Overseas territories fight reputation in ownership debate

There has been a flurry of activity over the past six months in the halls of the Financial Services Ministry in Cayman and its counterparts in the United Kingdom and the other overseas territories on how and when to share company ownership information with law enforcement and tax authorities overseas.

The push culminated in a series of agreements and a summit meeting last month with world leaders from 40 countries in London agreeing to work together to create a new global standard for sharing beneficial ownership data.

Ministers from Jersey, the Isle of Man, Gibraltar and Bermuda joined Cayman Islands Premier Alden McLaughlin and Financial Services Minister Wayne Panton at the Anti-Corruption Summit hosted by Prime Minister David Cameron at Lancaster House in London on May 12.

The Cayman Islands has agreed to be part of the negotiations on the new global standards and committed politically to join any new standard that comes out of those negotiations. Cayman agreed last month with the United Kingdom to create a new system for sharing beneficial ownership information with a new platform so that local officials can access company ownership data held with financial services firms.

The new centralized system is not a public register and is not an automatic exchange, according to the premier, but instead will make it faster and easier for an as-yet-unnamed authority in Cayman to access information when it gets requests from foreign tax or law enforcement agencies.

“It certainly will not be available publicly or available directly by any U.K. or non-Cayman Islands agency,” the premier said during an April press conference.

The premier went further while speaking at the summit in May, offering to extend what is called the “Exchange of Notes” with the U.K. to other countries participating in the international effort to develop the new standard.

“My presence here, along with the Minister for Financial Services, is clear evidence of our willingness to engage and to help shape global standards in this fight,” the premier said. “But this is not new, not new for us at all. For over 20 years we have shown our leadership role in this fight.”

“In the fight against corruption,” Mr. McLaughlin said in a press conference after the summit, “it’s easy to see that law enforcement and tax authorities need access, in accordance with global guidelines, to beneficial ownership information because it helps them to detect and prosecute criminality such as corruption, tax evasion and other serious crimes. Cayman fully supports this goal. It is completely in line with our long-standing international engagements and local efforts that have enhanced our capacity to combat criminality. This is why, once the United Kingdom provided additional information regarding its initiative, and once certain language was accepted, we agreed to participate in the discussion.”

Many anticipate that discussion will result in some sort of automatic exchange of information or a public register.

The premier stressed that he has agreed to participate in the discussion but has not made any commitments beyond the new system laid out in the Exchange of Notes with the U.K.

“For the record, Cayman has not agreed to implement a mechanism. Indeed, there is no mechanism to implement. It doesn’t yet exist. Again, what we have agreed to is to participate in the global discussion to develop the mechanism,” he said.

In a letter to the U.K. Chancellor of the Exchequer dated May 6, Cayman Financial Services Minister Wayne Panton wrote, “Once this standard is agreed and adopted by all Overseas Territories, Crown Dependencies, G-20 and OECD member states, we will participate in its global implementation.

“The standard must ensure the full confidentiality and security of the data exchanged, and be subject to appropriate legal gateways.”

Cayman also pledged to repeal by September the Confidential Relationships (Preservation) Law, “which often has been misrepresented as Cayman’s ‘secrecy law.’”

In a statement released before the summit, the premier said the legislation would be replaced with a new data protection law and a new Confidential Information Disclosure Law that will “better clarify the mechanisms through which confidential information may be shared with appropriate authorities.”

Fighting reputation along with corruption

Cayman and the rest of the Overseas Territories and Crown Dependencies have taken a lot of heat in recent months with the release of the Panama Papers and other press coverage as places for tax dodgers and money launderers to hide cash. The territories have a reputation going back decades as a place for crooks to hide their money: Just think about the 1993 movie “The Firm.”

Places such as Cayman and the British Virgin Islands are called tax havens or secrecy jurisdictions. Some of that reputation is well deserved, but it also ignores other tax havens, such as certain parts of the United States, and legislative changes in places like Cayman or Jersey to make sure people aren’t using the jurisdictions to avoid taxes or launder money.

BVI figured prominently in the Panama Papers leak that documented hundreds of thousands of offshore companies, identifying many of the owners and calling out many world leaders and celebrities for keeping funds out of reach of domestic tax authorities.

Cayman’s premier, along with leaders from other territories and jurisdictions, has been touting Cayman’s initiatives for sharing tax information and preventing criminals from taking advantage of the small jurisdictions to hide assets or clean money.

Speaking at a press conference after the London summit, Mr. McLaughlin said, “These negotiations, and indeed the entire process, which began in 2013, has been difficult and complex, but again, it’s the outcome that’s important. The U.K. has recognized that our system of enhancements meets their criteria for the sharing of information; meets global standards; and is best for this jurisdiction.”

Jude Scott, CEO of Cayman Finance, said in a recent statement, “We are pleased the U.K. government has recognized that our licensed corporate services provider verified beneficial ownership system is a world-class system that provides for due diligence know-your-customer checks that are critical to proper law enforcement authorities conducting legitimate investigations and is superior to other proposed systems.”

The premier, the financial services minister, Mr. Scott and others have been out pushing the message that Cayman has a solid system in place to stop tax dodgers and money launderers from setting up shop in the territory. “We don’t want business which is tainted,” the premier said in April. “If there is bad business here, they would be well advised to migrate somewhere else.”

They have repeated the message of compliance and preventing financial crimes to local and international audiences dozens of times in recent months, from conferences in Cayman to the summit in London. But there is still a lot of work to be done to turn around a reputation that has stuck with Cayman for decades.

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