The globalisaton phenomenon has made the world a much smaller, more accessible place.  Lightening speed communications mean that investment opportunities in an emerging economy can be simultaneously considered by institutional investors sitting anywhere in the world – London, New York, Bejing or Frankfurt, for example.  The question then becomes – how are the funds pooled efficiently, so that capital can be put to work in the chosen project or investment?  How are funds from investors across the globe collected so that the investor sitting in Germany does not subject himself to additional tax or regulation for a project that will be carried out in the United States?  The Cayman Islands provides this function simply:  a tax-neutral platform for pooling the investment funds; a well-practiced process of incorporation; and compatibility with securities listing requirements on most of the world’s major stock exchanges, including those in New York, Hong Kong and Dublin.  What does all of this mean?  It means that the capital invested will be maximised by minimising the tax bite in accordance with all applicable tax laws and thereby creating more jobs and economic activity.

For those who might mistakenly believe that investors are not paying their share of tax, remember that the dollar invested was taxed when earned, and will be paid on profits made.  Further, when funds are repatriated (in the form of dividends, or other capital gains) to the investors, they will be taxed on receipt.    It should also be said that an additional layer of taxation does only one thing:  it removes wealth and productivity from an economy. The essential feature of the offshore structure is that it does not add an additional layer of taxation.

Those who support the “higher tax” argument (i.e. those Governments that are facing insurmountable deficits and no idea of how to pay for them) like to insinuate that root of the financial crisis can be found in offshore financial centres.  It is important to note – the financial crisis originated in the largest of the G-20 economies in areas that were already heavily regulated.  Mounting academic research is available to support this fact,  not least of which was the report on all the British Overseas Territories and Crown Dependencies by Michael Foot on behalf of the Chancellor of the Exchequer in October 2009.  In truth the capital flows that have already been described through jurisdictions like Cayman are now fueling the global economic recovery – the largest recipient of funds flowing out of Cayman is the United States.  Emerging markets are also beneficiaries, where the introduction of capital is the most effective tool for reducing poverty in these poorer nations, providing jobs and opportunities where none had existed before.

Cayman’s regulatory and transparency standards are amongst the very best in the world and are the benchmark by which other countries are measured.  Cayman has full income tax transparency with the United States and proactive tax reporting with the 27 European Union member states.  The US Department of Justice has had full authority to conduct a criminal investigation regarding any file in the Cayman Islands since 1990.  As a member of the International Organisation of Securities Commissions (IOSCO), Cayman has full “regulator-to-regulator” disclosure with all IOSCO regulators.  The anti-money laundering legislation of the Cayman Islands has been evaluated by the International Monetary Fund and by the Financial Action Task Force and is found to be superior to that of the United States and most EU jurisdictions.  Cayman continues to look at effective, commercially-minded regulation and the Cayman Islands Monetary Authority sits on several committees of international regulatory bodies to ensure progressive action on the issue of anti-money laundering and transparency.

So why is Cayman the target of so much negative criticism?  One answer is that politics is constantly at play.  Cayman’s success has brought attention from competitor jurisdictions which have been working very hard to increase their market share at the expense of our offshore financial industry.  But the biggest slice of the mud pie comes from G-20 politicians who are working very hard to get nods of approval from voters who want to believe that the trillions of dollars of government debt can be paid for by ‘shutting down a tax haven’.  What will be harder for politicians to explain, should more protectionist legislation be enacted, is why big business located in their jurisdictions found alternate places to domicile, with the result that highly coveted tax dollars did not increase at all but rather reduced.  How do they then explain to those voters that the only thing that increased is the length of the unemployment line?  The fact is that constant mischaracterisation cannot defy gravity forever.  The best part of the Cayman story is that eventually the truth about it must come out.


There are all types of unaccountable sensationalist blogs, publications and fringe socialist groups that like to appeal to the lowest common denominator in the name of ‘the common good’ and the Huffington Post is no exception.

Notwithstanding our recent advice to the editorial staff and indeed Ms. Huffington herself, the site loses all credibility when they continue to allege that the Cayman Islands are ‘secretive’.  For the record, one more time plain and simple, so everyone should  get it, in addition to the All Crimes Treaty which gives the Department of Justice full authority to obtain any Cayman Islands file, there is the Tax Treaty which extends the transparency to the IRS  for any tax matter and in addition, there is the IOSCO regulatory transparency.

Those who are able to read and understand these treaties, (not incidentally negotiated and signed by the US Government) will be trying to figure out what exactly the Huffington Post is talking about?  Perhaps what they mean is that they are upset that there are perfectly lawful provisions of US tax law which enable US corporations to avoid being taxed twice and which will allow those corporations to remain competitive in the global marketplace as against those corporations from jurisdictions that tax their corporates only once.  If that is the cause of the upset by all means change US law but the Cayman Islands has nothing to do with that discussion and making up fantastic numbers about “lost revenue” is going to lead to disappointment.

But do bear in mind also that there is an unintended consequence to rendering your global corporations less competitive (Levin/Dogget) and to rendering inward investment into the US so problematic that no one wants to bother any more (Hire Act ), particularly, one would have supposed, when you are the largest debtor nation in the world and survive only on inflows of borrowed money.

What is fascinating about an objective and non-arbitrary analysis is that despite the negative publicity which is founded in the blame deflecting endeavours of certain G-20 politicians and regulators, that is to say regulators in the jurisdictions in which the core of the financial crisis was rooted, Cayman’s financial services industry paints a robust picture.  Let’s look at the key statistics:

• Bank deposits and interbank bookings in the banking industry remain at US$1.8 trillion, down only some 10% from the 2008 high
• Mutual and hedge fund establishment is running at some 100 new registrations a month with an aggregate number of some 9,486 regulated funds, a drop of only 5% from the 2008 high (although it is fair to point out that gross assets under management have dropped from US$3.6 trillion to approximately $2.5 trillion, no doubt a reflection of the deleveraged marketplace in which hedge funds are currently operating
• In the captive insurance market, we remain strong competitors for Bermuda, steadily catching them with 789 captives holding approximately US$45 billion in assets under management
• It is only in the area of company incorporations where we see a decline of about 30%.  This is where we see the true effect on decreased transactions reflected as a consequence from the lack of available credit. That being said, the total number of companies incorporated are in the region of some 90,000.  The view from within the industry in Cayman is that the reduction of company incorporation numbers is largely due to the reduction in the number of structured finance transactions, which is directly attributable to the effects of the sub-prime crisis.

The reason I have dwelt upon these statistics at some length is not to simply cheer myself up.  The real point is that throughout the financial crisis and no doubt because of the regulatory mechanisms in effect in the Cayman Islands, no Cayman bank or financial institution failed.  No depositor in a Cayman Islands bank or financial institution lost money.  There was no Bear Stearns in the Cayman Islands, no Lehman brothers in the Cayman Islands, no Northern Rock, and no Royal Bank of Scotland.  Clearly, before we start to analyse what may be required in terms of enhanced levels of regulation we need to start with the recognition that regulation in the Cayman Islands worked effectively.  And I will go on later to discuss why this is the case.

We have been bombarded over the past 12 months with various reports from regulators and others as they look to create, appeal to and reinforce public perception about what needs to be done on the regulatory front.  We heard many of these issues discussed over the past two days at this conference.

After considering the reports and the various presentations, I wonder if I am alone in arriving at what seems to me to be the inevitable conclusion that there is a major disconnect between the suggested responses and a realistic analysis of what actually caused the financial crisis.  Various experts have differed on attribution of the crisis causes, but the debate can be boiled down to two simple points.  The first can be summarised as simply irresponsible bank lending practices driven by political motivation in the US, dressed up in the laudable objective that every American had a right to own their own home regardless of their ability to pay for it   We know that the mortgage defaults in and of themselves were not enough – the disintermediation of risk through securitisation added accelerant to what was already a wild fire and transferred an inadequately evaluated risk around the globe.  Secondly, that same disintermediation of risk could not have occurred without the repackaged assets having been branded AAA by the rating agencies.  Many investors, including some European and Asian banks, who were clearly incapable of undertaking the very basic degrees of due diligence in support of their own balance sheets, relied solely upon these ratings.

We can also say that the method of set-off of derivatives as between one major wall street investment banker and another did nothing but obfuscate the aggregate value of the derivatives in issue, which only manifested itself when major counterparties like Bear Stearns and Lehman’s were allowed to fail because set off was no longer applicable.  It is not for me today to comment on the moral issue here or the fact that AIG was not allowed to fail.  The simple fact of the matter is that had AIG and others been allowed to go under the effect on the financial system would have been cataclysmic.  If anyone doubts the foregoing analysis and many do, I will cite the very distinct practices applied by the big 5 Canadian banks and rest my case – and I am not saying that just because I am Canadian.

The point I really want to make in analysing the appropriate regulatory response is that if you accept the foregoing two reasons as the fundamental cause of the financial crisis, you will also have to accept the irony that the problems occurred in the banking industry which was already highly regulated in a jurisdiction which now leads the G20 and G8 debate on regulatory reform.

But do we find in the regulatory response a tacit recognition of this fundamental?  I think not.  What we find is Mr. Gordon Brown when addressing the US congress asking the rhetorical question “Would the world not be a safer place if jurisdictions like the Cayman Islands were outlawed?”  The universal acclaim to which this question was met belied the fact that the Cayman Islands financial services industry had remained robust throughout the crisis.   As an exercise in blame deflection this performance surely deserves some form of Oscar or at least a nomination for best fictional screenplay.

But we are of course all familiar with the pejorative descriptions of offshore financial centres.  The expression “tax haven” which cunningly suggests that tax evasion is still an issue for the offshore financial centres notwithstanding the extensive range of tax treaties and proactive reporting under the EU Savings Directive and various other tax information exchange agreements.  The expression ‘tax loophole’ is the one preferred by US politicians, which is used to cloud the fact that lawful tax avoidance rests exclusively within the tax legislation of the US and is exclusively within the purview of the onshore politicians concerned.  Cayman Finance has had occasion to write directly to President Obama and Senator Dorgan to make these blindingly obvious points directly.

No doubt a major part of the problem has been a historic failure on our part – the offshore jurisdictions unfairly targeted, to make our case and tell our story.  But we do so now.  And we do so on a regular basis.

Not only are the public misrepresentations of offshore tax transparency unfair to those jurisdictions who have entered into and continue to enter into full transparency treaties, it is equally unfair to Joe Public who is misled into believing that the solution to gross onshore government over-expenditure and climbing domestic tax revenues lies in some mythical offshore pot of gold in the possession of a leprechaun sitting at the end of a hypothetical rainbow. What we do know as fact from the tax transparency initiatives that have been in place in Cayman for the past decade is that tax evasion is an insignificant component of our financial services industry.

And now we find ourselves in the same boat when it comes to the issue of regulation.  The EU AIFM Directive (which I will call the directive) seeks to blame hedge funds for the financial crisis, although that logic is wholly flawed.  Although there are still some 1200 unreconciled amendments and therefore no final version to comment on, the Directive as it stands quite reasonably suggests that any investment manager trading in the EU on behalf of a non-EU hedge fund should be subject EU trading and risk regulation.  It quite unreasonably seeks to say that non-EU domiciled hedge funds should be precluded from being marketed in the EU.

Thus we see, in the same way that politicians vainly suggest (at least as so far as the Cayman Islands are concerned) that domestic deficits will be funded from offshore tax evasion — flawed analysis of the causes of the financial crisis and flawed political regulatory responses will lead to unintended consequences.

It has apparently not occurred to European politicians (although the rappateur M. Gauzes  has been told by Cayman Finance directly) that restricting the investment objectives, risk profile and leverage of an EU fund manager will cause the investing public and the pension funds that represent them to suffer with a less competitive rate of return.  And all this in circumstances where no one has seriously argued that hedge funds were instrumental in the financial crisis.  And therein lays the root of the problem.  Nobody and certainly not in the Cayman Islands has the slightest concern about the application of a global regulatory solution to a specific regulatory failure or to a systemic risk that ought to be properly regulated.  But, what is actually occurring is a territorial and piecemeal approach by way of regulatory response which has failed to deal adequately with the causes of the problem.  It is a staggering fact that the current financial regulatory reform bill working its way through the US senate and congress does nothing whatsoever to address the core of the financial meltdown – specifically the dangerous lending practices of Freddie and Fannie.  And now the regulatory response from Europe is to exclude institutional investors who have undertaken their due diligence and who have received perfectly satisfactory 15% or more annualised returns from Cayman hedge funds from investing in those hedge funds.

You may well ask whether we should be concerned about the directive in the Cayman Islands and the answer is not unduly since the Cayman Islands has an institutional product that was not authorised to market itself cross-border to the public in any event.  And, no institution whether in Europe or elsewhere in a global financial environment needs to invest in a Cayman hedge fund from within Europe.   The Directive in its current form may well dis-incentivise investment into Europe at a time when Europe needs all the help it can get.

The other point we may take well under consideration is that the International Monetary Fund in their report prepared for the June G20 summit in Toronto stated and I quote “it is important to ensure that the financial system regulatory reforms in advanced economies do not have unintended adverse effects on financial flows to developing countries or their financial sector management.  Vigilance is needed to avoid financial protectionism.”  The report then goes on to say “G20 leaders can boost market confidence by renewing their commitment to refrain against protectionist measures.  An even stronger signal would be a collective pledge to unwind the protectionist measures that have been put in place since the onset of the crisis.”  The IMF is calling out for more open trade and less protectionist measures because it is a fact that restricting international capital flows, and restricting tax competition hurts the poorest people in this world the most.

By all of this I do not mean to say that we are adverse to regulation in fact, rather the contrary.  I simply mean to say that there is a massive disconnect between the high sounding principles which emanate from high sounding institutions on the issue of regulation and the reality.  For example, if we look at the banking industry, we see a global regulatory framework in Basel 1 and Basel 2 that applies across the board.  And that is how it should be.  The notion that some countries can apply a Tobin tax whilst others do not shows no understanding whatsoever of a competitive marketplace.

But I will make the point again that even in the case of a global banking regulatory framework, it was US banking regulation that failed.  It could very well be argued that what is needed is not new regulation, but a proper application of existing regulation.

The same could be said for hedge funds.  Certainly the hedge fund manager with the assets under management allocated to it must be regulated in accordance with the jurisdiction where it undertakes its business activity.  But prior to the crisis, the SEC did not regulate hedge fund managers trading in the US at all. So if what is now proposed is that hedge fund managers be regulated, that seems entirely sensible and logical, provided it can be argued that there is a global system of hedge fund regulation in place (and there is not).

It can only be the case that the hedge fund must be regulated through the hedge fund manager in accordance with the laws in the jurisdiction in which it trades.  If that were not the case we would have an illogical situation if we were to have a fund with four different hedge fund managers trading in four different jurisdictions.  Thus far it is only in the area of banking where we have a global regulatory system represented by the Basel accords.  It is for the G20 and other to first establish the global systems with regards to fund management, private equity, derivatives, structured finance, insurance and indeed all areas of financial services before there can be meaningful talk about global regulation.  As matters stand, the rhetoric of the international bodies is well ahead of the substance.

In the meantime, we in the Cayman Islands would be first to say that the issue should be a focus on transparency.  The Cayman Islands has full IOSCO membership and therefore full regulator to regulator disclosure.  Is there really value then in the EU suggesting that that form of IOSCO agreement will not be acceptable for the purposes of establishing regulator to regulator disclosure under the AIFM Directive?  Clearly this is simply political posturing undertaken in the name of regulation.  Is the EU really saying that the IOSCO regulation is really inadequate and if it is, should it be allowed to do so?  Clearly if transparency is established in accordance with the requirements of an international body, that should be sufficient, otherwise we run the risk of recreating under the regulation banner the same fiasco that arose with respect to tax transparency when the OECD for political reasons refused to recognise the Cayman Islands unilateral tax transparency mechanism and then insisted on the precisely same thing introduced under a bilateral mechanism.

It is important that regulation is not used in this way as a cloak to shield the hidden agenda of onshore jurisdictions who are more interested in protecting their domestic economies from tax competition and to use the terminology of tax evasion and lack of regulation as weapons of choice.  The recurrent suggestion that there exists “dark pools of capital” that exist in some unregulated or unspecified manner in jurisdictions such as the Cayman Islands is the purest nonsense.  Transparent offshore financial centres like the Cayman Islands ensure that capital is efficiently deployed and given that tax evasion is off the table, operate by ensuring that funds are fully invested in accordance with the rules of onshore markets, whether these are in the US, Europe, Asia or South America or wherever.  It is a mistake both for tax transparency and regulatory purposes to conflate the Cayman Islands and other transparent offshore financial centres with jurisdictions like Switzerland and Liechtenstein which have until recently relied on secrecy and non-disclosure.

What we anticipate and welcome is a true level playing field and no, despite what we heard yesterday from the OECD, we have not yet arrived.  It should not be the case when regulation is required in the Cayman Islands to a more restrictive and onerous standard than is applied in G20 jurisdictions.  Think back to the anti-money laundering legislation that was required to be applied retroactively to every pre-existing Cayman client.  But that was not a standard that was required in the US, UK or continental Europe.  If those who seek to apply regulation globally are to have credibility such regulation must be part of a global standard.  And it must be applied in a non-prejudicial and non-arbitrary manner across all jurisdictions.  Regrettably what we are seeing thus far by way of regulatory response falls short on both points.

Your recent post citing the Cayman Islands in a list of “tax havens” is unfair and inaccurate.  The Cayman Islands — far from being a “tax haven” — are on the elite OECD global “white list” of jurisdictions that meet the highest standards for financial transparency.

FICTION: The Cayman Islands are a “tax haven.”

FACT: The Cayman Islands has full tax transparency with The United States and with 27 members of the European Union.  The US Department of Justice has had full authority to make enquiry in relation to any file in the Cayman Islands since 1990. The anti-money laundering legislation of the Cayman Islands has been evaluated by the International Monetary Fund and by the Financial Action Task Force and is found to be superior to that Of the United States and most EU jurisdictions.

FICTION: Offshore accounts such as those in the Caymans are used by multinational corporations to avoid paying any taxes or to commit tax fraud.

FACT: American corporations already pay taxes in the jurisdictions where they operate.  Additionally, all profits of subsidiaries of US parents — regardless of where they are incorporated — are consolidated and accounted for and taxable in the U.S. as profits of the parent, except to the extent that legitimate tax deferral applies under current IRS code.
Offshore financial centers, like Cayman, enable American companies to compete internationally and reinvest their profits; treaties with the U.S.
ensure they do not evade taxes.

FICTION: U.S. policies regarding “tax havens” and tax deferral for US multinationals are linked.

FACT: The issues of offshore financial centers and tax deferral for US multinational corporations are separate.  The future of tax deferral laws in the United States is an internal U.S. tax matter.

FICTION: Corporations cheat the public out of tens of billions of dollars a year by using offshore tax havens.

FACT: The financial services sector in the Cayman Islands is enormously important to the economic growth of the United States. Cayman financial services institutions pool funds from the international capital markets and direct those funds into investment opportunities in G20 jurisdictions. The impact of those investments in growing the American economy cannot be overstated.

FICTION: Money flows from the U.S. to the Cayman Islands, where it is hidden.

FACT: The favored location for Cayman funds to invest is the United States; the preponderant flow of capital is from the Cayman Islands into, not out of, the U.S.

Let’s keep the facts straight and avoid name-calling. Most of what Americans think they know about the Cayman Islands is wrong.  It¹s time to learn how our financial services industry is working to promote economic growth in the United States and around the world at http://www.caymanfinances.com.

Cayman Finance

One of the easiest figures to get a handle on is the number zero – the total number of banks and financial institutions that failed in the Cayman Islands during this latest financial crisis. Perhaps Gordon Brown and Alasdair Darling are simply badly briefed, but there is no statistical basis for the suggestion that instability exists within the Cayman Islands regulatory regime and their criticisms of it are ill founded.  No doubt, without the power to print money like their UK and US counterparts the Cayman regulatory authorities are simply not in a position to bail out private enterprise, and therefore require a more risk-adverse and prudent set of operating guidelines to be practiced by the Cayman banking sector.  If we allow the facts to get in the way of the negative PR for just a moment, we find the strength of the Cayman banking industry well evidenced by deposits and interbank bookings, now tracking at $1.795 trillion which is slightly behind the peak of $1.9 trillion recorded in September 2007, but still a healthy overall figure considering the global climate in which this sector has been operating and considering that there have been zero depositor losses.

Registered investment funds fell from 9,870 as at December 2008 to 9,523 at the end of 2009, but are still well ahead of the 8,751 funds in 2007.  A new growth trend is evidenced – January 2010 figures show 147 new fund authorisations and only 58 terminations. This compares quite favorably to the 106 authorisations and 39 terminations seen in January 2008 and is on target with the natural attrition trends experienced in the healthier market periods of years past.

These Cayman Islands fund statistics are surprisingly being used by some, who doubtless believe their own PR, to suggest major outflows of fund business are occurring from Cayman. In fact the drop is around 4% and after the worst financial crisis in a century this seems more like a sign of a strong fundamental belief in the jurisdiction. And where did the 4% go? There is no evidence they went anywhere other than into liquidation as a result of poor investment return and certainly not to Dublin where if we make a like-for-like comparison, we find that Irish domiciled funds fell from 5,025 to 4,627 over the same period, which is more than double the Cayman decrease. It must be also pointed out that the Irish, to boost their numbers, include sub-funds in their calculations, whereas in Cayman sub-funds are not included.  More interestingly, Irish fund listings fell from 1,605 to 1,270 during this same period, which is a loss of greater than 20 per cent and is consistent with the general malaise affecting the Irish economy.

In the insurance division, the story is brighter yet with the Cayman Islands Monetary Authority (CIMA) reporting the 2009 number of total insurance companies (including both domestic and international insurers) at 815, which is up 10 from year ending 2008 and 22 over the 2007 total of 793.  Captives specifically have experienced gains over this period, rising to 780 at the end of 2009 from 765 in 2007.  The assets held in the captive insurance industry have risen from $36.8 billion in 2008 to $44.7 at the end of 2009, an 18 percent increase.  By contrast, the largest jurisdiction for the captive insurance industry, Bermuda, reports 1,140 captives holding $84 billion in assets, which is down from their 2007 report of 1,149 captives holding $88.8 billion in assets.  Cayman, the second largest domicile for captives, continues to obviously gain ground against its major competitor.

Overall, these numbers are strong and prove the resilience of Cayman’s financial services industry and suggest that Cayman structures are essential to the global flow of capital – a key to economic recovery everywhere. The question that has not yet been asked, given the strength of the capital flows through Cayman, is the extent to which the protectionist elements of both the HIRE Act 2010 in the US and the European Funds Directive will have the unintended consequence of drying up the flow of funds from Cayman to the US and Europe at a time when the funding requirements of both are increasing, not decreasing.  The more logical consequence of the most recent iteration of the European Funds Directive is that rather than Cayman hedge funds wishing to move to the EU, fund managers who wish to continue to run a hedge fund proper must move out of the EU.

The recession has not completely leapfrogged the Cayman Islands as transactional volumes have decreased, as no doubt have assets under management (we await the latest CIMA figures).  The business community as a whole has had to downsize accordingly.  Streamlining into leaner operations is to be expected as part of a normal business cycle and so too Government must downsize the public sector expenditure   But, in what has hopefully been the most trying financial period our generation will have to face, the Cayman product has shown extraordinary fortitude, exhibiting both strong demand and staying power.

Anthony Travers

Cayman Finance.

What is it that Cayman is really offering?

The most significant attraction for business and investors is this:  In a world where government intervention is increasingly affecting every area of business activity Cayman remains the last bastion of pure capitalism.  A perfectly formed example of small, non-intrusive government in a high tax world.

The Tax Foundation organization in the United States calculates that Tax Freedom Day (the day when citizens actually get to keep their income having paid their annual dues to the government) will fall on April 13 for 2010.  This means the average American has to work about three and one-half months of the year for their government.  That is over a quarter of the year.

Tax Freedom Day in the UK fell on 14 May 2009 as reported by AdamSmith.org, meaning that for the first 134 days of the year every dollar earned by UK residents was handed over to their government.

In Canada, according to the Fraser Institute, Tax Freedom Day occurred on June 6 of 2009.   Nearly half a year’s income, 43% of an average family’s annual income, is taken by the various levels of government (municipal, provincial, and federal).

In the Cayman Islands our no direct tax system means that individuals and corporations keep 100 cents in every dollar of remuneration and bonus.  There are no direct taxes of any kind.  No income tax, no property tax, no capital gains tax, and no sales tax.  Government supports itself through indirect taxes such as import duties, licencing fees, airport fees, and work permit fees.  Not only does this encourage businesses and individuals to grow their income, knowing they can keep it , but it also provides incentive to the CIG to keep its costs in order and not expand government spending needlessly.

Additionally the Cayman Islands is a very stable jurisdiction.  Its non-intrusive government does not attempt to micro-manage the lives of its residents.  It offers a great lifestyle for visitors and residents, with first class schools, restaurants, shopping, and activities.  And the business infrastructure for financial services is second to none.

Since it established its financial services platform more than four decades ago, the Cayman Islands has grown into a leading global financial services centre supported by a sound legal and regulatory framework, world-class infrastructure, and high quality service providers.

The Cayman Islands is one of the world’s leading providers of institutionally focused, specialised financial services and a preferred destination for the structuring and domiciling of sophisticated financial services products.  It plays an important role in global markets by facilitating the flow of capital and lowering the cost of doing business.

You would be hard pressed to find another jurisdiction that can offer all of these advantages to protect your wealth, grow your business, and raise your family.

The American dream.  Now residing in Cayman.

For more information on the new government incentives to live, work, and invest in the Cayman Islands please visit: www.caymanfinance.gov.ky

In a Reuters online article by Tamara Vidaillet, which can be viewed here, Geoffrey Owens , head of the OECD tax division (is there another division?), says that he fully supports the use of illegally obtained, or stolen, client information from financial firms in order to track down tax cheats.

“What we don’t condone is taxpayers who do not comply with their obligations,” said Owens, seemingly oblivious to the well established principle of international law that renders a tax liability in one jurisdiction unenforceable in another, and the illegality involved in violation of an individuals’ right to privacy.

So we have established the new world order, which appears to state that the promotion of and the outright violation of criminal law in countries where private data is protected is appropriate if it meets with the objectives of an international body.  This would be worthy of greater study if it were the case that this new principle conforms with the objectives of the OECD as set out in its constitution.  But it does not; the objectives of the OECD, publicly promoting the economic well being of member and non member organizations, are strangely silent on the subject of renegade lawlessness.

So, as we understand it, the OECD message is now that it is acceptable for their members to violate local and international law if it benefits them fiscally?  That is at least showing the OECD to apply the same moral and legal standard as the shadowy ‘tax evaders’ are accused of.

What this latest statement reveals, with absolute clarity, is that OECD and its executive has abandoned any pretence of inhabiting the moral high ground and is now acting out of greed, desperation, and institutional arrogance.  The OECD now feels able to flaunt its disregard of the rule of law and the rights of sovereign nations in a self-described pursuit of international tax  ‘justice’.

Whilst none of this is of direct relevance to the Cayman Islands, which has an extensive network of proactive and reactive tax reporting treaties with the US and the EU jurisdictions, as we have discussed in previous blogs, there is a greater concern here.  The recently expressed objectives of the OECD do not extend simply to tax evasion.  The OECD believes that any form of tax competition is harmful and, we conclude, feels now that its disregard for law and principle may extend to the pursuit of any of its objectives.

Theft of your private data is being justified today.  Will theft of your family’s savings be next?  That sort of conspiracy theory should remain the stuff of Hollywood films, but sadly the OECD’s statements are suggesting we are already on that path.

Now more than ever proactive businesses and individuals need to consider whether a move to a fairer, more progressive jurisdiction might be the best way for them to create or protect their wealth.

As governments around the world feel more pressure to raise revenues in an increasingly lopsided battle with their national debt and future obligations it is vital that there be some kind of counterbalance to protect people from sudden and violent swings in tax rates.

The article, by Robert Lindsay, focuses on a single Broker firm, Tullett Prebon,  which provides special brokering services for investment banks and employs 700 brokers and staff in London.  But the facts apply broadly.  A new UK ‘supertax’ that will take 50% of bonuses over £25,000 awarded to banking sector employees is being implemented and is set to run until ‘at least’ next April.  Quite naturally few people believe the new tax would not be renewed in subsequent years.

As a result many of Tullett’s broking staff  have reportedly expressed an interest in moving away from the UK.  And competing firms overseas are using the occasion to aggressively recruit brokers away from London firms.

This could just be the thin end of the wedge as tax ‘grab’ policies encourage the highest income earners, those in the highest tax bracket that pay the most in both income and consumption taxes, to leave their home jurisdictions in search of places with equal standards of living where they can keep a larger percent of earned income.  The end result is higher tax policies leading to lower government revenues.

And this is exactly why tax competition between jurisdictions is necessary.  Without it, nations become empowered to target sectors, businesses, or even individuals with punitive taxation measures and there would be less incentive for the economy to grow earnings.  We believe that you have to risk capital to earn profits and the potential return has to justify the decision to put your capital in harms way.  Unrestrained taxation skews this natural process and actually constrains growth.

The difficulties facing the UK and US raises the question of whether the recent G20 focus on Offshore Financial Centres with low tax rates was really focused on the stability of the global financial system, or has the true goal been the elimination, or at least minimization, of tax competition globally?  Given that the root causes of the financial crisis were decisions made in G20 nations regarding bank lending and the failure to regulate we believe the answer is clear.

With the release of the “Final report of the Independent Review of British Offshore Financial Centres” commissioned in December 2008 by the UK Treasury and put together by former Bank of England official Michael Foot, the general public will now be acutely aware that this project was simply another diversionary tactic launched during the height of the financial crisis that seeks to advance a specific political agenda.

After stating that the economies of British territories operating as offshore financial centres are very reliant on the financial services sector, the report goes on to ‘recommend’ that these economies develop a more diversified tax base.  It claims that there is a strong case for these jurisdictions to introduce taxes to increase the sustainability of their business models but without reference to financial havoc that is occurring in the G 20 jurisdictions that are imposing increasingly higher rates of tax.  Mr. Foot even goes on to offer the UK’s technical assistance in collecting these taxes since the jurisdictions have no experience in this area.  This will, he says, “bring them more into the mainstream of the international community.” As a statement that owes nothing to technical analysis and everything to political dogma.

Not surprisingly, the only real positive mentions for Cayman in the report come from the independent reviews of our transparency and compliance record published by the IMF and CFATF.  These firm and unassailable facts regarding our adherence to international standards to fight financial crimes provide an inconvenient obstacle to those wishing to label Cayman as a tax haven or disparage the Cayman financial model.  Typically the fact pattern is ignored or given insignificant coverage so that any audiences fail to understand the significance of Cayman’s standing or that Cayman ranks ahead of most G20 nations in this area.

There is a certain cultural arrogance contained in this report, along with a sense of denial regarding the financial position of the UK and the ‘international community’ whose example we are encouraged to model our behaviour upon.  With many of the world’s largest economies heavily burdened by the weight of their debts and future obligations should they really be promoted as role models to smaller, more efficient economies with regard to the sustainability of their ‘business model’?

The authors of this report should have understood better that any comments on such issues as debt, prudent government spending, and business model sustainability would invite comparisons to the records of the UK and other G20 governments.

An analysis by consulting company Deloitte LLP, which is included in Foot’s report, even described the business models of offshore jurisdictions that depended on tax competition strategies as standing “outside the growing international consensus on tax policy norms“.  That is an assumption, not a finding, and one that we would not have anticipated as being within the competence of an accounting firm.  Thankfully the Cayman Islands government has chosen to resist the pressure to join the tax and spend march crippling many of the world’s largest economies, and will take steps to balance the budget without  introducing direct  taxation . The solution for Cayman is to trim expenditure so that our cloak is cut according to our cloth, yet maintaining Cayman’s tax neutrality.  That may well prove to be Cayman’s most attractive asset .

This entirely reflects the confirmations that Cayman Finance have received from key staffers in Washington in that the “list “based approach, favored by Senator Levin’s proposed legislation, appears to have been rejected in favour of a transparency based approach.  Whilst the legislative process has not yet got underway we are pleased that these proposals are entirely consistent with the approach suggested by Cayman Finance.

New regulations would force foreign financial institutions, foreign trusts, and foreign corporations to provide information about their U.S. accountholders, grantors, and owners, respectively.  Chairman of the Ways and Means Select Revenue Subcommittee, Mr. Richard Neal said ““This bill is a continuation of my efforts to reduce tax evasion by American citizens and bring more transparency to international banking.”

This is obviously very positive news for the Cayman Islands, which has been a fully transparent jurisdiction for the last decade and a leader in regulatory and compliance issues related to global finance.  We can only hope this will finally put to rest any and all efforts by G20 nations to portray Cayman as a ‘tax haven’ and that we will not be forced to repeatedly jump through the same old hoops to prove what must now be evident to anyone with knowledge of global financial markets – namely that the Cayman Islands is the last place on earth that individuals would choose for the purpose of evading taxes.