International Financial Centers such as the Cayman Islands have for years fought to maintain their financial services industries in the face of widespread misperception of their regulatory frameworks and their role in global finance.
Sometimes this pressure from OECD-based governments is based more on commercial politics (the competition between onshore and offshore centres) than on the rationale put forward by those OECD-based governments (which usually cites the need to put global regulatory standards in place to fight money laundering and another nefarious crimes).
But despite the reality of where this pressure is coming from, the Cayman Islands has always taken the view that it must cooperate and has invested many millions of dollars and human resources into enhancing its regulatory framework and cross-border cooperation mechanisms to meet the proposed new standards (even in cases where it is clear the foundation for the pressure to do so may seem dubious).
The jurisdiction has done this partly because of the reality of the political dynamics at hand. Cayman is, after all, a British Overseas Territory, and the U.K. maintains a level of reserve powers over all of its territories.
The U.K. has always respected the right of the Cayman Islands to govern itself in most areas, and for anyone looking in from the outside this would seem evident. But the recent approval by the U.K. Parliament to potentially force its territories to introduce public beneficial ownership registries by 2020 shows that colonial politics (of the 1950s variety) are still here. It demonstrates that the U.K., which in recent years has sung a tune which says they will protect the interests of its territories in reasonable circumstances, ultimately will use whatever means necessary to achieve its own selfish agendas (as and when these opportunities arise). The threat that the U.K. may force the change if the Cayman Islands does not implement it by 2020 is a form of bullying, but it feels more so when one considers that the Crown Dependencies (which faced a similar fate) were able to successfully argue to be excluded from this bullying.
The basic idea behind the need to have beneficial ownership information is to enable governments and their authorities to know who is behind a company to better facilitate investigations into tax and regulatory breaches. No one disagrees with that. The Cayman Islands has demonstrated consistently that it will go very far in cooperating with overseas authorities to help in the fight against tax evasion, as well as to fight money laundering and terrorist financing.
The Cayman Islands has signed dozens of tax information exchange agreements and has committed to the OECD’s Common Reporting Standard and FATCA. The jurisdiction also has a long history of ongoing cooperation and information exchange between regulatory and competent authorities in Cayman and in more than 100 countries. Any objective review of its anti-money laundering framework demonstrates that the country’s legislation and implementation is on par (and in some cases exceeds) that of the framework of many so-styled advanced financial services centers. These actions are proof that the Cayman Islands has always taken its obligations seriously.
But if the refusal to take Cayman’s actual commitments and regulatory framework into consideration is poor, the blatant disregard for the constitutional relationship between the U.K. and its territories is surely the most shameful part of this debacle.
Not only was this done flippantly and in the vein of old school colonialism, but the actions by Parliament have shown no regard for the economic well-being of the territories by requiring the territories to implement public registries ahead of this being a global standard (i.e., when many other countries are not required to do so).
The U.K.’s Foreign Office minister is reported as saying that “We [the U.K.] do not want to legislate directly for [the British overseas territories], nor do we wish to risk damaging our long-standing constitutional arrangements which respect their autonomy. However, we have listened to the strength of feeling in his House on this issue and accept that it is without a doubt the majority view of this House that the overseas territories should have public registers ahead of it becoming the international standard as set by the financial actions task force.”
Based on that statement, the fact that the U.K. would knowingly create an unlevel playing field for its territories based on misperception and politics is a terrible indictment of the ‘trust’ part of the relationship between the U.K. and those territories. If this action is not reversed at the final amendments stage before “Royal Assent,” then “trust” (if presumably it did exist) would be all but lost.
Paul Byles is president of the Cayman Islands Chamber of Commerce.