It’s a tall order. Convince American policy makers that the Cayman Islands is not a dodgy tax haven and that US businesses would be the ones to suffer if sanctions are placed here reports Journal writer Norma Connolly.
That’s the task assigned to Quinn Gillespie and Associates, a Washington DC-based lobby group, hired earlier this year by the financial services industry in Cayman to fight its corner on Capitol Hill.
Jack Quinn, co-founder and chairman of the company and his associate Manuel Ortiz, clued in members of the Cayman Island Financial Services Association on their strategy during a recent trip to the Island.
Both men spoke at the Cayman Islands Financial Services Association dinner at the Ritz Carlton on 7 July.
“This is not rocket science,” said Quinn, the firm’s chief strategist. “Fundamentally, it is an amazingly distorted picture that arises for a host of reasons. None of them are malevolent. It is mostly ignorance and this image of the Cayman Islands is popularised in fiction about the Islands being a place where people are able to hide their income and evade taxes.”
Both Quinn and head of the Financial Services Association Anthony Travers say not enough has been done in the past to protect Cayman’s financial services reputation.
They said no representative of Cayman was present at the Paris G20 meeting in April at which Cayman was placed on a grey list of jurisdictions that was deemed not to meet appropriate levels of transparency.
The CIFSA dinner was held the night before Leader of Government Business McKeeva Bush signed the 11th of the 12 tax information exchange agreements stipulated by the OECD as necessary to remove a jurisdiction from the grey list.
Optimism among the financial services industry that the signing of the bilateral tax treaties would quickly elevate Cayman to the white list was dimmed by comments earlier in the week by UK prime minister Gordon Brown and French president Nicolas Sarkozy that they wanted a deadline of March 2010 to be implemented, at which time sanctions would be imposed on tax havens.
Days earlier OECD Secretary General Angel Gurría had stated: “While the 12–agreement threshold is a good indicator of progress, it should not be seen as just a numbers game,” he said. “All countries must aim to have high quality agreements which are effectively implemented with all interested countries.
Travers criticised the private sector for allowing Cayman to find itself in a position where it was placed on the grey list and where policymakers in the United States were proposing policy changes that could be detrimental to the industry.
“There is no doubt that the private sector in the Cayman Islands was at best extremely careless, and possibly delinquent, in the way it handled its affairs on the international stage. It was extraordinarily careless not to have consolidated as a unit, as we are doing now, and not to properly fund public relations and public affairs and long-view initiative,” he said.
He added: “If you don’t aggressively assert your position through the medium of public relations and public affairs, you can be assured that our competitors will mischaracterise and misrepresent the position of the Cayman Islands.”
He said Cayman was “1,460 days short and at least $10 million short in terms of where we really ought to be”.
The hope is that hiring a public relations team like Quinn Gillespie and Associates means the Cayman Islands is more likely to get a hearing from senior policy-makers staff, correspondents and legislative committees. It does not hurt that Quinn has years of experience working with the Democrats and knows most of the players in President Barack Obama’s treasury and finance teams.
Quinn was former Vice President Al Gore’s Chief of Staff and Counsel before being appointed White House Counsel, a position he served in until 1996, when he left the Clinton administration to set up Quinn Gillespie and Associates.
In an interview with the Journal, Quinn said: “Our mission is to help make sure that we don’t stand by and watch as [the US] legislature and others enact policies based on a misimpression of the truth, with the effect of harming not only the people here, their businesses and the government, but people in the US who have been by no insignificant measure the beneficiaries of the commerce and transparency and tax neutrality that the Cayman Islands has offered so we can do business in a global economy.”
With the US administration dealing with large policy initiatives – health care reform, energy and climate change – at a time of economic downturn that has resulted in stimulus policies that have put the country in a precarious financial position, it is on the hunt for additional revenues, Quinn said, and offshore financial centres like Cayman are in its sights.
The issue of tax deferral on overseas earned incomes was being mixed up with the issue of tax havens, he said. “It creates the impression in Washington and around the US that there is something improper about taking advantage of the deferral rules. That somehow the major multinational corporations, all household names, are hiding something, that they are earning money and secreting it away in banks in the Cayman Islands,” Quinn added.
As well as combating perceptions of Cayman based on outdated information, the lobbyists will also have to combat organised labour lobbyists who believe that by registering companies abroad, jobs that would otherwise go to American workers are going overseas.
“People tend to believe that because companies can defer income taxation overseas, that would be creating an incentive to earn more overseas and the way to do that is to employ or hire people in Ireland or India or other places.
“In fact, if they don’t accord the opportunity for US corporations they will become significantly less competitive with their non-US competitors in terms of moving operations to other jurisdictions that are more tax favourable,” he said.
“There are more than 200 taxing jurisdictions that are sovereign nations and no two of them tax income alike,” he said.
His colleague Manuel Ortiz agreed, explaining that president Barack Obama “an expert in narrative”, had also blurred the lines between tax deferral and tax evasion. “He took tax havens and deferrals and combined them. It is easier to sell,” he said.
Cayman’s placement on the OECD grey list is colouring how the jurisdiction is viewed in Washington.
“When the financial crisis hit, the G20 politicians were heavily engaged immediately in blame deflection,” said Travers. “They needed to transfer fault away from financially regulated regimes in Washington, New York, London, Paris, Frankfurt.”
“At that time, the public relations machine of the G20 continued to wind up against the offshore jurisdictions, and the Cayman Islands as one of the most successful, if not the most successful, was the softest target,” he said.
But the focus of the Quinn Gillespie and Associates team on behalf of the Cayman Islands Financial Services Association is on the US rather than Europe.
President Obama, during his presidential campaign, described Ugland House, Maples and Calders headquarters in Cayman, as “either the biggest building or the biggest tax scam on record” – a sound-bite that lobbyists are still fighting.
Quinn points out that views held by politicians on the campaign trail were often different once they got into office. “Issues are very different when you are looking at them as a candidate for office and as an elected official… It is often the case that once in government, you have available to you facts you did not have before you came into government,” said Quinn.
Speaking at the CIFSA dinner, Quinn said his team’s “foremost mission” was to ensure a bill proposed by Senator Carl Levin does not become law. That bill, he said, contained a black list of jurisdictions and wants to treat US subsidiaries incorporated outside the States as local companies that would not be able to take advantage of tax deferral laws.
“This is the worst of all proposals,” Quinn said.
He is more in favour of another bill, proposed by Montana Senator Max Baucus. “Baucus’ approach is simply designed to encourage the payment of taxes on income that today actually is taxable,” he said.
Cayman has over the years sent delegations to Washington to press politicians not to impose sanctions here. The most recent delegation, consisting of representatives of the People’s Progressive Movement government, the Cayman Islands Monetary Authority as well as the Washington, DC, team of Fleishman-Hillard, hired by the government for external public affairs.
“It is fair to say that in terms of delegations that have visited over the last four years have been government-led delegations, I think that we have to arrive at the position where we conclude that something has not worked as it ought to have worked,” said Travers, who complimented the new government administration on “hitting the ground running” to get bilateral treaties signed.