September 23, 2021

Cayman Islands co-operation puts clients first

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From Executive Global

As global strides towards transparency start to become a reality, beneficial owners around the world have recognised the growing attractiveness of a Cayman Islands corporate address or asset domicile, now that information sharing between governments becomes the rule rather than the exception.

While it is quite clear that the OECD-inspired, trend towards transparency from governments everywhere has gathered enough momentum to spark genuine concerns that the legitimate right to privacy in business and corporate affairs would be compromised, the combination of a strong negotiating team and a vision unique in the offshore world, ensured that Cayman secured the best possible deal for its clients.

The imposition of a beneficial ownership register by the UK on its Crown Dependencies and Overseas Territories was never going to find much favour in the offshore community, particularly as part of a political smokescreen, by then Prime Minister David Cameron, to attribute the UK’s economic woes to the missing billions, purportedly hidden in the black hole of Britain’s tax havens.

There can, however, be no doubt, that by introducing its own Beneficial Ownership Platform, which crucially is not publicly searchable, as had initially been demanded by onshore politicians, the financial industry in the Cayman Islands created the best possible result for its stakeholders, which otherwise had the potential to be quite destructive, particularly as onshore jurisdictions were not being held to the same standards.

While the moves towards greater transparency across the globe began as part of the fallout from the financial crisis, with the OECD’s Global Forum on Transparency and Information Exchange ushering in a new network of Tax Information Exchange Agreements, alongside international legislation like FATCA and the Common Reporting Standards, new impetus for the fight against tax evasion followed the revelation of the Panama Papers in 2016. The Cayman Islands currently has signed 36 bilateral agreements on tax information exchange, with all of the world’s major industrialised nations, including Australia, Germany, France and China, in addition to Intergovernmental agreements with the UK and the USA for FATCA. Cayman is also a party to the Convention on Mutual Administrative Assistance in Tax Matters, which came in to force in June 2011, which fosters international cooperation on tax matters, as well as protecting the rights of tax payers.

Throughout this period, international financial centres around the world have adapted their regulatory processes and legal frameworks in order to comply with the latest initiatives, so as to keep pace with the competition and avoid being named and shamed as a ‘tax haven’ and being placed on various black or grey lists.

In fact, the most recent update from the OECD in June declared that Trinidad & Tobago was now the only country in the world which failed to meet its standards on international transparency, declaring massive progress, with even Panama making enough strides to fall in line with the required criteria. While there can be no argument with the motives behind these efforts, with no place for tax evasion in any legitimate financial centre, concerns have rightly been raised within the industry regarding client privacy, while certain jurisdictions have failed to consider the implications of wholesale disclosure, without actions to the same degree in major onshore centres.

In an age where governments are sharing information to a much greater degree, the Cayman Islands stands out as a leader in global compliance and transparency, not just in regard to the type of information shared but importantly the manner in which it is done so. For example, Cayman’s practice of collecting beneficial ownership information through its licensed corporate services providers was long established, many years before it became a cause célèbre in the media. That demonstrates a commitment, not just to transparency, but also ensuring that the information collected is accurate, because the corporate services providers are required to verify beneficial ownership information. That runs in stark contrast to the originally proposed system for the UK which involved self certification, which, as many commentators have suggested, is clearly open to abuse with the potential for criminals to make a false declaration.

What that means in practical terms is that the vision of the Cayman government to ensure its beneficial ownership register is not just compliant with international norms such as the Financial Action Task Force, but also meshes with a client’s business or personal objectives. The stories are true about wealthy Latin American individuals driving old cars to avoid drawing attention to themselves in regions where the threat of kidnapping is part of daily life. The imposition of a publicly accessible register of beneficial ownership information would certainly leave many people significantly exposed to criminal activities, however Cayman has gone to great lengths, not only to protect the interests of beneficial owners – while still complying with the law – but also to protect the integrity of the data held by corporate service providers.

Crucially, the information will be held on a platform that is not publicly searchable and can only be accessed by designated law enforcement officials from the Cayman Islands and cannot be accessed by the UK. Furthermore, the Beneficial Ownership Competent Authority in Cayman is charged with ensuring that any requesting agency is authorised to do so and also to ensure that the request for information satisfies the relevant conditions, in terms of it being an ongoing investigation and not a fishing expedition. Otherwise the request for information will be rejected.

Details recently emerged regarding the platform that the Cayman Islands government will adopt for these purposes and the industry has welcomed the proposed ‘offline air-gapped platform’ which has no internet access, so the risk of a data breach is greatly reduced and the system is not susceptible to hacking. Instead of uploading data to the platform over the internet, the corporate service providers will take a physical storage device to the central authority each month, in order to upload the information.

The Cayman Islands has long been considered a secure jurisdiction to hold assets and the recent manner in which it has co-operated and interacted with international tax authorities, in both a responsible and professional way, while protecting the interests of clients has only served to heighten its reputation. In terms of asset protection, Cayman Islands corporate subsidiaries and private client structures, such as trusts, passive holding companies or family funds, offer a high degree of beneficial protection of assets outside of onshore jurisdictions.

The litigious culture in the United States, where damages in professional negligence cases will run into millions of dollars as a matter of course, highlights the value in Cayman trusts and the ability to protect assets from creditors in the event of such a claim. The trust law in the Cayman Islands provides a number of specific features to protect assets and Sterling is frequently engaged to establish these structures as part of the wealth management objectives of its clients and is highly experienced in such matters, along with providing a full suite of banking and corporate services.

As one of the first offshore jurisdictions to introduce the Fraudulent Dispositions Law, Cayman’s Trust Laws are robust, with any conversion of property into a trust, voidable by any prejudiced creditor, where there has been an attempt to defraud.

Cayman has a high degree of political stability and its highly regarded legal system, which is based on UK common law, provides a great degree of comfort to international investors. The court system in the Cayman Islands is well developed and there is a specific Financial Services Division, which has the benefit of the long experience of some highly respected judges who are experts in financial matters, which gives the jurisdiction an important edge with regard to trust cases.

Its progressive and flexible corporate environment allows entities to be established quickly and easily, with a broad array of structuring options that allow infinite possibilities for management and significant advantages from a corporate governance perspective. The regulatory framework, meanwhile, overseen by the Cayman Islands Monetary Authority, provides the right balance with rules that reflect the nature of the largely institutional and high net worth clientele, with sensible regulation but no unnecessary impediments to getting business done, which ensures that the industry remains both competitive and vibrant.

In addition to the tax neutral system in the Cayman Islands, with no taxes on capital gains, income or profits, Cayman has become a jurisdiction of choice due to the highly developed financial infrastructure, which includes a great number of specialised law firms and accountancy providers which provide world class services on the trust and corporate side.

Cayman has also demonstrated a commitment towards compliance and has always taken the necessary steps to amend its legislation in order to maintain the best balance between co-operation and providing the right products and solutions for the clients that utilise financial services in the jurisdiction. One of the hallmarks of the industry’s success over the years has been the high degree of co-operation between the public and private sector, which has ensured that government legislation works in concert with the requirements of the industry and produces highly commercial solutions for clients, Once again, this close relationship – as evidenced by the work of Cayman Finance and the large number of industry associations – has meant that Cayman’s high degree of co-operation in the fight against tax evasion and information exchange, does not compromise the rights, liberties and business activities of its clients. Moreover, it has preserved the beneficial tools for corporate structuring strategies, as well as estate and succession planning structures for families, along with other asset protected holding structures from a tax-neutral location to help mitigate the risks of claims from other onshore parties.   EG

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