New UK report badly misses the mark

November 2nd, 2009
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 .

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 .

Posted in Fiction vs. Fact, White Papers, Reports & Studies | 39 Comments »

Positive Movement on US Legislation

October 27th, 2009

Three prominent members of the US House and Senate issued a joint press release outlining their proposed legislation to prevent US residents from unlawfully evading taxes.  The legislation includes comprehensive proposals to clamp down on tax evasion and improve taxpayer compliance by giving the IRS new administrative tools to detect, deter and discourage offshore tax abuses.

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.

Posted in Tax Issues, USA | No Comments »

Tightening the noose

October 23rd, 2009

Last month French bank BNP Paribas announced to the world that it will stop operating in countries that are on the ‘gray list’ published by the OECD.  This decision, the first of its kind by any major bank, puts Panama and the Bahamas directly at risk of losing business and increases pressure on all gray-listed countries to conform to the OECD mandate.

While this type of gamesmanship will not affect the Cayman Islands today, due to our OECD White List status, it does raise concerns for smaller nations such as ours that the playing field will continue to be modified by G20 nations until they achieve their ultimate goal: the “one size fits all “global tax rate .The G20 nations intend to use every opportunity to raise taxes from any source in order to deal with increasing national debts.

With all of the recent focus on Cayman’s debt, which stands at a realistic 25% of GDP, it may surprise some people to discover that UK debt, according to their own statistics office, at the end of March 2009 was equivalent to 55.5% of GDP and unofficially, if unfunded public sector pension liability is included, may amount to three times that figure. Similarly France’s public debt rose to 73.9% of GDP in the second quarter of 2009, and estimates for the US put their figure at close to 90% of GDP for 2009 and is expected to top 100% in the near future.  Little wonder then why these large economies are seeking to exercise their combined might to force smaller nations like Panama, the Bahamas, Barbados, and even the Cayman Islands to change their policies on taxation.

The belief shared by the G20 nations is that low tax regimes are ‘unfair’ and rob their governments of desperately needed tax revenue.  What this theory fails to consider is what drives the economic growth of these large economies.  The answer is not tax dollars, but investment dollars.  And without tax neutral jurisdictions, like Cayman, it would be more difficult, not less difficult, for onshore jurisdictions to attract international pools of investment capital that find their way into these economies.

So the question is:  Will the G20 nations recognize the negative impact to their economies by excluding their own financial markets from accessing offshore financial centres? By attempting to put the squeeze on offshore centres they may unwittingly be tightening the noose around the neck of their own economies.

Posted in Agreements and Treaties, Corporate, Fiction vs. Fact, G20, OECD, Tax Issues, USA | No Comments »

Keeping friends close…

October 23rd, 2009

CIFSA was pleased to hear that the Cayman Islands Government (CIG) was able to obtain a seat on the 14 nation Steering Group responsible for assisting in the restructuring of policy for the OECD Global Forum on Transparency and Exchange of Information. The Global Forum is the final decision making body for OECD on these matters.

The Steering Group will receive detailed methodology and terms of reference from a Peer Review Group that is currently setting up a ‘robust, transparent and accelerated process’ that will evaluate how countries implement tax information exchange agreements.

CIFSA has been encouraging the CIG to develop closer ties with overseas governments and international bodies such as the OECD, which were going to introduce new legislation and regulations affecting our industry.  And, as they have thus far done in other areas, the CIG responded in a timely and effective manner.  In some ways we are seeing a return of the public/private sector partnership that first made Cayman great.

It is vital for Cayman to have a seat at the table to ensure decisions are based on factual evidence and not political expedience.  The OECD’s willingness to invite OFC’s into this process offers new hope that the process will be open and fair to all parties.  This is yet another opportunity to communicate to foreign governments our jurisdiction’s record with respect to regulation and compliance, and to dispel myths about our financial services industry.

Needless to say CIFSA will continue to closely monitor the OECD process as well as legislative initiatives around the globe that could impact our jurisdiction.

Posted in G20, OECD | No Comments »

A warm welcome to Trinity

October 23rd, 2009

On behalf of CIFSA I would like to welcome Trinity Fund Administration to the Cayman Islands.   Trinity has received a full Fund Administrators licence from CIMA and has now opened an office here.

Brad Cowdroy has been appointed Head of the new Cayman office.  He has previously lived in the Cayman Islands while working for CIBC and PricewaterhouseCoopers, but is most recently from Goldman Sachs where he was a Vice President in Fund Administration Services.

Attracting new investment in Cayman is essential to the country and our industry.  The lack of physical offices and personnel is often used as an argument against the validity of corporate vehicles created here by those with little knowledge of the structure and purpose of those vehicles.  Adding to that base can only help to further marginalize those misguided comments.

CIFSA and the CIG, along with several private sector organizations like the newly formed Investment Council are working together to attract new business investment in our islands.  Funds Administration and Captive Insurance are two of the more obvious areas being targeted for expansion.

CIFSA will be contacting Trinity to promote the benefits of joining our association and the need to protect their new investment here from international threats.  The strength of our membership is what gives weight to CIFSA’s voice in the international community.  We encourage participation from all industry participants.

Posted in Local Events, Uncategorized | No Comments »

Rumours of Cayman’s demise greatly exaggerated

October 4th, 2009

I had occasion to respond to an article published 14 September by the Guardian in the UK, titled Britain may be forced to bail out offshore tax havens.    In particular, the very first paragraph caught my attention.  It read: “Britain could be forced to bail out one or more of its offshore tax havens at huge cost, according to early drafts of a Treasury report, because the economic crisis has wrecked their finances.”  This was certainly news to me.

The article went on to speak directly about Cayman’s finances although it was clear the writer did no direct research into the facts surrounding the matter.  He certainly was not aware that the Cayman Government has several banks willing to lend them  £278 million pounds due to our recently confirmed triple A credit rating.  And in describing the size of that borrowing as ‘huge’ and possibly leading to ‘economic failure’ the writer somehow overlooked the fact that our short term funding issue is hardly on a par with the financial misadventures of the UK or US.  Indeed the borrowing Cayman is seeking is equivalent to less than half a day’s current overspend by HM government.

The full text of my response can be found here http://www.guardian.co.uk/business/2009/sep/16/tax-havens-cayman-guernsey

Not coincidentally CIFSA and the CIG received a request for an interview from a German reporter about the ‘potential bankruptcy of Cayman’.  What we are witnessing seems to be a third stage in an organized effort to damage the reputations of all Offshore Financial Centres.

The first stage was the attempt to lay blame for the financial crisis and stock market meltdown of 2008 at the feet of OFC’s.   That effort failed miserably under the weight of factual evidence to the contrary but it took many weeks and months to undue the damage done by the initial headlines and speeches.

The second stage was the lost taxation argument which saw the creation of the OECD White List and had politicians quoting ridiculous sums of revenue they could collect if given information on secret accounts in Cayman and elsewhere.  Once the Obama administration had to actually produce a budget they finally had to admit that there is no windfall tax revenue to go after and no secret bank accounts in the Cayman Islands.  Again, the initial story received much greater coverage.

So now we have entered this third stage in the propaganda war.  This latest effort seems intent on disparaging the financial viability of many OFC’s, Cayman included, despite the recent validation of our triple A credit and ignoring our ability to raise revenues from a variety of sources (which stands in stark contrast to the severely overtaxed populations in the US and UK and many other onshore jurisdictions).

As with the previous efforts this one will ultimately fail as well once more attention is drawn to the issues and more responsible news outlets and individuals delve into the facts.  CIFSA will continue to work diligently on behalf of the jurisdiction to ensure the truth is not overwhelmed by political rhetoric aimed at harming our key industries.

As always the truth is our strongest ally.  Our financial services industry will continue to offer services that are valuable and necessary for the efficient operation of the global economy.  Efficiencies that just so happen to help create jobs in the very countries that are most critical of us.

Posted in Fiction vs. Fact, G20, OECD | No Comments »

CIFSA Update for August

September 11th, 2009

CIFSA has been actively promoting its revamped public affairs and public relations campaigns for what has been an eventful few months. The most notable result has been the success of the CIFSA campaign to promote the inclusion of Cayman on the OECD White List.
CIFSA Chairman Anthony Travers has been heavily engaged in his role as spokesman for the association. His most recent letters and commentary have been published in The Washington Times, Hedge Fund Journal, and The Nation and he has been quoted extensively in articles by The Economist, Reuters, Dow Jones Newswire, Hedge Fund Manager Week, Global Investor magazine, Worth Magazine and other foreign press. Mr. Travers has also appeared internationally on the BBC World Radio News, Bloomberg and closer to home on Cayman 27. Over the coming weeks the Chairman will be meeting with a series of national Editors in the UK to continue his lobbying efforts in support of Cayman’s financial industry, building on his commentary on industry issues like the EU Alternative Investment Funds Directive. In September, Mr. Travers will be attending the London based FT Global forum, sponsored by CIMA.
“There exists in some quarters still an entrenched mischaracterisation of the Cayman Islands, as a place where certain individuals hide their money from foreign tax officials.”, says Mr. Travers. “The single greatest challenge in my role as Chairman of CIFSA is to expose the fallacy of these misperceptions in the light of the factual record. To that end CIFSA engaged the services of established lobbying & PR firms in Washington and London to assist us in this area. And we have already seen tremendous progress in tearing down the old stereotypes.”

In July, CIFSA hosted the much anticipated visit from Washington lobbyists Quinn Gillespie and Associates. Jack Quinn and Manuel Ortiz of QGA spoke at the CIFSA dinner event and had a series of meetings with senior members the CIG, the Cayman Islands Stock Exchange, and the Cayman Islands Monetary Authority.

In August the CIG formally signed a Tax Information Exchange Agreement with New Zealand, bringing the total bi-lateral TIEAs for the Cayman Islands to twelve. Having reached the required number of TIEAs, as set out by the OECD, the Cayman Islands was subsequently added to the OECD White List.
This is a significant accomplishment for the new government in just a few short months since taking office. CIFSA representatives sit on the government’s Financial Services Council, and regularly attend meetings with CIG on matters that concern the industry. CIFSA is also represented on the newly formed Investment Council which is focused on private sector initiatives to attract business investment to Cayman.
CIFSA fully intends to remain alert and responsive to new challenges that may present themselves and proposes to be proactive in developing relations with foreign governments and media. The truth remains our strongest ally in attempting to dispel myths and cultivate more accurate perceptions of our financial services around the world.
The inclusion of the Cayman Islands on the White List is an important step for the industry but CIFSA does not intend to rest upon that accomplishment. We recognize, and are monitoring, the initiatives that many foreign governments are considering to legislate in a way they hope will increase tax revenues and limit the use of offshore vehicles that legally minimize tax payable. CIFSA proposes to work with CIG to educate policymakers and lawmakers about the positive impact offshore vehicles have on global competitiveness, investment, and employment in developed countries.

Posted in Local Events, OECD, TIEA, Uncategorized | 1 Comment »

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