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The Cayman Islands: A very convenient truth in financial oversight

2011- Mary Barzee Flores, Stearns Weaver Miller Weissler Alhadeff & Sitterson

By Mary Barzee-Flores and Read McCaffrey, From Daily Business Review

The Cayman Islands suffers from an undeserved bum rap. Many people automatically associate the Caymans with a haven for tax cheats and financial scams. However, the notion that the Cayman Islands is a refuge for the avoidance of taxes and laundering of money is outdated, unsophisticated and just plain wrong.
The Cayman Islands is a British overseas territory in the western Caribbean, just south of Cuba. Home to about 60,000 people (only half of whom are of Caymanian descent), it is often said that Cayman has more registered businesses than residents.
Notwithstanding its significance as an international financial center, Cayman carries an unfair reputation as a land of tax cheats, money launderers and assorted Wall Street swashbucklers. American politicians have enjoyed piling on.
In 2012, President Obama criticized Mitt Romney for utilizing Cayman Islands bank accounts. When President Trump’s treasury secretary nominee, Steven Mnuchin, allegedly “forgot” to disclose his ties to Cayman businesses, U.S. Sen. Ron Wyden, D-Oregon, remarked that only the island’s zero percent tax rate could explain why anyone set up a hedge fund there: “It certainly wasn’t for ease of commute or the infrastructure.”
There are several interrelated reasons why thousands of global companies and high-wealth individuals do business in the Caymans. The country has a well-established legal system derived from English common law with appeals going to the Privy Council in London, high-quality accountants and other financial professionals, and a government committed to best practices in the implementation of anti-money laundering and anti-terrorist financing requirements of the Organisation of Economic Co-operation and Development, or OECD, and Financial Action Task Force, or FATF.
Its lack of exchange controls means money in any currency can be freely transferred to and from the Islands. The Cayman Islands Stock Exchange is a member of the European Securitisation Forum and an affiliate of the International Organization of Securities Commissions. The country has a robust financial services regulatory authority, the Cayman Islands Monetary Authority. The weather probably doesn’t hurt either.
Although detractors pejoratively refer to Cayman as a “tax haven,” a fairer description is that it is “tax neutral,” allowing companies and investors to maximize tax policy from their home countries to their full advantage. The Cayman Islands has no corporate, income, capital gains or wealth taxes.
Ever popular is the story claiming that King George III promised never to impose taxes on the island of Grand Cayman in thanks for her having spared Prince William’s life when his ship wrecked off her coast in 1794.
Off Blacklist
In 2016, the U.S. Department of State’s International Narcotics Control Strategy Report, INCSR, identified Cayman as a “major money laundering country,” which is defined as a country whose banks and financial institutions engage in currency transactions involving “significant amounts of proceeds from international narcotics trafficking.” But consider that Canada is also on the list. The INCSR is wildly over-inclusive.
The FATF blacklist is a more relevant reference. Issued since the year 2000, the blacklist names countries FATF deems to be noncooperative in the global fight against money laundering and terrorist financing, labeling them noncooperative countries or territories.
FATF’s initial blacklist of 15 countries included the Cayman Islands but acknowledged that “the Cayman Islands has been a leader in developing anti-money laundering programmes throughout the Caribbean.” The report also noted that the Caymans had “demonstrated cooperation on criminal law enforcement matters and uncovered serious cases of fraud and money laundering otherwise unknown to authorities in FATF member states.” Eventually Cayman was removed from the list.
The OECD also maintains a blacklist of countries it considers “uncooperative tax havens.” Cayman is not on that list either.
Culture Of Compliance
Indeed, the International Monetary Fund and the Caribbean Financial Action Task Force have made recommendations to the Cayman Islands which have resulted in a strong financial culture of compliance.
By 2009, the IMF and the CFATF concluded in follow-up reports that Cayman implementation of financial regulations and supervisions was broadly in line with international standards and that the current regime was “now of a good standard.”
The Egmont Group is an internationally recognized network of financial intelligence units which collects data globally on suspicious or unusual financial activity. Cayman’s Financial Reporting Authority has been recognized as meeting all Egmont stringent standards for financial intelligence operations.
The Tax Justice Network is a research and advocacy group with a self-professed focus on “the world of offshore tax havens.” On the Financial Secrecy Index, the United States ranks above (meaning worse than) the Cayman Islands.
FATF in its 2016 report on the United States found many deficiencies and gave the U.S. the lowest possible rating for its efforts to prevent criminals from using companies and corporations to hide money and carry out illicit and fraudulent activities such as the Madoff and Petters Ponzi schemes
Thus, U.S. politicians who continue to discredit Cayman notwithstanding the country’s significant achievements in the area of compliance are giving into a misguided stereotype and perhaps need to recall what those living in a glass house ought not do.
Compliance with international regulations, guidelines and norms in order to combat money laundering and terrorist financing is indisputably vital. Also important is an accurate and truthful assessment of the Cayman Islands’ significant cooperation and efforts toward the achievement of these goals.
In our recent interview with former Cayman Premier McKeeva Bush, we learned of his plans to continue working toward educating the outside world. Sadly, perception is often misconstrued as reality notwithstanding however baseless the perception may be.
Mary Barzee-Flores is a partner at Stearns Weaver Miller Weissler Alhadeff & Sitterson in Miami specializing in commercial litigation and is a former Miami-Dade circuit judge. Read McCaffrey, counsel with Liddle & Robinson in New York, specializes in international dispute resolution.

IMAGE: Mary Barzee Flores

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