Cayman Islands Financial Services

The Cayman Islands is going to sign its twelfth tax information exchange agreement with New Zealand. This TIEA will be signed on August 13, 2009, in Washington, DC, just some weeks after the Tax Agreements with Irelands and Netherlands. The news was announced by Leader of Government Business and Minister of Financial Services, Hon McKeeva Bush, who also told that the latest TIEA will be packaged with the other 11 and presented during OECD Global Tax Forum, which will take place on 1-2 September in Los Cabos, Mexico.

By signing the twelfth agreement, Cayman Islands fulfill the main requirement of the OECD on transparency and information exchange, and may be included in the “white” list of fully compliant financial centres. By words of Bush, the Cayman Islands will continue negotiations for signing TIEAs with Italy, Mexico, Germany, France, Australia, Portugal and Canada, which are already at advanced stage.

There are some concerns that the rapid move of some jurisdictions out of the “grey” list caused OECD to seek further qualifications from the other financial centres, even to change the stated number of 12 agreements. However, Mr Bush said that, based on the discussions with OECD officials, it is highly unlikely.

Chairman of the Cayman Islands Financial Services Association (CIFSA) Anthony Travers, for his part, welcomed signing of the new TIEA, but cautioned about new challenges to the financial services industry: the analysis of the functioning of TIEAs is discussed as a new criteria for the OECD. However, by this position Cayman qualifies better than many other jurisdictions, with its “fully functioning Tax Information Authority with a verifiable record of compliance under both the United States treaty and, of course, the European Union Savings Directive.”

After the US Securities and Exchange Commission (SEC) failed to stop Madoff’s Ponzi scheme, SEC’s Inspector General proposed to increase the regulation of hedge funds and other investment advisors, and hedge fund experts in the Cayman Islands provided positive response on this proposal.

By words of the former Head of the Investment Services Division of the Cayman Islands Monetary Authority (CIMA) Don Seymour, these are “meaningful suggestions”, which, if implemented, would enhance investors protection and respect the privacy of private investment funds, “in the contrast to recent disclosure proposals put forward locally by individuals.”

SEC put forward the following recomendations:

- to mandate that hedge funds and investment advisers use an “independent custodian”, to maintain investments in separate accounts. This is already required for offshore mutual funds, and it reduces the ability of an investment adviser to use the proceeds invested by new investors to make payments to old ones.

- to require hedge funds and investment advisors to pledge that they conducted due diligence on their advice.

- to embolden the US auditing watchdog agency, Public Company Accounting Oversight Board, with new authority to audit reports prepared by domestic and foreign accounting firms. The Cayman Islands already requires all CI-registered private hedge funds to have an annual audit performed by an auditor approved by CIMA.

Cayman-based offshore legal and fiduciary services firm Ogier Partners organized the 2nd Annual Ogier Global Investment Funds seminar series entitled “The Evolution of Offshore Investment Funds”, devoted to the analysis of the past, present and future of offshore investment funds.

The seminar of the Cayman firm was led by partners Peter Cockhill, James Bergstrom, Colin MacKay and Simon Schilde. During the seminar, the following issues were discussed: proposed structuring and language clarifications, current litigous climate and the issues surrounding claims against funds and their service providers, and various international regulatory initiatives, with an analytical focus on possible outcomes.

The conclusion of the seminar was that, as a result of tax regulatory initiatives being developed by different countries and organizations, including the G-20, OECD, US, EU and UK, the investment managers will need to establish additional management and administration operations in the jurisdictions of their investors and/or move offshore. “Transparency is the new paradigm,” according to James Bergstrom; he said that “In the near future only those offshore financial centres (‘OFCs’) which meet the regulatory and tax transparency requirements of the new Financial Stability Board will be permitted to participate in the international financial system.”

The Ogier seminars traced the origins of the current international initiatives back to 1996 when the OECD’s harmful tax practices project was launched, and defined the key criteria that will need to be met by OFCs and the offshore funds domiciled within them.

Ogier group has presence in eleven jurisdictions around the world, namely Bahrain, British Virgin Islands, Cayman Islands, Guernsey, Hong Kong, Ireland, Jersey, London and Tokyo. Through a global network of offices, it provides advice on all aspects of BVI, Cayman, Guernsey and Jersey law and associated fiduciary services.

Two weeks after signing Tax Agreement with Ireland, the Cayman Islands signed another TIEA with the Kingdom of Netherlands.

The new Tax Information Exchange Agreement, which was signed during a ceremony held at the Netherlands’ Ministry of Finance in The Hague, is based on the OECD standards for bilateral exchange of information on tax matters, and became the eleventh TIEA signed by the Cayman Islands. It followed the conclusion of technical negotiations at a meeting between the delegations of the two jurisdictions held in the Cayman Islands on 24-25 June 2009.

The Honourable McKeeva Bush, OBE, JP, Leader of Government Business and Premier Designate, signed the document on behalf of the Cayman Islands. He commented the Agreement between the CI and Netherlands saying that it signifies further affirmation of both countries to the openness and transparency.

Beside Minister Bush, the CI delegation comprised the Honourable Samuel Bulgin, Attorney General; Mr. Cline Glidden, MLA; Mr. Ellio Solomon, MLA, and Mrs. Michelle Bahadur, Senior Assistant Secretary in the Financial Secretary’s Office. On behalf of the Netherlands, the document was signed by Mr. J.C. de Jager, State Secretary for Finance.

According to a letter signed by leading UK economists from the London-based Institute of Economic Affairs (IEA), the Cayman Islands should not be blamed for the financial crisis as the blame should be placed on world governments and central bankers.

The IEA experts said that no significant changes are necessary to the regulatory environment that surrounds offshore banks, tax havens, hedge funds, short selling, or private equity.

When commenting on the letter, Chairman of the Cayman Island’s Financial Services Authority (CIFSA), Anthony Travers OBE, concluded the following: “Hopefully the message is getting through that the Cayman Islands has a full and effective network of tax transparency treaties and is a totally transparent tax regime which has co-operated fully with the UK, EU and US Governments. We are astonished at the ill-founded comparisons with the opaque regimes still made by Prime Minister Gordon Brown, Lord Wallace of Saltaire and Senator Levin. The truth of the matter is that the real reason for the unwarranted attacks on the Cayman Islands can have nothing whatsoever to do with tax evasion. The concern of those politicians and the OECD can only relate to the increasingly high levels of tax in their respective countries, especially the 50% proposal in the UK. They know that there will be a stampede of individuals and companies attempting to escape their punitive taxes.”