Activists apply pressure over financial secrecy

| 18/10/2011 | 1 Comment

(CNS): Global Financial Integrity is just one of a number of organisations putting increasing pressure on Finance Ministers in G20 countries to move beyond “piecemeal regulations” and adopt comprehensive reforms to create greater transparency and accountability in the world’s financial system. In reaction to the recently released communiqué from the G20 meeting in Paris last week, GFI said it was disappointed and called for comprehensive measures that would increase overall transparency and accountability for multi-national corporations and financial institutions.

GFI said that there had been a strong contribution from civil society to the G20 process providing insight and feedback on the progress of both the development and anti-corruption working groups as well as the overall financial reform process.

Groups like the End Tax Haven Secrecy campaign have also provided mechanisms for citizens to speak-up and take action in this process. To date, more than 31,390 people have signed the global petition calling on the G20 to end tax haven secrecy when it meets next month in Cannes.

Anti-globalisation and anti-capitalist protesters are planning four days of demonstrations around the G20 leaders summit in Cannes next month despite a massive security operation to keep them out.

GFI director Raymond Baker said the finance minister’s communiqué ahead of Cannes failed to mention country-by-country reporting, automatic exchange of tax information, disclosure of beneficial ownership, or strengthening of anti-money-laundering laws. “These measures are key to creating global economic development, and financial stability. What we have here are piecemeal fixes to a systemic problem,” he added.

GFI notes some progress with the introduction of US legislation, including country-by-country reporting in the Stop Tax Haven Abuse Act and beneficial ownership disclosure in the Incorporation Transparency and Law Enforcement Assistance Act. “The G20 member nations should support these measures and adopt legislation similar to them in their own countries,” Baker said.

Among many other issues in the communiqué the ministers underlined the importance of comprehensive tax information exchange and encouraged the work in the Global Forum to assess and better define the means to improve it.

Anti-globalisation and anti-capitalist protesters are planning four days of demonstrations around the G20 leaders summit in Cannes next month despite a massive security operation to keep them out.

See G20 communiqué

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Clients can be protected from TIEAs, say trust experts

| 18/10/2011 | 3 Comments

(CNS): A panel of trust experts from Cayman, Guernsey, the UK, Switzerland and the Bahamas examined whether the right to privacy for trust clients could continue in light of the push by international bodies to live under regimes of disclosure during an industry conference last week where the issue of confidentiality was the top talking point for delegates. Despite the tax information agreements signed by offshore centres in recent years however, there were still ways that trust professionals could protect beneficiaries and confidentiality because of the hoops tax authorities needed to go through to extract information, the conference heard.

The central paradox for trustees, according to Shan Warnock-Smith QC, was how to reconcile the principles of confidentiality and disclosure, which were both expected to be observed by trust professionals. Warnock-Smith QC mediated a panel at Mourant Ozannes first conference of its kind last week where she described the issue as a balancing exercise.

Panelist Robert Shepherd from MourantOzannes in Guernsey said onshore governments’ requirement for money had resulted in the UK tax collectors beefing up their staff recruiting 2,200 more tax inspectors.  He said that the onshore governments have tried two ways to get at funds – by getting offshore institutions to disclose more and alternatively by circumventing offshore jurisdictions by getting investors onshore to tell them what they know.  Tax Information Exchange Agreements (TIEAs) had been created by onshore governments to try and force offshore institutions to provide more information which would then bring in more money for them, Shepherd believed.

On the face of them TIEAs appeared “fearsome” with one tax authority forcing another to disclose information on foreign nationals, Shepherd noted, but actually there was a good deal that trust professionals could do to protect beneficiaries and honour obligations of confidentiality, citing a number of hoops that tax authorities needed togo through to extract information. For example, the onshore authority must initially identify the tax payer in question about whom they require the information and equally they must have exhausted all local powers to gain information first.

Julien Martel, from Butterfield in the Bahamas said that the issue about TIEAs was a “storm in a tea cup”and the issue did not come up frequently in conversation. He went on to say that the issue of confidentiality in the light of increasing burden of disclosure was actually a global issue and not just a question for international financial centres, which were in fact better positioned to deal with the conflict because of their flexibility.

Confidentiality was an issue for clients but it was not stopping business, he added.
Alan Milgate, from Rawlinson & Hunter in Cayman said that in certain cases trustees wanted to disclose specific information to beneficiaries and that it was the duty of the trustee to try and establish the costs and benefits for disclosing the information. Some beneficiaries were better able to process information than others, he said, and added that deciding how muchinformation to give out to beneficiaries was sometimes a difficult exercise, because not giving information bred suspicion. Effort needed to be put into explaining and planning the structure of a trust up front, he said.

Ziva Robertson from Withers said that there was a big difference between the political will to be seen to be creating TIEAs and the actual economic effect of their implementation.  She also said the situation could sometimes be exacerbated by instances of privacy laws which explicitly prevented a trustee from providing the beneficiary with information.  Trusts were becoming increasingly complex and often spanned a number of jurisdictions, with confidentiality meaning different things in different jurisdictions and meaning different things in times of war and in times of peace, she observed


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Expert reveals latest ways villains clean up dirty cash

| 16/10/2011 | 4 Comments

(CNS): Financial services industry institutions need to look out for a slew of new methods criminals are using to exploit the system and launder money, turning the proceeds of crime into clean money, according to Antiguan anti-money laundering specialist Kem Warner, from KAW Management Services. Facebook, on-line gaming, phone cards, pre-paid bank cards, football clubs and insurance premiums are just some of the avenues criminals use to launder their dirty cash and keep one step ahead of regulators and the law enforcement officials who are often too far behind the latest methods to stop them, the expert revealed during a conference last week.

“Criminals use the virtual world of online gaming through social media such as Facebook to create different personas for themselves or use other individuals to front for them. They then buy credits or virtual money to play these games and then redeem their purchases on the secondary market,” Warner told CNS at the seventh annual Global Compliance Solutions conference, held this week at the Marriott Beach Resort, as he identified many web-based and technology-driven tricks used by criminals.  “They then receive a payment or draft in exchange for this redemption thereby legitimising the proceeds of criminal conduct.”

Mobile phone technology presents another area of activity for money launderers, Warner said, with criminals using phone cards to transfer payments often across country borders, with the excess cash on these cards being redeemed for clean payments or drafts.

“Criminals love this type of money laundering because the technology moves so quickly,” he stated. “At the same time the regulators are too slow to keep up with the criminal activity, only catching up when it is too late and the criminals have laundered their money and moved on.”

ATM and prepaid cards usually used to allow access for students and family members to accounts are also being exploited.  Criminals migrate to these types of systems,” Warner said. “They set up a network of individuals and there is no trace of the identity of the individual withdrawing the funds. This allows the flow of cash across borders without a paper trail.”

Human trafficking was another issue on the rise, with migrants being illegally moved out of West Africa and the proceeds being invested in legal businesses in a bid to “clean” the funds.

“Such individuals running these operations try to set up offshore arrangements and so offshore jurisdictions need to be aware of this activity.” Warner warned.  “They might be using legitimate people to front these businesses so it is essential to know who the final beneficial owner is behind accounts. It all comes down to monitoring systems for due diligence and risk management.”

Money laundering could even be found within the world of football, particularly with the ownership of clubs in Europe and the UK. “Football clubs are not bound by the same corporate governance structures and duty of care as other corporate structures,” Warner said. “Proper due diligence is not always carried out on clubs. So the criminals use their ill-gotten funds to purchase clubs. The clubs go on to purchase players and expand and then the criminals eventually sell the clubs at a premium.”

Warner also pointed to a particularly worrying trend in money laundering with the use of non-life insurance policies to wash funds through to legitimacy. He detailed how criminals would take out an insurance policy for a marine vessel, for example, and then make a claim against that policy each month.

“The claim would always be lower than the premium, so the insurance company would not see any red flags raised as they were still making a profit and the withdrawals would be too small to raiseconcern,” he explained.

Warner said that this sector of the financial service industry had not been so well regulated but in Antigua at least the law was catching up in this regard and insurance providers in Antigua were all required to take out a licence with the relevant authorities, which required them to carry out proper due diligence and Know-your- Customer processes.

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US judge stops suit against Madoff liquidator

| 14/10/2011 | 0 Comments

(Bloomberg): A lawsuit against the liquidator of Bernard Madoff’s firm in the Cayman Islands was stopped by a US. bankruptcy judge who said Maxam Absolute Return Fund Ltd.’s action was “a clear attack on this court’s exclusive jurisdiction and a blatant attempt to hijack the key issues to another court,” according to a court filing. Trustee Irving Picard sued Maxam for about $100 million of money taken out of the Ponzi scheme. Maxam Absolute Return Fund Ltd. was found in violation of the so-called automatic bankruptcy stay for commencing a lawsuit in the Cayman Islands to declare that the fund has no obligation to return $25 million to the trustee for Bernard L. Madoff Investment Securities LLC.

The dispute traces its roots to December, when the Madoff trustee sued the Maxam fund as the subsequent recipient of $25 million taken out of the Madoff firm within 90 days of bankruptcy. In July, on almost the same day it answered the complaint in bankruptcy court, Maxam filed suit in the Cayman Islands seeking a declaration that there is no liability to return the $25 million, Lifland said in his opinion.

Lifland ruled that the suit in the Cayman Islands was “void ab initio,” meaning it was a nullity from the very beginning and nothing that happened in the case gave the Maxam fund any rights that could be enforced in the U.S. The bankruptcy judge directed Maxam to withdraw and dismiss the suit in the Cayman Islands by today.

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Cayman to share tax info with Argentina

| 13/10/2011 | 0 Comments

(CNS): The Cayman Islands government signed its 27th Tax Information Exchange Agreement on Thursday morning at a ceremony in George Town. This latest tax agreement which signed by the Cayman Islands premier was with the Republic of Argentina and sign on that country’s behalf by Dr Ricardo Echegaray,  Head of the Federal Administration of Public Revenue, who was visiting Cayman along with Under Secretary of Public Revenue, Luis Maria Capellano. “The Cayman Islands recognises the value in strengthening its relationships with Argentina and other Latin American countries,” said McKeeva Bush.

“Signing this agreement underpins our commitment to building this relationship and boosting the Cayman Islands’ reputation in the Latin American region, thereby ensuring that we remain a favorable and transparent international financial centre,” he added.

Also attending the signing ceremony were Members of the Legislative Assembly; senior officials from the Ministry of Finance and the Cayman Islands Monetary Authority; and members of the Cayman Islands International Tax Cooperation Team. Attending on behalf of Argentina were the Adviser to the Federal Administrator, Dr Guillermo Michel; and a representative from Institutional Communications, Mr Federico Hausvirth.

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Investors not happy with Cayman fund governance

| 13/10/2011 | 3 Comments

(CNS): A survey of institutional hedge fund allocators’ views on the issue of corporate governance in funds, decribed by the firm as comprehensive, has found that 63% of those who took part in the research were unhappy with governance in Cayman domiciled funds and want improvements. The report by Carne Group, a global investment firm, revealed that many of those interviewed who said they were happy said this was because of the due diligence and oversight that they carry out themselves. The report found 83% of investors rated fund governance as ‘extremely important’ and 91% of allocators said poor governance would cause them to avoid investing in a fund, even if it met performance criteria.

Over the spring and summer of 2011, Carne Group surveyed the largest allocators to hedge funds globally. The firm approached the top 100 allocators and received responses from allocators accounting for over $600 billion in allocations, approximately 30% of all hedge fund AuM. The research revealed that 87% of allocators said that governance had become much more of an issue since 2008.

Examining four jurisdictions, the Cayman Islands scored the lowest ‘happy’ rating in the report compared to Ireland and Luxemburg, where around 15% and 20% of respondents were unhappy. Around 45% or respondents said they were unhappy with the level of fund governance in the Channel Islands. The authors of the report found that, given a choice, respondents would like to be able to place additional reliance on Cayman fund boards but are currently unable to do so.

“By contrast to the Cayman Islands, allocators are extremely satisfied with governance in both Luxembourg and Ireland, with high approval ratings for both jurisdictions. Satisfaction with the Channel Islands was mixed,” the authors stated.

The report is particularly topical coming in the wake of the decision of Justice Jones in the Weavering case, in which directors Stefan Peterson and Hans Ekstrom were found to be guilty of wilful neglect.

Former CIMA chair Tim Ridley described the report as fascinating and said it underscores how increasingly important good governance and transparency are becoming in the hedge fund business and in the offshore arena generally. It highlights how investors and their advisors are exercising greatly enhanced scrutiny of the structure and governance of hedge funds.

“This scrutiny clearly extends to the role and performance of the directors,” Ridley noted. “This is to be welcomed. But one can quibble with the list of the institutions that participated — many of whom are clearly embarrassed by the 'ask no questions' Madoff related failures.”

Ridley also wondered to what extent these institutions and their clients would recognise the next shoe to drop. “If the limits on and performance expected from directors are to be as listed in the report, it is absolutely certain that there will be a significant shortfall in qualified and willing persons to serve as directors and the fees expected by those directors will dramatically increase," he warned.

The report also revealed the problem of directors having too many directorships, a point raised frequently here in the Cayman Islands. The authors found that allocators overwhelmingly agree that the issue of the number of total directorships held by certain independent directors must be addressed. The leading concern, the report said, was that independent directors sitting on fund boards simply have too many directorships, particularly in the Cayman Islands.

Chris Johnson, MD of Chris Johnson Associates, who has often pointed to this issue, said Carne should be commended for taking the initiative to do the research and for preparing such a concise, topical report.

“It sheds light on the perceptions of investors on directors in the Cayman Islands and three competing jurisdictions. Notwithstanding that Cayman was adjusted the least palatable jurisdiction with regard to the thoughts of investors on directors of Cayman funds, it is clear that their main concerns extend to the number of directorships held by each individual and the relationship between the management and the directors.”

The report found that almost 60% of the investors felt that one individual should not hold more than 20-30 directorships, whilst over 30% felt the number to be 30-40 directorships.

“It is interesting to note that in Ireland the law only allows an individual to hold 25 appointments except in group situations,” Johnson said. “Such a number falls well short of those holding over 100 appointments in the Cayman Islands … CIMA and the industry need to address this as a matter of urgency to ensure that Cayman maintains its credibility in the industry. I recommend that they use this report and their own resources to take care of any other shortcomings that are mooted in the report before it is too late.”

The report notes that investors have been lobbying the Cayman Islands Monetary Authority for change as it becomes evident that the governance issue is acting as a drag on the flow of new investment into hedge funds here.

CNS contacted the local regulators, who said that the authority is aware that corporate governance is an extremely important component for hedge fund investors and the financial services sector as a whole.

“It is an issue that CIMA itself has been focused on for some time,” a spokesperson for the Authority said. “As we have publicly stated before, the authority has been conducting an in-depth review of the regulatory framework for corporate governance. This has taken some time because it is not just restricted to corporate governance of funds, but extends to all CIMA regulated entities in every sector for which CIMA is responsible.”

CIMA said it has been examining areas such as the ‘fit and proper’ framework, how directors exercise their responsibilities, the extent to which legislation codifies these responsibilities and issues of transparency.

“We have conducted comparative assessments of other jurisdictions’ standards, and taken into account the recent enhancement of international standards and requirements that are being promoted. We have also been doing a cost-benefit analysis of certain requirements, for investors, service providers, us as the regulator, and the jurisdiction as a whole. It is anticipated that there will be some adjustments to the regulatory framework as a result of this work,” the spokesperson revealed. “We expect that these will begin to be rolled out by 2012 after the necessary consultative and government review process.”

Don Seymour, the vice present of the Cayman Islands Directors Association and MD of dms Management, described the report as “a good effort” and he said it was always valuable to get market feedback, but he noted that despite these comments Cayman was consistently selected as the jurisdiction of choice.

“Although the report doesn't present any new ideas, it can be a useful starting point for those new to the industry,” Seymour told CNS. “The report advocates a one-size-fits-all solution but governance today is far more complex.”

He said the global hedge fund industry is over worth over $2 trillion but only $500 billion is based in Europe, so any report on fund governance needs to consider the fund governance rules promulgated by the SEC to be considered truly objective.

“While we do understand the authors advocating for their jurisdiction, we do disagree with their conclusion about the Cayman Islands industry.  This is simply not supported by the facts.  In the Cayman Islands our regulators, directors and auditors all serve more funds than any other jurisdiction, yet our industry endured the crisis and thrived.  Stakeholders are free to choose any jurisdiction they wish and they consistently select the Cayman Islands.  The real test is market preference,” Seymour added.

See full report below.

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UK tax inspectors go after HSBC Swiss accounts

| 13/10/2011 | 0 Comments

(Swiss Info): Some 6,000 account holders who bank with the Swiss branch of HSBC will have to answer to the British tax authority. HM Revenue and Customs (HMRC) wants to verify that the account holders have declared all earnings. The potentially wayward taxpayers will get a warning letter offering them a last chance to get their affairs in order. The HMRC said on Thursday that it had already started criminal and serious fraud probes into more than 500 individuals and groups. "They will be offered a window of opportunity to contact HMRC and disclose all their tax liabilities," the HMRC said. A source there told the Reuters news agency that account holders would have 30days after being contacted to come forward.

The names of the account holders reportedly came from a disc stolen from HSBC’s Geneva office.

Britain and Switzerland signed a tax accord last week that would compel Swiss banks to pay backdated income on the long-standing accounts of British tax cheats.


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Cayman sets out to ‘captivate’ at industry conference

| 13/10/2011 | 0 Comments

(CNS): As the Cayman Islands continues its bid to be a world leader in the captive insurance sector it will be showcasing the benefits of establishing captives in the Cayman Islands at the 31 Annual American Society for Healthcare Risk Management (ASHRM) conference and exhibition in Phoenix, next week. Several representatives from the Insurance Managers Association of Cayman (IMAC), and individuals from private-sector firms, the Cayman Islands Monetary Authority, and the Cayman Islands Government will staff the Cayman Islands Financial Services booth to ensure that Cayman’s reputation as a leading, first-rate international financial centre is well known to conference attendees, officials said.

ASHRM is considered to be the healthcare industry’s leading networking and educational event of the year. This is particularly important to Cayman’s insurance industry as Cayman is the leading jurisdiction for healthcare captives and the second leading domicile for number of licensed captives, with a total of 725.

Close to 2,000 attendees are expected to attend ASHRM this year. This will offer Cayman’s delegation the opportunity to build relationships with existing clients, attract new clients, network, and take away information relevant to Cayman’s industry.

The Cayman Islands insurance sector has been attending ASHRM since 1996. Cayman’s participation is jointly sponsored by IMAC and the Cayman Islands Government.

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Finance sector prefers ‘bankers’ over tax activists

| 12/10/2011 | 3 Comments

(CNS): Industry professionals have claimed that Cayman’s recent placing as the world’s top Specialised Financial Centre in The Banker’s 2011 Ranking of Financial Centres for the third year in a row shows Cayman’s true stance in the global financial arena. This top ranking falls against a different high ranking on the Tax Justice Network’s financial secrecy index where Cayman came in as the second most secret jurisdiction in the world. “The Tax Justice Network thinks we are a loser and the international banking community thinks we are a winner – I think we all know whose opinion matters the most,” Don Seymour, managing director with dms Management Ltd said.

In the industry magazine’s list, the Cayman Islands beat its second place competitor Guernsey by a clear 8 points, while Cyprus was in third place, Jersey fourth and the Bahamas fifth.

Cayman Finance Chairman Richard Coles congratulated Cayman’s financial services industry for the achievement.

“This is yet again excellent news and a testament to the hard work and efforts on the part of both the financial services industry for delivering excellence in service and to the regulatory authorities for maintaining high international standards,” Coles said.
The ranking of international financial centres is based on data from a range of sources, including financial markets indicators, economic potential and business environment factors. The ranking focuses on the level of international business and the value offered to international institutions seeking to

Cayman’s score was lower than that of 2010, possibly due to the more in-depth questionnaire which was used which impacted other jurisdictions as well, the Survey said.

Coles said this was a sign of the jurisdiction’s strength.

“The fact that The Banker improved its assessment with a more detailed questionnaire in 2011 and the Cayman Islands remain at top with a wide margin is proof that this jurisdiction can hold its own against international standards relating to service or regulation, and I am confident that we will continue to do so,” he stated.

The survey also stated that while New York and London had held on to their previous rankings as the top and second international financial centres overall respectively, smaller jurisdictions were quickly moving up in the rankings. International regulatory pressure was bearing down on the traditional financial centres, making way for smaller, more nimble centres to take up higher positioning, the Survey said.  

“As the world’s leading financial centres continue to suffer from the consequences of the financial crisis, and the economies of many emerging markets show impressive growth, it is only natural to wonder if the appeal of New York and London is fading,” one article in The Banker stated.

The Banker said that the regional disparity of the new regulations means that there may be some movement, as banks and other financial institutions look to carry out different operations in different regions, basing departments where regulations best suit that area of the business.

While smaller jurisdictions were likely to come under pressure to implement these rules once they were finalised, there would be an interim period of a few years where certain centres could benefit from regulatory arbitrage, the article said.
“Whether they will be able to capitalise on this temporary advantage remains to be seen,” it continued.

According to the survey, financial centres with the most prospects were heavily biased towards Asia, with Hong Kong in first place, followed by Singapore, São Paulo, China (Shanghai, Beijing) and India (Mumbai, Bangalore, Delhi, Chennai).

The survey also stated that changing regulations in the world’s leading financial centres may temporarily shift some international business towards smaller jurisdictions, but a permanent shift could only occur if these developing centres “offer fertile ground for innovation too.”

See full report here

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Trust industry takes on hot topics

| 11/10/2011 | 0 Comments

(CNS): Tough issues facing Cayman’s trusts industry such as insolvency, divorce and disclosure will be up for discussion this Friday at Mourant Ozannes first ever International Trusts Conference. International speakers from the law firm’s Jersey, Guernsey and London practices will be joining forces with local speakers at The Ritz-Carlton to look in depth at hurdles faced by the industry, such as whether the industry can survive in light of the increasing burden of disclosure being heaped on international finance centres such as Cayman by international regulatory bodies.

The section is entitled: Are the IFCs flogging a dead horse? – Confidentiality in the light of the increasing burden of disclosure, and the chair of the event will be Shân Warnock-Smith QC, from ICT Chambers, Cayman and 5 Stone Buildings, London, a well-known figure to practitioners within the industry. The panel tasked with discussing the subject is Alan Milgate from Rawlinson & Hunter, Rob Shepherd  from Mourant Ozannes, Ziva Robertson  from Withers and Julien Martel from Butterfield.

Co-chair of the event and partner at Mourant Ozannes in the Cayman Islands, Morven McMillan, who heads up Mourant Ozannes’ trust team, says this is will be one of the hottest topics of the day.

“Out of all the issues we have detailed for discussion, this has promoted the most feedback so far,” she confirms.

McMillan says another topic that is becoming increasingly relevant to the trusts industry given these tough economic times is the problem of insolvency.

“We will be examining what happens when individuals involved with a trust, such as the beneficiary, settlor, trustee or even the trust itself becomes insolvent,” she explains. “And we will be offering up options to trustees if they are faced with such scenarios.”
Sarah Higgins, Head of Family at Charles Russell in London will join with Mourant Ozannes’ Lucy Diggle to look at trustees and divorce and what happens when trustees of offshore trusts get dragged into divorce proceedings in the UK.

“Divorce can happen to anyone,” McMillan says. “And when there is an offshore trust involved this can cause all sorts of difficulties. This is another highly topical issue.”
Similarly, through a case study, the conference will examine what mechanisms the long arm of the US Courts have at their disposal to reach down to offshore trustees.

“We intend for the conference to highlight the Cayman Islands as a centre of excellence when it comes to trusts and wealth management,” McMillan confirms. “Living in uncertain times and with increased competition,we think it is incredibly important to do everything we can to promote this jurisdiction. It is also essential that that we maintain the friends and business contacts that we have and remember to share our knowledge and expertise with those currently rising up within the industry.”

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