An ill advised suggestion

| 24/02/2009

It seems that every few months the suggestion resurfaces that a small ad valorem tax be levied on transfers in and out of accounts held at Cayman licensed offshore banks.

Several years ago a small fixed per debit transaction duty/fee (now CI 25 cents) was introduced for local accounts, as the stamp duty revenue from cheques was declining with the increased use of debit cards (rather neatly this new charge is also applied to debits for payments by cheque so the Government is double-dipping).

This fixed fee is regularly debited from local customer current accounts here (i.e. the customer pays) and paid over to the Cayman Islands Government by the local retail (Class A) banks. When I last enquired of the Portfolio of Finance and Economics here, the amount raised annually by the Government is useful but relatively modest as a percentage of the total revenues of the Islands.

The suggestion that this levy be extended on an ad valorem (i.e. a percentage) basis to the international bookings of the offshore (Class B) banks licensed here is risky for several reasons. First, the number of offshore licensees and their bookings is already declining and, post the financial crisis, is likely to decline further. Second, the levy would probably be difficult to enforce and collect from these banks as most have no physical presence or record-keeping here and the transactions are activated and recorded by bank officers located in say London or New York. Third, to attempt to require them to programme and remit the necessary payments to Cayman on a regular basis is likely to produce a swift and unhelpful reaction. The transactions will simply be booked elsewhere (and there are indeed options), the branch perhaps closed and the licence fee lost. Finally, there would also be the potential for wider reputational damage to the Cayman Islands, as no longer being “offshore bank friendly”.

We should continue to encourage and welcome quality offshore banks, their annual licence fee of $57,000 or so  and the related beneficial spin offs and leave it at that. There are various ways that the financial position of these Islands could be improved. The proposed ad valorem levy, however superficially attractive, is not one of them.

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Category: Viewpoint

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  1. Tim Ridley says:

    The Group of Thirty is indeed a high powered and influential body. Their most recent report of January 2009 sets forth some very reasonable and compelling recommendations for the reshaping of the global financial world post the recent meltdown. Overall, I do not believe Cayman should have any major difficulty with the implementation of those recommendations. The problem is that international politics usually gets in the way of sensible recommendations and instead produces results that are often prejudicial and unfair to those, like Cayman, who have little leverage and rarely have a seat or a vote at the negotiating table. 

  2. Anonymous says:

    follow the work of “the group of thirty” .
    Cayman is in for challenging times and this group will be the driving force behind the international finance communities decision making

  3. Anonymous says:

    the real players in international fiscal and monetary policy

    One need look no further than the elitist group known as the Group of Thirty to see where regulation is headed. The G7, G20 and the USA will look to them for advise….

    This powerfull cosortium has been around for many years, and Cayman would be well served to follow both their projects and their findings.

  4. Anonymous says:

    One should be more concerned with the elitist “group of thirty” and how they wil drive the international regulatory marketplace. This non profit group has more influence than any other consortium.

    Cayman could bemefit by understanding who the real powerbrokers are

  5. Jah Roots says:

    Could Ridley say which of the Banks lack a physical presenceon the islands.  Our LAws and Regulations prohibit banking entities fromhving a licence and not a physivcal presence.  I therefore suggest dat if these names are known or the statement is indeed factual then a report should be filed with CIMa.  Toodledo!!

    • Anonymous says:

      "Second, the levy would probably be difficult to enforce and collect from these banks as most have no physical presence or record-keeping here and the transactions are activated and recorded by bank officers located in say London or New York".

      Jah Roots, I think Tim’s point relates to the exception in the definition of place of business for those Class B licensees which are a subsidiary or branch of bank licenses in a country or territory outside the Islands (which are the majority). See below

      S. 6(12): "place of business", with reference to any bank applying for the grant of a "B" licence (other than a subsidiary or branch of a bank licensed in a country or territory outside the Islands), means having such resources (including staff and facilities) and such books and records as the Authority considers appropriate having regard to the nature and scale of the business.

    • tim ridley says:

      Class B (offshore) banks may be licensed here without a physical presence provided they are part of a woldwide banking group with recognised home based supervision. To put that in perspective, a US bank such as Bank of America,or a Swiss bank such as Credit Suisse, may have a branch licensed in Cayman without having a staffed office here.It is required to have an authorised agent, typically a major bank/trust company that has a significant physical presence, such as Close Brothers or the Royal Bank of Canada Trust Company.

      The great bulk of Cayman licensed banks do not have a physical presence.In the aggregate they produce significant direct revenue for the Government, good fee income for their authorised agents and professional advisors (who in turn employ staff, rent offices, buy homes, visit restaurants etc etc…i.e., the spin off)and enhance the reputation and credibility of the Islands as a financial services centre. Yet these banks impose very little burden or demand on the physical infrastructure of the Islands, such as schools, hospitals and roads.

      Inevitably, there are occasionally problems with a very small few of these licensees.But that is a manageable risk and cost.

      Overall,their being licensed here is a very cost effective and environmentally friendly way of raising revenue.

      Further information about all this can be found in the CIMA 2008 Annual Report on its website.

  6. Tim Ridley says:

    There are a number of things that Cayman (both private sector and Government) could and should be doing better to nurture, enhance, strengthen and protect our financial services platform (which I continue to believe should be able to survive and thrive even in the face of the current tsunami coming at us). An overview of my suggestions (copyrighted 1500 words!) will appear in the next issue of the Cayman Financial Review in early April, by which time we will also see what the April 2 meeting of the G20 produces for the offshore world.

    CIMA has followed the right gameplan for several years in its approach to international intitiatives and threats. The good assessments (IMF and CFATF) and the ever increasing number of MOU’s and other cooperative and assistance arrangements are evidence of this. However, CIMA’s ability to proactively deal with the many facets of the international game of chess that is under way is limited by the resources it has available to it based on the funding received from Government.  




  7. Anonymous says:

    Tim, thanks for the clarification. I now understand where you are going with your commentary and I anxiously wait for part 2 (solutions).

    I was not referring to solutions to the problems that government has created, I understand that fiscal policy lies in their hands. The solutions I am referring to are the global threats to our offshore financial industry. The leaders of France, the UK and the US have all stated their intent in this regards. My simple question is….have the best financial and legal minds in this country conducted a SWOT analysis of the current global environment and do we have a plan to address the challenges that lie ahead?

    My pointis, if our financial industry no longer exists, any discussion on the demerits of taxing it will be purely academic.


  8. Knal N. Domp says:

    Tim honey, the day that the Cayman Islands govenrment levies an ad valorem transaction fee (tax) on transfers of funds, is the day that that our arrogance over the invincibility of our product compared to other offshore jurisdictions, becomes so manifestly stupid that we should all pack up and move to the the Seychelles… the food’s better there, at least, and the apartments cheaper.

  9. Tim Ridley says:

    I think Viewpoint comments should be brief and on point. So possible solutions are for future submissions. These do not necesarily have to be innovative, they can simply be commonsense and achievable.

    The reference to CIMA is unclear to me. CIMA is a financial services regulator and (as agent for the Government) the manager of the currency and the reserves that back it (as to which there can be no material complaint). It is not a Central Bank, and thus has no control over monetary policy (as long as the currency is tied to the US dollar, our monetary policy is effectivelyin the hands of the US Federal Reserve).  Further, it has no executive role in the development, setting and implementation of fiscal policy, e.g. the Islands budget, revenue and expenditures. That is the responsibility of the Financial Secretary (the Portfolio of Finance and Economics), Cabinet and the Legislative Assembly. 

    CIMA regularly makes submissions and recommendations to Government on matters that fall within the scope of its statutory functions and to the extent it is funded and able to do so. It is the prerogative of Government to decide whether or not to accept these recommendations. Full details of CIMA’s activities are contained in its excellent and informative Annual Report which can be found on its website.

  10. Anonymous says:


    you said "there are various ways that the financial position of these Islands could be improved" – but you neglected to mention any of these solutions. Your letter would be more helpful to all if you had offered some innovative solutions to our financial problems.

    Please note that I said INNOVATIVE….which means that it shouldn’t be solutions that you could’ve implemented when you were the chairman of CIMA. 

    • Anonymous says:

      Neither did he (TR) infer that these solutions were connected with banking or had to be innovative.

      Should CIG ever find its way to spending money sensibly rather than just throwing it away in the multitudinous ways it presently does (and has done for years), that alone would be a significant way that the Islands’ financial position could be improved. 

      The chairman of CIMA, even an ex-chairman, is wholly impotent when it comes to government showering money on rubbish/wasteful projects.