Finance
Cayman signs tax deal with Chinese
(CNS): Cayman has signed a tax deal with the People’s Republic of China. The country’s 26th tax information exchange agreement (TIEA) was signed by the premier, Monday, on behalf of the Cayman Islands and by Madame Song Lan, the State Administration of Taxation (SAT) Deputy Commissioner and Vice Minister, on behalf of the Chinese government. Aside from adding to Cayman’s tally in the OECD’s yardstick on transparency the deal was described by McKeeva Bush as a “significant step in enhancing” Cayman’s relationship” with China. The TIEA comes at a time when the premier is in the middle of talks with the Chinese to build cruise berthing facilities in George Town.
“This is the 26th signed agreement for exchange of information for tax purposes and the People’s Republic of China has become another member of the G20 group of countries to have a TIEA with the Cayman Islands,” said McKeeva Bush. “Signing this TIEA is a significant step in enhancingthe relationship between the Cayman Islands and China. With China being one of the fastest growing economies in the world, we are confident that this TIEA will contribute positively to economic activity between the two countries."
China Harbour Engineering Company signed a Ministerial MOU with the premier in June for a five month ‘exclusive’ period to thrash out a deal that if successful will see the Bejing based firm finance, build and operate two cruise piers in George Town harbour to provide docking facilities for the next generation of cruise ships. The proposed project also includes discussions about a pier in West Bay, near the Turtle Farm and the renovation of the Spotts Jetty.
Governor Duncan Taylor as well as Members of the Legislative Assembly; Cayman Islands International Tax Cooperation Team members; senior officials from the Ministry of Finance; and representatives from the Bank of China were all in attendance at the ceremony held in George Town. Attending for the Chinese delegation were the Director General of SAT Tax Administration Department, Mr. LI Linjun; Director General of SAT Electronic Tax Service Centre, Madame YAO Qin; Director of Global Cooperation and Compliance, SAT International Taxation Department, Mr. HUANG Suhua; Principal Staff Member of SAT General Office, Ms. LU Shan; and Staff Member of SAT International Taxation Department, Mr. LI Qiaolang.
Cayman lifts $9.2B asset freeze says Saudi group
(Washington Post): The billionaire founder of one of Saudi Arabia’s largest conglomerates said Thursday an order freezing $9.2 billion of his assets was lifted by a Cayman Islands court, in the latest twist in a legal battle in which another Saudi conglomerate alleges he defrauded it of billions of dollars. Saad Group founder Maan al-Sanea said in an e-mailed statement that the court also ordered that Ahmad Hamad Al-Gosaibi and Brothers Co., or AHAB, cover his legal fees related to the asset freezing order. He also said the court would hold hearings to assess other potential damages.
Offshore banks involved in US tax probe
(Bloomberg): Eight offshore banks are under federal grand jury investigation for facilitating tax evasion by US citizens as part of a probe the Justice Department said has dealt “fabled Swiss bank secrecy a devastating blow.” The department disclosed the probes on a section of its website detailing the Tax Division’s Offshore Compliance Initiative. In 2009, prosecutors charged UBS AG (UBSN), the largest Swiss bank, with aiding tax evasion by US clients. UBS avoided prosecution by paying $780 million, admitting it fostered tax evasion, and giving the U.S. Internal Revenue Service data on more than 250 accounts. It later turned over data on another 4,450 accounts.
Prosecutors opened 150 grand jury investigations of offshore-banking clients, charging 30 people, and indicting 13 other people who facilitated the hiding of assets offshore, according to the website.
IRS rakes in billions $$ from offshore accounts
(Bloomberg): The Internal Revenue Service has taken in a total of $2.7billion from holders of offshore bank accounts, the agency said as it announced that 12,000 taxpayers responded to the second round of a partial amnesty program. IRS Commissioner Douglas Shulman the agency’s emphasis on international tax enforcement prompted more people than anticipated to accept penalties and reveal their accounts. “The results we’re seeing today were unthinkable just a few short years ago,” he said on a conference call with reporters. “The world has clearly changed.” The results mark the continuation of the IRS’s beefed-up enforcement efforts, which include the voluntary programs as well as prosecutions with the Department of Justice.
“You’d have to be living in a hole not to know that the U.S. government is really focused on offshore tax evasion, getting better at it,” Shulman said.
He declined to comment on U.S. efforts to obtain account information from Swiss banks, other than to confirm that the U.S. and Swiss governments are discussing the issue.
Rollover reprieve receives tepid response
(CNS): The temporary suspension of the controversial seven year term limit for foreign workers, known locally as ‘rollover’, has received a cautious welcome by the financial services industry but the sector is still looking for more far-reaching steps by the government to ensure economic growth. The former outspoken chair of Cayman Finance, Anthony Travers, who has railed against the policy for some time, said it was a step in the right direction, but given the substantial damage he believes it has caused, there has to be much more than a temporary halt to address the problems of uncertainty in the minds of the professionals who come to work in the jurisdiction.
“The announcement that the rollover is to be suspended is certainly a step in the right direction but it would be premature at this stage to come to any conclusion about the effect of the suspension given that the study has not yet been undertaken,” Travers said last week in wake of the news. He added that the move makes certain points clear, in that there must now be some recognition at the political level of the substantial damage done both to the local economy and the financial services industry by the imposition of the rollover policy.
“Suspension of the rollover of itself without more will do nothing to redress the uncertainty as to the tenure in the minds of the sort of financial professionals that the Cayman Islands must now attract,” he noted, pointing out that very clear new legislative procedures will be required before confidence in Cayman can be re-established.
Travers believes there is widespread ignorance of the importance of this issue to the overall economy of the Cayman Islands, to job opportunities for Caymanians, to government and private sector revenues and to the future development of a financial services industry, which, he said, has been seriously impaired by the current policy.
He hoped that these issues would be dealt with by those charged with the responsibility of undertaking the review but says, given the entrenched nature of the misconceptions, it would be prudent to defer for the time being any overly optimistic assessment as to a positive outcome. “Better late than never and hopefully not too late,” he stated.
Butterfield Managing Director Conor O’Dea believes the rollover suspension news is positive, but stated that the longterm solution is more important.
“Some individuals and businesses will benefit over the next two years I assume, depending on how the suspension is implemented, but we need long term certainty for all businesses operating in the Cayman economy so they can plan the long term future resourcing for their business. I view the rollover suspension as a short-term 'economic stimulant' which can only help all Caymanians and expatriates alike ultimately,” he said.
CEO of recruitment firm CML, Steve McIntosh, says suspending the rollover is obviously going to make a lot of people that would otherwise have been forced to leave very happy.
“Many employers will also be very happy to be keeping a staff-member they were already looking to replace,” he added, but said the move is far from a panacea that will restore the island to economic growth.
“Rollover was unpopular because it caused employers to lose good people and boosted competing jurisdictions that benefited from an exodus of experienced professionals. That damage cannot be undone,” he stated, noting that in recent years the policy scarcely had any operational impact on most financial services firms, as senior employees were exempted and junior employees easily replaced.
Some in the financial services sector are more upbeat, however. Don Seymour, Managing Director with dms Management Ltd, says the rollover policy had been poorly implemented and the results had been disastrous for the Cayman Islands economy.
“This is a sound decision that will be enthusiastically welcomed by employers and employees alike. It should give businesses more confidence and help create jobs. Policies that penalise employers ultimately fail – you can’t distinguish between the two – what is good for the employer is good for the employee,” Seymour told CNS.
Chamber of Commerce President James O’Neill says that the organisation had expressed concern about the term limit and work permit policies for some time and that immigration reform is among the many action items in the Chamber’s ‘Future of Cayman’ strategic report. “Any sensible proposal that can help to stimulate the economy should be considered at this time,” he said.
The chamber is one of a number of bodies that the premier said would be involved in the review of the policy when he announced the two year suspension of the policy in the Legislative Assembly last week. Also included in the review will be the body which represents the country’s offshore industry. Richard Coles, the current chair of Cayman Finance, said the intention sounded reasonable and it made “good economic sense” to allow those who were facing rollover to apply for another permit in the mean time.
Coles added that while there are firms in the financial services industry who believe that the policy has increased the cost of recruitment and training, among other issues, the idea of assessing the impact first is the right approach.
“This will allow the government to objectively assess how the policy would be amended or whether it should indeed be removed,” he added.
Although there are many who would disagree, and complain of a glass ceiling in the sector for local professionals, the chair said the financial services industry was “extremely supportive of the recruitment and training of Caymanians”, which he said was reflected in the number of Caymanians in senior positions. “Improvements can and should always be made, but I feel that there are many firms in the industry that can be considered role models in that regard,” added Coles.
McKeeva Bush made the surprise announcement in the Legislative Assembly Thursday evening that he would be recommending a temporary suspension of the rollover to Cabinet on Tuesday, which would begin as soon as an amendment could be made to the current immigration law. He said a review would then commence, lasting six months, to find out what impact rollover has had and what could replace the policy, which will allow government to balance the needs of the business community with the sensitivities of the local people and in particular the voting population.
US battles corporate corruption overseas
(AFP): Envelopes stuffed with cash and lavish gifts for foreign officials were once standard practice for companies chasing profits in the red-hot markets of Asia, Africa and Latin America, but now US authorities have cracked down stepping up enforcement of the Foreign Corrupt Practices Act (FCPA), a 1977 law rarely enforced until recently. The surge in FCPA enforcement has led to multimillion-dollar fines on firms that are often not even based in the United States, and it has shed light on how some corporations pursue growth in emerging markets.
On Thursday, Japanese rubber giant Bridgestone agreed to plead guilty to charges that its US employees bribed officials of Mexico's state oil firm Pemex to win deals, sometimes writing "Read and Destroy" on sensitive fax messages about the illicit payments.
And in July, US regulators charged London-based liquor company Diageo with FCPA violations that included taking South Korean officials on a junket to Prague and Budapest in return for favorable tax treatment. Diageo also paid a senior Thai official to lobby for lower sales taxes on its Johnnie Walker whiskey and bribed employees of state-owned liquor stores in India to stock its brands, the US Securities and Exchange Commission (SEC) alleged. Diageo did not admit wrongdoing but paid $16 million to settle the charges.
Cayman meets review transparency standards
(CNS): Government has announced that changes made in the wake of the first assessment the Cayman Islands is now in compliance with all nine essential elements of international tax transparency and information exchange standards as set by the OECD’s Global Forum. The forum has reported that as a result of the changes made since the 2010 Phase 1 report from the Peer Review Group (PRG) and the submission of a supplementary report this summer Cayman is now compliant. Samuel Bulgin, QC Cayman’ attorney general who presented the supplementary report at the Global Forum PRG meeting held in Grand Cayman in July said it outlined proof that all nine of the Global Forum’s essential elements are in place.
“The Cayman Islands has moved quickly to address the shortcomings identified in its 2010 review in respect of the availability of accounting records,” the OECD has said about the jurisdiction adding that concerns originally raised with respect to nominees and the availability of ownership information had been addressed. Although the international organisation also noted that, “Some other recommendations concerning the availability of ownership and identity information remain and these will be considered in the phase 2 review of the Cayman Islands, to take place in the second half of 2012.”
Premier McKeeva Bush said the supplementary report highlighted Cayman’s enactment of the Companies (Amendment) Law, 2010; the Partnership (Amendment) Law, 2010; the Exempted Limited Partnership (Amendment) Law, 2010; and the Trusts (Amendment) Law, 2011. “These amendments, which were in response to findings outlined in the Phase I report, assist government in meeting the international standards on tax information exchange,” Bush who also is the Minister of Finance said.
Bulgin explained that the amendments prescribe the keeping of relevant accounting records, including underlying documentation, for a minimum period of five years. The supplementary report also reflects the Global Forum’s removal of the recommendation in respect to nominees and the availability of ownership information; the removal of this recommendation maintains consistency across Global Forum reports.
The supplementary report also notes Cayman’s continued development of its information-exchange network, through the signing of tax information-exchange agreements (TIEAs).
Cayman has signed tax deals with 25 jurisdictions including one of which became two. With the 2010 official dissolution of the Netherland Antilles Cayman was credited with having separate agreements with the countries of Curaçao and Sint Maarten.
Government’s supplementary report, which contains full details of Cayman’s response to the Phase I report, is published on the OED Website. Bulgin said this ensures transparency in member jurisdictions’ tax information regimes and the peer review process.
The Cayman Islands is a member of the Global Forum’s Steering Group, which prepares and guides the forum’s work and is also is a member of the Global Forum PRG, which is responsible for thepeer review process.
Weavering case ‘abhorrent’ says local directors’ body
(CNS): Following its review of the recent ‘Weavering’ case where a judge condemned the role of the directors in a hedge fund case and awarded millions of dollars of damage against them, the Cayman Islands Directors Association (CIDA) said the case illustrates the need for professional independent directors. Pointing out that neither of the directors of the Cayman registered fund were based here nor were they members of CIDA the president said had they been the men would have been subject to the association’s code of conduct requiring them to “display duties of care and diligence” whilst acting “truthfully and honestly.”
The judgement in the Weavering case was delivered by Justice Jones QC in Cayman’s Grand Court last month and has attracted significant attention after the failings of the two directors of the Weavering Macro Fixed Income Fund Limited were faced with $111 million in damages against them for their performance.
CIDA said the case revealed numerous failings by the directors of the Cayman based fund that were not subject to the CIDA Code of Conduct which is based, on the Institute of Directors in the UK (IOD) Chartered Directors Code of Professional Conduct and sets out the basic standards expected of a director.
In the judgement Justice Jones said directors were not “entitled to assume the posture of automatons, as these Directors did, by signing whatever documents are put in front of them by the investment manager without making enquiry or applying their minds to the matter in issue,” he said.
Paul Harris, CIDA’s president said the actions of the Weavering Directors which included signing minutes of meetings that did not actually take place were “abhorrent to the independent director profession.” Promoting the local professionals Harris said that while there is no requirement to have a director located in the jurisdiction this case “certainly makes clear that hedge funds should at the very least appoint a high quality professional director found from the Cayman Islands.”
“Although the concept of being an independent director as a profession is somewhat unique to the Cayman Islands, this reflects the concentration of hedge funds located in the Cayman Islands,” Harris explained, adding that local professional directors have proved their value.
“In particular during the recent financial crisis it became apparent that independent directors offered from the Cayman Islands were indispensible when hedge funds were faced with making difficult decisions,” he said. “They monitored decisions made during that time in order to ensure that such decisions were made in accordance with the fund documents and that all shareholders were treated fairly.”
He said that the vast majority of all new hedge funds have at least one independent director on their boards and if hedge funds do not have such representation then they at least risk the perception by investors that a situation such as the Weavering case may arise with their fund.
CIDA Executive Committee Member, Victor Murray (LLB, PG Dip LP) said that the availability of an increasing number of independent directors from the Cayman Islands is “vital to the continued confidence that investors have shown in the Cayman based hedge fund product.” He added that not only have they helped make Cayman hedge funds efficient investment vehicles they have ensured that they are trusted by all counterparties.
Harris said directors offered from the Cayman Islands are of a very high quality and they understand the specific requirements of a Cayman Islands hedge fund director.
In the wake of the case CIDA will be hosting a seminar which will be open to CIDA non-members in the next few weeks to review the Weavering decision in CIDA's role of educating and promoting Cayman Islands directors
See the code of conduct for CIDA here
US may end taxes on some overseas profits
(Reuters): The Treasury is weighing a proposal to eliminate some, but not all, of the taxes on overseas profits of US based companies, the Wall Street Journal reported on Saturday, citing two people familiar with the deliberations. Eliminating the taxes on some of the profits is a central element of the Obama administration's broader plans to overhaul the corporate tax code, the newspaper said. Business have long complained that the U.S. system of taxing companies' overseas profits hits companies that have often already paid been taxed in the countries where the profits were earned.
Local banker says integrity crucial to offshore sector
(CNS): The Managing Director of RBS Coutts (Cayman) Ltd and fellow of the CISI has said that integrity in business here in the Cayman Islands is even more important than in the on-shore world as he lent his support to a special seminar at the university next week. “The world market turmoil over the last three years has emphasised the importance of trust and integrity in financial services,” Foster said. “Ultimately, the financial services industry is dealing with other people’s money and those other people are customers, clients and investors who need to know that the hierarchy of their bank, broker or investment house has the interest of the customer, client or investor in mind and not its own.”
He said that the stakes were higher in jurisdictions such as the Cayman Islands “Integrity in the offshore world is as important if not more important than other business communities as we, together with other international financial centres seem to be held to even higher standards than any of our onshore counterparts. It is important that every stakeholder operates to the highest integrity and is beyond reproach.”
Foster was speaking ahead of a special open seminar to be held at the University of the Cayman Islands next week by the Chartered Institute for Securities & Investment (CISI).
“Integrity At Work” is an interactive workshop designed for professionals and students focusing on real life dilemmas set in a financial services environment.
“With real time voting devices we can involve participants in decision making options while at the same time learning about the core values of honesty,openness and fairness in an effort to address the loss of trust in the present global financial market," said Simon Culhane, Chartered FCSI and CISI Chief Executive.
UCCI President Roy Bodden described the free workshop as a groundbreaking event especially during the time of economic austerity and encouraged professionals and students to join in and take advantage of the learning opportunity. “I hope that this seminar will motivate and incentivise students to move into the financial services industry at the most professional levels and to make them realise that many of the qualifications necessary for doing so are available at UCCI.”
Integrity at Work will be conducted in two sessions: 1) For Professionals – Thursday, 15 September at 5:00pm, and 2) For Students – Friday, 16 September at 11:00am. Slots are limited and interested parties are urged to RSVP through events@ucci.edu.ky.