Friday, July 21, 2017

Cybersecurity 101: 2017 edition

Cybercrime is not just the stuff of Hollywood movies, like this scene from 'Zero Days.' - PHOTO: Magnolia Pictures

You would have to be stuck on an island with no internet connection to not be aware of cybersecurity issues in the news. But just in case, here is a recap of what is noteworthy:

In May, the WannaCry ransomware infected an estimated 230,000 systems in more than 150 countries. Technology vendors reacted with patches, updates and other mechanisms to detect and prevent further spread of the threat. More recently, in June, a variant of the Petya ransomware, Notpetya, started making the rounds of the internet. Initial assessments suggested that Notpetya was simply more ransomware but evidence emerged indicating that Notpetya was actually a cyberweapon designed to take down the infected systems.

And, in very local news, very well crafted and formatted emails purporting to come from several Cayman companies, were being circulated. The bad guys even compromised the websites and domains of other Cayman companies in their efforts. If you wait a few more days, there will be more cybercrime in the news.

Cybercrime is big business

While there are many kinds of cyberthreats, such as data theft, website defacement and hactivism, ransomware remains the poster child for the cybercrime industry due to its immense popularity and success. We need to face the reality that cybercrime is a very big business. Like any business, they need to be profitable to survive. Cybercrime is not just surviving but is a thriving industry with ransomware reaping an estimated $1 billion in 2016. If no one paid the ransoms, the business model would fail. Clearly, people are paying the ransoms.

So, you might think that cybercrime is alive and well in Cayman, but instead, recognize that Cayman is actively being targeted by cybercriminals. They have done their research and carefully copied the email templates and crafted the language in reasonable and unbroken English. Now that we know we’re actively being targeted and that bad things are constantly happening, what can we do about it?

I’m not going to bore you with yet another discourse on having board-level investment in cybersecurity or having cybersecurity policies. You can Google that for yourselves or just talk to an IT auditor. Instead, I would like to offer you some practical guidance for you and your organizations.

Moving with the times

“Best practices,” in reality, is a marketing buzzword. Instead, I like to borrow a term from Gartner: “useful practices.” These are processes or practices that the leaders in the field are implementing today, and generally lead to useful results with cost effectiveness.

Let us start by accepting that firewalls, antivirus, web and email systems are insufficient. Firewalls and antivirus tools were invented over 25 years ago to address problems from 25 years ago. Just as we cannot expect a delivery service today to run on horse and carriage, we cannot expect yesterday’s tools to protect against tomorrow’s or even today’s threats.

You can be sure that in every headlining breach or attack, every one of those organizations had those tools in place, and yet they were still impacted. Insanity is doing the same thing over and over and expecting a different result. Please, let’s stop the insanity!

Organizations should look to invest in complementary and advanced tools. IT or cybersecurity staff are collectively groaning at this point thinking great, more things to manage. This is key. It is possible to not only provide additional layers of security, but do so in a way that is easy to use, can save time and reduce work.

Look for terms like “automation,” “Artificial Intelligence,” “machine learning” and “mathematics. Do not just believe the sales and marketing hype either. Take the time to evaluate and test these in your organization. You have little to lose and everything to gain. These tools can be endpoint, network or cloud-based. Partnering with a cybersecurity service provider for these tools is cost effective and beneficial, due to collaborative nature of service providers.

Answer key questions

Compliance does NOT equal security. Compliance is more about doing your defined job correctly. The real question is: are you doing the right job? An organization that can accurately and consistently answer the following questions will be in a very good position to address cybersecurity issues and concerns.

What or who is connected to your organization?

What applications or processes are running in your organization?

Who has administrative rights?

How are you continuously monitoring your organization?

How are your tools working together to correlate, integrate and automate threat detection/prevention/containment?

Accept that every organization will suffer a breach or significant cybersecurity event sooner or later. Short of gross negligence, it isn’t going to be anyone’s fault – it just is. As a potential customer of said organization, I accept that. However, I would want assurance that the event was quickly detected, contained and mitigated. It is paramount to learn from the event to help prevent a similar recurrence. Ensuring cybersecurity staff/groups/teams are regularly informed and stay abreast of the industry trends is the key here.

Cybersecurity

Seek local and regional networking opportunities for cybersecurity. This can be at levels such as board members developing policies or technical means for security staff to interact with peers. Perhaps the most important networking aspect is for threat sharing. Obviously, most organizations cannot disclose details about a breach or tools employed, but there is a middle ground somewhere. This is often through a trusted third party such as common cybersecurity provider. It may be simply a matter of allowing the transmission of a new malware file or phishing email/url. The more people know about a threat, the better the chances of prevention. An ounce of prevention is worth a pound of cure.

Lastly, you will note that I have always used the term cybersecurity and not IT or network security. Cybersecurity is only partially an IT issue. It is first and foremost a business issue but also falls under human resources, training, legal, public relations, marketing and yes, compliance. Cybersecurity, part of information security, is its own discipline. While seemingly a trivial detail, it is an important one and change has to start somewhere. Why not have it start with the readers of The Journal.

Sean Slattery is founder and CTO of Caribbean Solutions Lab, a cybersecurity service provider that helps businesses throughout the Caribbean and North America to defend and protect themselves from cyber threats. Based in Cayman for nearly 20 years, Slattery has spent the last nine years focused on cybersecurity, holds a U.S. government secret security clearance, is an FBI Infragard member and regularly delivers cybersecurity presentations.

Ransomware wars

It begins much like any other day at the office: you are working away on your computer when you receive an email informing you that an invoice has arrived. It directs you to download the invoice using the link provided. Without giving it much thought, you download and open the file. Sometime later, you discover you can no longer access your files and that several copies of a file named “DECRYPT_YOUR_DATA.txt” have been created.

It is a chilling moment. Sensitive files on your computer, and probably on the network you are connected to, have been encrypted. They have effectively been taken hostage in one of the fastest-growing forms of cybercrime: ransomware attacks.

What is ransomware?

Ransomware, as the name suggests, is a malware designed to make a target’s data unusable or to prevent access to systems until a ransom – typically in hard-to-trace digital currency – is paid. Ransomware differs from other types of cyberattacks in that the objective is to make the victim pay money to the perpetrator directly, while other types of malware attacks often take more effort to monetize.

Another key difference of ransomware is that the goal is not to steal data, but to deny access to it until money has changed hands. That makes it about availability, whereas other cyberattacks seek to breach confidentiality (stealing personal data, credit card information, etc.) and compromise integrity (as privacy breaches must be disclosed to the authorities based on the data protection laws).

The lucrative and fast pay-off, combined with its stealth and relative anonymity of the transactions, has made this type of cyberattack increasingly attractive to criminals.

A global war

Indeed, ransomware attacks have reached epidemic levels across the globe. Only last week, Deloitte cyberthreat intelligence teams reported on two new variants of the SamSam ransomware, new TeslaWare ransomware and re-emergence of Locky ransomware.

SamSam ransomware was reportedly discovered by researchers at MalwareHunterTeam. Bitcoin transactions to SamSam’s operator(s)’ address totalled US$33,000 in one week, indicating that attacks spreading the new SamSam variants have been successful and lucrative for the ransomware’s operator(s).

Showing how easy it is to perform an attack, new ransomware “TeslaWare” is being advertised on black-hat criminal websites for purchase at prices ranging from 35 to 70 euros. Although this ransomware is not the most sophisticated piece of software, it virtually plays Russian roulette with the victim’s files attempting to delete 10 random files from the victim’s desktop or subfolders.

A case of Locky ransomware re-emergence provides an example of the evolving spam email campaigns delivering the ransomware to the victims’ computers. A first wave of distribution used the emails with invoice-themed subjects “Copy of Invoice – random numbers” and included malicious zip archived attachments. The unzipped attachments contained malicious executable files for Locky ransomware. In the second wave, Locky ransomware was delivered via spam emails having subjects “Emailing-PDF random numbers” with a malicious pdf-file attached. When opened, the pdf-attachments included malicious macro-based Word documents. Once a user enabled the macro, a request to a remote server was completed and the macro downloads an encoded payload of Locky ransomware. The encoded payload finally dropped Locky ransomware onto the infected machine.

While those two waves primarily targeted older versions of Windows, the third wave is expected to target all versions of Windows operating systems, including Windows 7.

The cases described above are typical ransomware incidents, traps any computer user can potentially fall into. A newer and more sinister development is targeted ransomware, in which individual organizations are pursued and, once infected, might take a couple of months to paralyze a system before demanding a ransom. Ransomware is becoming highly sophisticated: some recent variants can gain access without connecting to the internet at all, making its source virtually untraceable.

Of course, Cayman is not immune and is being equally threatened by global campaigns, both opportunistic and targeted. The number and the severity of the attacks have significantly increased in the past year, with more sophisticated campaigns being launched against targets with deeper pockets and more motivation to pay quickly.

Lessons from the trenches

It is not unlike families being willing to pay kidnappers whatever is required to release their loved one from captivity. Given the parallels in criminal strategy, it may not be surprising that the methods used by teams dealing with human kidnapping incidents can be successfully adapted to a cyber-environment. Deloitte teams found these strategies effective when negotiating with ransomware criminals to gain time, reduce the ransom amount, and resolve the issue quickly.

As with any malware threat, prevention is the best defense. It is especially important since, unlike other types of malware, ransomware is increasingly more difficult to detect: only a single call – if any – to the internet is required to launch it.

Thus, the organizations need to start by ensuring they have the right cybersecurity system and strategy. That would include developing a backup strategy for critical systems and data, practicing good cybersecurity hygiene, such as keeping up to-date with all patches, monitoring network activity and proactively managing permission levels. It also requires training employees to be wary of emails, as social engineering is the top way this type of malware gets into the networks of target organizations.

While prevention is a vital first step in protecting the organization, it cannot eliminate the risk altogether. It is also necessary to prepare for a successful breach by establishing a ransomware incident response strategy with a well-defined protocol. This establishes clear negotiation guidelines that help to gain more time or follow the right steps to recover the data or prevent another attack.

A clear protocol may assist the organizations in assessing whether their data would be released upon payment or if they would run into a higher chance of being on the target list after the payment.

Once this strategy is in place, it is important to follow the steps of the methodology.

As soon as you realize ransomware may have entered the system, the responders should refer to the protocol and follow the steps in sequence.

First of all, the organization needs to determine the extent of the damage, i.e., to find out how many files have been encrypted and how the particular strain of ransomware is affecting your operations. The organization should also assess the potential impact to reputation should the breach be made public.

Following this assessment, the affected systems should be isolated as most ransomware is designed to spread through your network as quickly and quietly as possible. Identify which systems have been affected and segregate them quickly to prevent further infection.

While performing these processes, it is important to resist an urge to unplug from the network, as this would result in a loss of the tactical advantage. If the system is still connected, the organization can watch the ransomware work and see how deeply it unravels. If the system is unplugged, you cannot see if the malware has replicated itself, deleted recovery points, or opened a backdoor that will allow access to future infiltrations and it would be hard to assess if the organization would be faced with further extortion sometime down the line.

As part of the recovery stage, it is important to check the backups for infection before they are deployed. Using backups could be the best option to restore operations swiftly, but only if the malware has not affected them too.

A critical question that the organization would face based on the above assessment is “should you pay?” If the network is compromised and the organization exhausted all options, such as deploying backups or stalling for time, they should consult before deciding to pay the ransom.

Experienced cybersecurity professionals can negotiate with the adversary to resolve the situation efficiently and quietly. In the meantime, the organization should not categorically refuse to pay since they do not know what the consequences may be; the attacker could destroy the unique decryption key so that you can never regain your data, for example.

As a strategy, the organization could tell them that they would pay, but need to sort out payment details. This buys the essential time to follow the steps of their ransomware incident response protocol.

After the incident, it is also critical to improve the future prevention strategy. The organization should use the threat intelligence gathered from the attack, establish clear security policies, and educate all your teams.

Alexandra Simonova is a Risk Advisory Senior Manager at Deloitte in the Cayman Islands. The information in this article is based on Deloitte material and other publicly available sources.

Sophisticated ransomware attack sends warning to Cayman companies

The June 27 Petya attack that disrupted Maersk's operations sent a reminder to the shipping industry about its vulnerabilities. - Photo: Alvaro Serey

With the Caribbean’s hurricane season under way, businesses have a clear reminder to re-evaluate their storm response and recovery plans. Meanwhile, another major ransomware attack sent a reminder to dozens of businesses across the globe late last month that dangers beyond Mother Nature can threaten operations.

The self-replicating Petya ransomware attack took several international companies by surprise, including shipping giant Maersk and pharmaceutical company Merck.

The outbreak demonstrated an even-more sophisticated line of attack than the WannaCry hack in May, which similarly used the U.S. National Security Agency’s EternalBlue exploit, leaked by hackers earlier this year. The malware takes advantage of remote execution vulnerabilities in older Microsoft systems to spread from computer to computer.

Unlike WannaCry, Petya does not contain an obvious kill-switch. It also incorporates another NSA exploit, EternalRomance, and a hacking tool used to extract passwords from infiltrated networks.

While no official reports against the attack were made in the Cayman Islands, the outbreak hit at least a dozen countries across North America, South America and Europe, according to analysis of public data from Deloitte’s risk advisory team in Grand Cayman.

Speaking less than a week before the outbreak, KPMG cybersecurity principal Micho Schumann warned business leaders at a hazard management workshop to prepare for just such a scenario.

“Cybersecurity now lies with management. The days of pushing this down to IT are long gone,” Schumann told the workshop audience at the Grand Cayman Marriott. “Whereas I used to meet with clients and the first person I would be directed to was the IT director, now I come to meetings and I’m meeting with the CEO and the IT director.

“If you are management, you need to ask yourself tough questions. Who’s responsible for information security? If you’re a big enough organization, a shared responsibility might not be enough.”

He pointed to the WannaCry attack as an example of an easily avoidable disaster. The attack targeted a vulnerability in older Microsoft systems.

Months before the attack, however, Microsoft released a patch addressing the weakness found in both WannaCry and Petya. Only machines that were not or could not be updated were affected.

“Companies had a full two months to protect themselves against the attack. Completely unacceptable,” Schumann said.

Now that Cayman’s Data Protection Law has been approved, he urged companies to revise their strategies for safeguarding client information to avoid legal liability. The law, which protects sensitive personal data, provides for up to $100,000 in fines for violations.

He advised companies to consult with legal counsel to ensure they are in compliance.

“If you are regulated, our local regulator is looking at the confidentiality, integrity and availability of your client data,” he said.

The stereotypical teenager of yesterday no longer reflects the full reality of cybercrime, he added. Hacktivists, disgruntled employees and state-sponsored espionage can all pose a threat to business.

Schumann directed one disaster scenario at the shipping and port executives in attendance.

“When dealing with a large infrastructure projects, like a port, it would be really interesting if, for example, one of the nations wanted to hack into email systems and figure out how much do they really want to pay for this project? Who are my competitors?” he said.

Tropical Shipping’s Jennifer Nugent-Hill encouraged companies to revise disaster preparedness plans for man-made and natural threats.

“That would be really good information. These nations are hacking for their national interest to advance their economies.”

Tropical Shipping’s Jennifer Nugent-Hill implored companies to think of the unthinkable and reformulate their business plans to account for regional threats, including cybercrime.

“The Caribbean has become extremely vulnerable. Hackers think we are very relaxed, man, that sun and fun is all we do,” said Nugent-Hill, director of governmental and community affairs for Tropical Shipping.

The ability of the Petya attack to take down a giant like Maersk resonated with the shipping industry, which has long been vulnerable to threats targeted at navigation systems and trade data.

The outbreak successfully disrupted operations at several major ports. While Cayman’s shipping sector was not affected, the Port Authority advised businesses to stay alert.

“This does not mean that Cayman is not vulnerable to this or other similar attacks,” a Cayman Port Authority spokesperson said. “The initial indications are that the attacks are started through emails and then spread through the company’s network via the same vulnerabilities that WannaCry used earlier this year.

“It is very important that companies ensure that they have implemented the latest patches from Microsoft (which fixed the vulnerabilities in Windows months ago), follow security best practices to protect their networks and train their staff on IT security.”

Small shipping company Karatzas Marine Advisors, with business ties in Grand Cayman, said the attack prompted greater concern about the vulnerability of maritime operations.

“I do think that shipping necessarily was the target. They seem to hit different industries, and definitely Maersk is a very visible target in the shipping industry,” CEO Basil Karatzas said.

He pointed to other attacks directed at the shipping industry, including hacks into the navigation equipment of super-yachts and commercial vessels.

“It’s a concerning development overall for our society, and not (just) necessarily for shipping. However, with shipping, it could easily have huge impact on everyday life,” he said, adding that such hacks can have a detrimental effect on trade.

The Royal Cayman Islands Police Service encourages businesses to report attacks so that law enforcement can track threats. The service did not offer advice as to whether hacking victims should pay ransoms.

The Petya attack demanded users pay US$300 in bitcoin to recover encrypted files. The email address provided for payment was shut after several hours, however, indicating that many victims who paid the ransom could not retrieve their data.

A Deloitte risk advisory senior manager indicated that Petya is just one of many recent ransomware alerts. Other recent ransomware variants include SamSam, re-emerging Locky, a new TeslaWare, and a Shifr ransomware currently in development.

Small island marketers go global with digital media

In a once-unlikely David and Goliath-type scenario, geographically isolated nations like the Cayman Islands sit poised to take on global marketing giants and shake up the world of digital media.

Established companies that rely on traditional methods risk irrelevance in a rapidly changing, digital landscape, Weum explained at the Cayman Islands Marketing Professionals Association Conference on June 14.

“As the internet evolves and digital solutions become more prevalent, the small business owner has a chance to embrace (digital innovation) a little bit more than other companies and take market share from them as a result,” he said.

“If I’m a travel company in Cayman and I want to appeal to a certain type of consumer, maybe someone who is a little more opulent or someone who lives in a certain area, with the targeting options we have now, you’re really not stuck.”

Joshua Weum, Google AdWords’ digital marketing ambassador.

The relative anonymity of digital publishing renders location effectively irrelevant. Universal access to digital mediums means savvy island marketers can now compete on the same level as competitors based in urban centers.

“That’s where I think the internet is so great for people here in Cayman. You are in an isolated area but with the technology we have now, you can reach the entire world as if you were on the mainland,” Weum said.

“With digital, if you embrace the tools we have and some of the trends we’re seeing and the forecasting of where digital is going, you can oftentimes compete very aggressively and very well with a business you may have thought was far too big to scratch the surface on.”

Local perspective

During a panel of local speakers, Rob Barton of Cayman’s BB&P Interactive said he has been struck in recent years by how quickly Cayman’s marketing services have adapted to digital platforms.

“It has been supported by the growth in digital media specifically Facebook and the empowering nature of those digital channels that everybody now has at their fingertips. [It] has changed the way we market ourselves,” Barton said.

He warned, however, against venturing blindly into digital campaigns that can end up costing more than anticipated. The fragmented state of digital media can translate into high campaign costs spread across many separate platforms.

“If you’re not very careful with what you’re doing, you can suddenly end up spending a lot of money and not really hit any of your marketing objectives,” he said.

Vagabond Media’s Monica Walton added that video campaigns, while increasingly popular, can become pricey. She recommended testing more accessible equipment, like iPhones, when appropriate to lower campaign costs.

For Cayman’s traditional consumer base, marketers must also remember that many clients still prefer print media. For company’s like Foster’s Food Fair that market to a broad public, Julian Foster said campaigns must cater to diverse needs.

“Transitioning from traditional to digital, it’s a long process, especially if you are coming from a very traditional company. Certain things are ingrained in how you market and sell yourself,” he said.

“Demographics in Cayman are very broad. You have to have traditional to get some people and you have to have digital to get others. You just have to know what works for you. It’s all about testing.”

Whether working in digital or print, Foster said results are key. The investment must produce tangible benefit for the company.

“You have to ask for some money and then they have to sort it out, do a lot of testing and give them results. Results are key. If they aren’t happening with how it performed, they’re probably not going to let you keep going,” he said.

EY Survey: FinTech services poised for global mainstream adoption

The adoption of financial technology by consumers has surged globally in the past 18 months and is on the verge of becoming mainstream, the results of the latest EY FinTech Adoption Index show.

On average, a third of digitally active consumers in 20 markets covered by the study are now using FinTech.

The analysis, based on 22,000 online interviews with digitally active consumers, shows that the emerging markets are the main drivers of FinTech adoption, with China, India, South Africa, Brazil and Mexico averaging a 46 percent adoption rate.

Consumers in China and India have embraced FinTech services more than any other countries with usage rates of 69 percent and 52 percent, respectively. FinTech firms in these countries are particularly successful at tapping into the tech-literate but financially underserved segments, the EY study noted.

The U.K. has also shown significant growth and is leading the developed markets with an adoption rate of 42 percent.

Most use payment services and insurance

Half of the surveyed consumers use FinTech money transfers and payment services, and 88 percent stated they anticipate using these services in the future.

EY noted the new services that have contributed to this upsurge include online digital-only banks and mobile phone payments at checkout.

The EY FinTech Adoption Index evaluates FinTech services in five categories: money transfers and payments services, financial planning, savings and investments, borrowing and insurance.

Insurance has also made huge gains, the report found, moving from being one of the least commonly used FinTech services in 2015 to the second most popular in 2017. It is now used by nearly a quarter (24 percent) of the respondents.

This is mainly the result of the expansion into technologies such as telematics and wearables, which help companies to better predict claim probability, and in particular the inclusion and growth of premium comparison sites.

Chris Maiato, EY advisory leader in Bermuda, the Bahamas and Cayman (BBC), says, “We are seeing widespread FinTech interest in the BBC region, across all industries. FinTechs not only provide an opportunity to our market; but our market provides an opportunity to FinTechs by giving a window into some of the largest companies in the insurance, banking and asset management industries.”

In the region, FinTech companies have direct access to leadership teams and global markets, he added.

FinTech adopters actively use the sharing economy and on-demand services

According to the study, 40 percent of FinTech users regularly use on-demand services, such as food delivery, and 44 percent of FinTech adopters regularly participate in the sharing economy, for instance car sharing. This is in stark contrast to non-FinTech adopters, who are much less inclined (11 percent) to use these services on a regular basis.

Millennials, the group of 25- to 34-year-olds, are the most likely demographic to use FinTech, followed by 35- to 44-year-olds.

The study showed that people in these age cohorts are not only comfortable with technology, but they also require a wide range of financial services as they achieve milestones such as completing their education, gaining full-time employment, becoming homeowners and having children.

There is growing adoption among the older generations: 22 percent of digitally active 45- to 64-year-olds, and 15 percent of those over 65, said they regularly use FinTech services.

The study has also identified a new segment of users, the “super-user.” These individuals use five or more FinTech services and account for 13 percent of all consumers. “Super-users” generally consider FinTech firms to be their primary providers of financial services, EY said.

“There are those who believe that FinTechs struggle to translate the innovation and great customer experience that they create into real customer adoption. The EY FinTech Adoption Index suggests that thinking is now outdated,” says Imran Gulamhuseinwala, EY global FinTech leader.

“FinTechs are not only becoming significant players in the financial services industry, but are also shaping its future. Their new propositions are increasingly attractive to consumers and this trend is only set to continue as awareness grows, concerns are allayed and new advancements are made. Traditional firms, which sometimes struggle to deliver the same seamless and personalized user experiences, will undoubtedly need to step up their efforts to remain competitive. I think it’s likely that we will see greater collaboration between traditional firms and FinTechs in the future.”

FinTech adoption is set to increase globally

The EY FinTech Adoption Index predicts that FinTech adoption is set to increase in all 20 markets covered by the study. Based on the results of consumers’ intention to financial technology in the future, FinTech adoption could increase to an average of 52 percent globally. The highest proportional increases of intended use among consumers is expected in South Africa, Mexico and Singapore.

FATCA and the feedback loop

In the United States, domestic financial institutions provide financial statements to the account holder and to the U.S. tax authorities: The Internal Revenue Service. This allows the IRS to ensure that all income is fully disclosed. For offshore accounts, historically foreign financial institutions (FFI) have only provided information about financial accounts to the individual. The individual is expected to voluntarily report income information to the IRS on their tax forms through a FBAR or 8938 Report.

The Foreign Account Tax Compliance Act (FATCA) was created to bridge that gap. By getting foreign financial institutions to report information about U.S. taxpayers with offshore financial accounts, the IRS can compare that information with individuals’ annual tax forms and determine if they have any undeclared offshore income.

What many foreign financial institutions do not realize is that this can work both ways. Let us take a hypothetical foreign financial institution that has signed up for FATCA and agreed to report U.S. taxpayer information. If they fail to file a FATCA report, one of two things can be true: the FFI has no U.S. taxpayers or the FFI has U.S. taxpayers and simply did not fulfil its obligations to report. Let us say the FFI has 10 U.S. accounts that should have been reported. If even one of the 10 U.S. taxpayers voluntarily reports their FFI offshore account, the IRS knows the FFI is not fulfilling its obligations. In reverse, if the FFI reports all 10 of the U.S. taxpayers and only one volunteers that information, the IRS can go after the other nine for failing to report.

This introduces a bit of game theory called the “prisoner’s dilemma.” In the prisoner’s dilemma, a policeman catches two suspects at the scene of crime. The policeman arrests them and puts them in separate cells so they cannot communicate. He tells each of them that he has no physical evidence, so if both claim they are innocent, he will be forced to set them free. If either prisoner admits the two suspects did the crime, the policeman will ask the judge to provide a very light sentence to reward their honesty. However, if one prisoner admits guilt and the other claims innocent, the policeman will ask the judge for the maximum penalty to the liar who claimed he was innocent.

In theory, it would be in the best interest of both prisoners to claim innocence and get released. However, since each prisoner does not know what the other will do, more often than not, rational people will admit guilt and take a light sentence, afraid if they claim innocence, the other might admit guilt and they will get a long prison sentence. This is true of the FFI and U.S. taxpayers. It would be in both parties’ best interest to not report the income, however, afraid the other party might, both parties are likely to comply.

Currently, the IRS is running an amnesty program for U.S. taxpayers. If a taxpayer comes forth and declares previously undeclared offshore accounts, they have to pay the back taxes, interest, and a 20 percent penalty, and then are forgiven. This is better than if the IRS finds the taxpayer first.

If I were the IRS, I would take the next 100 people that ask for amnesty and list the financial products and the foreign financial institutions that hold those products. I would then pull the FATCA forms for each of these financial institutions. Behind every account there was a sales person. This sales person was likely targeting U.S. clients, and somehow, at least one U.S. client got the idea that in the years before FATCA they could maintain the account and likely get away without paying taxes. For each FATCA form, one of two things would happen: There is no FATCA filing, in which case the IRS could hold the FFI to account by formally notifying the FFI or jurisdiction of their failure to adhere to their reporting commitments; or a FATCA form is filed. With the FATCA form, I would pull the tax returns of everyone on the form, looking for individuals that did not voluntarily declare the offshore income.

Like the traffic police, they do not have the manpower to catch everyone. The goal is to get voluntary compliance. Catch enough people that it scares the rest into complying. In addition, although matching declared accounts with those reported on FATCA forms would be a straightforward IT exercise, I would advise against it on the grounds that it would tip the IRS’s hand. If you attempt to match all the accounts, if someone does not receive a letter of non-compliance, the IRS would inadvertently be sending the message that you are “in the clear” and have gotten away with not reporting.

Unlike anti-money laundering, where the chances of being caught with a sanctioned individual or entity in your client base was relatively remote and AML compliance was really determined by the local regulators, with FATCA the IRS has the data to show compliance or the lack thereof. In addition, there are real dollars behind this. Every tax cheat caught means more dollars for a depleted U.S. Treasury. Be forewarned.

David Olenzak is the founder and president of Trans World Compliance, Inc., a provider of the FATCA One line of compliance software for financial institutions and tax authorities to support U.S. FATCA, U.K. FATCA, and Common Reporting Standard regulations. Olenzak is a serial entrepreneur with a background in IT and spent 15 years in compliance and RegTech.

SIRI co-founder: AI still too narrow to be feared

Adam Cheyer

There is no shortage of fears over the rise of artificial intelligence. Both theoretical physicist Stephen Hawking and Tesla founder Elon Musk have warned that the development of full artificial intelligence could spell the end of the human race.

Futurist Ray Kurzweil predicted in his book “The Singularity is Near” that by 2029 computers will have human-level intelligence. Kurzweil, who is Google’s director of engineering focused on machine learning, believes the singularity, a point when technological advances, especially in artificial intelligence, will lead to machines that are smarter than human beings, is going to prompt a rapid acceleration in intelligence.

Rather than fear this development, Kurzweil argues that AI is going to make humans smarter. Instead of a single all-encompassing and potentially threatening artificial intelligence that is often depicted in science fiction works, he says that by the 2030s there will be millions of artificial intelligences that will be connected to the neocortex of humans, heightening their intelligence.

In contrast to Hawking, who is concerned that humans, limited by their slow biological evolution, would not be able to compete and ultimately superseded by machines, Kurzweil believes AI will enable humans to transcend biology.

Closer to the present, Adam Cheyer, co-founder of SIRI, the digital assistant in Apple iPhones, says real AI is nothing that we have to be afraid of in our lifetime.

Speaking at accounting firm Eisner Amper’s 10-year anniversary in Cayman, the inventor said, “In my view, there is nothing to worry about. If you talk to anyone who works in AI and understands what AI can or cannot do, it will be more likely that we will meet extraterrestrial life than machine life.”

Cheyer stated that AI is very good at solving narrow problems, like self-driving a car or playing chess or Go, where neural network-trained machines are capable of beating the best human players.

“But we have made almost no progress in general AI. Any 5-year-old is way smarter than any machine in extracting core ideas from one situation and applying them to a completely different situation. We do not know how to do that. Consciousness, we have no idea what that means. There is no research that is making progress into that.”

What humans are afraid of is a sentient being. But even though he started a company called Sentient Technologies, Cheyer said, “I can tell you. We do not know how to do sentient technologies.”

When iPhone users talk to a digital assistant like SIRI, there are moments when it feels human-like. “But it is not real, it is just a simulation.”

Yet, Cheyer acknowledges that during the past five to six years new advances have occurred that he never thought could happen: From Tesla’s self-driving cars to a chat bot winning the Turing test, in which a computer program is able to convince humans who communicate with it through a computer interface that they are talking to another human.

The SIRI-co-founder believes the relationship between human and machine intelligence will evolve and lead to greater collaboration. In software coding, there are now programs written by machines that humans no longer understand, such as trading algorithms.

The combination of human and machine coding is already leading to a broader deployment of AI in the business context.

Companies are applying machine learning to optimize their decision making. AI is used in financial trading, in hospital emergency rooms to predict arterial blood pressure spikes inpatients, in personalized website development and even in agriculture to improve flavors and yield.

Cheyer, who also founded Viv, the digital assistant that will feature in the next Samsung Galaxy smartphone, says voice assistants could become the next paradigm that every business needs to connect, just like they have a website or mobile appearance.

This would require one assistant that can be accessed from any device for any type of service in a way that can be personalized, he said.

Today, Siri and other assistants are the same for every user. “I want an experience based on what I do, what my business is and what my interests are,” Cheyer said.

Once this is achieved, the assistant will be a ubiquitous interface, as important as the web or mobile, he said.

Electric car teardown demonstrates the huge disruption that lies ahead

Chevrolet Bolt electric vehicles on display at the Seoul Motor Show in Goyang, South Korea, in March. - Bloomberg

The automotive sector is undergoing a radical change that is underpinned by the stock market. Electric car manufacturer Tesla, founded as recently as 2003, already has a significantly higher market capitalization of $60 billion than General Motors, with $51.46 billion, whose roots go back to 1908.

That is all the more astonishing as electric cars are still the exception rather than the rule on the road. But it is not just experts who predict that these vehicles will have as much disruptive power as the Model T, which was brought onto the market in 1908. This pioneering vehicle from Ford was, after all, the world’s most sold car until 1972.

Comparisons like that are premature praise for a technique that is still in the early stages of development. As a result, speculation surrounding the impact of electric cars is not surprising; such conjecture also surrounds such sectors as technology, capital goods, chemicals and raw materials.

To get to the bottom of the matter objectively, Swiss bank UBS bought a 2017 Chevrolet Bolt and disassembled it. The model was deliberately chosen because the Bolt, with a price of $37,000 and a range of more than 230 miles, is considered the world’s first electric vehicle for the mass market.

The result of that work: The Bolt’s powertrain costs are $3,000 lower for the battery and $2,000 lower for the other modules than earlier UBS estimates.

This means total cost of ownership parity between an electric vehicle (EV) and an internal combustion engine car (ICE) is reached two to three years earlier. As a consequence of the earlier-than-expected cost parity, UBS raises the sales penetration forecasts for electric vehicles to 3.1 million sold in 2021 and 14.2 million sold in 2025, instead of 2.5 million and 9.7 million previously.

Cost estimations down – sales forecast up

The UBS team came up with several pivotal questions and answers from the teardown. The most crucial of these findings was that the electric vehicle powertrain is cheaper to produce than originally thought, and there is greater cost reduction potential. Based on this, the new conclusion is that consumer cost of ownership parity with internal combustion engine cars can be reached from 2018, creating an inflection point for demand.

When comparing the differences between electric vehicles like the Chevy Bolt and traditional cars, UBS found that some 56 percent of the electric vehicle content comes from outside the traditional auto supply chain.

In the case of the Bolt, the entire electric powertrain and infotainment modules are supplied by LG from South Korea. This comes at the expense of “traditional” tier-1 suppliers.

Additionally, UBS counted 24 moving parts in the Bolt’s powertrain, versus 149 in the Volkswagen Golf. The powertrain electronics content is $4,000 higher on the tier-1 level, motor included.

Assessing the profitability of electric vehicles like the upcoming Tesla Model 3, UBS estimates that Tesla will require a sale price of roughly $41,000 to break even in terms of earnings before interest and taxes. This is approximately $6,000 above the estimated base price of $35,000. But as Tesla buyers are likely to order well-equipped versions – margins on the options should be roughly 50 percent – the required $41,000 threshold is likely to be comfortably exceeded.

At the same time, analysts estimate that General Motors will lose roughly $7,000 per vehicle in earnings before interest and taxes, but the contribution margin (sales prices less variable production costs) is positive at roughly $3,000.

Based on the component costs forecasts of UBS, the earnings before interest and taxes per vehicle can improve to $1,300 (5 percent margin on earnings before interest and taxes) by 2025, assuming that the lion’s share of the cost savings are passed on to the consumer to reach consumer cost of ownership parity.

Widespread impact on different sectors

That assumption, of course, raises the question about what the impact will be on the auto industry. According to UBS, the transition to electric vehicles could be better than thought for original equipment manufacturers from a return and CO2 cost perspective, but there are potentially more risks for “traditional” tier-1 suppliers. This is contrary to the consensus view that suppliers are better positioned to master the transition to electric vehicles.

UBS believes earlier cost parity means earlier and more visible returns for original equipment manufacturers on their currently high research and development expenses.

In addition, the contribution of electric vehicle to CO2 fleet targets, particularly in Europe, will remove a key cost burden. For the tier-1 supplier, the teardown delivered two takeaways: First, LG has roughly 56 percent content in the Chevy Bolt, whereas “traditional” tier-1 suppliers exist only outside the electric powertrain. Second, the analysis of moving and wearing parts has shown that the highly lucrative spare parts business should shrink by roughly 60 percent in a world that only has electric vehicles, which is decades away.

That means electric vehicles are an opportunity for tech companies. For example, UBS estimates that the Bolt EV powertrain has $580 semiconductor content, or six to 10 times more than an average equivalent traditional car.

BS also assumes that in an internal combustion engine vehicle, the powertrain electronics can range from as much as $60 to $90, implying a significant step up, even for a relatively low-end mass-market electric vehicle.

In 2016, automobiles accounted for 10 percent of global semiconductor revenues, or $33 billion. But UBS believes that could expand to 14 percent, or $63 billion, by 2025. Additionally, based on the analysis, UBS estimates that electric vehicle penetration and the adoption of advanced driver-assistance system could add a net $15 billion of revenues to the semiconductor industry by 2025.

Another important point is how global commodity markets are probably influenced by the shift to electric vehicles. The Bolt’s body and chassis are fairly conventional in terms of the commodities used. However, it has a 70 percent higher aluminum content, but no carbon fiber-reinforced polymers were found. In terms of commodities use, the Bolt contains more copper, aluminum, battery active materials and rare earths than a traditional car, but fewer platinum group metals. Largely no impact is expected on steel demand.

SMP Partners: Acquisition of RBC business adds Cayman flavor

Stephen Turner, Caribbean region CEO, SMP Partners

The SMP Partners Group is focusing on growth after its acquisition of Royal Bank of Canada’s trust, fund administration and custodian business in the Caribbean.

The independent trust and corporate services provider acquired RBC’s offices in the Cayman Islands and Barbados after buying its first regional office from RBC in the Bahamas late last year.

The firm has transitioned 40 staff from RBC, including 10 people in Barbados, six in the Bahamas and the remainder in Cayman.

SMP Partners’ Caribbean region CEO, Stephen Turner, says his team is focused on continuing to grow the business.

“The group’s expansion into the Caribbean is a landmark development for SMP Partners and part of its global growth strategy,” he says. “We are now not only offering enhanced services to existing clients, but are also intent on growing our regional presence through business development activities and cross-selling opportunities across our wider international business.”

SMP Partners Group, with headquarters in the Isle of Man, is wholly owned by its management and has 240 employees in offices in the Isle of Man, Jersey, Switzerland, Hong Kong, and now the Caribbean.

International client base

Within its group, SMP already had an international client base, including Caribbean-related business such as Cayman law trusts and Cayman companies.

In 2010, the firm acquired a book of trust business from Julius Baer in the Caribbean, as well as the financial company’s insurance business in the Bahamas.

“That was our first venture into the Caribbean, albeit the business was effectively subsumed within our other business in the Isle of Man,” Turner explains.

At the same time, SMP Partners entered into agreements with large banks that were looking to de-risk or needed assistance with outsourcing arrangements because they did not have sufficient trust administration staff to deal with the volume they experienced.

The acquisition of RBC’s wealth management division now also aims to bring in-house the firm’s ability to run its own Cayman companies to offer added value and full service to clients, says Turner.

“We saw Cayman as a natural home, not only for the business that we have acquired over the last few years, but also as a springboard for growth for our practice on an international footing. We are now looking to market into the mainland USA and into Latin America to bring services with a Cayman flavor into our product stable.”

SMP Partners was formed in 2007 after completing a management buyout from Fortis Bank. It was the largest of three Anglo-Saxon trust companies of the former Dutch-Belgian bank that had been given the option to divest itself.

“The three trust companies did not fit with [Fortis’] risk appetite, not unlike quite a number of banks in recent years,” Turner says.

The story for some time has been that “banks fall in and out of love with the trust companies,” he notes.

Just as Fortis did 10 years ago, RBC decided to exit its trust business in the Caribbean. While the larger banks are considering the strategic sale of their trust companies, which offers growth opportunities for independent firms like SMP, smaller providers, such as B-license banks, are consolidating because they are unable to cope with growing regulatory requirements and related technology and compliance costs.

Regardless of size, no trust business is immune to this trend, making growth a necessary goal to improve economies of scale.

SMP Partners’ newly acquired businesses in the Caribbean will thus quickly move to the firm’s existing system and procedures to streamline decision-making and to monitor risk as the group grows.

Confident about transition

Turner is confident that SMP has the experience to transition the business from a bank environment to an independent firm.

“We want to bring that different feel from a bank-owned trust company into the boutique independent firm, which allows us to be much more flexible in terms of our clients’ requirements.”

Whereas bank-owned trust companies are quite restricted geographically and tend to favor bankable asset type structures, he says, SMP Partners is prepared to look at structures that own different types of assets, such as yachts, aircraft or trading companies.

SMP does not claim to be a bank or an investment manager. Instead, the firm concentrates on trustee, corporate and fund administration services and then scours the market for the best banking and investment management. Turner says the firm is looking to providing a complete, independent service.

“There is a place out there for independent trust companies that use good centers of financial experience and legislation to manage their clients’ corporate and personal affairs,” he says.

The FANG stocks are back

If the word “FANG” brings images of Dracula to mind, you’re not alone. Nevertheless, in the world of investments the acronym FANG represents four tech giants: Facebook, Apple, Netflix and Google (now Alphabet). The term has regained popularity this year along with its younger companion FAAMG (Facebook, Apple, Amazon, Microsoft and Google). The reason for its resurgence is directly related to this year’s U.S. equity market performance.

Year-to-date the U.S. stock market – using the S&P 500 index as a proxy – returned nearly 9 percent to investors. The FAAMG companies, the five largest stocks in the S&P 500, represent approximately 13 percent of the index’s market capitalisation but are responsible for nearly 40 percent of that return, according to a Goldman Sachs report. Their contribution to the return of the Nasdaq 100 (Ticker: QQQ) is of greater significance, as they represent almost 40 percent of the index value.

Even more astonishing is the mere size and financial significance of these companies, adding a combined $600 billion in market capitalization this year – a value within striking distance of the GDP of Saudi Arabia. Furthermore, with the exception of Microsoft, all five enterprises have seen their share price soar between 20 percent and 34 percent in the first half of the year.

Why is tech on the rise?

Needless to say, the first-quarter earnings reports for the tech sector were exceptional, with 8 out of 10 tech companies beating analysts’ profit estimates. The sector is also outperforming the broad market by a factor of 2 to 1, posting the highest returns year-to-date. Notwithstanding its reliance on economic growth, the sector exhibits a relatively low correlation with changes in interest rates, inflation and the U.S. dollar. These characteristics bode well for tech for the remainder of the year. Additionally, fundamentals for these tech giants seem solid and only reinforce their strength in a growth environment.

The increased money flow into passive index strategies has further propelled these stocks. The more capital pours into index funds like SPY and QQQ, the higher the demand for shares of FAAMG stocks, increasing prices even further. The higher the valuations, the greater the enticement for investors to jump in for fear of missing the gravy train. It is this type of behavior that has some shouting déjà vu and sounding the dot-com bubble alarm.

Is another tech bubble forming?

A recent analysis by Goldman Sachs argues that the current valuations of FAAMG stocks are far from the extreme levels witnessed during the tech bubble. The investment bank further notes that the five largest firms during the tech boom bubble (MSFT, CSCO, INTC, ORCL & LU) traded at an aggregate forward PE of nearly 60, versus a much more conservative 22 forward PE for today’s big five. The Goldman study also cited today’s tech stocks’ much healthier cash flow metrics and sizable cash balances.

For those who remember the tech bubble, this year’s tech rally may induce an eerie feeling akin to that at the onset of the financial crisis. On the other hand, it is quite possible that these tech stocks are experiencing a changing dynamic with more room to run. The long-term trend for tech appears to be positive, given we are still in the midst of a technological revolution with even more disruption expected from these giants and new market entrants.

Given the tentacles of FAAMG, a position in an index tracker like S&P 500 combined with a position in the Nasdaq 100 and a direct holding in AAPL, for instance, can quickly result in a portfolio highly sensitive to the tech sector. The concentration risk may be much higher than initially thought. As with all investment strategies, it behooves investors not to put all their eggs in one basket.

Sources: Bloomberg LP, Goldman Sachs

The views expressed are the opinions of the writer and while believed reliable may differ from the views of Butterfield Bank (Cayman) Ltd. The Bank accepts no liability for errors or actions taken on the basis of this information.

National Gallery tackles the business of art

To secure footing in the world of museums, galleries and art shows, modern artists must not only create, but also work as their own marketers, promoters and event planners.

For island artists, geography can make the task of industry networking all the more difficult.

With the aim of breaking down natural barriers, the National Gallery of the Cayman Islands brought together Caribbean artists and curators for a rare opportunity to collaborate across borders. The May 21 gathering came with an explicit challenge for artists: to transform creative energy into viable business.

The Business of Art program fostered dialogue and built new avenues for Caribbean art, according to Gallery Director Natalie Urquhart.

“We all work very hard in our own countries in the region, but we can be quite isolated because often there are different levels of infrastructure, government and private funding, even down to access to art education,” she said.

“For us, it was so important to bring this conversation to Cayman and to introduce some of the world-class international curators to our local art community and really connect them directly to the artists. It’s very difficult to get into an international exhibition if you don’t have those connections.”

Marketing creative work

Lisa Hoffman, executive director of the Alliance of Artists Communities, encouraged artists to approach their work strategically and to pursue effective collaborations.

She provided basic marketing tips, including messaging, knowing the intended audience and documenting work, that many artists may not have learned in school.

“We often see artists have a lot of ideas and that’s really what we appreciate about working with artists – that they’re getting their ideas, bringing them forward, expressing themselves creatively, thinking about a creative inquiry,” she said.

“But sometimes with all of those ideas, it’s challenging to distill it all down into one particular line of inquiry or to let it speak to one body of work. I think sometimes the message gets convoluted and big, maybe a little unwieldy. Sometimes artists may forget who they’re speaking to and the messaging that’s required.”

She suggested emerging artists spend time on crafting a thoughtful portfolio and CV that includes images and video of their work in compelling ways. She also encouraged artists to break out of their boxes and avoid the temptation to turn inward.

“It’s not unusual to have some qualities of an introvert and not always feeling comfortable about discussing their work. But I always tell artists that we’re interested in hearing their voice,” she said.

Amanda Coulson is one of many regional curators working to build connections among island artists.

Working with national institutions

Amanda Coulson, director of the National Art Gallery of the Bahamas, suggested artists learn to think of their work from an entrepreneurial perspective.

“Very often, you’re not taught about these things at art school. You’re taught about your practice, which, of course, is the most important thing,” she said.

“Then like any business, there’s a back office. You have to take care of that back office and that is presenting yourself properly, having a portfolio organized properly, documenting your work, learning how to write your CV and an artist’s statement.”

For island artists, she added that national institutions can offer an important first connection to the larger art world.

“If you have a very clear and concise portfolio and you make sure the people working on your behalf have that, it helps us if we meet someone who is curating a show about Caribbean art or about feminist art or whatever. We can say we have an artist who is working in that genre and provide people with tools,” she said.

She encouraged greater networking between Caribbean galleries, which may face similar questions.

“We share a lot of the same problematics so we can rely on each other for advice. We have formed a loose group of museum directors across the region.

“We’re actively trying to break barriers of language and to create a network that’s more pan-Caribbean,” she said. “I think we have quite a good network. It could be better. It would be great if some of our countries could legislate to allow for movement a bit easier of artists and professionals.”

Given the small size of most Caribbean communities, O’Neil Lawrence, senior curator at the National Gallery of Jamaica, reminded artists to be respectful of their local institutions and to approach the curator-artist relationship with an open mind.

“For young artists, the reality is that you need to be flexible. Some think that would be a potentially trite statement, but flexibility is key for an artist because you have to go in and realize your relationship with the gallery or museum is give and take,” he said.

“It cannot be something where either the curator or artist is digging in their heels in terms of a particular vision. Both visions have to find that place where they meet, so it’s the success of both the artist and the show.”

Lisa Hoffman provides tips to emerging artists to help them break into the larger art world. – Photos: Alvaro Serey

Creating inroads

For ideas that may not fit the gallery framework, Jamaican artist Deborah Anzinger reminded creators that they can build their own avenues. As director of an artist-run contemporary art initiative, New Local Space in Kingston, Jamaica, Anzinger has first-hand experience establishing alternative outlets for artists.

“Rather than catering to the market, we actually end up building that market for new ideas,” she said.

“As contemporary artists, it is our responsibility to play with new ideas and develop things that people may not have ever seen or even thought they wanted to see, and raise questions that others may not have realized are problems in our society.”

She described artist-driven shows set up in spare bedrooms, closets and cabinets. The digital world also offers a platform for artists to drive conversation through websites and podcasts, she added.

“Then you find you get curators to visit, institutional and independent. You get writers that want to come in and write about that artist’s work. Then within that process, there is something that happens where museums and galleries want to exhibit that artist’s work,” she said.

For emerging artists, Hoffman added that residencies create an opportunity to establish meaningful inroads.

“There is incredible energy that happens in that residency setting. There is a lot of teaching, learning and sharing. When you eat together, you create together,” she said.

Five supertrends suitable as long-term investment themes

Stock investors have a choice: One, they can make their investment decisions based on influencing factors, which depend on the ever-changing daily news flow (such as the latest tweet from U.S. President Donald Trump, the often unpredictable outcome of the next elections in any major country, or about trouble spots, in which difficult characters are involved, for example in the case of North Korea).

The second option is to focus on more important long-term issues and trends where there is a higher level of predictability.

At Credit Suisse the research specialists around Global Chief Investment Officer Michael Strobaek have clearly made up their mind on this issue. In their opinion, long-term thematic investments definitely help to profit from the predictability and sustainability of multiyear trends. These themes link long-term trends like the political change in Western countries, demographic shifts or rapid technological progress to concrete investment opportunities geared to the long-term. They provide a tangible link between today’s major developments and investors´ portfolios, and according to Strobaek, can improve the risk and return profile of portfolios in the long run.

The experts at the Swiss private bank have identified five supertrends as long-term themes that they expect to provide attractive investment opportunities in the years ahead:

  • Angry Societies – Multipolar world
  • Infrastructure – Closing the gap
  • Technology at the service of humans
  • Silver Economy – Investing for population aging
  • Millennials’ values.
  • Angry Societies – Multipolar world

Credit Suisse Head of Global Equity Research Reto Hess reminds investors that since the financial crisis of 2008, inequalities have grown – not so much across countries but within them, and especially in the developed world. The economic policy mix of fiscal austerity and loose monetary policy proved particularly detrimental to the Western middle class. Tough labor market conditions following the economic recession were exacerbated by hyper-globalization and disruptive technologies.

This combination left many middle class households permanently worse off after the crisis. That same middle class grew more and more frustrated about the apparent incapability of the political establishment to deal with key problems such as seemingly uncontrolled migration and the rise of terrorism. This led citizens across the developed world to mobilize to drive political change, the results of which have become increasingly apparent. Newly elected governments have strong popular mandates. Therefore, the next four to seven years are likely to bring about economic policy measures aimed at appeasing the Western middle class in the developed markets.

From an investor’s point of view, Hess recommends focusing on security and defense, consumption (national champions and brands) and emerging markets consumers. Credit Suisse’s “buy” recommendations in these areas include Caterpillar, HP, Nike, General Dynamics, Raytheon and Samsung Electronics.

Infrastructure – Closing the gap

Materials Equity Research Analyst Dan Scott explains that Credit Suisse already identified infrastructure in August 2016 as an attractive long-term investment theme. The rationale was that the effects of unconventional monetary policy were wearing off, and there was an increasing consensus that a mix of expansive monetary policy and fiscal policy was needed to get out of the global gloom trap. After all, infrastructure expenditures typically lead to job creation, and they are a strong economic multiplier, leading to productivity gains. With real rates in many parts of the world still negative, the environment is ideal to fund infrastructure projects.

There are multiple ways to gain exposure to infrastructure investments, depending on investors’ risk appetite and tolerance of illiquidity. The most straightforward route for private investors is to focus on sectors and companies that would benefit from a policy focus on infrastructure, screen them against their company fundamentals and invest in those stocks that are most attractive. Against this background Scott believes that infrastructure investments in listed equities (in particular transport infrastructure, water and energy infrastructure and affordable housing) remain interesting on a global basis.

However, valuations of most equities exposed to infrastructure spending now largely capture their potential, and further investing requires a focused approach. Credit Suisse sees direct equity participation in commercial infrastructure projects as particularly interesting for long-term institutional investors like pension funds. However, specialist knowledge is key for Scott, given several risks and challenges. “Buy” recommendations in these fields include Ingersoll-Rand, Johnson Controls, Danaher, Fortive, Cummins and Parker Hannifin.

Technology at the service of humans

Telecom and Information Technology Equity Research Analyst Uwe Neumann starts his comments about the third supertrend by reminding that in recent years, technology has increasingly been regarded as a threat, with cheap robots, algorithms and programs seen as eliminating jobs and making human talent redundant. Yet he believes it is essential to remember that there is also a good side to technology, and that technology and innovation also help make workplaces safer, increase productivity and provide better products and services for people. In general, Credit Suisse believes that digitalization is here to stay. In the coming years, the big winners are likely to be so-called digitizers that offer sales growth and rising operating margins owing to economies of scale and efficiency. Internet platform companies in particular should continue to be the major beneficiaries. They constantly innovate to cater to the structural shift toward more enriching online experiences. Furthermore, web advertising agencies, companies that create new ecosystems based on the Internet of Things and cloud computing should gain in the long term.

Digitalization also has negative sides, with data theft a prominent risk. In this respect, cybersecurity will most likely continue to be among the most resilient areas of IT spending. Also, the exponentially growing flood of data that is automatically stored might lead to increasing costs. This could be a growing area of new business for companies that help to qualify, manage and clean data storage.

In addition, digitalization provides equally compelling opportunities in non-IT sectors. The need to innovate and increase operational efficiency is going to drive long-term trends such as big data, Internet of Things and virtual world. Technologies like virtual reality (VR)/augmented reality (AR), Internet of Things and robotics offer tremendous opportunities in this regard. However, the power to innovate is highly dependent on incremental investments that companies make to become digital. Any macroeconomic weakness could impact IT spending and investments in innovation, which, in turn, could dampen growth. Therefore, it is essential to follow a disciplined life-cycle management of investments in digitizers and preferably use managed investment products. The stock selection for this category includes Activision Blizzard, Facebook, Alphabet, Amazon, Microsoft, Nvidia and Thermo Fisher.

Silver Economy – Investing for population aging

Healthcare Equity Research Analyst Lorenzo Biasio says a tidal demographic change awaits us globally in the next three decades. By 2050, it is estimated that the population aged 60+ will rise to 2.1 billion from 900 million in 2015. By 2020, the spending power of people aged 60+ will reach an estimated US$15 trillion. According to Biasio, we are ill-equipped to grasp this development’s magnitude in terms of the shift in societal composition, given the accelerating aging trajectory. Credit Suisse expects that the addition of more than a billion senior citizens by 2050 and an associated drop in the dependency ratio will pose immense challenges, but also opportunities.

In the view of the Swiss bank, investors positioned along the continuum of senior citizens’ wants and needs are likely to witness attractive returns, especially in areas like senior lifestyle and consumption (rising share of income compared with other demographic groups and increasingly high spending power), healthcare (many chronic diseases increase with age), real estate – senior housing (appropriate to the health and living conditions of the elderly) and senior funding (population aging and rising longevity are likely to raise demand for life insurance products). The selection of stocks here includes Blackrock, Blackstone, Carnival, Estee Lauder, Eli Lilly and Pfizer.

Millennials’ values

All one needs to know here is that 50 percent of the world’s population is under the age of 30, and the values of this generation are set to become the new norm. The term “Millennials” (or “Generation Y”) refers to those 19–35 years of age, and “Generation Z” refers to those under 19. Consumer Discretionary Equity Research Analyst Julie Saussier-Clement refers to them simply as millennials, a cohort whose behavioral tendencies have been the subject of extensive research in recent years.

Millennials are one of the largest generations in history. They are influential and will soon reach maturity as investors. Investment themes connected with this generation are sustainable investments (millennials are the most sustainability-conscious generation and are willing to pay more for products and services seen as sustainable), clean energy (millennials worry about the future of the environment and feel responsible for it), impact investments (millennials are willing to support enterprises that generate a positive social and/or environmental impact), and a “fingertips” experience (millennials have been brought up in an era driven by technological advances). When it comes to consumption, they favor technology brands (fun, health and leisure); and in housing, they favor alternative forms (such as singles living in micro apartments). The stock selection for here includes Apple, Monster Beverages, Salesforce.com, Texas Instruments, Albemarle and General Electric.

Island jurisdictions grapple with push for beneficial ownership registry

Tim Dawson of Maples and Calder explains requirements for Cayman's beneficial ownership registry. - Photo: Kayla Young

As the Cayman Islands works to establish a beneficial ownership registry that will be accessible to law enforcement, another island nation continues to wrestle with international pressure on the subject.

The Bahamas already requires registered agents to maintain beneficial ownership information but faces ongoing pressure from U.S. regulators to increase transparency, Bahamian lawyer Ryan Pinder of Graham Thompson said at the 2017 STEP Caribbean Conference.

The Society of Trust and Estate Practitioners forum brought together business professionals from across the region at the Kimpton Seafire Resort for three days of discussion on tax policy, asset protection and information exchange.

With Cayman’s registry scheduled for completion by the end of June, conference attendees grappled with the implications for privacy.

In the wake of major information leaks such as the Panama Papers, Pinder questioned whether full public registers will eventually become necessary. For now, however, public registers are not the international norm.

While the United Kingdom offers mostly publicly searchable registers, the United States does not. The European Union is pushing for centralized registries, but members are not yet required to make the information public.

Cayman’s registry will not be publicly searchable and will not automatically guarantee information exchange. Caymanian and British authorities will be able to submit registry information requests but will not have the ability to “fish” for information, said Maples and Calder associate Tim Dawson.

Crown dependencies and overseas territories have been under pressure for years to establish such registries. Cayman agreed to comply with the U.K. request last spring.

Pinder decried U.S. pressure for offshore jurisdictions to take registries one step further and make beneficial ownership information publicly searchable. He called such pressure “a new form of economic colonialsm” and “an attempt to drive the Bahamas to go beyond what is recognized as international regulatory standards.”

He questioned whether the U.S., in turn, would establish a public registry to level the playing field.

Pinder said adequate treaty arrangements already exist for authorities to request necessary information from the Bahamas.

He criticized the U.S. Foreign Account Tax Compliance Act’s attempt to establish trust registries as a backdoor way to create a public register.

He said Latin American clients have resisted public registries because of safety concerns. He added that clients continue to place high value on financial privacy.

Embrace transparency

Also at the conference, British Virgin Islands lawyer Tim Prudhoe advised offshore jurisdictions to embrace transparency and find benefit in a politically turbulent world.

“There are lots of people wanting to plan their assets. We are just as well placed as others to take advantage of that heightened anxiety,” he said.

In a world of data breaches and hackers, he described a “veritable crusade for transparency” and called confidentiality dead.

He said privacy in an absolute sense can no longer be expected and is no longer a selling point. He pointed to a recent survey in which 77 percent of those polled expected a network of tax information exchange agreements to be established by 2020.

“One way or another, there is going to be information exchange,” he said.

Martitime forum sets contrasting visions of cruise, cargo sectors

Basil Karatzas described a difficult past year and an unpredictable road ahead for the cargo shipping industry. - Photo: Kayla Young

As the shipping industry braces for an uncertain trade environment, Cayman Islands Port Authority Director Clement Reid has a positive outlook for the cruise sector.

At the fifth annual Cayman Islands Shipping and Yachting Summit last month, Reid described cruise tourism as a “recession-proof business” with exponential growth potential compared to cargo shipping.

He projected possible growth of more than 250 percent for Cayman’s cruise arrivals over the next 20 years. By 2036, Reid anticipates Cayman could add 2.8 million passengers beyond the 1.7 million arrivals from last year.

“The cruise industry has been one of the most successful hospitality sectors over the past decades,” he said during his presentation at the Marriott Grand Cayman Beach Resort.

Globally, he forecast 2.9 percent to 6 percent annual growth in cruise passengers through 2036. In 2017, 25.3 million tourists, including 11.2 million U.S. passengers, are expected to travel by cruise.

He expects North American passengers to continue dominating the cruise market, but he also identified notable growth potential among Asian travelers.

In Cayman, he said, Carnival currently represents 51 percent of the market, compared to the company’s 48 percent share globally. Royal Caribbean is the second largest player in both Cayman and worldwide, with 23 percent and 24 percent of the market, respectively.

As vessel sizes become larger, Reid expects port capacity problems. He encourages Cayman to pursue construction of a highly debated cruise berthing facility.

Cruise vs. cargo

Reid’s cruise sector outlook contrasted sharply with the day’s analysis of the cargo shipping sector, which has faced a year of political and economic turmoil. The forum’s presenters spoke with trepidation about U.S. President Donald Trump’s contradictory messages on China, NAFTA, Russia, the Philippines and NATO, among other global players.

Karatzas Marine Advisors & Co. President Basil Karatzas said in the face of change, the industry must find the new line of order to overcome uncertainty and industry unknowns.

He described a difficult past year for the industry, which has experienced several high-profile bankruptcies and liquidations, including Hanjin Shipping and Rickmers Maritime Trust.

Karatzas provided concerning projections for trade growth as the global flow of goods recedes.

Regarding the Trump administration, he described a mixed outlook. With an uncertain road ahead, he encouraged the industry to consider three factors when it comes to predicting President Trump’s actions: what he wants to accomplish, what he says he wants to accomplish and what he can accomplish.

Scholars, entrepreneurs, athletes and the young learn to give – and give back

Recipients of the ‘Minds Inspired’ 2016 High School Scholarships Ethan Slocock and Cristin Jackson, pose with, from left, Dart education programs manager Glenda McTaggart, DECCO Ltd. CEO Cameron Graham, Dart VP of Community Development Chris Duggan, Dart Enterprises CEO Mark VanDevelde and Active Investments President Alasdair Foster.

Applications for the 2017-2018 school year closed only last week for the National Council of Voluntary Organisations’ new $20,000 university scholarship, marking the newest “giving back” community effort by the venerable Cayman charity.

Unsurprisingly, the organization prefers applicants interested in “caring or community-based degrees” such as “education, social work, nursing, healthcare or similar,” but does not strictly limit candidates.

“The NCVO Scholarship Fund,” according to requirements listed for aspirants, “is available for any field of academic study, but extra consideration will be given to areas of study that are beneficial to the community,” underscoring the organization’s 33-year service traditions.

Director Janice Wilson said the new tertiary grant became available through a corporate donation, announced on May 2; she cites a confidentiality agreement with the donor.

The corporate entity, she says, wanted to assist students from the Cayman Islands to obtain bachelor’s and master’s degrees, and sought the NCVO’s help in creating and administering a scholarship program.

Both Wilson and the donor hope the new scholarship will ultimately assist as many as 20 students, defraying their annual expenses for four years of study as long as the student maintains the required grades.

The new grant is a rough counterpart to the organization’s long-established John Gray Memorial Grant, also an annual $20,000 award to Caymanian university students studying locally or overseas.

Named after former NCVO Council and Executive Committee member, United Church minister and High School Principal Rev. John Gray, the fund is “intended for expenses associated with pursuing a degree such as books, accommodation and transportation,” aiding “those who may have finding for tuition through government grants or other means, but not for additional expenses,” according to the NCVO website.

Past recipients, it says, have studied a “wide range of courses including business administration, cytotechnology, hospitality management, accounting and social work.”

Widespread support

Academic support, however, is far from the NCVO’s only “giving back” function, although Miss Nadine’s Preschool, the Jack and Jill Nursery and the Caring Cousins Fund school-lunch program are education related.

With a budget of $1 million per year, the organization also supports the Nadine Andreas Foster Residential Home, the New to You Bargain Shop and “small welfare grants to a few of the Pines Retirement Home residents and others in need in the community,” Wilson says – and 25 full-time staff.

“The NCVO also caters to individuals or families who may need clothing or household supplies through our Bargain Shop,” she says, meaning “we have assisted people who have been affected by fire or unemployment, and Cuban refugees in need of clothing.”

The Anthony Drive preschool accepts up to 70 children between the ages of 2 and 5 years, Wilson says, and offers discounted fees through means testing. Half of the $500,000 per year costs are met by school fees, according to the website, meaning “a large amount of donations are necessary,” to operate the program.

The four staff members at Jack and Jill Nursery care for as many as 14 children aged between 3 months and 2 years. Like the preschool, the nursery also offers means-tested discounts on the $100 weekly charges. Projected costs for 2017-2018 are $130,000, with less than half coming from school fees.

Caring Cousins, Wilson says, provides lunch for 38 students at various schools in Grand Cayman and Cayman Brac, depending on need and funding, and occasionally offering “assistance for uniform costs,” according to the website.

“Eligibility and selection are determined through referrals from counsellors, teachers, social workers and other involved parties,” Wilson says. “The NCVO continually seeks donations for this project and currently spends around CI$30,000-35,000 per annum.”

The residential home, which opened in 1992 with a private donation, provides foster care for as many as nine children aged between 5 and 17 years, boys and girls, short-term and long-term, and keeping siblings together.

Wilson describes the home as a “care and protection facility,” meaning “children are placed with us for reasons such as abuse or neglect,” parental issues of mental health, incarceration, drug abuse or other reasons.

When it opened, the home accommodated 12 children, Wilson said, but “research suggested smaller group homes were more effective and provided more of a family-type’ environment, reducing the numbers under care, although “the services we offer for those children – including access to counseling, activities, private tutoring, etc. – has expanded considerably.”

The home has aided more than 50 children in the last decade, Wilson said, but it is not really possible to figure an “average stay” in the home.

“It totally varies from case to case, dependent on need and situation, [and] could be a matter of days, could be years,” said NCVO Coordinator Mona Lisa Meade. “But [for] longer-term cases, we work with DCFS [Department of Children and Family Services] to find reunification options for the children, for example, with a foster carer or family member.”

Wilson pegged annual costs to operate the home at approximately $390,000.

Some of that cost is defrayed by the New to You Bargain Shop, staffed by a handful of volunteers.

“The New to You Bargain Shop is a further source of income through sales of used household goods, clothing, appliances and more. Items are also donated to people in need in the community,” Meade said.

“Sales of the Cayman Watercolours Calendar further boosts the organization’s funds, and a number of smaller fundraisers throughout the year keep the cash trickling in.”

Others also provide scholarships

Scholarships for local students are not an NCVO monopoly. Since 2012, Dart Enterprises has offered annual four-year “Minds Inspired” funding to two high school students, and, since 2013, to one university student at the institution of their choice. However, the William A. Dart Foundation – named for the enterprise founder – may award more than one tertiary scholarship.

“The high school scholarship is awarded to two students who go through an extremely competitive and blind application process,” said Glenda McTaggart, Dart Enterprises manager for education programs. “The university scholarship is dependent upon the numbers and type of applications, as well as specific needs. Different needs are evaluated and can result in more than one being awarded a scholarship.”

A winner’s school choice is unlimited. McTaggart did not name a preferred local high school, saying “the scholar and his/her parents choose the school, and Dart is supportive of that personal choice.”

“Where a scholar chooses to remain in a government school,” she said, Dart contributes the difference in the greater private-school tuition to a college fund for the student, helping to defray tertiary tuition.

The high school awards are “open to all Caymanian students from private and public schools … who excel in STEM subjects – science, technology, engineering and mathematics … As an engineer,” McTaggart said, “William Dart believed that maths/science were the cornerstone of success.

“Our university students, however, may study whatever field they choose.”

Colleges selected by scholarship winners encompass an array of schools on at least two continents, and include Stanford, Penn State, Princeton, Ohio State and Northwestern in the U.S., King’s College London, “most recently Cambridge,” McTaggart says, and Ontario’s University of Guelph.

In fact, she cites the original recipients of the university grants, Julian Solomon and Matthew McTaggart. Solomon, she says, completed a degree in business management followed by a “conversion” program – enabling a student to pursue legal training – “and was recently accepted into the RICS [Royal Institute of Chartered Surveyors] master’s program at City College in London to pursue a professional qualification in real estate development.”

Matthew McTaggart, she says, “recently graduated from Penn State with concurrent undergraduate degrees in civil and electrical engineering. Earning top honors in his program, Matthew was awarded a full scholarship from Penn State to pursue a master’s/Ph.D. in electrical engineering in September.”

McTaggart declined to name a budget for Minds Inspired, other than to call it “substantial.” A single year at Princeton University, for example, exceeds US$60,000.

To retain Minds Inspired support, students must meet minimum academic standards. McTaggart said the grants were originally earned “by demonstrating academic excellence, so scholars are required to achieve a minimum ‘B’ grade in all ‘core’ subject areas for the duration of their studies.”

Core subjects include mathematics, ICT/IT, English, sciences and social studies/humanities. “Failure to maintain a high academic standard may result in suspension or withdrawal of the scholarship,” she says, adding that no one has ever failed out of Minds Inspired.

“We expect our scholars to maintain a high academic standing, and on an annual basis we review and recognize each scholar’s achievements. If a scholar is faced with academic challenges we have a supportive process to assist them with making necessary improvements.”

That “supportive process” is a crucial adjunct to Minds Inspired. Called “structured monitoring,” it varies based on the age of the student, their available time and their career interests,” McTaggart says.

“Dart mentors … provide guidance around subjects to take and share insights on the various professional qualifications that should be considered, depending on the field of study.

“For example, if a high-school scholar has a strong interest in engineering, but is unsure about the type of engineering they want to pursue, we will set them up to shadow and spend time talking with our qualified [Dart Enterprises] engineers across different specialties – mechanical, civil, electrical, nuclear and even biomedical. This type of experience gives the scholar valuable insight to make a more informed choice of study path and career. The Dart employees involved provide feedback to the Minds Inspired program coordinator, allowing that student’s experiences to inform next steps in their Minds Inspired journey.”

A similar program aids university scholars, who may also take advantage of work experience and internship opportunities.

“Dart also works with companies that are ‘like-minded’ about education and mentoring to provide opportunities that we are not able to provide. For example, we have scholars who have spent time at Health City learning more about careers in medicine,” McTaggart says.

Chamber of Commerce opportunities

Academic scholarships, however, are only one genre among educational “giving back” opportunities for young Caymanians. The Cayman Islands Chamber of Commerce has been giving back for more than 25 years through its youth mentoring and Junior Achievement programs.

Since Rotary Central introduced Junior Achievement to Cayman in 1991, about 10,000 [local] students have participated in its program, said Junior Achievement alumna and consultant Marzeta Bodden.

“Junior Achievement Cayman Islands is part of JA Worldwide,” Bodden says, and is “the world’s largest not-for-profit educational organization offering in-school and after-school practical business programs.”

Junior Achievement Worldwide – founded in Springfield, Massachusetts, in 1919, and today headquartered in Colorado – reaches 10.6 million students in 117 countries. It is “on a mission to ensure that every child has a fundamental understanding of the free-enterprise system by educating and inspiring young people to value free enterprise, business and economics in order to improve the quality of their lives,” Bodden says.

The Chamber joined Rotary Central as a “strategic partner” in Junior Achievement in 1997, providing permanent offices and administrative support, and today offers half-a-dozen programs: The Company Program and Ourselves Kindergarten Program – “the most well-known,” says Bodden – augmented by JA Career Success, JA Job Shadow, JA More than Money and Economics for Success.

Integrating concepts of honesty, trust and integrity, she says, “the end result is a more-proficient understanding of our world that enables these students to make their way into successful careers … [as] the next generation of business leaders,” conversant in entrepreneurship, financial management and responsibility.

The company program – targeting students between 15 and 18 years old – runs 18 weeks from October to March; classroom programs – for kindergartners through year 11 – run for six weeks typically from February to April.

Both programs are “taught” by advisers, generally drawn from companies acting as Junior Achievement sponsors. The 2017 list includes Dart, Tetra Laval Finance, Ogier, Cayman National, EFG Bank, Maples FS, Cayman Airways, Butterfield Bank, First Caribbean International Bank, DMS, Mourant Ozannes, PricewaterhouseCoopers and telephone book publisher Yello Media Group.

Each sponsor, Bodden says, typically provides between five and 10 advisers to the company program, and one adviser to the classroom curriculum. In 2016-2017, Junior Achievement registered 90 company advisers and 16 classroom volunteers, acting “as business adviser, role model, and supervisor.”

Many advisers repeat their service, she says, “supporting and volunteering with JA for many, many years. Each year, we also welcome, train and prepare new advisers.”

Company program participants meet once a week for 2.5 hours after school and work hours, usually at the offices of the program’s sponsor. Additional meetings occur during heavy production periods; and “selling events” often occur at weekends.

Classroom program participants meet once a week for one hour during school and work hours at the host schools.

Company advisers, she says, help students create their own companies with “real products, real dollars and real consumers,” establishing goals, raising capital, preparing a business plan, manufacturing a product or service, developing marketing and sales strategies, distributing dividends and shareholders reports and finally liquidating the operation.

Along the way, Bodden says, students learn “communications, problem solving, team building, time management and basic financial accounting skills.” An awards ceremony at the end recognizes top companies, “executives,” products and individuals, and offers a chance to attend the Junior Achievement Americas Company of the Year competition and Canada’s Next Generation Leaders awards.

Classroom advisers explain economic concepts and promote entrepreneurship, often spilling into the more focused JA Economics for Success program, which, Bodden says, expands student knowledge of personal finance – “including smart budgeting, wise credit use and minimizing financial risk – so they can apply strong financial-management skills regardless of their income.”

Targeting middle school pupils, “Economics” comprises six sessions, between 45 minutes and one hour, and materials for 32 students correlating to local social studies, English, math and Common Core standards.

Bodden offers a partial list of local alumni, including Hollywood filmmaker Frank E. Flowers, 2015 Young Caymanian of the year Kadi Merren-Pentney, Maples and Calder lawyer Maxine Bodden-Robinson, Dr. Ruth Pomares, actress Grace Byers – nee Gealey, entrepreneur Dwene Ebanks and government facilities manager Troy Whorms.

Repeat advisory performances also characterize the Chamber of Commerce’s mentoring program, founded in 2002 as a joint effort with the Ministry of Education, connecting business and government leaders with 50 top Year 11 students from both private and public schools.

Nominated by their school principals, each student is matched with a mentor working in a student’s chosen field. Past mentors have included business owners, architects, accountants, human-resources professionals, attorneys, engineers, interior and graphic designers, veterinarians, media and communications specialists and banking officers.

During the September-June program, students meet their mentors monthly at their place of work, often for organized social events, and occasionally outside of work hours. This year, according to a Chamber spokesman, Mentoring Cayman added two sessions examining post-high school education and career development.

Workplace meetings explore “careers, education, personal development, and more,” said Ross Taylor, Chamber communications coordinator, adding that “Mentoring Cayman is not a simple work-experience opportunity,” but rather “a more-sophisticated program designed to expose students to the workplace environment and culture that they may never otherwise have access to,” providing “an excellent way to prepare our young people for their chosen career path or expose them to new ideas and industries for a fulfilling future.”

The 2017 program lists three “outstanding” sponsors – Caribbean Alliance Insurance Company, Cox Lumber and Rocky’s Diamond Gallery – and support from the Ministry of Community Affairs, Youth and Sports. Every governor since 2002 has served as patron.

Success, he said, is measured by both students and mentors: “When we see mentors returning over and over again, we know that they are personally benefitting from the program, and it is rewarding to see members of our community return to give back to society and support our future leaders.”

Taylor quotes Bon Vivant’s Cynthia Hew: “I have seen my mentee really open up and share some of the pressures she is under.

“We talk and I try to listen as well as share creative ways to deal with stresses and feeding her dreams. Dreams are so much more than what one sees and feels – they are a clear reality just waiting for someone willing to take a risk to make them happen,” Hew said.

Chamber CEO Wil Pineau agrees: “Mentoring is a powerful personal development and empowerment tool. It is an effective way of helping people to progress in their careers. It is a partnership between … mentor and mentee with similar interests sharing similazr experiences. It is a helpful relationship based upon mutual trust and respect.

“Young Caymanians are our future, and as such we need to ensure that they receive the right support and encouragement to develop into the leaders of tomorrow.”

Other ways of giving back

School-based programs are not the only way local companies give back to the community. The Caribbean Utilities Company, for example, has been sponsoring football leagues for nearly 35 years, starting in the early ‘80s, and the Cayman Islands Football Association.

In 1997, says Neil Murray, CUC corporate communications officer and chairman of CIFA’s Youth Committee, the company created a “Community Involvement Team,” overseeing employee participation in community outreach projects, “particularly those involving Cayman’s youth.”

“The opportunity arose,” he said, “to sponsor the Primary Football League – known then as the Pee Wee League – which had been around since the 1970s.”

In 2004, he said, CUC approached the Ministry of Education and Sports, offering to sponsor the Primary Football League; the inaugural season kicked-off in September 2005.

The company started sponsoring the CUC Girls Primary Football League in 2014, and has contributed $250,000 to the two leagues since 2005. Both have two age groups, Under 9 and U-11, encompassing 650 children between the ages of 5 and 11 years.

Murray  said all public and private elementary schools are part of the Primary Football League and the Girls Primary Football League, including a Northeast team combining East End Primary and North Side’s Edna Moyle Primary.

The balance of the roster comprises Bodden Town, Prospect, Savannah, Red Bay, George Town and Sir John A. Cumber primary schools, a Cayman Brac joint team of the island’s primary schools, Cayman International School, Triple C, Cayman Prep, St. Ignatius, Cayman Academy, a South Sound team combining Montessori by the Sea, Hope Academy and First Baptist, and Truth For Youth.

The teams play, on Saturday mornings at most of the schools, and at the end of the season there are playoffs for the Champions Cup and Consolation Cup.

The PFL and GPFL are not CUC’s only sponsorship activity; it gives back through half-a-dozen sports organizations: The Cayman Islands Athletic Association, the CARIFTA Team, CUC Youth and Junior CARIFTA Track and Field Championships, the CARIFTA Swim Team, the CUC 800m Sea Swim and the Flowers Swim.

“We also assist with a number of other sports, though not as major sponsors,” he says, and “the company contributes annually to a number of organizations/events” he simply enumerates as “too many to mention.”

Happily, he says, his CIFA Youth Committee slot provides synergy to his CUC chores: “This position gives me a little more authority to implement youth-related football activities for boys and girls, both in the schools and with the clubs. Lots of work, but I thoroughly enjoy it,” he says.

Murray’s youth-football work is complemented by the Under-15 RCIPS Football Club, administered by Winsome Prendergast, chairwoman of the Police Welfare Committee.

The police started the group in 2015; it now comprises “about 100 kids” on eight teams, she says, with about 12 kids per team.

The league is intended “to build camaraderie and fellowship within the organization and outside of it, with the wider community,” according to a club press release.

“We have always sought corporate sponsorship, Prendergast says, “trying to work with all the football clubs and groups We invite all of them. Both boys and girls, and last year had quite a few.”

Sponsorship costs, she says, run $600 to $1,000 and include T-shirts and, occasionally, even refreshments. Cayman Airways is among the sponsors, and ScotiaBank even won a cup on aggregate.

Playoffs are scheduled for July 3 at CIFA’s Prospect field, and Prendergast says he is trying to organize a visit by Jamaica’s U-15 team.

Any “giving back” list would be incomplete without the corporate sponsors supporting Cayman’s swimming organizations, organized under the nonprofit Cayman Islands Amateur Swimming Association.

The swimming association – itself sponsored by 16 organizations including the Ministry of Sports, the Health Services Authority, KPMG, Dart, Davenport Development, Care Pharmacy, Butterfield Bank, Foster’s Food Fair and the Aall Foundation – is Cayman’s governing body for aquatic sports.

On June 10, the organization will help run the 25th annual Flowers One Mile Sea Swim. On June 12, Flowers and more than 40 other companies will host the newest Flowers event, the Amateur Swimming Union of the Americas’ 5K and 10K swims.

Stingray Swim Club, founded in 1996, is one of three registered clubs under CIASA, which is involved with at least eight swimming clubs and schools.

“Like many not-for-profit sports clubs,” said Kathy Jackson, unofficial public liaison for Stingray, “it relies on the business community’s sense of corporate responsibility when it comes to investing in sports, providing the funding needed so that our youth have access to professional coaching and the equipment necessary to develop and excel.”

Speaking of Stingray specifically, but of corporate “giving back” generally, Jackson said investment in youth sports programs conveyed enormous benefits: “The commitment and dedication required increases the ability to manage time, to concentrate and to focus on a goal.

“It can provide structure to students who need it, a support network of friends from their teammates and coaches, and a sense of family and of accomplishment.”

While costs of training and competing can be daunting, she said, “when I think back to the sense of pride throughout the country when our athletes do well it strikes me that sporting success is something which everyone can get behind. It makes us proud as a nation and it helps to focus our athletes.”

Preparing millennials to be leaders

It may not be a calamitous situation yet, says Andy Masters, but if it is not addressed it could turn into a full-fledged human resources crisis. The keynote speaker at the Cayman Islands Society of Human Resources Professionals’ Conference in May was not talking about stress, burnout, low morale or healthcare costs.

Instead he was pointing out that today’s 19- to 34-year-old employees will be leaders of every single organization in the future.

It is known that millennials are tech savvy, bright and highly educated, but in terms of human resources there is something even more important. “Millennials, statistically, are very antsy,” he said.

That means that when companies hire them, they must cultivate and empower them, and provide a direct career path and structured mentoring programs, Masters said. “And if we don’t show them that right away, they’ll get very antsy and leave.”

To illustrate his points, Masters showed clips from Hollywood movies, like Anne Hathaway in “The Devil wears Prada,” who plays a millennial who is hired straight out of college for her potential but leaves the job shortly after.

According to a Glassdoor survey, 46 percent of millennials left their last job due to lack of career growth, and 57 percent of millennials would leave a job that does not provide the work life balance that they want.

Providing career growth, development path and work environment to staff is crucial, Masters said, and involves managers communicating in the right way.

For instance, Tony Hsieh, CEO of Zappos, says, “For me, my role is about unleashing what people already have inside them that is maybe suppressed in most environments.”

But many executives have problems finding both the right words and actions, Masters noted.

Rather than saying, “Trust me, there will be plenty of opportunities out there for you someday,” managers should say, “To develop you from where you are right now, to where you want to be, this is the plan.”

An important and often overlooked part in this process is delegation. From “I don’t have anyone to delegate to” and “It takes longer to explain it to someone than to do it myself” to “Last time I delegated, it did not work,” there are plenty of excuses for managers who do not delegate.

But the bottom line, Masters said, is that this type of manager is not only prone to burnout, they are also costing their businesses money. By taking on tasks that junior staff could carry out with some support, managers are doing a disservice to their staff’s development and they cause a negative return on investment.

Most importantly, these tasks take valuable time and focus away from each manager and their ability to accomplish more important objectives.

Managers often see the negative in people, Masters said, whereas mentors see the potential. It is the job of human resources professionals to convince senior managers that taking on a mentoring role is needed or succession planning will become even more difficult than it already is.

Ultimately, he noted, research shows that what millennials want from their boss is help in navigating their career path, straight feedback, mentoring and coaching, formal development programs and flexibility.

From their company, they want help in developing their skills for the future, strong values, customizable benefits and rewards packages, a healthy work-life balance and a clear career path.

Ridley: Offshore centers must play long game

Offshore financial centers should focus on simplifying their business and having economic substance in their jurisdiction to thrive. “Having warm bodies in cool offices making real decisions,” is part of what Tim Ridley calls the long game that offshore centers must play to survive.

In his lecture at the annual STEP Caribbean conference in Cayman last month, the former Maples and Calder partner and Monetary Authority chairman said the Organisation for Economic Co-operation and Development’s initiative to tackle the erosion of tax bases and profit shifting and the latest offshore blacklist from the European Union both include actual economic activity criteria. One way to demonstrate substance in the wealth management industry is to have fully staffed family offices offshore.

This would bring the obvious direct and indirect economic benefits for offshore centers that do not suffer from overcrowding, have good office and residential property available at reasonable prices, good accessibility, weather and general infrastructure.

But to take advantage of this potential business, Ridley said, offshore financial centers must put in place the necessary and simple “package” that can be promoted internationally by the public and private sectors and encourage potential candidates to relocate.

Offshore centers must be particularly vigilant in ensuring that they have the right home-base infrastructure, such as stable political and economic environment, a welcoming immigration regime, the appropriate financial laws and structures, top quality courts and judges that are particularly important in the trust area, tax neutrality and quality professional services.

Ridley’s second point, simplifying the business, may seem counterintuitive at first, he said.

In a world where tax information is exchanged automatically between countries through the common reporting standard developed by the OECD, reporting may result “in conflicting or confusing reporting from different jurisdictions up the ownership chain.”

One school of thought therefore argues for concentration of entities and activities in a single reporting jurisdiction, whereas another favors no reporting under common reporting standard with critical family members moving to the jurisdiction where their offshore structure is domiciled.

With global wealth creation still on the upswing, wealth creators are becoming more global.

For example, Ridley said, an Asian family that owns or controls a global business and global investments, and which has widely dispersed children, is likely to need structures that deal with inheritance, estate, succession and tax planning issues where the investments and assets and family members are located.

Legitimate asset protection and wealth preservation strategies are very relevant to these clients just as they are to wealthy individuals from countries with strict forced inheritance laws.

The best jurisdiction for “some of the critical cogs in the structure” may be onshore, offshore or a combination of the two, he said.

Critically, Ridley said, offshore centers must find the right balance between legitimate privacy rights and the proper needs of law, regulatory and tax enforcement.

While the importance of maintaining confidentiality of the information exchanged under CRS and the beneficial ownership project is well known, there are several concerns.

Of the countries that have signed up to the common reporting standard, not all have a strong rule of law, and it is uncertain whether the information supplied will be kept confidential, he said. Offshore governments “should not simply accept OECD confirmation that the recipient country has the necessary laws in place to protect the confidentiality of the information; the test should be how effectively are those laws actually implemented.”

The second concern is cybersecurity. “Given the various leaks of confidential information over the past few years, it is evident that, once the information is in electronic form, the risk of unauthorized release and hacking is greatly increased,” the former CIMA chairman noted.

Continued engagement, preferably through a united front of offshore centers, is critical in this process. But the offshore narrative must be based on substance and not purely aspirational, he said. “Equally, OFCs must challenge “false facts” thrown around by onshore politicians, media and NGOs.”

Overall, Ridley concluded that the future of professional advisers and services seems well assured, but they must be able to change and adapt. “The mantra for all should now be ‘add substance and add value.’”

Monetary policy normalization: Are we there yet?

Brendalee Scott-Novak

It now appears that the Federal Reserve will increase the Fed funds rate to 1.0 percent to 1.25 percent at the next meeting in June. The probability of this rate hike is firmly at 100 percent based on the most recent Fed forecasts.

Notwithstanding such staggering odds, and recent increases last December and early March, the projection for further hikes throughout 2017 has also breached the 90th percentile. With solid gains in employment, sharp improvements in consumer spending and forecasts for strong Gross Domestic Product growth in the next three quarters, it has become increasingly clear the U.S. economy is on a solid path to growth. So why a change in policy direction when markets are making new highs?

From the onset of the credit crisis, the Federal Reserve took aggressive action drawing upon the many lessons learned during the Great Depression. The central bank quickly sprang into action by providing loans to commercial banks and other financial institutions in an effort to contain the crisis. Lending by the Fed increased from less than $50 billion at the start of the crisis to more than $700 billion at its peak in 2009. Not only did the central bank lend aggressively, it also cut the Fed funds rate to a 0 percent to 0.25 percent historic low, essentially adopting a zero interest rate policy (ZIRP).

In addition to these conventional policy tools, the Federal Reserve charted a new course, adopting the use of two unconventional policy tools: forward guidance and quantitative easing. With forward guidance, the central bank provides direction on its future actions giving markets enough time to understand and absorb its policy implications. Forward guidance also allows for underpinning the credibility of the committee, a crucial factor for this unconventional policy tool to work effectively.

Perhaps the most widely known policy enacted by the Federal Reserve post the credit crisis was the use of quantitative easing (QE). With this policy tool, the central bank used a conventional method (via open market operations) to purchase unconventional assets (long-dated treasury securities and agency mortgage backed securities) to achieve a quasi-conventional goal (to lower long-term interest rate versus short-term rates). After three rounds of quantitative easing that saw the purchase of long-term treasuries, agency and mortgage-backed securities and long-term asset reinvestment program, the central bank’s balance sheet quintupled from approximately 900 billion to more than 4.5 trillion in assets.

Now, after an abnormally long period of utilizing conventional, unconventional and quasi conventional tools to avoid a catastrophic disruption, the central bank is seeing strong evidence to return to their core mandate of maximum employment and price stability.

The case for monetary policy normalization has found strong support among two major schools of thought: New Keynesians and Neo-Fisherian economists.

The New Keynesian supporters paint a compelling argument in using monetary policy to support stabilisation. According to the Taylor rule, the appropriate level of nominal interest rates for an economy should increase in response to rising inflation (in the context of a 2 percent inflation target) and decrease with rising unemployment (relative to the economy’s natural rate of employment).

In addition, the Phillips curve which represents the third pillar of the new Keynesian economic relationship, argues that inflation should increase as the economy approaches its natural rate of unemployment.

Deep rooted in the Monetarist theory by economist Milton Friedman, Neo-Fisherians radically advocate that high nominal interest rates are associated with high rates of inflation and vice versa. According to Fisherians, in order for central banks to increase inflation, they must employ a consistent policy of increasing short-term nominal rates. In the same way, an extended period of low inflation will be highly susceptible to deflation. Supporters of Neo-Fisherian are pointing to the mounting empirical evidence in the likes of Japan, the Euro area, Switzerland and Denmark linking those economies with low or ZIRP, with very low inflation rates.

Whether you are a supporter of the central bank’s most recent shift in policy actions, the committee is firmly on the path to pursuing policy normalization. Reducing the size of the balance sheet from $4.5 trillion, targeting a normative fed funds rate and reducing the duration and composition of assets to pre-recession levels are but a few items on the agenda. Irrespective of the tools employed or the order in which policy is normalised, a gradual and predictable approach will undoubtedly play a crucial role in avoiding any missteps.

Statistics and Data Source: Bloomberg LP., BCA Research, Federal Reserve Bank of St. Louis, Bank of Canada.

The views expressed are the opinions of the writer and while believed reliable may differ from the views of Butterfield Bank (Cayman) Ltd. The Bank accepts no liability for errors or actions taken on the basis of this information.

Cinemas embrace VIP perks to meet industry challenges

The history of the movie industry is filled with challenges and doomsayers predicting the demise of Hollywood. From the introduction of sound to the advent of television, the motion picture industry has always been forced to evolve to stay relevant. Now the industry is facing flat ticket sales, strong competition from streaming services, and a heavy economic reliance on blockbusters and so-called franchises that are producing an inordinate number of superhero movies and sequels.

Movie fans are consuming films in new ways, including as streamed or downloaded content that is accessible on smartphones and tablets.

Industry data shows that younger cinema-goers will still flock to the movie theater for the biggest blockbusters from “Star Wars” to “Deadpool,” but increasingly prefer the small screen for other types of film.

And while watching movies on a mobile phone is not the same as seeing it in a cinema, home theater systems, video game consoles and the internet make visiting a movie theater far from the only entertainment option.

This has had a marked effect on attendance figures.

According to the National Association of Theater Owners, there were about 41,000 movie screens in the U.S. and Canada in 2016, nearly twice as many as 30 years ago. North American box office reached a record high of $11.4 billion last year, while global box office also set a record of $38.6 billion.

But attendance has been flat for more than a decade. In North America, a 49 percent increase in ticket prices since 2002 simply masked the 16 percent decline in ticket sales during the same period.

Trend in Cayman

Cayman is not immune to the trend. “The world is changing, so we have to change to,” says Simon Watson, the operations manager for Active Capital Ltd., a subsidiary of the Dart group, which runs the local six-screen Regal Cinemas.

He says that clearly the quality of films is vastly degraded when people stream movies, but it still constitutes competition for cinema operators all over the world.

The movie industry answer is to emphasize the experience. “Our view is that if you want to watch the latest movies in the best way possible, the only place to do that is the cinema,” Watson says. “You can never get that experience anywhere else apart from the big screen. But we have to continue to upgrade.”

This includes Regal Cinemas’ latest VIP Auditorium theater, which offers luxury leather recliner seats, state-of-the-art surround-sound and a 4K ultra-high-resolution digital projection system.

The theater’s Dolby Atmos sound system delivers seamless, crystal clear surround-sound through speakers installed on each of the four walls and the ceiling. It is so cutting edge that it has been rolled out only in a few high-end U.S. cinemas.

The extra-large recliner seats with double arm rests and small tables for drinks, food and other concessions provide a maximum of comfort and space. Regal cinema had to convert one of its theaters from 150 to only 56 seats to enhance the viewing experience.

To make up for the likely decline in attendance, tickets are priced $10 higher than for movies that are shown on other screens, making it $21.50 per movie.

Customer feedback has been positive as cinema-goers realize that they pay for quality, says Watson.

“As we go forward, we hope that the VIP [facilities] will be so popular that we look at eventually upgrading a second theater.”

The VIP auditorium also helps the cinema to put on events for private hire with an adjacent lounge and concessions area.

Cayman’s theater operator has made further changes to enhance the cinema experience.

Regal eliminated separate queueing and payment transactions for tickets and concessions. Customers can now buy their tickets, popcorn, drinks and 3-D glasses in one location at the same counter.

To manage the longer queues Regal has more than doubled the number of tills from five to 11 and implemented a queue management system.

In addition, the cinema has upgraded its food options from nachos and hot dogs as the only hot food options to a full range of food, including home-baked thin crust pizzas.

“Now we have an opportunity for people to go to the cinema, buy their tickets, their popcorn, their pizza, go into the VIP if they wish, recline on those nice big leather seats and eat their pizza in comfort, watching a film,” Watson says.

Offering a wider range of food and drink items and a more streamlined sales transaction not only improves the experience for customers. For theater operators, these concession sales are key, because the ticket revenue is shared with the movie producers, who receive half of the proceeds.

Shortening the theatrical release window

Globally, cinemas continue to benefit from the theatrical release window which ensures that movies are first shown in theaters for a period of the first 90 days before they are released on a staggered schedule to video on demand, Blu-ray, streaming services and other distribution methods.

However, this exclusivity is increasingly questioned.

Last year news hit that six of the seven biggest Hollywood studios were in negotiations to release their films for home viewing less than three weeks after they hit theaters for a higher price.

For studio bosses, the idea that a product cannot be sold for a certain time period becomes increasingly anachronistic. Fox Film chief Stacey Snider told delegates at February’s Code Media conference that most big films and blockbusters have done 90 percent of their business in the first three to four weeks. “Who is it helping not to offer premium video on demand earlier? Who is it hurting?” she asked.

The studios are getting agitated because revenue from U.S. home entertainment like DVDs, Blu-rays and video on demand is fading and has shrunk nearly 50 percent in the last 10 years to $12 billion in 2016, data from Digital Entertainment Group shows.

The studios are trying to recover some of the losses by exploring different options for premium video on demand but neither the price point, the release window nor the distribution method is clear. They range from paying $30 after 45 days and $40 to watch a movie 10 days after big-screen release to $50 on the same day as the release in theaters. The latter option is touted by The Screening Room, a venture backed by former Napster and Facebook director Sean Parker, which would stream current cinema movies via an encrypted set-top box.

Because of antitrust laws, the studios, which include Fox, Paramount, Lionsgate, Sony, Warner Bros., and Universal, are talking unilaterally to major theaters chains like AMC or Regal making negotiations a protracted process.

In an attempt to bring theater owners onboard, distributors are offering to give them a cut of their digital sales. But cinema operators have vehemently opposed the idea and warned that a shortened cinema release window would significant harm and potentially cannibalize their business.

Unpredictability of consumer behavior

Part of the problem is the unpredictability of consumer behavior. Would movie fans still prefer the big screen if they can see films shortly after their release? And how many would be willing to pay a premium?

Cowen & Co. media analyst Doug Creutz does not believe demand will be sufficient to make up for the losses in DVD sales.

In his annual industry report, Creutz predicted that 2017 will bring “another round of punishment for the industry characterized by several big-budget bombs and disappointing performances from mid-budget pictures.”

The pressure is high for producers. Movie operating profits for the seven leading Hollywood studios declined by 14.6 percent to $4.18 billion last year. Yet Disney raked in 60.5 percent of total profits, as Paramount and Sony lost money.

Meanwhile streaming services like Netflix and Amazon have become major industry players not only in the distribution but also the production of movies.

Netflix is defying industry conventions by releasing its own films online without any theatrical distribution. Those Netflix-produced movies that are released in cinemas, often simply to qualify for awards, hit the big screen the same day they are available online.

Amazon Studios in contrast, which hit the big time with Kenneth Lonergan’s Oscar-winning drama “Manchester by the Sea,” continues to respect the 90-day theatrical window. “Manchester by the Sea” alone grossed $62 million at the box office through April, according to Box Office Mojo.

“We really believe in the theatrical experience by fully supporting the theatrical window for our releases,” Jason Ropell, Amazon’s head of motion pictures, said at CinemaCon in Las Vegas in March.

At the annual trade show organized by the National Association of Theatre Owners, studio bosses were quick to hail the cinema experience, and like Dave Hollis, the executive vice president of distribution at the Walt Disney Co., told delegates that they “all believe deeply that films should be seen in a theater” and that they “have a common goal to get people to see them in your cinemas.”

Making best use of the cinema asset

In Cayman, the theatrical release window is less of an issue, where Regal Cinemas is constantly turning films over. It is rare for a movie to be shown for more than two weeks. “We only have six screens. That is a lot of for the island but not for the amount of films that are being produced,” explains Watson.

“The cinema has a good following on our Facebook,” he adds, which is used for feedback, to announce new movies and to inform movies fans when films are taken out of the program.

“To weather the competition that we have, we also look to make best use of the cinema,” Watson notes. For instance, Regal is putting on Kids Club every second Saturday matinee, which features a children’s film classic for $5. There is a culture-themed event once a month with a showing of ballet or theater filmed live with up to six cameras. There are live sports events and even a church service on a Sunday.

In a small place like Cayman where it is impossible to grow the set cinema audience, the customer base can be widened to people interested in these non-movie events.

“We have this fantastic asset and it is up to us to make best use of it, not just for Hollywood movies,” Watson says.

And for the movie buffs, Regal will launch a Classics in the Cinema series next month. Set in the VIP auditorium at slightly reduced prices, it will offer showings of true classic like “Gone with the Wind,” “Casablanca” or Alfred Hitchcock’s “The Birds,” which moviegoers are unlikely to have ever seen on the big screen. The the next set will feature classics from the ‘70s and ‘80s, such as “Terminator,” “Alien,” “Dirty Dancing” or “Pretty Woman.”

“We can give a lot more than just the blockbusters,” Watson says.

This is all the more important in an industry that becomes increasingly dependent on blockbusters and the exploitation of existing intellectual property with remakes and sequels.

“The non-blockbuster market is losing dollars and to a certain extent that’s going to TV,” analyst Creutz told industry publication Deadline in March.

Hollywood is likely to repeat its response to the advent of television in the 1950s and 1960s when movie studios went big and produced Bible epics and spectacular musicals.

“You might see a situation where the budgets become more and more barbell over time where maybe you’re going to make 15 movies and seven will have budgets of $100 million-plus and eight will have budgets of $20 million and under,” Creutz said. “You hope that one or two of the $20 million movies break out, but if it doesn’t you don’t really hurt yourself and you keep your product rolling and maybe other movies do better in later windows. And you pray to God that those seven big movies do well.”

Impact17 looks at human side of digital marketing

Mercer Chief Marketing Officer Jeanniey Mullen, Kiip founder Brian Wong and IMA Chairman Sinan Kanatsiz were among the presenters at Impact17. - PHOTO: KAYLA YOUNG

In an age dominated by digital devices, entrepreneurs at Cayman’s third annual Impact conference sought to take a step back from smartphones and reconnect with the human element of marketing.

A packed schedule of local and international speakers engaged a full ballroom at the Kimpton Seafire Resort late last month, as part of a three-day conference centered around digital innovation.

The Impact17 program, put on by the Internet Marketing Association and Cayman Enterprise City, featured more than 20 speakers.

IMA Chairman Sinan Kanatsiz encouraged attendees to open up and consider a wide range of possibilities to address business challenges in the digital age.

“Some of the best innovation in the world is going to happen on our stage and we don’t know yet what is going to happen,” he said at the forum on April 27.

While the day’s lineup hailed from across the digital realm, the day’s major takeaway was on building human bonds and moving focus to the offline world. Speakers expressed a need to gain control over the digital world and give consumers power to direct their experiences.

Evite CEO Victor Cho opened afternoon discussion with a challenge for the audience: to turn and look each other directly in the eyes. While the experience may have made some feel uncomfortable, he said such interactions promote oxytocin, the so-called “love chemical,” and encourages long-lasting bonds.

“Face-to-face interaction makes a huge difference in your life in terms of health,” he said.

His company promotes the hashtag #devicefreedinner as a way to encourage people to put their phones away and focus on their friends and family. He said leaving a phone on the table during dinner is the equivalent of setting out a loaded gun.

“If you’re boring, I’ll just shoot you in the head,” he joked.

Mercer Chief Marketing Officer Jeanniey Mullen shared insight on consumers’ desire to take control of their digital devices and regain power over their day-to-day lives.

While technology has provided many convenient tools to the public, she said, it has also created expectations in work and family life.

“Digital disruption has started to give us rules we need to follow. We are no longer available to work from a certain point to another,” she said.

She encouraged women entrepreneurs to be part of the conversation to redesign the digital world and make it work better for users.

“We’re creating a new world and we’re designing our own place in that world,” she said.

Kiip founder Brian Wong emphasized the need for digital innovation that connects with real human needs. His company has set up a rewards system for users that interact with ads in an attempt to incentivize consumers.

“Go back to human emotion. I think we often forget with the internet that at the end of the day, you are addressing people’s needs and making them feel good,” he said.

Saffron Consultants Vice President Keith Miller equated the current global environment to the disorder of a Jackson Pollock painting. To rise above the confusion, he encouraged digital entrepreneurs to take a step back and focus on real human needs.

“It’s less about data and technology and more about moving forward on what we really feel and think,” he said.

He contrasted successful, socially focused campaigns by Audi and Heineken with failed attempts like Pepsi’s recent commercial featuring Kendall Jenner. Mr. Miller said the difference stems from authenticity, and creating a purposeful, relevant message.

Tamara Gaffney, principal analyst for Adobe Digital Insights, encouraged businesses to focus on creating worthwhile information that will stand out in the saturated internet market. As users swtich to mobile and spend less time on individual websites, she said mass-produced content no longer works. Websites must earn public attention.

“Our attention spans are fast. We are very loyal until we’re not,” she said.

The conference concluded with a catamaran ride for guests Thursday evening, April 27, and a networking brunch Friday, April 28, at Abacus Restaurant.

Other international IMA conferences are held in Dublin and Singapore.

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