Cayman’s compliance vastly superior to Panama’s

| 05/04/2016 | 7 Comments

Panama Papers(CNS Business): The biggest tax leak in history, which revealed how a law firm in Panama helped thousands of people, including a number of world leaders, evade tax and hide money offshore, has up ramped calls for the UK government to increase the pressure on the British overseas territories (BOTs), including the Cayman Islands, to accept a central register of beneficial ownership. The British leader of the opposition has even raised the threat of imposing direct rule over the BOTs if they don’t comply.

Developments over the weekend, which saw 11 million documents leaked from law firm Mossack Fonseca to the International Consortium of Investigative Journalists, exposed Iceland’s Prime Minister Sigmunder David Gunnlaugsson, who has since resigned, the President of Argentina Maurico Macri, the President of Ukraine and numerous rulers in the Middle East for the use of shell companies to hide money. Friends of Russian President Vladimir Putin and even the father of UK Prime Minister David Cameron were also implicated in the leak, which has stunned the media and onlookers around the world.

Local industry figures were quick to outline the stark differences in the compliance and know-your-client (KYC) regime between the Cayman Islands and Panama. Cayman is not explicitly mentioned in the Panama Papers leak but the fact that thousands of British Virgin Islands companies were used in structures designed to conceal ownership keeps the pressure on Cayman and the other UK offshore centres, even though their compliance standards are clearly far superior to Panama.

With the Panama leak coming just a matter of weeks before a major meeting between Britain and its overseas territories on tax avoidance and the introduction of the UK’s proposed beneficial ownership register, Labour Party leader Jeremy Corbyn today said the government should consider imposing “direct rule” on British overseas territories and dependencies if UK tax law is not being complied with.

Richard Addlestone, partner with law firm Solomon Harris, said the Panama Papers leak raises a number of key issues that have long been discussed, including the need to combat illegal tax evasion (which is  being tackled with rafts of legislation), rights of privacy and whether legal tax avoidance using offshore structures should be shut down for the greater good.

These elements need to balanced, he said, against views on how crucial the offshore world is to the free movement of capital and the enhancement of returns for financial institutions, such as pension funds, which likely need the tax neutral platform that offshore centres provide more than ever, in the search for yield to fund ever-increasing pension liabilities as people live longer.

Jeremy Corbyn waded into the policy debate, suggesting that the British overseas territories encourage tax avoidance on an “industrial scale, to the detriment of public services in the UK”. However, Addlestone said that charge is easily answered.

“Cayman maintains its position on the right side of the law. Until onshore governments change their tax rules to outlaw what is currently legal tax avoidance, I suspect little will really change for Cayman so long as it continues to comply with global standards on tax transparency and information exchange,” he said.

As Cayman industry participants highlighted the lack of any sort of compliance and regulatory standards in Panama, their position was underscored by OECD Secretary-General Angel Gurría, who said the Panama Papers revelations have shone the light on Panama’s culture and practice of secrecy, describing the country as the last major holdout that continues to allow funds to be hidden offshore from tax and law enforcement authorities.

“Just a few weeks ago, we told G20 finance ministers that Panama was back-tracking on its commitment to automatic exchange of financial account information,” the OECD statement continued. “The consequences of Panama’s failure to meet the international tax transparency standards are now out there in full public view. Panama must put its house in order, by immediately implementing these standards.”

Against the backdrop of the international drive for a public register of beneficial ownership information, Cayman Islands lawyers noted that the British constitution was founded on the right to privacy, which needs to be brought into the debate to strike the right balance. Instead of signing up to the UK’s proposed public register, Cayman is proposing a system with a single point of access where a Cayman-based law enforcement officer will be able search the beneficial ownership data collected by licensed service providers in Cayman.

The major advantage of this system is that Cayman service providers actually verify the information, which would not be done by the proposed UK system.

Prime Minister Cameron was forced on the defensive today by the Panama leak to say his wife and children do not benefit from offshore funds.

“In the context of the push for a public register of beneficial ownership, the irony of number 10 Downing Street deflecting questions on the links of David Cameron’s father to offshore accounts, as revealed in the Panama Papers, by claiming it is a private matter has not gone unnoticed,” Addlestone said. “His office has subsequently responded to those questions to an extent but what is interesting is that when push comes to shove, Cameron does not seem all that keen on the idea of the world knowing about his or his family’s personal financial affairs — and how many of us would be?”

He continued, “None of this should scare us in the Cayman Islands. We are already compliant with OECD standards on automatic tax information exchange. Cayman is really quite different to Panama in terms of reputation, regulatory regime, compliance with global standards, quality and sophistication of law firms, other service providers and our regulator. The bulk of Cayman business is investment funds, many of which have institutional investors.

“Contrast this with the business of high net worth individuals and private wealth which is more associated with Panama. The fact that Mossack Fonseca is perhaps able correctly to state that it has never been accused or charged in connection with criminal wrongdoing in Panama is an indictment of the regulatory landscape in Panama. This is in sharp contrast to the environment in Cayman.”

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Category: Finance, Financial Crime

Comments (7)

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  1. McCarron McLaughlin says:

    Very Interesting not one US citizen/company was mentioned in these papers, guess the Justice Department held those back in order to blackmail them in the future.

    Anyone the believed these papers were released without the US Ok is living in CooCoo land. Not one American mentioned, this is definitely a diversion in my opinion to get the public to be believe keeping funds offshore is bad, when it is perfectly legal.

    • Anonymous says:

      that has since changed. Press as of today are mentioning US citizens. The story will take time to unfold because of the volume of documents leaked. Cayman is not one of the countries used but lets hope none of our PEP’s are included those names that will come out.

  2. Anonymous says:

    Interesting to see how many other offshore centres were used for PEP’s etc by Panama but Cayman was not one of them. I think that is an impressive outcome and one that should be utilized to demonstrate where we are today as a well run financial centre. This article in CNS is in stark contrast to the editorial yesterday in the compass. They missed the boat on the real story that spoke well of Cayman and managed to subtly sully it in the Panama story. There was a real opportunity to show how we shone in contrast to the BVI that showed up as the number one jurisdiction that Panama used. I like David but that was disappointing and I hope he somehow corrects that.

  3. Anonymous says:

    A strong regulatory structure my look good on paper but without the teeth to back it up the whole thing is just window dressing. That’s the problem in the Cayman Islands – little or no actual enforcement. When things do go wrong it always seems to be outside agencies who pick it up and deal with it.

  4. Anonymous says:

    Publicly accessible ownership registers are now coming whether Cayman wants that or not.

    • Anonymous says:

      Goody. It will be interesting to see the look on regulators faces when they discover that the owners of law firms and Cayman companies are not who they have been told they are. Oh wait, they know that already.

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