Archive for August 25th, 2009

Milestone in transparency

Milestone in transparency

| 25/08/2009 | 5 Comments

The recent rhetoric of the G20, OECD and other international bodies includes official corruption as a critical global problem. This is then tied back to “tax havens” and “bank secrecy”, i.e. offshore financial services centres (OFC’s) are active participants in processing the proceeds of official corruption, particularly corruption in the impoverished third world.

Such a sweeping generalisation is for the most part misdirected. And the track record of some major countries in fighting corruption has been patchy. In 2008, the UK received a very poor review from the OECD criticising the UK’s commitment to effectively combating corrupt practices.

There are clear signs that the climate has been and is changing. In 2007, the World Bank launched its Stolen Assets Recovery (StAR) Initiative to assist poor countries recover stolen state assets (the World Bank report highlights the 2001 Peruvian Montesinos corruption case where the Cayman Islands assisted, froze and repatriated US$33 million in short order).

Even the UK has been shamed into action (arresting some of the minor players in the infamous Bae Al Yamamah Saudi fighter contract) and introducing a new Bribery Bill in March 2009. Recently, the US (which has always been more active than most through enforcement of its Foreign Corrupt Practices Act) has significantly increased its assault on international corruption. Media reports indicate that there are between 93 and 120 investigations underway, the great majority of which involve US companies but some involving companies domiciled in the UK (whom the US considers weak on foreign corruption), Bermuda and also (a tiny number) in the Cayman Islands. Interestingly, there appear to be no cases directly involving companies in China, India or Russia which suggests perhaps a “political” component to the selection process.

Clearly, reputable OFC’s do not condone or wish to be party to such illegal activities (whether local or cross border) as they are unsupportable for a myriad of very good reasons that speak for themselves. So it is essential to ensure that the defences and structures are in place to deter, detect and punish those involved in public corruption, whether local or overseas.

The Cayman Islands are no exception. The 2008 Anti-Corruption Law (AC Law) is to be brought into effect on 1stJanuary 2010. This action is part of the commitment of the Cayman Islands to enhancing and encouraging good governance and transparency in government. It is a commitment that is matched by actual implementation in the public sector. The AC Law complements the Complaints Commissioner Law (now 5 years in operation) and the Freedom of Information Law (that went live in January 2009).

The AC Law gives effect to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and the United Nations Convention against Corruption. It draws on a wide range of legislative precedents (from Australia, Canada, the United States and various African and Asian countries, but interestingly not the United Kingdom). The result is something of a smorgasbord.

Anti-corruption commissions (and their equivalents) elsewhere do not have a uniformly strong and successful track record. The success stories most often cited are the Independent Commission Against Corruption (ICAC) in Hong Kong, the Corrupt Practices Investigation Bureau (CPIB) in Singapore and the ICAC in New South Wales (Australia). The many failures are in places such as Tanzania, Zambia and Zimbabwe (to list but a few). The conclusion is that such commissions will fail in countries that do not have other state institutions that function properly, where the rule of law is weak and where the political and civil society support and commitment are lacking.

Applying these tests, the commission should be effective in Cayman, given the open and strong democratic framework and the expanding institutional infrastructure to support it. But the devil is in the details so a closer look at the legislation is warranted.

The AC Law sets out extensive local (replacing and expanding the existing offences in the Penal Code) and international corruption offences (with various penalties up to 14 years imprisonment) and provides for the establishment of an Anti-Corruption Commission (Commission). The range of local offences (covered in 10 sections) includes:
*bribery of public officials (which is very broadly defined and includes for instance a jury member and his family)
*fraud, breaches of trust, abuse of office, non-disclosure of conflicts of interest, failure to report offers of bribes to or solicitations of bribes by public officials and members of the Legislative Assembly (LA)
*frauds on the Government
*selling of and dealing in public offices
*illegal secret commissions and
*making false statements to the Commission

Bribery of a foreign public official (which is also very widely defined and includes those with international organizations) is also made a specific offence but with safe harbour provisions to permit normal commercial practices to continue provided proper records of any payments are kept.

Importantly, where an offence is committed by a body corporate with the consent or connivance of or due to the neglect of a director or officer (including a shadow director or officer) or member, in the case of a member managed company, both the body corporate and that person are guilty of the offence. Conspiracy, attempts and incitement to commit an offence and aiding, abetting, counseling and procuring the commission of an offence under the AC Law are themselves also crimes.

The Cayman Islands are a British Overseas Territory and thus (even under the new Constitution approved at the 2009 referendum, but not yet in force at the time of writing) considerable powers are reserved to the Governor (a career Foreign and Commonwealth Office diplomat who traditionally serves for four or so years) under the constitutional arrangements. In particular, he (and thus the UK) is responsible for defence, internal security and foreign relations. He also appoints the Police Commissioner, Complaints Commissioner, Auditor General, Attorney General (AG), the judiciary and certain other senior public officials. Consistent with this approach, theGovernor has responsibility for appointing the Commissioners under the AC Law.

The Commission will consist of five members – the Police Commissioner (who is also the chairman), the Complaints Commissioner and the Auditor General all ex officio and two other persons appointed by the Governor and who must be retired judges of the Grand Court or Court of Appeal, retired policemen, retired justices of the peace of magistrates or retired attorneys-at-law. These appointed members hold office for five years and may be removed by the Governor at any time after consultation with the AG.

The Governor has the power to give directions to the Commission as to the policy to be followed in the performance of its functions in matters that concern the public interest. He is also responsible for:
*general oversight of the anti-corruption policy of the Government
*overseeing and inspecting the work of the Commission
*appointing the officers and employees of the Commission and setting the terms, conditions and remuneration of their appointments
*seconding public officers or senior police officers to hold office with the Commission
*reviewing the Commission’s annual reports
*promoting effective collaboration between regulators and law enforcement agencies (vital to ensure efficient cooperation between the Commission, the Monetary Authority (CIMA), the Financial Reporting Authority (FRA) and the Police)
*monitoring interaction and co-operation with overseas anti-corruption authorities (OCA’s)

The Commission has the following specific functions and duties:

*to receive reports regarding suspected corruption offences and to investigate the same
*to receive and request, analyse and disseminate disclosures of information concerning suspected corruption offences
*to detect and investigate suspected corruption offences (including attempts and conspiracies related thereto)
*to receive from OCA’s disclosures of information regarding corruption offences
*to publish annual statistical information regarding disclosures made to and by it
*to advise the Governor on the work related to the AC Law, particularly matters affecting public policy or the priorities to be set by the Commission
*to submit an annual report to the Governor reviewing the work related to the AC Law (it is noteworthy that the AG and the Chief Secretary are also mandated to make an annual report to the Legislative Assembly (LA) on the enforcement of the AC Law)

It also has the power

• with the consent of the Grand Court to issue freezing orders regarding bank accounts and other property for not more than 21 days at the request of an OCA or where it receives information under the AC law and is satisfied there is reasonable cause to believe that the request or information relates to the proceeds of corruption
• after consultation with the AG, to issue guidelines with respect to operational procedures regarding disclosures made to the Commission
• after consultation with the AG, CIMA and the private sector, to issue guidelines and precautionary procedures to assist in the practical application of the safe harbour provisions regarding bribery of foreign public officers
• to disclose information received by it with respect to corruption to CIMA and to such other institutions or persons in the Cayman Islands as may be designated by the AG (presumably to include the FRA)
• to disclose to any OCA information relating to conduct that constitutes a corruption offence or would constitute such an offence if it had occurred within the Islands in order to report the possible commission of an offence, to initiate a criminal investigation regarding the matter or to assist with any investigation or criminal proceedings with respect to the matter
• with the consent of the AG, to enter into arrangements with OCA’s for the purposes of performing its functions and duties

It is important to note that the Commission does not have prosecutorial powers. If it concludes from its investigation that a person has committed an offence, it must refer the matter to the AG for action as he thinks fit. Any proceedings for a corruption offence must have the consent of the AG; however, a person may be arrested, charged, remanded in custody or released on bail before that consent has been given.

Offences are extraditable and the Proceeds of Criminal Conduct Law (2007 Revision) (now the Proceeds of Crime Law) applies to the proceeds of corruption offences in the same way as other serious crimes, such as money laundering. There are some interesting provisions covering agent provocateurs, protection of informers and witnesses/accomplices and persons living beyond their means. There are the expected provisions for arrest without warrant, orders for production of materials and information and search warrants, with protections for legal privilege and specific overrides of the Confidential Relationships (Preservation) Law.

The AC Law has an important extraterritorial component. A person commits an offence not only if the conduct constituting the alleged offence occurs wholly or partly in the Islands but also

• if it occurs on board a Cayman Islands registered ship or aircraft wherever located
• where the conduct occurs wholly outside the Islands, if the person holds Caymanian status or is resident in the Islands or is a body corporate incorporated under Cayman Islands law

Regrettably, the AC Law has certain weaknesses that may affect the Commission’s independence and effectiveness, and thus its credibility locally and internationally. The primary ones are

• the Commission is not a separate statutory body (c.f. CIMA). This is out of step with current international thinking (e.g. in Australia), although the much older equivalent bodies in Hong Kong (ICAC) and Singapore (CPIB) are also not separate bodies
• the 3 ex officio members are all public officers appointed by the Governor and are already part of the government infrastructure in their capacities as Police Commissioner, Complaints Commissioner and Auditor General. And the Police Commissioner is the chairman of the Commission. The AC law is to deal with official corruption that could occur (and with no disrespect to the holders of the offices) in the very government institutions headed by these officials. The Commissioners should all be independent, and ideally some of them should be from outside the Cayman Islands
• the conflict of interest provisions with respect to the Commissioners are far too narrowly drafted and refer only to pecuniary interests
• the power to appoint the officers and employees of the Commission is vested in the Governor and not the Commissioners themselves. At first glance, that may seem unobjectionable, but it may result in a dysfunctional institution with a lack of normal internal controls, enforceable performance standards and accountability as the Commissioners cannot select or fire the staff of the Commission
• there is no provision for participation in policy formulation, independent oversight or accountability of the Commission other than by and to the Governor, i.e. there are no checks and balances involving the LA (except the annual report to the LA) or broader civil society in Cayman (other than possible and indirectly through the two “independent” Commissioners appointed by the Governor)
• there is no specific educational or advisory component, i.e. that the Commission should improve community (both public and private sectors) awareness and understanding of corruption, transparency and good governance through education, advice, codes of conduct, training, conferences, media campaigns and the like
• there is too much deference to the AG throughout the AC Law. He is an appointed memberof the executive branch of Government (and is currently a voting member of the Cabinet). His role thus reduces the independence of the Commission
• the Governor’s general powers under the AC Law are very extensive and perhaps unnecessarily so. For the AC Law and the Commission to be fully effective much depends on the level and manner of his attention and proactiveness. So much reliance on one individual seems inappropriate
• there is no express provision for funding of the Commission

It is to be hoped that the new Government and the Governor will revisit these issues (and some other technical points) at an early date.

Overall, and despite the deficiencies outlined above, the AC Law represents a very significant and welcome development for the Cayman Islands. Curiously, it has to date received little attention locally or internationally. That will surely change on 1st January 2010, if not before. The public sector (including the political wing), the private sector (particularly political parties and those with business relationships with Government departments and entities) and the community as a whole should pay careful heed to the extent of the local offences (some detailed training of both sectors is highly desirable). Those in the financial services industry should review carefully the overseas offence (bribing a foreign public officer), the business practices of their clients and their own internal policies and procedures to ensure compliance.

This commentary was first published in the July 2009 issue of the Cayman Financial Review

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Pirate website back online

Pirate website back online

| 25/08/2009 | 0 Comments

(BBC): File-sharing website The Pirate Bay (TPB) is back online after its former internet service provider (ISP) was forced to take down the site. Stockholm district court made the order on 21 August, saying ISP Black Internet would be fined 500,000 kronor (£43,000) if it did not comply. The court order was the result of legal action brought against The Pirate Bay by the music and film industry. However, TPB was back online within a few hours with a new carrier. In a press release, parodying Winston Churchill’s famous speech of 1940, the Pirate Bay team said they would keep the site running "for years if necessary".

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SA athlete’s gender saga

SA athlete’s gender saga

| 25/08/2009 | 2 Comments

(BBC): Tests have revealed Caster Semenya’s testosterone level to be three times higher than those normally expected in a female sample, BBC Sport understands. Analysis prior to the World Athletics Championships and the 18-year-old’s big improvement prompted calls for a gender test from the sport’s governing body. It was made public only hours before the South African, who has been backed by her nation, won the 800m in Berlin. A high level of the hormone does not always equate to a failed drugs test. But the news will only increase speculation surrounding Semenya.

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Stanford to stay in jail

Stanford to stay in jail

| 25/08/2009 | 0 Comments

(Bloomberg):  Texas financier Allen Stanford accused of swindling investors in a $7 billion Ponzi scheme, must remain jailed until trial, which could be a year away, a federal appeals court ruled. A three-judge panel of the U.S. Court of Appeals in New Orleans has denied an appeal by Stanford to be released on bail so he can assist in defending investment fraud charges that could keep him in prison for the rest of his life. Stanford, 59, is accused of leading a fraud scheme involving the sale of certificates of deposit through Antigua- based Stanford International Bank Ltd.

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Former T&C premier accuses Brits of military coup

Former T&C premier accuses Brits of military coup

| 25/08/2009 | 51 Comments

(Turks and Caicos Sun): Former Premier Michael Misick described the British takeover of the Turks and Caicos Islands as a “military coup”, saying that the UK even had a war ship in Turks and Caicos Islands waters. In a press release issued on Tuesday August 18, 2009, Misick strongly criticised British Prime Minister Gordon Brown and the British Government for suspending parts of the Constitution of the Turks and Caicos Islands and imposing direct rule on the country for at least two years. Misick was also highly critical of the Advisory Council that was announced by Governor Gordon Wetherell and he called on all Turks and Caicos Islanders to “unite and fight against the occupation of the foreign invaders”.

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Overseas Territories Review has published a commentary today:

Re-Colonising the Colony: Direct British Rule in the Turks & Caicos Islands

Missick pictured above with ex-wife acress LisaRaye.

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Record high scholarship awards face review

Record high scholarship awards face review

| 25/08/2009 | 24 Comments

(CNS): According to GIS, 126 students have received government scholarships for overseas tertiary education this year and a further 99 have received funding to attend courses at UCCI with 62 more pending acceptance by the local college. Government estimates it will spend around $9.5 million in overseas and local scholarships this year and has said that how scholarships are awarded is to be reviewed. It did not say if cuts were planned to spending levels but the terms of reference indicate that the criteria for awards could change with the prioritisation and realignment of scholarship awards.

"We are fully committed to investing into our young people’s potential,” said Rolstin Anglin, the Minister for Education, adding that the number of approvals this year represents an increase of more than 50% over last year’s figures. “Well-educated Caymanians who can hold their own and compete on both global and local levels are the key resource that will ensure the future well being and advancement of our country."

GIS stated that on top of the 126 new overseas scholarship awards, government is paying for another 200 students to continue their education and what will be come 161 new scholarship recipients at UCCI will add to the existing 311 students already receiving government funding.

Around $2.5 million of government’s $9.5 million scholarship spending is on new overseas scholarships; around $4 million for students continuing their overseas studies; and $2.9 million for all local scholarship funding requests. 

In the wake of complaints that scholarship decisions had been delayed as well as cheques for existing students, the minister said the administrative and approval processes for government scholarships would be reviewed with the goal of improving the system for next year’s scholarship applications. He noted that there are urgent areas in the approval process that need improving.

“It’s evident that the criteria and processes for scholarship approvals need to be refined and more clearly communicated. There are a lot of unwritten policies surrounding the process, which leads to confusion and inequities,” Anglin added.   

This is partly caused by the fact that the Scholarship Unit is understaffed; only one person manages the entire process. “This delays and limits the services that can be provided,” the minister pointed out.

He said the main goal was to get the scholarship programme integrated into an overall human capital development strategy and would add career counselling, and ongoing support for applicants and recipients, is under consideration as well. “

GIS said that the ministry was establishing a Scholarship Services Review Committee, which will be required to report to the Education Council by mid-December 2009 in order to ensure implementation and communications to applicants in advance of the 2010 round of scholarship awards.

The committee’s chair will be Joy Basdeo, a former permanent secretary in the Ministry of Education, and its terms of reference include recommendations for the revision of the criteria for awarding overseas and local scholarships as well as ways to prioritise scholarship funding and awards in order to align the grants with Cayman’s economic and societal needs.

 It will also look at a new Scholarship Secretariat Service, in order to address gaps in services for scholarship recipients and ensure that the scholarship programme contributes to human capital development. Effective business process and procedures will also be examined, in order to ensure that the application and approval processes are effective, efficient and timely.

The terms of reference also include examining how greater collaboration with relevant agencies and other scholarship-awarding bodies can be achieved as well as a mechanism to identify recommended or preferred institutions for various tertiary programmes, GIS stated.

Students who have not been contacted regarding their overseas scholarship applications or who made late applications are asked to call Head of the Investors in People Programme Philip Scott on 244-2416. Enquiries about local scholarship applications should be directed to the registrar at the University College of the Cayman Islands (UCCI). Applicants can also check for advisories on the UCCI website and the UCCI Student Information System.   

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Pension freeze confusion

Pension freeze confusion

| 25/08/2009 | 25 Comments

(CNS): Government has still not confirmed if it will be implementing a pensions holiday or a pensions suspension or whether the civil service’s pension contributions will be made for August. CNS understands that although salary slips will show that 12% contributions (andnot 0.25%) have been made to the civil service pension fund for this month, chief financial officers may be directed not to write cheques for the 12% to the pension board. There are now two fundamental questions relating to the freeze of civil servants pensions that have not been answered. One is whether the payments will ever be paid back and the second is how and when the suspension can begin.

Chief Secretary Donovan Ebanks (above) said that the plan was still a work in progress and that the memo sent by Financial Secretary Ken Jefferson last week to chief financial officers was merely guidance and that the freeze may now have to start in September. Ebanks also noted that under the Public Management and Finance Law, paying back the pension and taking off the balance sheet for the 2009/10, may not be possible. “Various things have still to be set in motion,” he added saying that the questions would be answered by the end of the month. Although CNS contacted the financial secretary regarding the freeze paybacks and the start date, he referred CNS back to the chief secretary.

According to Auditor General Dan Duguay, if this temporary cessation of payments is a holiday it will still have to be accrued in this year’s budget as indicated under the Public Management and Finance Law. Given that the government’s goal in freezing pensions is to reduce the deficit to have to still accrue the payments would defeat the purpose.

Although Leader of Government Business McKeeva Bush said at a televised press briefing on 10 August that government would be obligated to repay the missing contribution sometime in the future, CNS understands that on Friday, 21 August, Bush called CaymanCrosstalk, a local radio phone in show, and stated that he now “hoped” government would be able to pay it back sometime in the future but that it may not be able to do that after all.

Duguay told CNS on Monday that, as the government auditor, he hopes that it will soon be made clear to everyone what government’s intent is regarding the freeze, whether it is a holiday or suspension. “If this is a holiday and the payments are going to be made sometime in the future then it must be accrued now. If it’s a suspension of benefits then it doesn’t have to be accounted for,” he said.

James Watler, President of the Cayman Islands Civil Service Association, also said it’s time to make it clear that this is a pension suspension and not a holiday as he believes it cannot be paid back. He noted that while his members were more than willing to help reduce the deficit and recognized that sacrifices needed to be made, he remained unconvinced that freezing pensions was the way to go. Moreover, Watler said that the subject had not been raised at the civil service meeting held recently at George Hicks to discuss reductions in government spending.

Ebanks told CNS, however, that people should not be surprised by the move because if they believed the government could reduce the expected deficit without some significant cuts they were living in a fairytale world.

The memo from the Financial Secretary’s Office to chief financial officers last week indicated that the freeze will be in the form of a reduction from 12% contributions to a nominal payment of 0.25% starting from August. The decision to make a nominal payment rather than a freeze means government will not have to change the law, merely the regulations. However, these changes have not yet been made and government departments are due to send cheques to the public service pension board before the end of the month as pay slips are indicating that the normal 12% contribution has been made.

Consequently, the dilemma facing chief financial officers is that, while the financial secretary’s office is asking them to budget for 0.25%, the Pensions Board will be looking for cheques representing contributions of 12%.

Duguay said that until the regulations are formally changed his office would continue to make the 12% contributions to the Pensions Board. “My office will and I would expect all government chief financial officers to follow the law, which states that pension contributions are made at 12%. We have not been informed of any change to the 6 and 6 percent contributions,” he said. “If and when the changes are made to the regulations then we will follow the new rules regarding the law.”

Bush told the press on 10 August that the ‘pensions holiday’ was one policy measure that could reduce the anticipated $133 million budget deficit by as much as $49million.

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