Experts warn of fallout from Panama Papers

| 10/04/2016 | 0 Comments

CNS Business(CNS Business): Cayman may not have been named yet in the Panama Papers, but the scandal is only just beginning and with many more documents yet to be analysed and released in May, there are no guarantees that the jurisdiction will escape unscathed. But even if it does, the impact of the papers could still present serious challenges to the local financial services sector, some experts have warned.

Industry experts, many of whom asked to remain anonymous, told CNS Business that they are worried about the wider implications the leak will have on onshore financial institutions, which are increasingly concerned about the pressure to avoid using offshore centres.

Tim Ridley, a former chair of the Cayman Islands Monetary Authority (CIMA) and one of the founders of Cayman’s offshore sector, warned that the Panama Papers leak will increase the de-risking by banks, which is going to present a serious problem for Cayman.

De-risking threatens US dollar access for Cayman Banks

The recent problems it faced over money transfer issues, when US partner agencies put pressure on local banks to quit doing business with remittance firms, was an example of the serious impact external forces can have. However, that may prove to be the tip of the iceberg.

Ridley warned things could get a lot worse. He said that the Canadian banks may now be under greater pressure to pull out‎ of offshore financial centres altogether, including the Cayman Islands. “We are going to see bricks and mortar banking go and with it the traditional employment of middle class Caymanians,” he warned.

While there could be new opportunities, even as a result of the Panama fallout, the growing local skills gap, which Ridley said is getting worse, will mean offshore employees may find it harder and harder to find new posts and getting into the shrinking and increasingly specialised offshore industry will be even more challenging for newcomers to the sector.

Several other local experts have told CNS that the risks associated with using what are perceived as tax havens by US and European financial institutions are increasingly outweighing the benefits. Claims by Cayman and other jurisdictions that they are far more transparent than even the City of London or the US state of Delaware may be true but they also have almost no traction against the much stronger worldwide perception that Cayman is a tax haven.

“Pointing the finger at onshore jurisdictions and touting our credentials is not going to make the perceived fears go away,” said one local finance expert who spoke with CNS on the grounds of anonymity. He noted that as superior as Cayman’s standards might be, it makes no difference to current perceptions and the fallout from the leak could have “extremely serious implications for Cayman’s golden goose”. He said the depth of the problems on the horizon are not being properly considered by the government or the wider industry, which continues to work in silos.

While the Cayman government and Cayman Finance repeat the mantra that this jurisdiction is transparent and dealing in completely legitimate financial transactions, the recent revelations regarding the fines levied against Cayman National and now Butterfield Bank for helping US taxpayers evade US taxes demonstrate that the jurisdiction is not immune to questionable behaviour by employees in specific institutions, and nowhere is foolproof.

Another local financial source told CNS Business that the actual leaking of the Panama Papers illustrates the real dangers of a central beneficial register, should Cayman be forced down that road. The challenges that are coming for offshore jurisdictions to protect data are going to be greater than they have ever seen, she said, adding that Cayman will not be able to prevent the register being hacked by determined individuals.

The offshore legal expert also warned that the increasing dangers for financial institutions from disgruntled staff keen to expose bosses they believe have mistreated them is not being considered in the modern IT age. This was illustrated by the Julius Baer case, when Rudolf Elmer, a former employee in the Cayman Islands, took documents when he left the bank and gave them to the German press, leading to controversial charges against Baer regarding his breach of Swiss secrecy laws but also a probe by the US Treasury into the bank and its clients who were avoiding US taxes.

“There has been no discussion about this employee risk issue,” the expert told CNS Business, as she warned that it may not be an isolated incident as more storm clouds gather for the local financial services sector.

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Category: Finance, Financial Crime

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