Cayman Islands Financial Services

The statement of the US business group, “The Business and Investors against Tax Haven Abuse”, which said that low or no-tax jurisdictions hurt the US economy by encouraging tax evasion, caused quite sharp reaction of Cayman Finance. The Cayman Finance response was published as an open letter in a political news agency in Washington, D.C., and addressed to US Senator Carl Levin endorsing the US business group. Mr. Levin and then-Senator Barack Obama were the authors of the proposed “Stop Tax Haven Abuse” bill.

According to Cayman Finance chairman Anthony Travers, the response detailed CI’s impressive compliance with international regulation and transparency legislation and spells out the country’s full income tax transparency agreement with the U.S.

Mr. Travers said that reports of the IMF and the FATF organizations show full adequacy of Cayman’s anti-money laundering regime, and that jurisdiction’s membership in IOSCO ensured proactive regulator-to-regulator disclosure. He said that the laws cited by the US business group in its claim are US laws, and all Cayman Islands companies are required to operate on the basis of complete tax and anti-money laundering transparency under Cayman law, as well as under existing treaties with the U.S. and many other G20 jurisdictions.

Mr. Travers said that, claiming that low or no-tax jurisdictions hurt the US economy through tax evasion, the business group did not take into account the tax transparency treaties and growing number of reports that suggest that international financial centres such as Cayman are well-regulated and neutral jurisdictions facilitating cross-border business and providing liquidity to international markets by increasing investments.

Also, it was stated in the open letter that the changes in US laws in order to apply US tax extra-territorially to Cayman mutual and hedge funds with US fund managers will lead to their relocation outside the US.

The Cayman Islands Monetary Authority (CIMA) formalised procedures for the exchange of supervisory information relating to United States and Cayman Islands banks and banking institutions operating in each others’ jurisdictions. The four main U.S. banking regulators that have become parties to the “Statement of Cooperation” are the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision.

The issues covered by the document include sharing of information when a Cayman Islands or US regulated bank or banking institution who wants to set up a branch, affiliate or subsidiary in the other jurisdiction is seeking approval in that jurisdiction.

According to the statement of CIMA, the agreement came into effect after several months of negotiations, and its purpose is to enable the countries “to more effectively supervise entities for which they have overall responsibility, when those entities also have operations in the other jurisdiction.”

CIMA’s managing director Cindy Scotland said that entering of the jurisdiction into this agreement also answers the IMF recommendation stated in its report for the year 2009, on the Assessment of the Financial Sector Supervision and Regulation in the Cayman Islands. This report recommended that CIMA enter into agreements with home supervisors of international financial institutions it regulates in order to manage the risks involved in the cross border operations of such institutions.

CI Premier and Minister of Finance McKeeva Bush stated that the agreement is important from a regulatory and business perspective. He said that the agreement will “enhance CIMA’s effectiveness and that of the other regulators in executing their supervisory responsibilities with regard to cross-border banking entities.” He added that the agreement provides further evidence of the jurisdiction’s commitment to regulation and international cooperation, and shows the increasing stature of the country as an international financial centre.

The U.S. Securities and Exchange Commission has filed civil charges against two Texas businessmen accusing them of violating federal securities laws governing ownership and trading of securities by corporate insiders. They are said to have organized insider trading scheme involving Cayman Islands companies and trusts, and to have received US$550 million of undisclosed gains by trading stock in the public companies “through hidden entities located in foreign jurisdictions.”

According to the SEC statement, the businessmen created an elaborate sham system of trusts and subsidiary companies in the Cayman Islands and the Isle of Man, with the purpose to sell more than US$750 million worth of stock in four public companies for which they were corporate directors, and committed an insider trading violation having received an unlawful gain of more than US$31.7 million.

Deputy SEC enforcement chief, Lorin Reisner, said that the accused persons used “the complex web of foreign structures” to conceal hunderds of millions of dollars of gains in violation of the disclosure requirements for corporate insiders.

On July 8, the largest management firm in the Cayman Islands – dms Management Ltd. (DMS) – published a press release to proud to announce that Don Ebanks has been appointed Director. This largest management firm in Cayman is focused on serving the hedge fund industry.

As one of the principals of DMS, Ebanks will serve as an independent director of hedge funds and other alternative investment vehicles. He is going to get use of his extensive experience in asset management, financial regulation and corporate restructuring in taking this position.

Before joining DMS, Ebanks served in a number of high-profile positions including the Managing Director of Ernst & Young, insolvency and restructuring practice group in the Cayman Islands. Also, he was the Head of Compliance of the Cayman Islands Monetary Authority (CIMA) and created the Compliance Division there as well as was developing the compliance framework for the Authority.

The Prime Minister and the Minister of finance, tourism and development of the Cayman Islands, W. McKeeva Bush, is considering the proposal to make it easier for Jamaicans to visit the jurisdiction if they are already holders of a US visa.

Bush said that he believes the rigorous process to which applicants for United States’ visas are subjected should be satisfactory for entering the Cayman Islands, obviating the need for the granting of a Cayman visa. He said: “The US visa process is well scrutinised. If it serves the US, then it serves us. What I do believe needs to be done now is to consider allowing entry to persons with US- issued visas.”

He also stated that there are many business connections between Jamaica and Cayman, so legitimate business people need to move to and from the jurisdiction. Bush noted that “the Cayman Islands has had tremendous and historical connections and relations with Jamaica for many years”.

According to Bush, he could not commit to whether the visa waiver would be limited to business persons.

Recently, there have been several announcements from the companies registered in the Cayman Islands that they have shifted or are shifting their place of incorporation from the Cayman Islands to Ireland.

On July 2, United America Indemnity has completed the redomestication from the Cayman Islands to Ireland.

Also, it has been recently announced that another Cayman-registered company – Seagate Technology – having domiciled in the jurisdiction for 10 years, changes its jurisdiction of incorporation from the Cayman Islands to Ireland.

On July 1, XL Group plc. announced that it has shifted its place of incorporation to Ireland from Cayman Islands. The company is the Bermudan insurance and reinsurance organization that has had significant operations in the Cayman Islands. This transition was originally announced in January 2010, and it is not expected to have any material effect on the financial results of the company.

To conclude, many companies considered the Cayman Islands to be an attractive financial centre for offshore company incorporation because it provided tax benefits. So, they incorporated their businesses there. Unfortunately, the US and European lawmakers increased scrutiny in order to crack down on abuses and collecting more tax revenues from multinational operations. The dramatic consequence of that is that the jurisdiction became less attractive. Also, it should be noted that the recession has hurt revenues for islands in the British Caribbean, which could lead to higher taxes for companies based there.

Currently, Ireland is an attractive place for incorporation because of its sophisticated and well-developed corporate, legal and regulatory environment. It has a long history of international investment and commercial relationships, as well as trade agreements and tax treaties with the EU countries, the US and other countries around the world. Incorporation in Ireland is beneficial because of a protection of officers and directors from personal liability, asset protection, tax benefits and increased ability to effectively value and market the company.

Previously, it was discussed that United America Indemnity has completed the redomestication from the Cayman Islands to Ireland.

It was recently announced that another Cayman-registered company changes its jurisdiction of incorporation from the Cayman Islands to Ireland. After 10 years of incorporation in Cayman, Seagate Technology has redomiciled to Ireland in order to benefit from tax advantage.

According to a filing with the US Securities and Exchange Commission made on February 1, a multi-national company incorporated in Ireland, Seagate expected to minimize its tax burden and to benefit from the “extensive network of tax treaties.” Seagate’s shareholders approved the change of legal address. In 2009, the company reported sales of USD 9.8 billion and listed 47 000 employees.

On July 2, Global Indemnity plc announced that the redomestication transaction previously approved by the shareholders of United America Indemnity, Ltd. was completed.

United America Indemnity, Ltd., which is a Cayman Islands company, is now a wholly-owned subsidiary of Global Indemnity plc, an Irish company. The former shareholders of United America Indemnity, Ltd. are now the shareholders of Global Indemnity plc, which will keep the registration with the US Securities and Exchange Commission (SEC) and be subject to the SEC’s standard reporting requirements.

Global Indemnity plc is a company having several direct and indirect wholly-owned subsidiary insurance and reinsurance companies that provides both admitted and non-admitted specialty property and casualty insurance coverages in the US, as well as reinsurance throughout the world.

The government of the Cayman Islands has announced that a Tax Information Exchange Agreement (TIEA) has been signed with the government of Canada.

To welcome the signing, Cayman Prime Minister McKeeva Bush said: “This is indeed an important day for as we have come together to mark a significant milestone in the long-standing relationship between the Cayman Islands and Canada through the tax information exchange agreement we have just signed.” He added that the signed documents provide for comprehensive tax information sharing arrangements, which reflects the jurisdiction’s commitment to upholding and implementing international standards in the global financial services sector.

According to Bush, the signing of the TIEA will have a positive effect on developing mutual cooperation between the Cayman Islands and Canada. As a result of favourable tax treatment for active business income earned by Cayman subsidiaries of Canadian companies, the document is expected to bolster economic flows.

Taxation in 2010 Budget has been only nominally increased by the Cayman Islands. This move reveals the Cayman government’s 3-year plan aimed to bring its budget back to surplus. Besides cuts in expenditure, the government of the jurisdiction has proposed many reforms designed to enhance the jurisdiction’s attractiveness to investors.

When delivering the budget, Cayman’s Premier McKeeva Bush said: “Given the observations of the current fiscal year, it is evident that the economy is at a point where additional taxation will compromise the competitiveness of businesses. Such an outcome would have implications for the economy’s capacity to grow its way out of the recession. There is an awful tendency here to say raise taxes and let business pay, but the harsh reality is that if that is the case, we will run away businesses, and lose more jobs. The only ones to really suffer are Caymanians, particularly those who can’t help themselves. Therefore one of the key tenets upon which government policy would revolve, during the fiscal year 2010/11, is the minimization of any new revenue measures on businesses, especially when it becomes a burden”.

According to the government’s budget forecasts, a small surplus of about USD 11.1 million is expected in the fiscal year 2011-2012. In 2012-2013, a fiscal recovery is foreseen as the surplus is expected to be essential.

To improve the attractiveness of the Cayman Islands to outside investors, the following measures are to be implemented by the government:

- to further modernize and enhance regulation and supervision in order to ensure that the jurisdiction keeps on par with the evolving international regulatory standards and best practices relevant to its various types of business;

- to intensify international cooperation and involvement in order to ensure that the government does its part to ensure the safety and sound regulation of the international financial system, allowing the islands to contribute to the development of international rules and standards that affect it;

- to increase the effectiveness and cost-efficiency with which regulatory agencies operate;

- to facilitate the efforts of government and the private sector to further develop the jurisdiction as an international financial centre;

- to become more business-friendly.