On a per-minute basis, this week’s sitting of the Legislative Assembly could be the most impactful gathering of lawmakers in Cayman Islands history. For better or worse.
During the one-day meeting, which took place Monday, lawmakers approved three bills intended to appease European Union bureaucrats who are fundamentally opposed to tax-competitive policies in offshore centers such as Cayman.
In order to pass the legislation before an EU-ordered deadline of Dec. 31, 2018, local lawmakers designated the bills – the International Tax Co-operation (Economic Substance) Bill, Local Companies (Control) (Amendment) Bill, and Companies (Amendment) (No. 2) Bill – as “emergency” legislation, shortening the public deliberation period from 21 days to 12.
During the proceedings on the House floor, the sole highlights were Deputy Opposition Leader Alva Suckoo and George Town independent MLA Kenneth Bryan, who raised pointed questions about the contents of the bills, which were filed in response to the EU’s threat to blacklist certain countries, including Cayman, unless local laws require companies to demonstrate “substantive economic activity” in the jurisdiction in which they are registered.
In response to observations that the legislative process had been rushed and the general public not given an opportunity to participate, Financial Services Minister Tara Rivers claimed the opposite, pointing to months of (closed-door) consultation with (hand-picked) individuals from the financial services sector.
In response to observations that the legislation lacked even a definition of “economic substance,” Premier Alden McLaughlin said the “collective opinion of the Opposition has been wholly unhelpful.”
If you want to know what the legislation actually does, the message is, wait for government to issue regulations and guidance notes. If you want to know what effect the legislation will have on business, the premier said, “The economic impact of introducing substance requirements in Cayman cannot be determined at this stage …”
The seemingly deliberate avoidance of clarity is, to put it neatly, not reassuring.
On a more general level, lawmakers’ actions on “economic substance” are part of a troubling pattern for this government, that is, expansion of the public sector and restriction of the private sector.
For example, consider the story published on Tuesday’s front page, the day before we led the Compass with the approval of the “economic substance” bills. Tuesday’s story, “UK agrees to new ministry,” concerns the establishment of a “Ministry of International Trade, Investment, Aviation and Maritime Affairs,” which will develop “a network of international offices,” starting in Hong Kong.
Premier McLaughlin said, “While it is perhaps extraordinary for an administration to create a new ministry, these are indeed extraordinary times.”
(The new ministry’s initial annual budget is $3 million. As time goes on, expect that number to increase, extraordinarily.)
It seems that our government’s response to foreign threats to our offshore economy is the creation of more government and more regulations.
Similarities can also be seen in the government’s approach to onshore business, namely through the creation of the “WORC” department, formed amid the realignment of immigration and customs authorities into a “Customs and Border Patrol” agency, as well as the separate creation of a full-fledged “Cayman Coast Guard,” all of which will necessitate significant government hiring and increases in government spending (starting with local taxpayers footing 75 percent of the $11 million bill for a new Coast Guard helicopter; the U.K. is chipping in the other 25 percent).
The restructuring-in-progress of Cayman’s immigration and employment apparatus is on course to coincide with the coming fallout from the “economic substance” legislation, which could potentially result in offshore businesses’ sudden hiring of hundreds or even thousands of new employees, and/or the exodus of thousands of offshore companies and the concomitant drop in government fees.
Everyone’s fond of gift-wrapped packages nestled beneath Christmas trees. But we are concerned that the implications of the legislative “presents” that lawmakers have left the country to consider over the holidays will not be fully revealed until the regulations are fully crafted and ultimately – and we might add, belatedly – made public.