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.

On April 28, 2010, the Immigration (Amendment) Bill 2010 was passed by the Cayman Islands parliament. The new legislation allows 25-year residence to rich individuals who invest in businesses contributing to the prosperity of the jurisdiction, on certain conditions.

The Bill gives the possibility fot foreign individuals to apply for a Residential Certificate for Investment. This will cost KYD 20 000 (USD 24 000), and allows the investor, their spouse and any dependents the right to live in the Cayman Islands without a work permit on certain conditions.

Under the newly-introduced law, investors must:
- have a net worth of at least KYD 6 million;
- invest at least KYD 2.4 million in licensed businesses with workforces comprising of at least 50% Caymanians, contributing to the prosperity of the jurisdiction;
- pass checks on business competence, show financial records of their businesses’ stability, and show that they undertake a managerial role in their given area;
- possess a clean criminal record;
- be of sound health with adequate health insurance.

It should be noted that the Immigration Law previously contained provisions to allow residence to wealthy investors but were retracted as the Cayman Islands received little interest.

The government of the Cayman Islands has announced changes to the National Pensions Law to allow a temporary 1-year suspension period of pension contributions for Caymanians and a temporary 2-year suspension period for non-Caymanians.

The amendments are effective since April 26, 2010.

The newly-introduced changes will affect private sector employers, employees, and self-employed individuals.

According to Cayman Pensions Minister Rolston Anglin, “In the current economic climate, pension contributions place a considerable financial burden on employers, employees and self-employed persons.” He said that, as some businesses are facing closure, the relief might enable them to survive in these tough economic conditions.

Businesses must be in compliance with the National Pensions Law in order to participate in the suspension. Another participatory condition is that pension plan membership must be maintained, which means that all employers and employees, regardless of when they are employed, must be members of a registered pension plan.

The Population and Housing Census of the Cayman Islands will be officially launched in Grand Cayman on October 10, 2010. An official ceremony is to be held as well as there will be an opportunity for residents to sign up as census workers.

Currently, the population of the jurisdiction is speculated to be between 60 000 and 70 000 persons. Also, there are reports of a decline of some 3 000-5 000 in 2009.

The launching in Grand Cayman is scheduled for April 29. It will be organized by the Economics and Statistics Office, in cooperation with the multi-sectoral Census Advisory Committee, its sub-committees and the office of the Sister Islands’ District Commissioner. The event will feature Census messages from government officials, including Governor Duncan Taylor, Premier McKeeva Bush and the Financial Secretary Kenneth Jefferson, JP. Census spokespersons from various sectors including National Hero Mrs Sybil McLaughlin, Pastor Davelee Tibbetts, 2010 YCLA winner Mr Collin Anglin, Miss Teen Jamesette Anglin and Mrs Chevala Burke, will be introduced at the event.

Previous population censuses in the Cayman Islands revealed the following figures: 1802 – 933 people; 1891 – 3 366 people; 1911 – 5 564 people; 1921 – 5 270 people; 1934 – 6 009 people; 1943 – 6 670 people; 1960 – 8 511 people; 1970 – 10 068 people; 1979 – 16 677 people; 1989 – 25 355 people; 1999 – 39 410 people.

The government of the Cayman Islands has committed to the signing of further 16 Tax Information Exchange Agreements (TIEAs) with jurisdictions of economic significance. This is expected to be done in additional to the 14 TIEAs that have already been concluded.

According to the government, this announcement demonstrates Cayman’s commitment to transparency and the exchange of tax information in cooperation with 3rd country tax authorities, as regards the fight against tax evasion.

The Cayman Islands government announced that it has agreed to sign an agreement with Australia on March 30. Also, it is awaiting signing dates for the agreements with Aruba, Canada, Germany, Italy, Mexico and South Africa. In addition, negotiations with 9 additional OECD/G-20 countries are in various stages.

According to Caymans Islands Premier, McKeeva Bush, the jurisdiction looks forward to continuing this engagement. He said that Cayman is doing its part “in demonstrating the effectiveness of our transparency regimes and our expertise as a jurisdiction”.

The 1st 18 jurisdictions that take part in the Global Forum on Transparency and Exchange of Information have been included in the 1st phase of a peer review process.

The Cayman Islands was in this group of countries. Besides Cayman, these the 1st 18 countries are Australia, Barbados, Bermuda, Botswana, Canada, Denmark, Germany, India, Ireland, Jamaica, Jersey, Mauritius, Monaco, Norway, Panama, Qatar, and Trinidad and Tobago.

The reviews are a 1st step in a 3-year process that was approved by the Global Forum in February 2010. The Global Forum has published 3 key documents – The Terms of Reference explaining the information exchange standard countries must meet; The Methodology for the conduct of the reviews; and The Assessment criteria explaining how countries will be rated – in addition to a complete schedule of forthcoming reviews.

The Global Forum brings together 91 countries that include both OECD and non-OECD countries.

According to a new survey from weekly trade publication Business Insurance, the Cayman Islands is the 2nd jurisdiction in captive insurance sector in the world.

The Business Insurance ranks jurisdictions basing its top on the number of licensed captives at the end of 2009. According to the survey, the Cayman Islands is 2nd only to Bermuda.

Bermuda (885) is leading the way, followed by the Cayman Islands (780). Vermont (560) takes the 3rd position followed by Guernsey (355), the British Virgin Islands (285), Luxembourg (251), the Isle of Man (145), Dublin (114), Switzerland (42), Gibraltar (17), Malta (9) and Jersey (3).

It was discussed that the Teather Report rejected the recommendation made by the UK government that the Cayman Islands should introduce direct taxation in order to solve its financial difficulties.

Recently, the government of the Cayman Islands has welcomed the conclusions of the Miller Report. Particularly, its main recommendation was that the introduction of direct taxation in the jurisdiction should be avoided.

In 2009, the Miller Commission was created by the Cayman government in response to the UK government’s concerns that the global economic and financial crisis has damaged the territory’s long-term economic and fiscal health.

In a statement, Cayman Premier, McKeeva Bush, commented on the content of the Miller report:
“On the first recommendation, that there should be no introduction of direct taxation in the Cayman Islands, it would be no surprise for you to hear that we agree with this general conclusion and believe that ideally new revenue measures will need to be kept at a minimum for the short- to medium-term. However, we are committed to examining ways to broadening the revenue base and we have given that commitment to the UK. We received no indications during the meetings that the FCO (UK Foreign and Commonwealth Office) will be pushing for direct taxes, although this is something that they would like for us to continue to consider in our efforts to broaden the revenue base.”

Also, Bush said that the government agreed in principle with most of the report’s other recommendations that include the privatization of government assets, restructuring government departments to cut costs, reducing civil service pensions, ensuring that civil servants contribute towards their healthcare costs, and cutting down top government salaries.

On March 3, 2010, the Cayman Islands Economics and Statistics Office released the 2009 Third Quarter Economic Report that shows further deterioration in the jurisdiction’s economy in all but the banking sector.

The report compiles all available economic indicators as at end of September 2009 and provides their percentage change since end of September 2008.

The significant change outlined in the report is annualized gross domestic product (GDP). According to key indicators, in the 1st 3 quarters of 2009, GDP decreased by 3.6%.
Significant declines are as follows:
• merchandise imports fell by 18% largely due to reductions in building materials, transport and transport-related items, and manufactured items;
• work permits decreased by 9.5%;
• new company registrations plummeted by 39.2%;
• mutual fund registrations saw a decline of 4.4% to total 9,838;
• the number of total visitor arrivals fell by 3.8%, due to a 13.1% slide in air arrivals and a 1.9% in cruise passengers;
• the value of building permits plummeted by 28.5%;
• the property market suffered a steep decline as the value of property transfers fell by 40.0%.

On the other hand, there were strong increases in domestic credit by commercial banks and water production. Domestic credit by commercial banks grew by 17.1%, while water production
grew by 4.6%.