Cayman National to pay $5M in US tax evasion probe

| 18/12/2015 | 29 Comments
CNS Business

Cayman National

(CNS Business): Cayman National Corporation is expecting to part with some $5 million in fines to the US authorities in relation to what the bank called “past wrongdoing” by two of its companies, Cayman National Securities and Cayman National Trust Company. In a report on the bank’s website covering its fourth quarter report for 2015, CNC revealed that the companies have been under a criminal investigation by the United States Department of Justice for potential violations of US criminal law regarding tax evasion.

Despite turning a healthy profit, the board of directors decided “it would not be prudent” to offer a dividend to its shareholders in light of the expected fine settlement for their alleged role in facilitating tax dodging.

Although CNC has not revealed the details of the criminal activity, it said it had cooperated fully with the authorities as far as it was able within the laws of the Cayman Islands and it was continuing to negotiate with the US law enforcement authorities regarding the fine. The bank said although things were still not settled, it expected to accrue a $5 million “expense” which was not accounted for in the unaudited financial report.

However, the firm stressed that no wrongdoing has been alleged in respect to CNB (Cayman National Bank Ltd) or the parent company, Cayman National Corporation Ltd.

CNC also stated that, as a result of the investigation, it it was still in the process of taking the “necessary remedial action” to address the issues within the companies which have been the subject of the tax probe.

The investigation does not appear to have been in the public domain and there has been no information from CIMA, the local regulator.

Cayman National 2014-2015 4th quarter report

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Category: Finance, Financial Crime

Comments (29)

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  1. Anonymous says:

    Perhaps I’m just naive, but why does any foreign bank, whether based in the Cayman Islands, Switzerland, Germany or Brazil for that matter have any obligation to help the USA collect taxes?

    How about if Saudi Arabia, where charging interest is outlawed under Sharia laws, demanded that international banks stopped charging interest as it violated THEIR laws?

    Just big bully America throwing their weight around against small countries because they can.

    • Anonymous says:

      You certainly don’t have to as long as you do not need to transact any type of business in USD, The US Govt can make life very difficult for US correspondent banks. Also, the CI$ is backed by US$.

  2. Anonymous says:

    They got rid of a lot Caymanians, I knew if we waited long enough we would see them be publicly embarrassed ? Wonder how those arrogant managers feel now!

    • Debbie says:

      I can’t believe someone has blamed the civil service for this. Wow! Private sector banks getting fined, private sector fuel companies ripping us off on fuel prices , private sector phone companies ripping us off on data and Internet speed and I could go on.

      Right now my civil service is looking really good.

  3. Anonymous says:

    I think you will find that this is part of the US crackdown on banks who they say have assisted US citizens evade tax by opening accounts for them. Most publicity has so far gone to Switzerland where over 60 banks have settled with the US for fines of varying amounts.

    In Cayman, apart from CNC, Schroders have settled for their Cayman subsidiary in a fine of In excess of $10 million. You can expect more Caymab banks to follow.

  4. Anon says:

    Pretty amazing that this was kept hidden all this time….those holding shares should demand answers.

    • Anonymous says:

      Quite right. CNC paid regular interim dividends each September without skipping a beat until this year. We shareholders need better answers to those given in the full-page ad in Thursday’s Compass. Board of Directors, please call an extraordinary general meeting for shareholders to give a better explanation.

  5. Anonymous says:

    So it wasn’t the money transfer business why they stopped taking Cayman currency, this was the issue. I would be interested to know more about these allegations and whether it had to do with local or persons resident overseas. What I found interesting in this whole money transfer debacle is that it gave folks the opportunity to once again malign Jamaicans and other expatriates, while at the same time excusing others. CNB needs to come clean on this issue, if only because they owe it to their shareholders.

    • Anonymous says:

      Educate yourself and don’t write such ignorant things that are not factual. This had nothing to do with the Bank, which is a compete separate legal entity.

      • Investore says:

        It has everything to do with the Bank and its management and directors . These “separate legal entities ” are 100% owned by the Bank and have the same overseeing executives so there is no excuse .The management and directors of CNB knew exactly what was going on in these entities and are now trying to cover themselves of any blame or responsibility .This is just the latest in a series of mishaps for CNB since Ivan and yet again it is the shareholders who must and will suffer not the top management or directors who never take responsibility while they are collecting their fat pay cheques .This is so sad that it risks verging on pathetic . But nothing will change such is the nature of Cayman

  6. Anonymous says:

    Let’s get this straight. Caledonian was owned by foreigners. When the US government came knocking on the door, CIMA and the local government did nothing to help them and in fact, may have facilitated Caledonian’s demise. CNB is locally owned and when the US government came knocking on the door, somehow CNB is given a chance, likely facilitated by CIMA, to defend itself and reach a settlement (frankly, a reasonable outcome).

    This is not going to help foreign investment into Cayman. When people ask why the financial services community is slowly shrinking in Cayman, this might answer that question.

    • Anonymous says:

      You are incorrect as to “financial services is slowly shrinking in Cayman”. Only the international banking aspect is shrinking, but the investment funds industry is increasing. The Big Four accounting firms’ audit groups are all at all time highs, the financial legal industry is booming, and fund directorship/fiduciaries industry has substantial growth.

      • Anonymous says:

        and ask Immigration where the fund administrators, who employed a large percentage of Caymanians, are now based because it’s not in Cayman now. Immigration made it too difficult for them to do business here

      • Anonymous says:

        i have no idea what youre smoking -but I need some and I need it now!!! The number of funds are not increasing and those that are being incorporated are smaller start up funds. The fund industry is a much smaller pie and there are now many more service providers than ever before in the history of Cayman, including law firms and lets not forget that there are many more jurisdictions competing against Cayman for that same pie.

  7. Anonymous says:

    Meanwhile, the liquidators of Caledonian just announced that they’ve settled with the SEC and there will be NO PAYMENT by Caledonian.

  8. Anonymous says:

    So if this fine for criminal wrongdoing is greater than the SEC settlement for Caledonian it kinda begs the question of why CIMA hasn’t shut them down?

    This isn’t an allegation, CNC has accepted that this is criminal activity on their part

    One rule for one and one rule for another CIMA?

  9. Anonymous says:

    Look at the parallel: CNB is accused of criminal activity by the Department of Justice around the same time that Caledonian is accused of a mere regulatory violation by the SEC. CNB is apparently given a chance to quietly settle (as this story indicates), but Caledonian has all of their assets frozen without any investigation and their business gets blown up.

    How is this proportional? How is this fair? How is this reasonable?

    What role did CIMA play in these two situations? Any regulated entity would have to contact CIMA as soon as they found out that they were subject to an action like this. CIMA must have been aware.

    Why the two completely different results?

    • Anonymous says:

      CNB would be in the same position as Caledonian with respect to CIMA if CNB depositors start withdrawing their money (ie, a run on the bank). If more than half of the depositors withdraw their money CNB doesn’t have the liquid assets to fund the withdrawals (as around half of CNB’s assets are illiquid mortgages and loans receivable). If that happens, CNB as well might have some form of controllership imposed by CIMA.

      A run on any bank can be deadly.

    • Anonymous says:

      I am not a banker, lawyer, finance professional etc. But to answer your question and if you had read the article you would have seen where it is not CNB being investigated but one of its subsidiaries. It was Caledonian Bank directly. In a legal world a big difference. So in my layman’s view if Caledonian did not engage in trading directly maybe they could have avoided the shutdown? Worth a try.

      • Anonymous says:

        This is a fair point. But CIMA have indicated that they were aware of or working with the SEC for 18 months on the Caledonian matter. The question should then be, if CIMA was in fact aware of this, then how did it allow the SEC to arrive at a freeze of all of Caledonian’s assets without warning? I agree that once the freeze was in place and the run on the bank started, CIMA was pretty much stuck. But we must question: (a) why didn’t CIMA talk to the SEC at first to manage/prevent the 100% asset freeze?; (b) what (if anything) did CIMA do to intervene once the freeze was in place? The record shows that Caledonian tries to get the freeze lowers to $10m, but the SEC refused. Did CIMA call the SEC and ask them to reduce the freeze? Doubtful. These are the areas where CIMA is likely at fault and should be made to answer.

        Here’s a telling fact: since Caledonian went down, and more particularly, since the truth about the SEC’s overreach has become clear, we have had no statements issued by CIMA. Why? If they stood by their actions or could defend those actions, they’d probably say so. CIMA screwed up and they know it. They cost Cayman 65 jobs and massive reputation all damage. They’re clearly hoping that this story just fades away. Shameful behaviour for our own regulator.

  10. Anonymous says:

    So Caledonian ends up settling their case with the SEC for ZERO dollars given the weakness of the case but is shut down by CIMA.

    CNC is facing CRIMINAL charges and accrues $5M in fines and CIMA does nothing!
    Wow, local politics at play for sure.

    • Anonymous says:

      CIMA didn’t shut down Caledonian. There was a run on the bank after the asset freeze and charges by the SEC, and CIMA put into place controllers to allow order to take place. Caledonian was doomed once the SEC charges came out (wouldn’t you have withdrawn all your money as soon as you could before you could have potentially lost it all?).

      • Anonymous says:

        It is correct that CIMA did not shut down Caledonian. In fact the Caledonian Board shut it down themselves that morning when the run on the bank started. CIMA had no choice but to appoint a controller later that afternoon.

        • Anonymous says:

          That’s incorrect, the board only placed, or tried to place the bank into voluntary liquidation only after CIMA appointed the controllers

          and why?

          because they foresaw that EY had no relevant experience, that liquidation would quickly follow on from controllership and as a result EY would dither and drain away monies that should instead be distributed to creditors

          I think events of the last 6-9 months have shown they were correct in their evaluation of EY

          • Anonymous says:

            10:39 in relation to the argument as to who acted first to close the doors of the bank it was the Bank itself. It was not CIMA. It doesn’t really matter though because Caledonian could not convince the SEC to change the freeze so it was all a forgone conclusion and they were doomed at that point. What happened to Caledonian was a failure to mitigate or manage a forseeable risk and it caught up with them. Yes it hurt Caymanians and the fault for that lays entirely with management. The SEC does not have to consult with CIMA or advise them prior to taking action in their own country. If the SEC alleges there has been securities fraud and convinces a judge how does CIMA argue it isn’t so? Any suggestion that CIMA is at fault or could have stopped what happened is nonsense.

            • Judicial Review NOW.... says:

              this reads as if CIMA is a bystander, unable to do anything as a foreign regulator makes erroneous allegations against Cayman licensed bank, CIMA undermined local management from being able to deal with the SEC and were more than happy just to place it into controllership – the run on the bank was merely the excuse they were looking for

              This comment from a previous story on the ‘Caledonian affairs’ is even more telling now…

              There should be a judicial review on CIMA shortcomings

              “Well said. But I think the situation with respect to CIMA is actually even worse than this. If you check the affidavit of Cindy Scotland filed on October 11, you will see that she gives a detailed account of all of the communications that CIMA had on the Caledonian matter over that fateful weekend. Her affidavit refers to communications between CIMA and Caledonian and within CIMA itself. At no time does Cindy Scotland mention any discussions that CIMA had with the SEC during that weekend while Caledonian was being attacked. It’s as though there were no communications between CIMA and the SEC at all. But this is in fact not the case.

              Fast forward to June, just after Judge Pauley lambastes the SEC for the first time. The SEC files amended pleadings, including an affidavit by Gerald Hodgkins, another SEC attorney. In this SEC affidavit, they make specific mention of their conversations with CIMA that occurred on the morning of Tuesday, February 10 – the day that CIMA shut Caledonian down. This SEC affidavit says that one of the reasons that the SEC refused Caledonian’s settlement offer that Caledonian had made the night before, was because the SEC believed that, based on their conversations with CIMA, even if the SEC accepted the settlement offer, it was likely that CIMA was going to shut down Caledonian anyways.

              All of this begs two important questions:

              1) Why did Cindy Scotland omit a very important discussion with the SEC from her otherwise very detailed affidavit? The conversation happened (according to the SEC). Was Ms. Scotland afraid that the Caymanian public would demand to know what (if anything) CIMA did to intervene to help Caledonian?

              2) Did CIMA actually contribute to Caledonian’s demise by leaving the SEC with the impression that CIMA was intent on shutting Caledonian no matter what happened?

              I think a public enquiry into CIMA’s actions (or inactions) is necessary.

  11. Anonymous says:

    Key here. PAST WRONGDOINGS. This is at least a decade old.

    • Anonymous says:

      yet Cayman National are still in the process of taking the necessary remedy action? On a “decade old’ issue? Surely that just makes things worse?

    • Anonymous says:

      quote “it was still in the process of taking the “necessary remedial action” to address the issues”

      doesn’t sound like a decade old issue, or if it was then they’ve been guilty of wrongdoing for the last 10 years, so which is it?

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