Shoe drops in Italy’s boot

| 14/06/2009

The communiqué from the G8 finance ministers (one of the groupings of major rich countries that control the world’s capital and want to keep it that way) after their meetings in southern Italy this weekend contains some nuggets of information that Cayman should consider carefully.

The perceptive observer will note that the gathering took place in Lecce, a small city situated in the heel of Italy (a country not renowned for its fiscal rectitude or propriety), sending perhaps a message that the G8 intends to keep its boot firmly on anyone who dares to challenge their financial supremacy. This fast on the heels of the European Union finance ministers earlier in the week pressing ahead with the development of EUSD II (enhanced automatic cross border reporting of tax information).

The G8 finance ministers in particular called on others to:

-join their efforts to ensure global financial stability and an international level playing field (the G8 do not actually believe in a level playing field unless it is tilted in their favour, they make the rules and also own the ball);

-welcomed progress in the negotiation of tax information agreements; urged the development of an effective peer review mechanism to assess compliance with the OECD standards on tax information exchange;

-welcomed the Financial Action Task Force (a subgroup of the OECD) engagement with the G20 to fight against money laundering and the financing of terrorism;

-agreed to work with the FATF to improve international standards and their implementation; requested the FATF to report back in September 2009 on its progress in identifying uncooperative jurisdictions in the implementation of FATF standards;

-noted that reform of the global financial markets will require promoting transparency and strengthening regulatory and supervisory systems and noted the need for common principles and standards for propriety, integrity and transparency in the conduct of international business and finance.

Apparently, the G8 finance ministers do not consider the existing efforts of others (G20, the IMF, the World Bank, OECD, FSB, FAFT, IOSCO and other international organizations) sufficiently robust or fast enough.

And not enough countries are coming into line. So they agreed the “Lecce Framework”. This is to create a coherent and comprehensive framework, building on existing initiatives, “to identify and fill regulatory gaps and foster the broad international consensus for rapid implementation”.

And all designed to “strengthen the global market system”.

The specifics categories for attention are:

corporate governance

market integrity

financial regulation and supervision

tax cooperation

transparency of macroeconomic policy and data

Examples of the specific issues within the categories are:

executive compensation

regulation of systemically important institutions

credit rating agencies

accounting standards

cross-border exchange of information

bribery

tax havens

non-cooperative jurisdictions

money laundering and the financing of terrorism

the quality and dissemination of economic and financial data

So what are the key messages applicable to Cayman in all this (apart from this being more of the same rhetoric from essentially the same players)?

The OECD will be introducing a programme assessing effective implementation of tax information exchange agreements and other arrangements. Whether or not Cayman is promoted to the white list, no longer will mere numbers be sufficient; rather, the test is how much information is flowing and are the recipients (requestors) of the information satisfied. Cayman needs to secure meaningful TIEA’s with key jurisdictions and to ensure that proper requests for information are executed promptly in accordance with the terms of the agreements.

The FATF will be conducting more assessments, and effective implementation will be front and centre stage, i.e. the number of prosecutions and convictions for money laundering offences and the size of assets frozen/seized. Cayman needs to enhance the effectiveness and speed of its enforcement.

Official corruption (bribery of public servants) and the laundering of the proceeds through offshore financial centres is being brought into the mix. The Cayman Anti-Corruption Law and the Commission go live 1 1 2010. The steps necessary to make this happen effectively on day one need to be taken without delay.

Cayman should focus immediately on expanding domestic transparency (e.g. publicly available information about regulated and unregulated entities) and revamping the Confidential Relationships (Preservation) Law into a holistic data and financial privacy law.

EUSD II is coming, and Cayman needs to start thinking seriously about its potential implications and planning accordingly.

There are many pressing matters on the new Government’s plate. But these particular issues are critical to the long term future and success of the financial services industry, a key revenue earner for the Government and the Islands generally.

So they should be at the forefront of the Government team’s thinking as it heads to Europe this coming week. 

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  1. Anonymous says:
    15/06/2009 at 3:39 am

    4 points in response to, and support of, Mr. Ridley’s well written comments.

     First, there is nothing particularly new in the content ofthis weekend’s G8 pronouncement. The material has been somewhat repackaged, adding the name of the town where the G8 leaders enjoyed themselves, so as to appear that they have produced something new by the end of their meeting. It is in reality, as Mr. Ridley’s other writings illustrate, a re-hash of whatthe G8/G20/OECD/FATF have been saying for at least the past 6 months, and in some instances, for more than 3 years. The fact that it is in large part a repetition does not make it less worthy of attention however.
     
    This weekend’s statement lays some of what is coming at Cayman relatively bare when compared with past G20 pronouncements, but the material has been there had anyone cared to look. So has the material from the EU and the FATF and the OECD and the FSB. By way of example, the March 2009 G20 report of the G20 working group responsible for this area has much of the content pronounced this weekend. This was required reading within my group. http://www.g20.org/Documents/g20_wg2_010409.pdf
     
    Second, the pendulum which swings between relative objectivity and relative subjectivity in the application of so-called standards which the G8/G20/OECD countries favour in order to tilt the location of business in their favour, has now swung back to the subjective style of the late 1990’s. This is very dangerous for small countries like Cayman and it is particularly dangerous for those governments that do not understand what is going on and are not staying ahead of developments – as appear to be the case of the Cayman Islands at the moment. 
     
    I would perhaps diverge from Mr. Ridley’s view in one area. There is no reason to believe that the OECD peer review process will operate on anything even remotely like an objective basis. It will operate on Darwinian geo-politics. The entire basis for the OECD moving away from any assessment criteria that can be objectively verified is to ensure that the OECD states can disrupt whichever country they choose on a pretext. Within the FATF process an even more opaque and subjective process operating under the name of the international cooperation review group has been gathering steam since 2006. There is little doubt that Cayman and other jurisdictions that offer competition to OECD states will have to deal with this new FATF process at some point.
     
    Third, this weekend’s G8 pronouncements, as well as the other matters pointed out by Mr. Ridley, should have been greeted by both the public and the private sector in Cayman as an opportunity to review Cayman’s well advanced implementation of its responses to these issues, not as a wake-up call. The ridiculously naïve and apparently sole “strategy” of securing 12 tax information agreements as put forward by some in the private sector, and it would seem, endorsed and promoted by the government’s advisors within the civil service should now be fully evident as the dangerous nonsense that it was and is. Does anyone know if any of the people who advocates this nonsense are still advising our government?
     
    Finally and as pointed out by Mr. Ridley, Cayman faces a series of highly complex issues that require a great deal of analysis which ideally should have occurred before anyone went jetting off to Europe for "meet and greet" photo ops and fine dining in London, Paris or Berlin as posts on other threads suggest is happening. One can only speculate on the bemusement of foreign officials meeting Cayman officials over the next couple of weeks if our government has not been fully informed and engaged in relation to the complex issues facing Cayman. Unfortunately, it has to be questioned whether those now advising our government have any idea of what is going on in the world. There is certainly no evidence in the media that they do. Hopefully Mr. Ridley’s letter willconvince our leaders that the advice they have been getting is perhaps not what it should be.
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