By Tad Stoner
tad@caymannetnews.com

The financial services industry has warned of Cayman’s rapidly deteriorating position because of the Organisation for Economic Cooperation and Development (OECD) “greylist” and has demanded that government officials replace the unilateral mechanisms for the exchange of tax information with bilateral agreements.

Government, however, anticipates OECD approval of Cayman’s unilateral mechanism, possibly next week, and has obliquely rejected recommendations offered by Anthony Travers, Chairman of the Cayman Islands Financial Services Association (CIFSA).

Meanwhile, Mr Travers has written to US President Barack Obama, lamenting the politicisation and lack of understanding of Cayman’s regulatory structure among Washington policymakers.

Coming in the wake of the Mr Obama’s Monday remarks about closing loopholes in the US tax code, with specific reference to the Cayman Islands, Mr Travers’ 5 May letter says CIFSA is “gravely concerned” about charges that locally registered US corporations are engaging in fraud.

While supporting the president’s intention to “restore balance and fairness” to US global tax policy”, he says, CIFSA rejected claims “which erroneously suggest that the subsidiaries of US corporations operating in Cayman are engaging in tax fraud merely because they are registered to do business here.”

“Nothing could be further from the truth,” he wrote. Cayman-based subsidiaries, Mr Travers says, “operate legally and transparently, and [CIFSA is] aware of no information to the contrary. The Cayman Islands has a low tax rate, just as do Ireland and other jurisdictions. That is not a bad thing; it certainly is not the basis upon which to suggest illegality in the form of tax evasion.”

Mr Travers, through a spokesman, said he would “shortly travel to Washington to engage directly on the subject” although no dates have been set pending confirmation of meetings.

Just last week, however, in a 23 April letter to Leader of Government Business, Hon. Kurt Tibbetts, Mr Travers described a “degree of urgency” about government’s lack of response to Cayman’s grey-listing by the Paris-based OECD, and at “the immediate and negative responses being received on a daily basis from clients, and hard evidence of determinations having been made by institutional clients now, not to use the Cayman Islands, rather to favour ‘white list’ competitor jurisdictions.”

At the 2 April London summit of the world’s 19 most developed countries plus the European Union, the Group of 20 placed Cayman on the OECD’s 30-member “grey list” of countries that “committed to the internationally agreed tax standard”, but had not ”substantially implemented” proper information exchange agreements.

The OECD credited Cayman with eight accords, the most among the listed jurisdictions, but required at least four more for graduation to the fully approved “white list”. Cayman has already signed another 12 agreements, but mostly under its own “unilateral mechanism” which, while called “innovative” by the OECD, has not been formally approved by the organisation. Local officials hope to gain that imprimatur at the OECD’s 12-13 May meeting.

In his reply to Mr Travers, Mr Tibbetts said Government was “lining up” bilateral discussions with “at least four OECD member states with the objective of concluding agreements in short order.” While he did not name the four, the UK is among them, and recent speculation has focused on Australia.

While Mr Travers declined to comment on what he called “a private letter which I am not at liberty to disclose”, he said it “sets out the factual position in terms of new deal flow to Cayman.”

Eduardo Da Silva, CIFSA Vice-Chairman, said, however, that overseas agencies that had frequently advised clients about the advantages of the Cayman Islands “had made recommendations that a ‘white list’ country might be better for them.”

Acknowledging that the OECD preferred bilateral agreements had not recognised Cayman’s unilateral mechanism -- Mr Travers recommended that local officials “immediately implement four additional bilateral treaties” by sending signed documents to any four of Cayman’s unilateral partners. At the least, he indicated, Government should give Paris bilateral treaties, signed by Cayman, but without naming a partner country.

CIFSA, he said, “now places no value whatsoever” on any benefits gained under the unilateral mechanism. “The daily damage now being sustained by the Cayman financial industry is verifiable.”

He also recommended repeal of criminal sanctions in Cayman’s Confidential Relationships Preservation Law, which prevents disclosure of most information salient to financial transactions. He called for a second amendment making available all tax and criminal information

Presently, he said, “typical client reaction ranges from extreme scepticism to non-acceptance of assurances, and adverse conclusions are being drawn … pressure from clients is rendering the current position of professional advisers in the financial industry untenable.”

“Unfortunately, competitive marketing being what it is there is no sanctuary for the Cayman Islands in a grey list,” he said.

“I can assure CIFSA,” Mr Tibbetts replied, “that all viable routes to an expedited progression to the G-20/OECD ‘white list’ are being pursued as a matter of top priority.”