business commentary

Cayman Islands: The State of Compliance
A review of the 2nd Annual Caribbean Regional Compliance Conference

by Martin Livingston,
Head of Compliance
at Maples and Calder

Monday  April 4, 2005

Almost 200 professionals attended the 2nd Annual Caribbean Regional Compliance Conference hosted by the Cayman Islands Compliance Association at the Westin Resort from the 23 – 25 of February. The audience included attendees from the Bahamas, Barbados, British Virgin Islands (BVI), Panama, Turks and Caicos, Bermuda and Trinidad. The panels were made up of over 24 local and international expert speakers who touched on subjects ranging from asset tracing and fraud investigations, through corporate governance and confidentiality to the overall perception of the offshore financial centres. 

Feedback from delegates and speakers alike has been extremely complimentary, both of the organisation of the event and the hospitality of the locals. Foreign journalists who attended rated the conference as one of the best in relation to the scope and depth of the topics covered.

More importantly, influential foreign representatives from the Organisation for Economic Cooperation and Development (OECD), International Monetary Fund (IMF) and Caribbean Financial Action Task Force (CFATF) all commended the sophistication of the event and noted that some of the information presented would be valuable in terms of the true state of compliance in the region.

The underlying motive of the event was to bring other Caribbean regional compliance associations together to forge a closer alliance when dealing with the changing regulatory environment.

As was witnessed when the bulk of the international initiatives cut a swathe through the offshore centres, most jurisdictions tended to their own best interests when threatened with sanctions, rather than presenting a concerted front to question imbalances. 

It is agreed that not all of the offshore centres in the Caribbean are the same; indeed only a few have large international institutional client bases. As such, not every initiative must be met with a universal position. But there will be some issues of general relevance to the region and the sharing of ideas and experience may assist in how best to handle them.

Going forward, the associations of the Cayman Islands, Bahamas, Barbados, BVI, Trinidad, Panama and Turks and Caicos will be interacting more closely to enhance the compliance culture within the Caribbean. A virtual regional association will be formed to provide a centralised forum for the discussion of regional and international matters, as well as to help immature markets form their own associations. 

One of the panels at the conference focused on the recent assessment by the IMF of offshore financial centres. As at the end of February 2005, 41 out of 44 offshore jurisdictions have been assessed, including the Cayman Islands in October 2003. On Friday, 11 March the assessment report for the Cayman Islands was issued in final. 

The good news is that it generally confirms that Cayman’s regime for combating money laundering and the financing of terrorism is effective and compliant with international standards and core principles. This is gratifying considering the amount of effort that has been expended on these subjects over the last ten years. The report noted that there was “good evidence of a developed compliance culture” and that “many in the industry are active participants in the international anti-money laundering arena and provide leadership to other jurisdictions.”

The IMF report also focused on Cayman’s framework for international cooperation for regulatory and criminal matters. The IMF recognised that Cayman has openly adopted legislation supporting the transfer of information for proper cause with the appropriate authorities, while continuing to maintain mechanisms to protect the interests and privacy of business where warranted.

The importance of the IMF assessment report to the Cayman Islands has been touted for some time. Despite the identification of certain technical and resource issues, the report reads comparatively well in relation to other offshore centres. As the offshore centres are now well used to objective reviews from international bodies, the results can be used to some advantage, despite the ever-present arguments vis a vis a level playing field between onshore and offshore regimes. 

At some point over the last five years, most financial service providers will have been approached by a counter-party to provide some proof that the Cayman Islands is either a Financial Action Task Force (FATF) member or FATF compliant. 

Until now, we have only been a member of and had peer reviews conducted by the CFATF (being the Caribbean FATF, a regional FATF style member) to fall back on. Although these have been authorized by the FATF, they have not been sufficient for these purposes. 

As the IMF assessment encompassed the FATF recommendations in the review methodology, we now have a benchmark with which to prove that we are “largely compliant” with international standards. At the conference, it was noted that it would be helpful if the IMF, or some similar agency, could issue a simple form of certification for each jurisdiction reflecting their level of compliance, so that it could be used by service providers as a reference point, rather than apply a verification process each time a request is made. The Caribbean Regional Compliance Association has written to the CFATF on this point.

With the results of each comprehensive assessment available for public consumption on the IMF website, the reality of the state of compliance for each jurisdiction should be obvious to all, especially the global media. Hopefully, we can get to a point where each negative article or remark made can be countered simply by direction to the appropriate part of the IMF report. In the meantime, the report provides the Cayman Islands with a competitive edge over other reputable offshore jurisdictions in the global financial supermarket.

An area where the Cayman Islands have excelled is transparency. Transparency chiefly includes transparency of dealings between a regulator and the licensees or other regulators, and the exchange of information where necessary. Despite the prevailing myths of secrecy in the Cayman Islands, the framework for the exchange of information is robust.

Procedures are in place for considering requests of information pertaining to criminal matters under the Mutual Legal Assistance Law, the Proceeds of Criminal Conduct Law, the Misuse of Drugs Law and the Criminal Justice (International Cooperation) Law. Similar avenues are available for regulatory and administrative tax related requests under the Monetary Authority Law, the Tax Information Exchange Authority Bill and the Reporting of Savings Income Information (European Union) Bill (both soon to be enacted as laws), with accompanying bilateral information exchange agreements between specific jurisdictions.

On 1 March, the International Organisation of Securities Commissions (IOSCO) released a report relating to the strengthening of capital markets against financial fraud. The report summarised a study by a technical committee into the reasons behind the recent collapse of several global companies (based in the US and Europe) on account of fraudulent internal behaviour, auditing failures and Board mismanagement. IOSCO intends to make recommendations, which would reassure investors about the integrity of the global markets and the state of corporate governance.

In conjunction with a separate initiative focusing on cooperation and the exchange of information, IOSCO hopes to develop a new international framework of principles to prevent such collapses from threatening the global marketplace in the future. Players in the global market will need to sign up to these principles, if they don’t already adopt them, and commit to a multilateral Memorandum of Understanding on sharing information. Non-compliance by member states with these benchmarks may be met by a new round of black-listings.

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