Cayman National ‘regrets’ affiliates’ tax scandal

| 10/03/2016 | 17 Comments
CNS Business

CNC Board of Directors (L-R, back) Clarence Flowers Jr, Leonard N. Ebanks, Stuart Dack & Bryan A. Hunter, (L-R front) Truman Bodden, Sherri Bodden–Cowan & Nigel Wardle

(CNS Business): Cayman National Corporation (CNC) was quick to pass off revelations that its subsidiaries had, for more than ten years, assisted US account holders in massive tax evasion as an historic issue that impacted lots of other banks around the world. In a statement Thursday the corporation said the conduct was a thing of the past, while the Cayman Islands Monetary Authority said it would “consider the implications of the matters raised in the investigation”. The financial services ministry said the illegal activity was “greatly disappointing” and was more fuel for the popular “misperceptions about the Cayman Islands”.

The details of the massive tax scandal were revealed Wednesday when Cayman National Trust Co. Ltd (CNT) and Cayman National Securities Ltd (CNS) pleaded guilty in a New York court to helping US clients evade more than $130 million in taxes, for which the CNC affiliates would be paying fines of around US$6 million.

In a statement issued Thursday the corporation said the outstanding investigations by the United States Department of Justice were now settled. Having revealed in its annual report in December that it was paying fines in excess of CI$5 million, it had already accounted for the payments.

Cayman National Corporation did not at that time detail the extent of the tax evasion allegations but emphasised the historic nature of the tax dodging scandal, even though it had continued until 2011.

Officials also noted that the corporation itself was not subject to a period of monitoring or probation under the deal and there was no requirement to close any line of business. CNC that the group and Cayman National Bank had been investigated and the US DoJ did not pursue a case against either entity. Stuart Dack, CNC’s Chief Executive Officer and Chairman of both CNS and CNT, said the corporation was pleased to reach a conclusion to the matter.

“Many financial institutions around the world, including others in the Caribbean, have been under investigation for their roles in US tax compliance matters. Upon learning of the investigation relating to CNS and CNT, we fully cooperated with the US authorities to the extent possible, including approaching the authorities before they approached us,” he said.

“The admitted conduct of CNS and CNT is generally a historic issue. We deeply regret that the conduct occurred, and the conduct does not continue today. We have policies, procedures and staff now to ensure that this conduct, which assisted US taxpayers in evading their own tax obligations, does not occur again,” he added, stating that he was looking forward to re-focusing on providing the best-in-class financial services from and within the Cayman Islands.

Meanwhile, CIMA, which was the regulator of the two entities, said it was not at liberty to discuss any specifics regarding the affairs of the licensees it supervises.

“We will of course consider the implications of the matters raised in the investigation by the US authorities, as revealed in the court proceedings, within the scope of our regulatory mandate,” officials stated, adding that it had been assured that they “should have no adverse impact on the solvency of Cayman National Bank Ltd”.

The financial services ministry was considerably more concerned about the issue than either Cayman National Corporation or CIMA appeared to be, as officials pointed to implications for the entire financial services sector.

“It is greatly disappointing that two of our financial services firms helped US citizens to engage in illegal activity by evading their tax responsibilities,” ministry officials stated. “We recognise that this settlement may give the public more reason to believe popular misperceptions about the Cayman Islands but in truth, it does not speak to the hard work that we have invested, through more than 15 years of continuous global tax cooperation efforts, to minimise and combat illicit activity.”

The ministry stressed that the jurisdiction does not aid or condone the shirking of tax responsibilities by citizens of other countries.

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Category: Finance, Financial Crime

Comments (17)

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  1. james says:

    Just disgraceful that any country has the right to sue the subjects of another sovereign state for not enforcing their laws.
    And even has the right to sue them retrospectively for things that were not even illegal when they were done.

    The USA are no better than school yard bullies picking on little kids but don’t have the guts to stand up to the other tough kids in the school yard like Russia, China and Saudi Arabia.

    • Anonymous says:

      No one said you had to do business in US$ or use correspondent banks in the US.
      Just set up a bank that uses CI$ only, oh sorry it is not a real currency but is backed by US$, how ironic.

  2. Johnny Rockefeller says:

    Anyone with half of a brain would know that the banks registered in the Cayman Islands are not here because they want to do business with the locals. Does anyone really know how many “banks” are registered here? I would suggest that the primary reason so many banks are here is to “help” foreigners with their “tax problems”. I wish I had those kinds of tax problems! Money talks!!!

  3. Annon says:

    It sound like resignations should be in order at CIMA. Chiefs, Heads and above. Sloppy sloppy work for the past 5 years. Your incompetence have caused much stress to Cayman public due to job loss in the industry. Financial houses pulling out and no new business. It’s high time your bottom dollars are affected. Your families should experience the uncertainty of jobs just as the rest of us out here who are affected by your incompetence.

  4. George says:

    The board, the auditors who audit the bank and CIMA should be ashamed. Reputation of these islands is lost forever now.

  5. Anonymous says:

    Did CNC hold their due diligence team, president in these companies responsible?

    Why does CIMA seem to be failing in its duties especially during last 15 years, time to check if staff simply given jobs as favor vs competence?

    Can’t hear of any employees being held accountable and probably have so called high qualifications and experience

  6. Anonymous says:

    Where is CIMA? Admission of aiding in tax evasion. The lack of urgency is directly linked to the composition of the Board of Directors. The guys at Caledonian needed a few Bushes and Ebanks on the Board to see a different result.

  7. Gabriel Bush says:

    Compare this to what happened to Caledonian:

    Cayman National Trust and Cayman National Securities were accused of a decade long, criminal tax evasion scheme that totaled $130m and even continued between 2008 and 2011 in the face of criminal prosecutions of Swiss banks for the same thing. However, this prosecution related to historical business that apparently is no longer an issue.

    Caledonian Securities and Caledonian Bank (as its custodian) were accused in a civil action that the SEC even admitted from the outset that they had no knowledge of whether or not Caledonian was trading as principal or agent, for a total amount of $38M. This also related to a historical business at Caledonian that was terminated a year earlier.

    Cayman National was approached quietly and came to a reasonable settlement (likely with the help of CIMA) that involved pleading guilty to the crime. Life moves on for them.

    Caledonian was subject to a surprise freezing order of all of their US assets in advance of any investigation, the consequence of which was to destroy the business (likely WITHOUT the help of CIMA). A year later and despite the recent (and transparently self interested) parting shot of the SEC and after the US Federal Court judge in the case lambasted the SEC on two different occasions for their “negligent” handling of this case, Caledonian settles for a net $0 payment and no admission of any wrong-doing. But they killed the business.

    This is completely unreasonable and I wish the ownership of Caledonian the best of luck in their upcoming lawsuit against the SEC.

  8. Anonymous says:

    Can anyone confirm who CIMA our regulatory body is being regulated by? Who oversea their decisions. I hope and PRAY the final buck does not stop in their hands. CIMA have a way of using this shield ” we can’t disclose our findings”. And months later US authorities can come to our shores sanction and close our banks or cause our banks to close.The same institutions you CIMA regulate and collect large fees and tell the public/ world these institutions are good to do business with. I have a problem with that!! The world have a problem with it!!! How can we continue to trust your judgments. We the clients lose money based on your careless decisions which probably lie in the hand of your junior analyst and your chief and heads are too busy taking care of their person affairs. How does FRA, FCU and tax office fit in this equation? Mr. Panton, I know you should be tired of the embarrassment also. I have all faith that you are addressing this matter soon. You have worked hard to keep Cayman in good light over the past 2 years.

  9. Jotnar says:

    ” it does not speak to the hard work that we have invested, through more than 15 years of continuous global tax cooperation efforts, to minimise and combat illicit activity.”

    It does however speak to the consequences of a “soft touch” regulatory regime, which excludes whole categories of firms and individuals from on island supervision and an apparent lack of any investigatory or disciplinary activity against regulated entities., other than collecting fees and striking firms off for non payment. Can anyone recall CIMA ever having disciplined anyone for a breach of its regulations? There is not a lot of credibility in running a regime where you rely entirely on self certification and the filing of audit reports.

    • Anonymous says:

      The reason Cayman National (“CN”)was in trouble was because they signed a Qualified Intermediary (“QI”) agreement with the Inland Revenue Service (“IRS”). That is not ‘policed’ by CIMA. The reports filed by CN with the IRS and the related Know your Customer (“KYC”) would have been audited by a local “Big 5” accounting firm at least every 3 years – a requirement of the QI . This has nothing to do with CIMA and their audits, including KYC.

      The QI auditors would have been happy to see KYC on the Cayman entity (company or trust) and would not have looked through to the beneficial owners, as that was not a requirement of the QI agreement.

      Yep, it was a loophole so now the good old USA has come up with FATCA which wants details on the beneficial owners and anyone with control over an account (eg signatories). The mistake I assume CN made was to market this loophole ie give advice to Americans on how not to pay USA tax.

      Yes I’m a tax accountant and this loophole was obvious to all since 2000. You can be sure it wasn’t only Cayman National hiding their beneficial owners. I bet there are plenty hiding behind Delaware companies:

      http://www.taxhavenusa.com/ushaven.html

      • Anonymous says:

        Thank you. Finally a well informed comment from someone who is not venting their frustration and grinding their personal axe against Cayman.

      • Anonymous says:

        You probably should know that the IRS is the Internal Revenue Service, not Inland, Mr Tax Accountant.

        • Anonymous says:

          You are correct. I mistyped as I’m originally from the other side of the world where the tax body is “Inland Revenue” (Hong Kong and that was also the name in the UK until 2005).
          FYI it’s Miss Tax Accountant. Very sexist of you to make assumption that a tax accountant is a Mr.

        • Anonymous says:

          It was typo

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