By Anthony Travers

A number of enquiries have been received by the Cayman Islands Financial Services Association (CIFSA) requesting an explanation of the muted response from the financial industry to the reinstatement of the Cayman Islands on the OECD list of jurisdictions that are substantially compliant with international standards on tax transparency. There are at least two reasons.

First and foremost, a man who is told that defamatory allegations that he had been beating his wife have been withdrawn on the grounds of mistaken identity (of both the husband and the wife) would hardly regard the reaffirmation of his character as a cause for celebration. It is difficult to be overjoyed at the reinstatement of the status quo to which one was entitled.

It is indeed fortunate that the quality of the relationship between the Cayman Islands financial professionals and their clients was such that this latest OECD initiative was regarded by informed clients, who were well aware of the extensive nature of Cayman’s treaties on tax transparency, as a temporary mischaracterisation. Furthermore, the speed of the correction implemented by the Cayman Islands government (CIG) has been such that competitor jurisdictions have had insufficient time for their negative campaigning to gain too much traction.

Secondly, resolution of the “white” list issue now enables better focus on more material issues of greater severity, the existence of which renders celebration premature. Specifically, the lines on the graph that inextricably link the financial industry and the domestic Cayman Islands economy cross on the issue of the budget deficit and the inability of CIG to produce accurate accounts as between profit and loss and balance sheet items.

The endeavour to fund over US$200 million of construction on current account at a time when revenues from the financial industry were clearly dropping is highly significant and renders unbridled celebration of the OECD recognition inappropriate in the bigger picture.

The OECD recognition may well stop any negative fallout accelerating and is highly relevant should the US legislative initiatives, which we anticipate later in the year, take a list-based approach, but it does nothing to reinstate transactional flows that have declined as a result of the global financial crisis and which will not return in a deleveraged financial environment.

Nor has there yet been sufficient focus by CIG on the specific policies that are needed to improve private and public sector revenues by encouraging more substantial financial activity to be undertaken from within the Cayman Islands.

Aggressive marketing is been undertaken in Europe to attract the London fund management industry, yet a recent survey of London fund managers indicated that Cayman was not in the top ten jurisdictions currently being considered as a jurisdiction in which to re-domicile. There are deep-seated reasons for this that need to be analysed, free of the xenophobic comment that typically characterises that debate.

If legitimate concerns exist as to Caymanian integration, as no doubt they do, then they need to be dealt with and offenders sanctioned. But those issues should not be allowed to obfuscate the fact that the Cayman Islands has no tangible exports and therefore policies that encourage domestic job creation and inward investment are critical.

No industry in history, and Cayman is not exceptional enough to create the first ever exception to this rule, has ever continued without constant modification to ensure that it is providing a relevant service that consumers require. Focus on the international initiatives is but one component of the solution but there exists an urgent need for a more detailed self-examination of what Cayman provides and to whom.

We are clearly at a tipping point. The transactional flows that have come to the Cayman Islands for the past 30 years in increasing volume are now decreasing and cannot now be relied on going forward, as statistics will soon show.

Clearly, the Cayman Islands has some fundamental decisions to make and, given the deteriorating revenue position, the sooner the better.

Attorney at law Anthony Travers is the Chairman of the Cayman Islands Financial Services Association (CIFSA).