The Cayman Government has released over 24 new pieces of draft bills and legal amendments from the Ministry of Financial Services in 2019 to satisfy the international calls for greater transparency in its offshore financial sector.
The improvement in the regulatory system is being demanded by agencies and governments such as European Union, the G-20, the Organisation for Economic Co-operation and Development (OECD) or the Financial Action Task Force (FATF), as well as individual countries like the US or the UK, according to the Cayman Compass.
Calling the raft of internationally prompted updates to its financial legislative agenda, “the perfect storm”, Alex Cobham, CEO of Tax Justice Network spoke to the New York Times about the legislative situation in Cayman. This was prompted by the New York Times’ article by Gillian Tett on global financial trends. However, Jude Scott, Cayman Finance CEO has hit back and characterised Tett’s article as one written “under a mountain of outdated caricatures and convenient omissions.”
” Failure to take the correct measures and adapt its laws, regulations and practices is not really an option as it could see Cayman blacklisted…”– The Caribbean Financial Action Task Force
These actions to ensure continued transparency embolden local thought leaders such as Jude Scott to scoff at claims that the Cayman Islands is a place where people can hide money from regulators.
Scott explained, “Perhaps the most significant mischaracterisation in the column was describing financial flows associated international financial centres as “a mystery wrapped in an enigma for investors.” At the end of 2017, total assets managed by Cayman Islands hedge funds were US$6.93 trillion (EUR 6.16 trillion) and net assets were US$4.03 trillion (EUR 3.59 trillion),” Scott said.
He added that “The large institutional investors that invest capital on this scale don’t do so in environments that are mysterious to them. In fact, global investors understand very clearly the advantages of investing through the Cayman Islands. Cayman offers them a neutral platform in which to pool their capital with others and access a world’s worth of investment opportunities in a single transparent, tax neutral system with a stable, democratic government and a trusted, experienced legal system.”
That said, Dax Basdeo, chief officer in the Cayman Ministry of Financial Services, speaking to the Cayman Compass said the requirements from the international bodies are all priority. “Gone are the days where we have 100,000 companies and we don’t know what is going on.”
The rundown of the legislative activity by the Cayman Government is aimed to cover wide cross-sections of concerns by international regulators.
“Gone are the days where we have 100,000 companies and we don’t know what is going on.”– Chief officer in the Cayman Ministry of Financial Services, Dax Basdeo
Anti-money laundering and counter-terrorism financing are two of the biggest areas of legislative activity with a deadline of February 2020 to improve oversight or risk international blacklisting. In 2017, the Caribbean Financial Action Task Force (CFATF) found gaps in this area of Cayman regulations, according to Cayman Compass and promoted the government to act. Specifically, the CFATF said the government needed to develop a better understanding of all its anti-money laundering and terrorist financing risks.
This promoted regulations that required non-financial businesses and professions like accountants, lawyers, jewellers, realtors and property developers to face stricter rules and supervision. This also roped in agencies such as the Royal Cayman Islands Police Service, Customs and Border Control, the Financial Reporting Authority and the Cayman Islands Monetary Authority to improve their coordination and cooperation in understanding anti – money laundering and terrorism financing.
The CFATF, is a subsidiary of the FATF, the global standard-setting body in the anti-money laundering sphere. The Cayman Compass reported that, “Failure to take the correct measures and adapt its laws, regulations and practices is not really an option as it could see Cayman blacklisted, with the FATF imposing a remediation plan – a situation that would hamper most financial transactions involving the jurisdiction.”
Moving beyond money laundering, the international community is also concerned about tax transparency with specific focus on tax avoidance by large multi-nationals. Tax avoidance is not technically illegal but seeks to exploit loop holes. This is the focus of the G20 and other international organizations which expect the Cayman Islands to improve the legislation dealing with compliance.
According to the Cayman Compass, Minister of Financial Services Tara Rivers, the international scrutiny and ongoing tests to see if Cayman companies complies with the evolving rules is part of the government’s focus to ensure that it remains a compliant offshore financial centre and avoid an European Union blacklist.