Changes afoot to stop ‘fronting’

The government has issued
directions to the Trade and Business Licensing Board aimed at preventing the
‘fronting’ of foreign business owners.

Premier McKeeva Bush announced the
measures during debate on a Private Member’s Motion put forward by North Side
Legislator Ezzard Miller last week, asking the government to consider establishing
a Fair Trading Commission.

In accepting the motion on behalf
of the government, Mr. Bush said certain types of businesses would be reserved
for Caymanian ownership only.  The long
list of businesses include watersports; taxi and tour operators; limousine
services; handicraft businesses; beauty salons and barber shops; gardening and
landscaping businesses; auto repair businesses; painting contractors;
convenience stores; mobile car wash businesses; commercial fishing; private
security; promoters and entertainment companies; radio stations; bar tendering
services; real estate businesses; electrical and plumbing contractors; and trucking

Clarifying the matter this week,
Mr. Bush confirmed the Trade and Business Licensing Board had already been instructed
not to issue new licences to the designated businesses unless they were
entirely owned by Caymanians. He said, however, that already-established
companies in the designated businesses that did not have full Caymanian
ownership would be allowed to carry on.

“We don’t want to do anything that
could lead to being sued,” he said.

In his response to Mr. Miller’s
motion, Mr. Bush said the government placed great importance on fair
competition, which he said was essential to Cayman’s free market economy.

“We must be careful not to
introduce potential policies that would promote inefficiency and high prices,”
he said.

He noted, however, that many
countries have some form of fair trade legislation that protected not only
business owners, but consumers as well.

Although Mr. Miller did mention
consumer protection at the end of his introduction of the motion, his main
thrust was to protect local business from rich non-Caymanians who enter into
fronting arrangements with Caymanian partners.

By law, local companies, except those
that receive a Local Companies Control Licence, are required to have at least
60 per cent Caymanian ownership.  
Fronting is the practice of a Caymanian becoming the 60 per cent partner
with a foreigner of a local company, but not having any capital investment and
little or no involvement with the company’s operations.  Although the Caymanian is usually remunerated
in some fashion for providing the fronting service, the arrangement often
entails side agreements that prevent the Caymanian from receiving 60 per cent
of the business profits.

“I believe competition is a good
thing,” Mr. Miller said. “However, competition when the playing field is not
level is not fair.

“Some of the people’s pockets are
deep enough to lose money for years if they have to, and drive Caymanians out
of business,” he continued. “Then they come back with a vengeance and recover
any losses they had to endure during the time it took to drive Caymanians out
of business.”

In his response, Mr. Miller said he
did not think designating certain business to be owned by Caymanians would
achieve the objectives he sought.

“Because some of the new Caymanians
have deep, deep pockets,” he said, adding that one of the reasons Cayman’s
tourism product was deteriorating was that the government once allowed “a
monopoly of hotels on Seven Mile Beach” and the tourism product was now being
destroyed by foreign hotel managers who didn’t understand Cayman culture.

Mr. Miller also took a shot at the
Dart Group – which he didn’t mention by name – complaining that it was “buying
up tourism stores”, “won the bid on the port” where it would “no doubt be in a
position to ensure all the stores will be operated by them and their
subsidiaries.” He also complained about the Dart Group being in the liquor
distribution business, saying they already owned a “vast majority of it by

Another aspect of Mr. Miller’s
motion was to suggest the establishment of a regulatory body that could deal
with various fair trade issues, including determining if there was a need for a
particular kind of business before granting a Trade and Business Licence.

Legislative spat

George Town MLA Ellio Solomon drew
the ire of Mr. Miller, when, during his contribution to the debate, he stated
he was “glad someone across the aisle has suddenly grew a brain”.

It was unclear if Mr. Solomon was
referring to Mr. Miller, who brought the motion, or to East End MLA Arden
McLean, who seconded the motion and just spoke briefly beforehand. In any case,
Mr. Miller thought the remark was intended for him.

Speaker of the House Mary Lawrence
cautioned Mr. Solomon about his remarks after Mr. Miller brought to her
attention sections of the Standing Orders of the House.

When he rose to reply, Mr. Miller
he said that certain people could not resist to denigrate.

“To say I have suddenly grown a
brain is rather… unpleasant,” he said, adding that he pledged to obey the
Standing Orders. “If there ever was an exercise in personal restraint, you are
witnessing it today.”

After a 10-0 vote in favour of the
motion, Mrs. Lawrence called for a 15-minute recess and asked Mr. Solomon to
come to her office.