News from the Cayman Islands for
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Local financial services survive
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| Published on Wednesday, December 9, 2009 | Email To Friend Print Version
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Tim Ridley, former Chairman
of the Cayman Islands
Monetary Authority (CIMA)
By Kevin Shereves
kevin@caymannetnews.com
The International Tax planning association hosted a conference at the Ritz Carlton Hotel 6-8 December 2009. Tim Ridley, former chairman of the Cayman Islands Monetary Authority (CIMA) spoke during the conference on Monday 7 December about the future of the Cayman Islands as a financial services centre.
Highlighting the current state of affairs Mr Ridley said, “Many offshore centres, and perhaps the Cayman Islands more than many, have experienced significant drops in their key industries, tourism and financial services, and thus also general local business activity and government revenues. This in turn has caused budgetary problems for governments.”
He said that reports of the impending death of the offshore industry are exaggerated. “I believe there will continue to be a place for high quality, innovative and adaptive offshore financial centres (OFCs).”
Referring to the quality of Cayman’s service providers he said, “Assuming I am correct, there will equally be a place and need for high quality service providers in those OFCs.” Regarding Cayman’s new constitution and possible future independence, Mr Ridley said, “The Cayman Islands finally adopted a new constitution that, with some transition features such as the Bill of Rights,… came into effect in early November 2009. This is not part of a set timetable to independence (with one more small red dot on the map disappearing), but rather a modernisation with greater autonomy given to the locally-elected politicians led by a Premier.”
Mr Ridley described the OFCs as posing a major competitive and potentially uncontrolled challenge to major jurisdictions. Thus, he said, the UK and the US in particular are not keen to see OFCs thrive too much, but they have traditionally recognised that, for their own financial service industries and multinationals to be competitive, they must allow them to use OFC domiciled structures. “This traditional position is now under serious pressure as many politicians see more downsides than upsides in the continued symbiotic relationship between onshore and offshore,” he acknowledged.
He referred to the ten-year global tax initiative pursued by the Organisation for Economic Cooperation and Development (OECD) as “chameleon-like in its changes during the period.” Having been beaten back on tax harmonisation, Mr Ridley said, the programme is presently focused on tax information exchange and transparency and their effective implementation. In this regard, “the OECD has recently been playing the ‘name and shame’ card to remarkably good effect,” he said.
He said that Cayman had been slow to build on both its early tax information exchange agreements (TIEA) with the USA in 2002 and its implementation of the automatic reporting under the EU savings directive in 2005.
However, Cayman having initially missed the OECD “white list” by a narrow margin, it made it in quick order during the summer of 2009 by signing a plethora of TIEAs.
Mr Ridley said that the next steps will be “peer review” of effective implementation of the TIEAs and possibly moves to sign multilateral agreements.
“And not so far over the horizon, automatic/spontaneous exchange of tax information,” he added.
He also referred to recent proposals in the US, UK and the EU for domestic/regional legislation to limit and make the legal use of offshore centres by individuals and corporations increasingly difficult, burdensome and costly and to enhance the regulation and taxation of onshore hedge fund managers and, if they can find a way to do it, the offshore funds themselves.
“This… could lead to European investor-focused funds being formed within the EU rather than offshore, with Luxembourg and Ireland being the principal beneficiaries,” he acknowledged.
“So why do OFCs like Cayman take any notice of these issues? Why not ignore them and carry on as before?” he asked, going on to outline some of the things that are taking place in with regard to OFCs:
“There are heightened threats of meaningful sanctions (e.g. increased withholding taxes) against non-compliant OFCs and those that use them. Germany has been considering specific legislation, and France has recently announced the establishment of Evafisc, a Big Brother database to monitor offshore accounts. And it is by no means clear that inclusion in the OECD white list will necessarily give OFCs a ‘get out of jail’ card. For example, the list appears to cut no ice with the US Administration or Congress, even assuming they are aware of it.
“The UK Revenue has issued a proposed code of conduct for UK banks under which they will (voluntarily) commit to meeting the spirit and not just the letter of UK tax laws. It aims to limit the banks’ use (for themselves and their clients) of offshore structures that do not support genuine commercial activity and that, while legal, offend the spirit of UK tax laws as intended by Parliament. “The European Investment Bank (EIB) has amended its lending policies so that loans will not be signed with entities domiciled in jurisdictions that do not meet international standards on tax information exchange.
“US citizens working overseas are finding it increasingly difficult to open, operate and maintain normal banking relationships. Banks are finding the compliance costs and risks are not worth it.
“A number of publicly- quoted non-financial companies domiciled in Bermuda and the Cayman Islands and with strong US connections (so far principally reinsurance and oil services companies) have already elected to transfer their domiciles to jurisdictions with established (and protective) double tax treaty networks and attractive corporate tax regimes. To date Ireland and Switzerland have been the preferred domiciles.” After listing some of the measures undertaken by the government as well as the private sector in response to the challenges facing the Cayman Islands, Mr Ridley went on to outline what more needs to be done in this respect:
In particular, he suggested:
“Cayman needs to improve the delivery of legislation and regulation that relates to financial services. It simply takes too long for ideas to move to formal action. “We need increased transparency in the private sector by enactment of holistic data privacy laws in place of the Confidential Relationships (Preservation) Law, by increasing the publicly available information regarding both regulated and unregulated entities and by increasing the statistical information obtained and published by the Monetary Authority and the ESO.
“We need greater and more effective enforcement of our existing financial services laws and regulations by the regulators and law enforcement. “We need better targeted and effective intelligence gathering, lobbying and media relations, particularly in key centres such as Washington, London, Brussels and Paris to influence political and media perceptions, opinions and outcomes. “The Government London office should be greatly strengthened and include the ability to effectively cover Brussels, Paris and other key European centres.
“Government offices (with the right staff) are needed in key centres such as Washington DC and possibly the Far East.
“Cayman should develop better governmental contacts and business promotion in Asia, Latin America and the Middle East.
“The Government’s and the private sector should support think tanks, symposia/fora/ conferences and the research, publication and dissemination of quality academic studies analysing the (beneficial) role of OFCs.”
Mr Ridley closed his presentation by asking, “What is the future for Cayman? Do we thrive as a financial services centre and tourism destination or do we go back to fishing, ropemaking and the ‘Islands that time forgot’ (with meager handouts from the UK and EU) until global warming finally sinks us?”
He said, “I believe Cayman meets the foregoing tests for being a survivor and need not suffer death by a thousand cuts. But to really thrive as a financial services centre, it must learn better from history and from its mistakes and work more effectively to be fully accepted as a legitimate participant in the global financial world and to continue to be one of the preferred OFCs for both businesses and individuals.” | | | | Reads : 1250 |
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