Cayman Islands Financial Services

The Maritime Authority of the Cayman Islands (MACI), parent organization of the Cayman Islands Shipping Registry (CISR), has recently received news that the CISR has maintained its prestigious “white-listed” status on the Paris Memorandum of Understanding on Port State Control.

In accordance with the MACI’s CEO, Mr A. Joel Walton, Paris is one of the most significant Memorandums of Understanding all over the world, and being on its “White List” means a global recognition to the high standing of the Cayman Islands Shipping Registry.

The Paris Memorandum of Understanding consists of 27 participants – maritime Administrations, including Maritime Authorities of Canada, Russian Federation, Norway, Sweden, Denmark, Finland, Poland, Portugal, Croatia, Cyprus,, Belgium, Bulgaria, Estonia,, France, Germany, Greece, Iceland, Ireland, Italy, Latvia, Lithuania, Malta, Netherlands, Romania, Slovenia, Spain, and the United Kingdom. It covers the waters of the European coastal States and the North Atlantic basin from North America to Europe.

The George Town headquarters of the Maritime Authority of the Cayman Islands (MACI), parent organization of the Cayman Islands Shipping Registry (CISR), and its European Regional Office in Southampton, UK, recently exchanged congratulations on the announcement of the “White List” status of Cayman Islands Shipping Registry (CISR). The CISR attained it under the Tokyo Memorandum of Understanding on Port State Control.

18 countries have signed the above-mentioned Memorandum of Understanding. These include Japan, China, Australia, New Zealand, Russia, Canada, Chile, and Republic of Korea.

It should be noted that previously the CISR was on the “Grey List”, and therefore it had worked hard with a view to achieve the top ranking.

The MACI’s CEO, Mr. A. Joel Walton, said that this was one of the most important Memoranda of Understanding internationally, and noted that it brings further recognition to the high standing of the Cayman Islands Shipping Registry.

On May 5, 2009, the Cayman Islands Financial Services Association (CIFSA) issued an open letter to US President Barack Obama.

CIFSA’s letter was as follows:

We are pleased with your announcement that the United States intends to restore balance and fairness to its global tax policy. We agree with your focus on preventing tax fraud and evasion; ensuring that every corporation pays its fair and lawful share is important. We stand with you in favoring effective prevention of tax fraud and evasion and maximum transparency between tax jurisdictions, including the Cayman Islands.

We are, however, gravely concerned about your remarks regarding the Cayman Islands, which erroneously suggest that the subsidiaries of U.S. 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.

We believe that Cayman-based corporate subsidiaries operate legally and transparently and are 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.

Tax deferral arises, as you know, from current provisions of U.S. tax law that were designed to provide a competitive advantage to American companies in global trade. But this is not fraud, evasion or artificial avoidance. Historically, deferral has been used by some U.S. companies to boost the capital they have available for reinvestment, expansion and job creation. We fully recognize that the issue of tax deferral is a matter for the U.S. Government to determine, and we state no view on that subject.

We do feel compelled to note that, for over 20 years, the Cayman Islands has been a model of cooperation with the United States and, indeed, the world. We have worked cooperatively on every international initiative from the United States, the IMF, the OECD and the FATF to create a financial regulatory structure that is robust, accountable, transparent and fair. We take our obligations in this regard very seriously. Notably, there has not been a single bank failure in the Cayman Islands during this financial crisis and none of the financial recklessness that has brought about much of the current global crisis occurred in or involved the Cayman Islands. Rather, to the contrary, the investments which flow from the 12,000 companies involved with the United States have provided trillions of dollars of international investment to U.S. financial institutions at a critical period, and have done so in a fully transparent manner.

Specifically, since 2005, the Cayman Islands has had a fully informative tax information exchange arrangement under the European Union Savings Directive (EUSD) with all 27 European countries. In 1990, Cayman entered into a fully transparent all crimes Mutual Legal Assistance Treaty with the U.S. and, in 2001, a comprehensive U.S. Tax Information Exchange Agreement. We are actively pursuing additional information sharing agreements with additional jurisdictions. We are eager to work with your Administration to take further steps as necessary to promote transparency and tax law compliance.

Moving forward, we hope you will provide us the opportunity to provide you and your Administration a fuller description of the efforts the Cayman financial industry has taken to promote transparency and accountability. We are confident that this will enable you to share our conclusion that U.S. citizens do not use the Cayman Islands to evade tax.

Mr. President, we share your concern that the global financial markets work transparently, safely and to the benefit of all participants. We look forward, as we always have, to working with you toward this goal.

The Cayman Islands Financial Services Association has denounced the OECD’s decision to include the Cayman Islands into its “grey” list despite its obvious commitment to the OECD standard.

The CIFSA has expressed its disappointment to see the Cayman’s inclusion in the OECD grey list as it had previously hoped that “the OECD would undertake a rational objective analysis of the tax transparency established by the Cayman Islands over the past decade”. According to CIFSA’s announcement, “In reverting to its political origins, the OECD has not improved its credibility and indeed in acting in an arbitrary and prejudicial manner raises questions about the value that is attributed by the G20 to the cooperation in tax and criminal matters that the Cayman Islands has demonstrated.”

The CIFSA claimed that the jurisdiction has full and relevant tax transparency not only with the USA under the November 2001 Tax Information Exchange Agreement but also “proactive reporting with 27 European Union nations under the 2005 European Union Savings Tax Directive, the figures for which, not incidentally, show monetarily and fiscally insignificant deposits by European residents in the Cayman Islands”.

The Cayman Islands Financial Services Association stated, “However we are encouraged to see that the OECD has now set an objective test for positioning on the ‘white’ list which is less than the total number of tax exchange arrangements that the Cayman Islands currently has in place. Accordingly, since the Cayman Islands government has throughout maintained its commitment to execution of further bilateral treaties, assuming its approaches are met in good faith, we anticipate that the OECD will be obliged to remove Cayman from its current list swiftly.”

As an attempt to strengthen its commitment to cooperating and sharing information with international regulatory counterparts, the Cayman Islands Monetary Authority (CIMA) has recently signed the Memorandum of Understanding with a major Brazilian regulator. This was the latest establishment of formal ties with foreign regulators. The CIMA signed the document with the Securities and Exchange Commission of Brazil (the Comissão de Valores Mobiliários).

The Memorandum of Understanding was signed by CIMA Managing Director Cindy Scotland and Chairperson of CVM Maria Helena dos Santos Fernandes de Santana.

This was CIMA’s second Memorandum of Understanding with a Brazilian entity, the previous one was established with Banco Central Do Brazil (Brazil’s Central Bank) in March 2006.

Scotland said, “Brazil is one of the largest emerging economies in the world – one of the BRIC nations – with significant prospects for growth and development and I believe this MoU has an important role to play in bolstering economic opportunities between the Cayman Islands and Brazil.”

On February 18, 2009, the Cayman Islands Monetary Authority (CIMA) oficially established bilateral ties with the Malta Financial Services Authority (MFSA).

The 2 financial services regulators signed the terms of a Memorandum of Understanding at a signing ceremony at CIMA. It should be noted that this agreement boosts the number of Memoranda of Understanding signed by CIMA with international counterparts to 14.

This memorandum will govern cooperation and the exchange of information between the regulators that actually had been taking place on an informal basis.

On behalf of the MFSA, the document was signed by Chairman and President Professor Joseph Bannister. According to him, this was just a matter of formalising the relationship. He said, “We have always had good relations with Cayman and exchanged information freely. Information has always been provided to us when required regardless of whatever sector of the financial services industry it has been.”

As it has been discussed previously, the Cayman Islands Monetary Authority has recently shared its reflections on a difficult year 2008. It said that the year was difficult for the jurisdiction’s finance industry.

The jurisdiction continues suffering from with the fall-out from the US sub-prime crisis. CIMA’s Managing Director, Cindy Scotland said that CIMA has been monitoring the events unfolding in the USA as well as the repercussions happening across the globe. The Authority has been assessing the potential impact on the Cayman Islands. Also, a number of actions was announced in response to the current situation as well as in anticipation of further developments.

At a recent industry symposium, CIMA’s Managing Director said that Cayman is exposed to Bernard Madoff’s alleged USD 50 billion hedge fund fraud.

She said, “As part of an increased monitoring, we have required the seven retail banks to report additional financial details weekly (in addition to their usual quarterly reporting). To date the banks remain well capitalized and have been managing their liquidity. We have sought information from all banking licensees on their exposures to Washington Mutual, AIG, Lehman Brothers and Merrill Lynch – institutions which collapsed or had to be rescued in the latter part of last year. To date, we have had responses from 77% of the licensees. The sum of total reported exposures is relatively small.”

Scotland stated that CIMA sought information from all banking licensees on their exposures to the Madoff fraud and a few banks have reported some indirect exposure. However, this information is still coming in.

CIMA’s Managing Director announced that as of January 19, CIMA had been notified that 23 regulated funds had suspended redemptions, 90 regulated funds had suspended the net asset value (NAV) calculations and 2 regulated funds had suspended subscriptions. She added that the numbers are growing.

The Cayman Islands Monetary Authority (CIMA) has recently shared its reflections on a difficult year 2008. According to CIMA, the year was difficult for the jurisdiction’s finance industry that goes on suffering from with the fall-out from the US sub-prime crisis and that is also exposed to Bernard Madoff’s alleged USD 50 billion hedge fund fraud.

CIMA’s Managing Director, Cindy Scotland recently spoke at industry symposium. Despite the difficulties of the past year, she urged optimism. She warned that the pressure on the Cayman Islands and other offshore centres should be expected to increase. However, she believes that with a bit of innovation, Cayman can get even a stronger position than before the global crisis.

“The opportunity for Cayman is to use this time wisely (bearing in mind that time is not on our side) and position ourselves so that when the dust settles, this jurisdiction will remain a key player in the global financial markets but with new products and services,” Scotland observed. She continued:

Scotland also noted that it is time to diversify and develop relationships with other regions and said that CIMA intends to continue regular visits with other foreign regulators. In 2009, visits to China, Hong Kong and Singapore are planned.

The Cayman Islands Monetary Authority (CIMA) has made an announcement that the Cayman funds industry remains largely not affected by a recent event that has sent further unwelcome ripples around the global financial system – the collapse of hedge funds controlled by Bernard L. Madoff.

According to CIMA’s statement, it has been following the developments connected with charges of massive investment fraud brought in the United States against investment broker and former Nasdaq Stock Exchange Chairman Bernard Madoff. After checking its records and database, the Authority claimed that it has found no evidence that Mr Bernard Madoff or any his company is providing direct services to any Cayman-regulated fund. Investigating the Cayman Companies Registry found that no Madoff-related entity was incorporated in the jurisdiction.

Still, the Cayman Islands Monetary Authority suggests that there could be a number of Cayman-regulated funds and other institutions that have made investments into the Madoff funds and which could be impacted.

CIMA will cooperate with the Securities and Exchange Commission (SEC) – the main United States’ financial regulator, to investigate Madoff and his funds.

Currently, Madoff is under house arrest in the USA after being charged of running the largest Ponzi scheme in history. The fraud could run as much as USD 50 billion.

Recently, Walkers, global offshore law firm, brought together top financial industry leaders and more than 200 visitors in New York in order to discuss hedge fund market volatility and to provide opinions on distressed funds.

At the seminar, speakers offered a comprehensive look at the changes in the hedge fund market over the past year. Also, speakers made predictions for what the alternative investment funds industry could expect in the next months.

Yolanda McCoy, head of the Investments and Securities Division at the Cayman Islands Monetary Authority, was one of the experts who joined Walkers for the “Fighting the Tape” seminar. Among other experts were investment manager George Hall, founder and president of The Clinton Group; and Professor Jeffrey Rosensweig, director of the Global Perspectives Program at Goizueta Business School at Emory University.

As a Cayman regulator, Yolanda McCoy made an update on the effect that the financial crisis has had on the Cayman hedge funds industry. She said that the total number of hedge fund registrations in the Cayman Islands are still running ahead of the same period in 2007 with 1 441 new authorisations up until September 2008 compared with 1 407 during the same period in 2007. According to her, “the true impact of the US credit crisis will not be tangible for many months to come”.

However, Ms. McCoy confirmed that to date there were 340 Cayman funds that had been impacted by the problems with Lehman Brothers, Merrill Lynch, and AIG. Fund terminations were still very low – approximately 50 per month. Ms. McCoy added that “while we expect terminations to rise, the current situation will not paralyse the Cayman fund industry”.