Gov't makes a commitment to consult with the Financial Industry before it bows to outside pressure and promises...
In what may signal a departure from the way the Cayman Islands Government enacts any further change in legislation, which will affect the offshore financial industry, the present Administration has given an undertaking to consult representatives of the private sector before entering international agreements on taxation.
Hon. McKeeva Bush
Government Information Services (GIS) reported leader of Government Business Hon. McKeeva Bush as saying recently, "I assure everyone that the Government will not enter into any future negotiations on matters on this evening's agenda or on related issues without prior consultation with representatives of organisations attending these meetings".
According to GIS, this statement came last week at a meeting of financial sector leaders who discussed details of the Cayman-US tax information exchange agreement (TIEA) with Cayman's Washington legal adviser.
The meeting was organised and chaired by Leader of Government Business McKeeva Bush, who indicated that this was the second in a planned series aimed at maintaining open dialogue.
The minister said that the forums were intended to inform the private sector as well as to provide a medium for exchange of views and input on current and other initiatives.
Outlining the terms of the TIEA with a group of some 20 representatives of private sector financial organisations was Mr. Joseph B. Tompkins, Jr., former US Department of Justice attorney who is now a partner in the Washington office of the law firm of Sidley Austin Brown & Wood LLP. Mr. Tompkins and his firm have served as advisers to the Cayman Government since 1985, starting with negotiations for the Mutual Legal Assistance Treaty (MLAT).
Mr. Tompkins told the gathering that he had been asked to provide a full and candid briefing on the TIEA. Responding to technical tax issues at the meeting was US tax lawyer, Mr. Thomas H. Yancey, a tax partner at Sidley Austin. Chief Justice Anthony Smellie, QC, along with the Hon. Linford Pierson, the Hon. Gilbert McLean, and Financial Secretary George McCarthy were also on hand to assist in explaining and clarifying matters from the local perspective throughout the discussion.
Mr. Tompkins said that the TIEA has several significant features. First, it will not come into effect until 2004, and it will not be retroactive. Second, being limited to federal income tax, the agreement does not apply to state or local taxes, or to other types of federal taxes. Another important feature is that tax liability must be of a "significant or substantial amount" and conduct must constitute a "systematic effort or pattern of activity" before the US can make a request under the agreement. In addition, the agreement provides for the confidential treatment of any information exchanged, specifically stating that the information cannot be provided to any third party or used for any purpose other than those stated in the agreement, without the consent of the government providing the information.
The same approach is expected to apply to exchange of information on civil tax matters, to which the treaty will not apply until 2006 -- another two years after it becomes operational. Civil tax offences do not carry penalty of imprisonment. Another important distinction is that civil matters may concern oversight or negligence, while criminal cases are defined by willful and intentional attempts to defraud, subject to proof beyond reasonable doubt. Due to their less serious nature, civil matters are not expected to form a significant part of requests under TIEAs, Mr. Tompkins said.
Further US/Cayman dialogue on the implementation of the treaty is likely to result in an exchange of letters. These will define such issues as the local body/bodies that will handle requests, limits within the terms of the treaty, and additional benefits to Cayman.
"I anticipate that the existing goodwill and relationship of trust between the Cayman and US governments will take this aspect of negotiations forward in a way that will continue to be favourable to Cayman," said Mr. Tompkins.
He reflected that when the local delegation met with officials of the US Treasury Department at the November signing of the treaty, the tone was extremely cordial and complimentary. The Treasury group expressed appreciation for Cayman's cooperation, particularly with regard to the US's worldwide call for anti-terrorism initiatives.
"The meeting was one of the most positive of its type in which I have participated," Mr. Tompkins said.
Prior to assuming his role as adviser to the Cayman Government, Mr. Tompkins spent three years with the Department of Justice, initially serving as adviser to the Assistant Attorney General in charge of its Criminal Division. During his final 18 months, he was second-in-command in the Criminal Division's Fraud Section. In that capacity, he worked closely with the Office of International Affairs, which was responsible for subsequent negotiations with the Cayman Government on the MLAT and for making requests under the treaty.
As adviser, he also mediated in the early stages of the MLAT's implementation, assisting in ensuring that requests complied with its terms. His law firm suggested the asset-sharing agreement with the US, from which Cayman has received millions of dollars for use in local law enforcement activities.
Since the MLAT, Sidley Austin has been active in monitoring developments affecting Cayman in the executive branch of the US Government as well as in Congress. At times, Mr. Tompkins has met with members of Congress and their staff to correct misunderstandings and to educate them on legal and regulatory developments in Cayman. The firm also monitors judicial proceedings in the US that may affect Cayman, and it has successfully represented the Government in various court matters occurring in the US.
Along with Cayman's, the US has TIEAs and tax treaties with many foreign countries, including the Bahamas, Bermuda, and Antigua and Barbuda.
Among the more recent group of TIEAs, Cayman's was the first, he said. This timing enabled the Cayman government to negotiate favourable terms as well as to achieve some mileage from the publicity evolving from cooperation with the US.
Attending last week's meeting (Wednesday, 20 March, at Hyatt) were representatives of the Cayman Islands Law Society, the Caymanian Bar Association, the Bankers Association, the Company Managers Association, the Mutual Fund Managers Association, the Insurance Managers Association, the Society of Trust & Estate Practitioners; and the Cayman Islands Society of Professional Accountants (CISPA).
The president of the Company Managers Association, Mr. Paul Harris, expressed appreciation to Government for the opportunity afforded for exchange of views and discussion.