Milestone in transparency

| 25/08/2009

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 1st January 2010. This action ispart 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, the Governor 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 member of 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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  1. Joe Average says:


    The G-20 has concluded it’s (mumble) meeting.  Unanamously agreeing that (mumble) things are not terribly bad (mumble) but not terribly great either.  Citizens throughout the world have been waiting for this definite sign of progress.  The members of the G-20 have (mumble) also (mumble) agreed that we are not out of the woods yet and further (mumble) economic stimulus packages may be needed to help (mumble) financial institutions resume (mumble) normal operations.  They may need more money.  There was (mumble) hesitation on the part of the particpants to instigate caps on (mumble) bonuses received by the heads of (mumble) many institutions who were on the (mumble) receiving end of gigantic public funding.  There was also (mumble) disagreement on clawing back any of the (mumble) bonuses rushed through by these same corporations before anyone got wind of where the (mumble) money (mumble) was actually going. And who (mumble) was benefitting from their largesse.

    All in all it was a satisfactory meeting of the great financial minds. 

    The conclusion was a disaster of this proportion should never be allowed to happen again until there is more money or people forget. 

    Excuse us now while we try to figure how we will stretch our paycheque to next week.

  2. Pete London says:

     "The article incorrectly states that "Even the UK has been shamed into action (arresting some of the minor players in the infamous Bae Al Yamamah Saudi fighter contract)"

    In fact in 2004/2005 three people were arrested, then released, no charges followed. The investigation was cancelled in December 2006 by the Serious Fraud Office it has not been reopened.



  3. tim ridley says:

    The Anti Corruption Law offences are very broadly drafted. Each case turns on its own facts. However, as a general proposition, the offences do cover any loan, reward, advantage or other benefit, and not just cash.

    The extent of the local political commitment to the new Law and the Commission is important. But equally, much rests in the hands of the Governor and the Foreign and Commonwealth in London. Add to that international pressure from the UN, the OECD and others and the ability of Cayman to resist the new regime may be limited. Unless we want to go on another blacklist.

    Funding of the Commission is of course an issue, particularly at the moment. But, hopefully, the necessary revenues will be found. Given that the overseas corruption/bribery component (and thus Cayman’s international credibility and reputation) is a key part of the new regime, perhaps the financial services sector can be persuaded to pay additional fees in order to fund the Commission. 

    It would be very short-sighted and disappointing if the country does not get its weight and support behind the Law and the Commission. We all lose if we do not.

  4. Anonymous says:


    It will be interesting to see what effect, if any, Mr. Ridley’s repeated efforts to highlight the tenuous gestation of our anti-corruption legislation will have on the long-term survival of those parts of the legislation which might apply to Cayman’s current and aspiring politicians.
    Some may suspect that a number of our politicians had little idea of the anti-corruption legislation’s potential implications for their wallets when it was passed. It may be that by shining light on this legislation, Mr. Ridley’s undoubtedly well intentioned efforts will inadvertently doom it. After all, there is little if any evidence that certain powerful politicians see any merit in staying within the boundaries of legitimate activity. A prominent few seem to believe that they are entitled to take for themselves or assign to cronies, family members and friends, a piece of every government contract, every license issued, and every development approved. There therefore may be a risk that highlighting any threat to cleptocratic largesse posed by anti-corruption legislation may doom the legislation before it comes into effect. Such an analysis may be overly pessimistic.
    It is a given that no corrupt politician is likely to welcome the implementation of legislation whichmay undermine that politician’s proclivity for securing the “perks” of corruptpublic office. Similarly, no one should believe that politicians accustomed to negotiating questionable exclusive contracts with developers, handing out untendered contracts to cronies and others, and engaging in other suspect practices, will rush to enable a Commission which might curtail their accumulation of wealth.
    What then will be the likely domestic political result of bringing renewed attention to our anti-corruption legislation? In order to answer this question, it is necessary to ask whether any key constituencies or influencers have any interest in ensuring that effective anti-corruption legislation is enabled in Cayman?
    Obviously those benefiting from or hoping to benefit from corrupt practices do not want effective anti-corruption legislation, and they may be the ones most listened to by corrupt politicians. Unfortunately the vast majority of the electorate, honest very hard working Caymanians, are simply too busy trying to feed their families and pay their mortgages to devote much energy to this issue. The disastrous effects for our children and their children of corrupt politicians putting their own greed ahead of the long-term interests of Caymanians, are not as immediate and clear as the mortgage or car payment which has to be paid yesterday. Most of us will be able to think of a politician or two who we think anti-corruption legislation might affect, but many of us are simply resigned, accepting corruption as part and parcel of some of Cayman’s populist politicians and hoping that that their corruption does not indirectly add too much to the cost of the bread that we try to put on our tables or the government debt that will be left to our children. 
    The big-money people who seek to buy political influence, do not want anything which might limit their pursuit of self-interest and do not care if thousands or even millions of dollars are diverted to politician’s pockets, as long as they are left to fill their own pockets while the rest of us struggle. The hypocritical “good governance” bunch from the UK probably would like another stick to beat Cayman with, and any obligation which UK politicians can apply to Cayman without having to apply it to themselves has always been attractive to them.
    Given the above, and the confused timidity which is emerging as the hallmark of government in Cayman, it seems likely that Cayman’s anti-corruption legislation will not be repealed prior to year end. Rather, to the extent that it may threaten the interests of corrupt politicians, its implementation will likely be denied substance, potentially creating hollowed out legislation to complement what is rapidly happening within the productive sectors of our economy.
    A simple formula therefore emerges. To the extent that our politicians are corrupt, we should expect them firstly to claim that there is no money for full implementation of our anti-corruption legislation, secondly to fail to assign on a timely basis enough or appropriate staff and resources for the Anti-Corruption Commission, and third to claim that there is insufficient Cabinet time for implementing regulations.
    The acquiescence of the electorate in the event that our politicians attempt to hollow out implementation will go a long way towards reducing the concerns of corrupt politicians. The potential ability of corrupt politicians to appoint personnel and to terminate or transfer at will unbiased honest Commission employees in order to replace them with “people they can work with” on the Anti-Corruption Commission should also ease any concerns of corrupt politicians. Add to that the perspective which suggests that the AG should take no action for any reason against any politician in power because any such action might be seen as “political”, and corrupt politicians should sleep like babies and prosper like the developers, corporate services providers, accountants, and structured finance lawyers who support them.
    Politicians are supposed to hold public office for our benefit, not their own. Corruption has real costs. How many times in the history of Cayman has a corrupt politician accepted from a developer either money or some form of commercial advantage for himself, a family member or a cronie in circumstances in which that developer somehow receives a deferral or waiver relating to stamp duty, customs duty or some other payment otherwise payable to government? How many times have corrupt politicians benefitted at our expense, selling what belongs rightly to Cayman in order to enrich themselves? If you have been alive, in Cayman for more than 5 years, and not comatose you probably can think of at least one example. 
    Our new anti-corruption legislation has the potential to limit future theft by corrupt politicians. There should be no doubt in anyone’s mind that any politician who through neglect or direct action fails to fully implement Cayman’s Anti-Corruption legislation is aware of this – and hopes that you do not care.
  5. Anonymous says:

    Will the AC Law apply only to cash transactions, or extend also to "soft dollar" transactions and "barter" arrangements?  Will it apply in the context of an election where votes are exchanged for favours, or where applications are fast tracked without due regard for process? 

    If so, the Anti-Corruption Law could create a radical shift towards professionalism between many of this islands politicians and local entrepreneurs, and one has to hope this would not create headwinds for adequately funding the commission (if from private sector).