Commentary
Off the List,But at What Price?
Now that euphoria of the Cayman Islandsbeing struck off the Financial Action Task Force's (FATF) listof offshore jurisdictions deemed non-cooperative in fighting moneylaundering is waning, the question must be asked: at what pricewas this achieved?
In order to get into the good books of theFATF the Cayman Islands enacted a rash of new laws, amended othersand introduced a number of regulations governing procedure inbanking transactions. And on 22 June, this jurisdiction was amongfour countries to have their names taken off, one year after beingput on the FATF's blacklist.
The FATF had said it was concerned abouta lack of transparency in offshore banking transactions here.
"The Cayman Islands did not have anylegal requirements for customer identification and record keeping.Even if in the absence of a mandatory requirement, financial institutionswere to identify their customers, supervisory authorities couldnot, as a matter of law, readily access information regardingthe identity of customers. Moreover, the supervisory authorityplaced too much reliance on the home country supervisors' assessmentof the management of bank branches," the FATF said.
Mr. Andreas E Neocleous, a Managing Partnerof Andreas Neocleous & Co., said last year, last January inNicosia a conference hosted by the respected Economist publication"the demand of the great powers for complete transparency,apart from the fact that it is a very extreme position, clashesinto the human rights and perhaps the Constitution of each countryseparately. At the same time, however, it is also an arbitrarydemand of the powerful which can literally be equivalent to placinga video camera in the bedroom of every citizen in the world".
Mr. Neocleous, who lists the Cayman Islandsas one of the world's most reputable offshore jurisdictions, pointedout that in most places in the world no one is entitled to askfor and receive information regarding different transactions,commercial, financial or otherwise, unless those transactionsconstitute criminal offences.
Attorney-at-Law Mr. Michael Alberga, a formidableopponent of the OECD's initiatives when contacted for commentsaid: "Its is very good news that Cayman has been removedfrom the FATF's blacklist of countries. Unfortunately, Caymanshould never have been on the list in the first place.
"The majority of European regulatorswere born and have operated in a socialist orientated system whichfavours heavy government regulation, they are not free marketorientated and it is clear that many of them are either opposedto free markets or do not understand how they operate.
"The measures which Cayman institutedto get off the blacklist were not subjected to any analysis asto market acceptability, the cost to service providers and thecompetition from free market countries such as the United Statesof America and others who compete with the Cayman Islands.
"As the measures begin to take effect,the costs and market reaction will provide a clear indicationas to whether these will enhance or impede the Cayman Islandsposition as one of the world's premiere financial centres."
Offshore financial sector observers andofficials are not saying exactly what would have been the consequencesfor places like the Cayman Islands if the laws weren't changedto suit FATF's demand on transparency.
However, when the influential FATF lastyear labeled some 15 countries non-cooperative and said they shouldget their houses in order, the message was so worded as to givethe impression of veiled threats to the economic future throughthe rich nations - which are associated with the task force -refusing to do business with these offshore centres.
"These jurisdictions are strongly urgedto adopt measures to improve their rules and practices as expeditiouslyas possible in order to remedy the deficiencies identified inthe reviews. Pending adoption and implementation of appropriatelegislative and other measures, and in accordance with Recommendation21, the FATF recommends that financial institutions should givespecial attention to business relations and transactions withpersons, including companies and financial institutions, fromthe "non-cooperative countries and territories" mentionedin paragraph 64 and so doing take into account issues raised inthe relevant summaries in Section II of this report.
"On the other hand, should those countriesor territories identified as non-cooperative maintain their detrimentalrules and practices despite having been encouraged to make certainreforms, FATF members would then need to consider the adoptionof counter-measures."
Experts are mum on the subject and it isunclear at this stage how legitimate customers wanting to useCayman's offshore financial sector for their banking arrangementswould re-act to the new transparency provisions. The news rulesperhaps mean that the transactions will be open to scrutiny bypeople or governments these honest depositors do not want in theirbusiness.
Another area for speculation at this stageis what the FATF said in respect of Cayman's commitment to identifypre-existing accounts by the end of next. year.
It is left to be seen if there would bea flight of accounts owned by honest depositors who cherish theirprivacy.