Misconceptions about what offshore financial centers really do have led to radicalized actions even by those who have reasonable policy objectives in terms of fighting financial crime and tax evasion, panelists at the Mourant Ozannes Private Client and Trust Conference argued last week.
Jude Scott, CEO of Cayman Finance, said he has noticed a convergence of attacks on offshore centers, which previously focused solely on transparency or tax issues. These attacks served simplified and unhelpful goals with the aim of damaging the Cayman Islands and other offshore financial centers.
Participating in a mock debate about whether these attacks had gone far enough, Mr. Scott said the attacks stem from “a lack of understanding of the important role that offshore financial centers play in regard to global commerce, the free trade of goods and services, and capital financing around the world.”
Measures like the EU blacklist, BEPS, country-by-country reporting and beneficial ownership registries have reached a point “where those with good aims have radicalized their actions and attacks, where they no longer achieve the sensible, reasonable, pragmatic objectives,” Mr. Scott said.
The Cayman Finance chief executive named the U.K. beneficial ownership register as a sub-standard self-reporting register that does not help prevent financial crime.
While the Cayman Islands had done a “tremendous job” in adopting many of the global standards that have emerged, he said it is “important to push back on things that are not global standards.”
Jim Edmondson, Mourant Ozannes’ head of International Trusts & Private Client practice and conference chair, said, “There is a perception that needs be shifted, a perception largely conveyed by populist headlines.” The reality is that the standards of regulation and control in jurisdictions like Cayman are higher than they are in some of the onshore jurisdictions, such as the U.K. and the United States, he added.
The theme of the conference and an important question was therefore “the role of jurisdictions such as Cayman in global terms and how to best explain what we do,” he noted.
Charlie Sosna from Mishcon de Reya in London argued that while certain policy objectives, like fighting tax evasion and money laundering, can be applauded, the proportionality and legality of some of the measures “are highly questionable.”
From the viewpoint of a U.K. private client adviser, he said, international clients seek to use offshore structures for asset protection and confidentiality, dynastic planning or U.K. tax planning, and attacks on offshore centers affect all three areas.
Mr. Sosna said there is a complete misconception about asset protection in offshore centers. “Many clients come from less secure jurisdictions – Russia, Brazil, South Africa – where they have made money legitimately, but they have genuine concerns that not only their assets are not going to be safe, if they become public knowledge, but actually their families will not be.”
Tax information exchange efforts like the common reporting standard create a number of problems for clients, he said.
Clients are concerned about the uncertainty created by the different approaches in all jurisdictions to implementing the measures, he said. Others are driven out of the market because of the cost of complying with the transparency requirements.
“When it comes to proportionality, CRS piggybacked of FATCA but has not quite got it right,” he added. For instance, to include settlors, protectors and certain discretionary beneficiaries that have no financial interests in the reporting is questionable.
Most importantly, Mr. Sosna said the largest concern is the legality of tax transparency measures. “CRS has been queried the whole way through for being in breach of the European Convention of Human Rights,” he said.
The various initiatives make “it harder for clients to hand assets over to offshore centers and feel generally not concerned for the vulnerability of these assets, particularly on the data protection leaks,” he noted.
However, it is not all doom and gloom, he said, as there is still a place for offshore jurisdictions and huge opportunities exist when it comes to legitimate U.K. tax planning.
“It is now time that all the offshore territories need to be talking together, thinking together, and stand up to the changes that are coming,” he concluded.