Transparency plans raise concerns

The Cayman Islands government has released an action plan to prevent the misuse of companies and legal arrangements. It includes provisions on beneficial ownership and confirms Cayman’s commitment to participate in international tax cooperation agreements such as the Convention on Mutual Assistance in Tax Matters.

Although large parts of the plan include the assessment of established business practices in the Cayman Islands, new elements such as the potential for a central registry of beneficial ownership information and the automatic exchange of tax information have raised concern in the finance industry that government may be moving faster than other offshore and onshore competitors.

Tim Ridley, former chairman of the Cayman Islands Monetary Authority, said the government should be careful that Cayman does not get ahead of the curve and “gold plate” the domestic regime unnecessarily and in a way that impairs its competitive position.

“We should also be very hesitant to erode legitimate privacy rights. The action plans now published by the UK and the USA are considerably less specific than ours. We have seen no action plans from the other overseas territories. So it is imperative that we not unnecessarily expand the requirements for disclosure, record-keeping or governmental filings, unless and until those requirements are internationally adopted and actually implemented, in particular by the major onshore jurisdictions and our competitors.”

Paul Byles, director and CEO of First Regents Bank and Trust, said there is now among offshore financial centres “a very clear race to be the most cooperative”. Cayman should continue to be a partner in the global fight against tax evasion. But it should tread carefully on the subject of international firms being able to legally minimise their tax burden.

To address tax avoidance it would be far more effective for the OECD, if their member countries made the necessary amendments to their domestic tax frameworks. This would also address the issue of cost by placing it in the same country that benefits from the policy change, he said.

“Participation in a system of information sharing will potentially end up revealing largely legal activity and only serves the political purposes of OECD, while offering nothing in the way of compensation to offshore financial centres in relation to the cost of implementing the necessary systems.”

While Cayman should continue to cooperate with global initiatives, provided there is a level playing field, the cost of implementation must be reasonable, Mr. Byles said.

The action plan follows the meeting of the Group of Eight leading industrialised nations in Enniskillen, Northern Ireland, last weekend which agreed upon measures to tackle corporate tax avoidance, the availability of the beneficial ownership information and tax information exchange.

In their post-summit communiqué, the G-8 leaders stated a lack of knowledge about who ultimately controls, owns or profits from companies and legal arrangements, including trusts, can assist tax evaders and money launderers. They were also concerned about the potential misuse of shell companies for corruption, tax evasion and money laundering.

The G-8 countries committed to developing and implementing action plans and agreed on core principles to establish who really owns companies and benefits from trusts registered in their jurisdiction.

The action plan presented by the Cayman Islands government reflects these core principles and will review existing business practices in Cayman. The licensing process for trusts and corporate service providers in the Cayman Islands has required service providers and trustees to collect, update and retain beneficial ownership information for more than a decade.

In its plan, government said it will further evaluate these established policies and legislative measures to ensure their effectiveness and availability to appropriate authorities.

To ensure that this information is available to law enforcement, tax collection agencies and other authorities, the UK government had pushed for the establishment of central registries before the summit. But the agreement stopped short of calling for centralised, public repositories. At the moment, financial service providers in the Cayman Islands maintain the records of beneficial owners of companies and trusts on their premises.

Government said it would assess by 2015 whether a central registry is the most effective way to improve transparency, both domestically and for cross-border cooperation.

However, Gonzalo Jalles, CEO of financial services association Cayman Finance, is cold on the idea of a centralised storage of beneficial ownership information. “In our opinion, there are not many benefits of a centralised registry, because under the existing [tax] agreements it is not that difficult to access that information.”

A centralised registry would not add enough value to justify the costs, he said, but if there was a level playing field with central registries becoming the common standard, Cayman Finance would not be opposed to it.

For the moment however, “it is very clear that many countries in the G-8 and in this part of the world, the US, are not even close to where we are”, he said. “In my opinion, we are not going to see centralised registries for many years to come.”

Dan Wise, a partner with Martin Kenney & Co. in the British Virgin Islands who is frequently involved in asset tracing cases, also says a centralised and public registry is not needed.

“My personal view is that there is no reason for a public registry of this information. Service providers like registered agents are already required to know from certified copy documents who the ultimate beneficial owners are; or be able to get that documentation by return from an authorised introducer. In my experience from disclosure orders this system works for the most part.”

Regulators, law enforcement and counterparties to tax information exchange agreements can get this information for good reason from service providers in an offshore jurisdiction, as can private parties via court order in the Cayman Islands, the BVI and the English Caribbean, he said.

An April 2013 Phase 2 Peer Review Report by the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, recognised that information relating to beneficial owners continues to be readily available to appropriate authorities in the 31 jurisdictions with which Cayman has bilateral agreements.


  1. There’s a breathless hush in the Close tonight,
    Ten to make and the match to win.
    An hour to play and the last man in

    The last man in is our new lady Governor, and well qualified by all accounts (no pun intended).
    Very best of luck to Her Excellency!

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