Cayman Islands Financial Services

The influence of the United States in Cayman offshore business is obvious and therefore American criticism of Cayman has already been discussed.

In the middle of January 2008, a large coalition of US-based captives met with top officials of the Internal Revenue Service (IRS) and the Treasury Department in Washington, DC in order to convince them to reverse proposed tax changes. The proposed changes are expected to have a bad influence on US-based captives and potentially drive business offshore.

US industry experts suspect that the Cayman Islands along with Bermuda would become the primary beneficiaries if captives move offshore, however US business could move also to European domiciles.

The US Coalition for Fairness to Captive Insurers consists of 46 members from captive companies, states, and various organisations including a large US insurance association – the Risk and Insurance Managers Society.

The proposed IRS changes would eliminate tax deductions for money in reserves used to pay for future claims and losses for certain captives. But these deductions would be allowed only at the time the actual claims are paid out, which could lead to the situation when millions of USD in taxes will be collected up front.

It is not known yet, but the IRS proposals could be adopted as early as in 2009.

In December 2007, the coalition submitted a report consisting of 35 pages which includes the arguments to the IRS and it expects a hearing on this case within 90 days.

According to captive managers in the Cayman Islands, some companies considering setting up a captive are delaying the decision because of the increased uncertainty in the market.

In accordance with the current tax code, US captives enjoy a level playing field with those offshore, and therefore many offshore captives in the Cayman Islands and Bermuda have decided to be taxed as if they were onshore.

According to Insurance Managers Association president and Aon Insurance managing director, Dan MacLean, offshore experts are waiting to see what happens. He said that “often the offshore jurisdictions are subject to the critical eye of onshore policymakers, but this is an example of how legislation can quickly affect an industry, whether it is offshore or onshore.”

Previously, it has been discussed that CIMA Chairman predicted positive growth for local financial industry. It is also worth discussing additionally that on January 10, 2008, Chairman of the Cayman Islands Monetary Authority (CIMA) Tim Ridley underlined the crucial role of financial services to social and economic stability and summarised some issues facing the industry to the Rotary Club.

Ridley emphasised that he was speaking in a personal capacity, so he separated the Authority from his remarks, when calling for more competition and moderate regulation as well as indicating the industry’s underlying support for local employment, education and infrastructure.

Ridley said that the jurisdiction had managed to avoid the problems of other regional financial centres, however, it was facing certain domestic problems.

According to Mr Ridley, the financial success of Cayman “was principally founded in an extremely effective partnership between the government, the financial industry and the broader local community”. Also, “Outside events helped. Bahamian nationalism (independence itself was not the problem; aggressive nationalism was) kick-started the banking industry, and the assassination of the governor and an ill-advised regulatory decision in Bermuda accelerated the captive-insurance industry. But that success now faces risks both abroad and at home.”

Ridley suggested that the local economy could not compete for outsourcing opportunities with larger countries, however, he said, it must focus on providing excellent service to high-value-added business using as little labour as possible. He called for improving the efficiency and greater investment in education, training and technology to have the tools to compete internationally.

Last year, it was discussed that Deutsche Bank has earned the award as the best private bank in the Cayman Islands in the Euromoney private banking survey, which was released by Deutsche Bank on January 8, 2007.

This year, Deutsche Bank has been named as best private bank in the Cayman Islands again. The prestigious Private Banking and Wealth Management Survey 2008 carried by Euromoney magazine has awarded the Bank for the 2nd time.

The same as last year, the survey by Euromoney reflected the opinions of advisers to private clients and other wealth management companies taking into account many factors such as assets under management, profitability, the services offered, ratio of clients to relationship managers, etc.

In 2008, Deutsche Bank located in the Cayman Islands as well as in Jersey, Guernsey and Mauritius, is celebrating its 25th anniversary in Cayman. It continues to build its specialist services range through the growth of its financial intermediaries team and through expanding its offering to the captive insurance market of Cayman.

Jean-Claude Emard, chief country officer of Deutsche Bank Cayman, said that it was a great pleasure to be named at the top of the rankings in this prestigious survey for the 2nd year in succession.

It is also worth mentioning that Deutsche Bank’s offshore group was recognised in all the 4 jurisdictions, and its offices in Jersey, Guernsey and Mauritius are also being named top in the regional section of the survey. Globally, Deutsche Bank came 5th in the overall worldwide rankings, which is up one place from 2007 rankings.

The rankings for the survey serve as the basis for the Euromoney Private Banking Awards, which will be presented on January 31, 2008 in London.

Although the local hedge fund sector is facing challenges, Chairman of the Board of Directors of the Cayman Islands Monetary Authority (CIMA) Tim Ridley has indicated positive signs in the Cayman financial industry.

Mr Ridley has recently said that there have been significant achievements in the sector. According to him, despite the credit market problems, there has been continued growth in the hedge fund industry. He also pointed to the excellent assessment the jurisdiction received from the Caribbean Financial Action Task Force (CFAFF).

Mr Ridley said that anti-money laundering regime is the thing of which the Cayman islands can be proud. However, he noted that there is still work to be done in this area.

According to Ridley, one of the challenges facing the industry is the continuing ill-informed and outdated political and media commentary about the jurisdiction as well as other offshore financial services centres, particularly from the United States.

Chairman of the Board of Directors of CIMA said that the Authority will soon release some of the non-confidential statistical information.

Also, Ridley informed that the International Monetary Fund (IMF) will conduct the assessment of the Cayman Islands in 2008 to review the regulatory and legal regime in Cayman against international standards.

The Cayman Observer, the 1st weekly business newspaper published in the Cayman Islands, is launching its 2nd annual Business Awards. The Cayman Observer Business Awards aims to recognise excellence in business.

This year, the Cayman Observer is recognising the contributions of 2 persons who have been of great help to the growth and prosperity of Cayman. The award winners will be announced in a special section of the newspaper on February 21, 2008.

Paul Byles, publisher of the Cayman Observer, explained that the Cayman Observer Business Awards honours a lifetime commitment to the jurisdiction and a dedication to promoting the greater good of the community of the Cayman Islands.

For the inaugural business pioneer awards, presented on January 31, 2007, the newspaper honoured the following persons: Robert Hamaty, Norberg Thompson, Maxine and Maureen Bodden, Arthur Hunter, Billie Lee Watson, Bob Soto, Naul Bodden, David Foster, William Stuart Walker and Rhoda Erena Ebanks. They represented various sectors – law, commerce, accountancy, real estate, manufacturing, tourism and aviation.

Mr. Byles said that the interest generated by the 2007 awards was great, so, the public is invited to submit nominations for 2008 pioneers which will be accepted until January 24, 2008.

It has already been discussed that, according to the report, the Cayman Islands was “compliant” or “largely compliant” with 38 of the FATF Recommendations as regards combating money laundering and terrorist financing.

In the middle of December 2007, the Cayman Islands Financial Services Association (CIFSA) welcomed the results of a recent review of Cayman anti-money laundering framework by the Caribbean Financial Action Task Force (CFATF). The Association congratulated the Cayman government, the Cayman Islands Monetary Authority (CIMA) as well as private sector representatives that participated in the onsite review conducted in June 2007.

Mr. Eduardo Silva, Chairman of CIFSA, said that “all of the various entities and individuals, and particularly the Cayman Islands Monetary Authority should be congratulated for this result”. He also noted that the CFATF report is a huge endorsement of Cayman Islands anti-money laundering framework.

In order to acknowledge the solidarity between the Overseas Countries and Territories (OCT) and the European Union (EU), the Cayman Islands has emphasized that it desires to be involved in the revision of the European Union EU Savings Tax Directive.

The representative of the Cayman Islands in the United Kingdom, Mrs Jennifer Dilbert, MBE, JP, noted government’s position during the recent 6th Overseas Countries and Territories of the European Union Forum (OCT-EU Forum) that was held in Brussels on November 27-28, 2007.

Being aware that to facilitate the revision a committee has been formed, Cayman wanted the territories be represented in order to ensure that all perspectives are taken into consideration. The Cayman Islands requested the territories be represented through the Overseas Countries and Territories Association (OCTA). To remind, the OCTA consists of 17 members – Cayman Islands, BVI, Anguilla, Turks and Caicos Islands, Aruba, Falkland Islands, French Polynesia, Mayotte, Montserrat, Netherlands Antilles, Greenland, New Caledonia, Pitcairn, St. Helena and dependencies, St. Pierre and Miquelon, French Southern and Antarctic Territories, Wallis, Futuna.

Mrs Dilbert also processed Cayman’s request that the results of any appraisals that resulted from examination and assessments from regulatory watchdogs (like the Caribbean Financial Action Task Force (CFATF) or the International Monetary Fund (IMF)) be appreciated by the European Commission Directorate General Taxation and Customs Union.

The forum’s key theme was the solidarity between the OCTA and the EU. The OCT-EU Forum drew about 130 delegates. It was also attended by Mrs Dilbert’s Personal Assistant Kate Kandiah, chief representative from Cayman Cabinet Office Policy Analyst Christina Rowlandson, as well as Cayman’s Chief of Protocol Virginia Madison.

According to documents and financial disclosure forms of Securities and Exchange Commission that were filed by Hillary Clinton, US Ex-President Bill Clinton has a financial stake in 3 investment entities incorporated in Cayman. These are Cayman Islands’ entities registered by California billionaire Ron Burkle ‘s Yucaipa Cos. LLC.

Ex-President’s decision to reconsider a business dealings with Burkle might embarrass presidential candidacy of his wife. In 2004, Hillary Clinton said that she intends to close the “loopholes” for those who create entities offshore.

As a lawmaker and candidate, Hillary Clinton had to disclose that Bill Clinton has holdings in 3 Burkle-controlled funds – YGOF GP Ltd., Yucaipa Global Holdings and Yucaipa Global Partnership Fund LP. All these funds are listed at Yucaipa’s Los Angeles address. YGOF is a Cayman-registered corporation and Yucaipa Global Holdings and Yucaipa Global Partnership Fund LP are Cayman-registered partnerships.

The amounts disclosed by Hillary Clinton are minimal, though a person familiar with the matter confirmed a report last year in The New York Times that Bill Clinton stands to make tens of millions of dollars with little risk if the Yucaipa funds he is involved in profit beyond a certain level.

It is worth noting that in 2007 Forbes Magazine listed Burkle as the 91st richest American, his net worth was USD 3.5 billion.