed to appropriate and timely international obligations. One need only look at our commitment to and involvement with the likes of the OECD, IMF, FATF, CATF and others - a veritable "alphabet soup" - to witness evidence that we are happy to engage with international bodies.

We need to ensure that our economic success is not undermined by the high tax tendencies of the European Union, and that the democratically elected Government of the Cayman Islands is consulted on a statutory basis by the colonial power.

We do not desire independence at this time, but we do deserve fairness.

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