Memorandum from the Cayman Islands Financial
Services Association
EXECUTIVE SUMMARY
1. This memorandum has been prepared by
the Cayman Islands Financial Services Association in response
to a public invitation for written evidence by the Treasury Committee
of the House of Commons of the United Kingdom Parliament as part
of the Committee's enquiry into offshore financial centres.
2. The Cayman Islands Financial Services
Association (CIFSA) is a not-for-profit organization funded solely
by the private sector in the Cayman Islands. Its membership comprises
the jurisdiction's key associations including: the Cayman Islands
Society of Professional Accountants (CISPA), the Society of Trust
and Estate Practitioners (STEP), the Cayman Islands Fund Administrators
Association (CIFAA), the Company Managers Association (CICMA),
the Bankers Association (CIBA), the Insurance Managers Association
(IMAC) and CFA Society.
3. The Cayman Islands is regarded as an
important financial services centre in the global financial markets.
This role is partially as a result of its unique position as the
only offshore centre in the world which simultaneously has leading
market positions in banking, captive insurance, hedge funds and
structured products.
4. The role of the Cayman Islands banking
centre for example, has been well documented by the Geneva based
Bank for International Settlements (BIS) which ranks the jurisdiction
highly in terms of its market share, its connectiveness to other
banking centres as well as its prestige. The jurisdiction is also
home to 90% of the world's hedge funds and serves as an important
operational jurisdiction for most of the world's leading financial
institutions.
5. Independent reviews of the Cayman Islands
regulatory framework by the International Monetary Fund and the
Caribbean Financial Action Task Force (CFATF) indicates that the
jurisdiction is one of the most highly regulated financial centres
in the world. The jurisdiction adheres to the Basel Core Principles
for Effective Banking Supervision, the IAIS principles for insurance
regulation, the IOSCO principles for regulation of investments
business, the FATF Forty Recommendations on anti money laundering
and the Nine Special recommendations on terrorist financing as
well as best practices in the area of trust and corporate services
regulation.
6. As far as we are aware, there has not
been any empirical research into the role of OFCs in global financial
stability. However based on the regulatory issues identified by
the OECD's Financial Stability Forum (FSF) as potentially contributing
to global financial stability, the independent reviews of the
jurisdiction indicates that its regulatory regime meets the highest
international standards and is therefore functioning under a regulatory
framework which supports global financial stability.
7. Generally, there are four main products
and services offered across offshore centres which would come
under the definition of complex financial instruments. These are
a) repackaging, b) securitisation and CDOs (collaterised debt
obligations), c) CFOs and d) asset backed loans.
8. The Cayman Islands is the most commonly
used jurisdiction for repackaging and is widely held to be a key
jurisdiction for many of the other products as well. 2006 data
indicates that the Cayman Islands is second only to Ireland in
terms of the number of reported Asset Backed, and other structured
products and this illustrates the general importance of offshore
centres in this market. It is therefore a fair assessment to conclude
that offshore centres have played a very important role in the
market for complex financial instruments.
9. Generally, the issue of transparency
of OFCs with respect to overseas bodies such as the UK's tax authorities
and financial regulators relates to the extent of cross border
information sharing where such information is either requested
by overseas authorities or shared as a matter of statistical reporting
(for example to the Bank for International Settlements) or the
availability of information to the general public.
10. Based on an objective test of the availability
of information in comparison with international best practices,
the Cayman Islands is a highly transparent jurisdiction. It has
participated in international statistical initiatives such as
its reporting of data to the BIS and the IMF for many years. The
Cayman Islands Monetary Authority (CIMA) also provides extensive
data on its website on the financial services sector. Viewers
can search for all licensed entities by name; can obtain information
on the size, nature, geographical origins of the industry's aggregated
transactions and a host of other information from the website.
11. The jurisdiction provides information
on a disaggregated basis under terms and conditions of its various
information exchange agreements and in accordance with the law.
CIMA, as its financial services regulator, has a long history
of co-operating with official regulators in other countries including
the UK financial services regulator on information relating to
individual institutions on regulatory matters.
12. The traditional idea that absence of
transparency and tax evasion represents key incentives for investors
doing business in OFCs has long been superseded by a number of
modern motives behind the attractiveness of such centres and by
extension, their success. Such factors include the following:
— The increasing importance of "tax
neutrality" as opposed to tax avoidance as a motive for utilising
OFCs.
— The accumulation of knowledge and
skills in OFCs relating to both offshore financial structures
as well as in other areas not traditionally regarded as "offshore"
(such as securitisation for example).
— Ease and convenience of doing business
associated with the geographical location of some offshore centres.
— The relatively higher level of regulatory
oversight in some areas as compared to onshore centres (for example
in the areas of company incorporation and anti-money laundering
measures).
13. It is therefore highly unlikely in today's
climate that lack of transparency or tax evasion would be fundamental
success factors for any OFCs whether these are new to the financial
services market or existing for some time. Countries that seek
to rely on these outdated advantages as a matter of strategy are
likely to fail due to heightened international scrutiny and cross
border cooperation.
14. The international financial markets
also clearly regard the Cayman Islands very highly in terms of
the jurisdiction's quality of service and expertise as well as
its reputation as a well regulated centre. This is evidenced by
the country's leadership positions in each of the areas of financial
services. It is also supported by a significant endorsement of
the integrity of the Cayman Islands via the recent ratings of
the jurisdiction by Moody's, one of the world's leading credit
rating agencies. In 2007, Moody's, raised Cayman's ceiling for
foreign currency bonds and notes from Aa3 or high grade, to Aaa
or exceptional.
15. The primary international standard which
governs combating terrorist financing is the FATF's nine Special
recommendations on terrorist financing mentioned earlier. An offshore
centre's effectiveness against terrorist financing will depend
largely on the extent to which it has met the requirements for
full implementation of these recommendations.
16. The Cayman Islands has not only taken
extensive and robust steps to prevent its regime from being abused
by terrorist financing, but has also received acknowledgement
via several independent reviews that its regulatory framework
aimed at these activities is of the highest international standards.
17. The potential policy implications for
HM Treasury regarding OFCs can be viewed from two angles; a) the
impact of taxation and b) any potential reputation implications
for the UK as a result of the operations of the OFCs which are
Overseas Dependent Territories (such as the Cayman Islands and
Bermuda) or Crown dependencies (such as Jersey or the Isle of
Man).
18. From a taxation perspective, there is
research suggesting that the lower tax regimes of OFCs could potentially
benefit the levels of investment in countries which serves as
the home base of the multinational parent company.
19. Research also suggests that lower corporate
tax rates do not necessarily translate into less tax revenues
to the extent that the lower taxes encourage more taxable economic
activity and this is a further issue for HM Treasury to consider
when considering its domestic tax policies.
20. With respect to HM Treasury's policies
regarding any potential regulatory reputational risk of OFCs,
the UK should continue to work with such centres to ensure that
they meet high international regulatory standards. To a large
extent much of this has been achieved already as is evident from
the various independent reviews of some OFCS over the past eight
years. In particular, the Cayman Islands has received numerous
endorsements of its regime from international standard setting
bodies as mentioned earlier and these results should serve as
the basis for guiding HM Treasury's policies.
21. Double taxation treaties are usually
only executed between countries where both countries have a direct
taxation system. The Cayman Islands does not have a direct taxation
regime, and it does not have any double taxation treaties in place.
22. While the abuse of double taxation treaties
does not apply in the case of the Cayman Islands, it is worth
noting that the Cayman Islands does not have a regime which facilitates
or encourages tax evasion. Indeed, the Cayman Islands was excluded
from the list of 35 countries which were blacklisted by the OECD
as "uncooperative" in terms of having a harmful tax
regime and the jurisdiction committed to implementing measures
to prevent harmful tax practices. The Cayman Islands' participation
in the European Savings Tax Directive (EUSD) through the implementation
of mechanisms for sharing information with European Tax Authorities
was just one of such measures.
23. In general, the extent to which offshore
centres investigate businesses and individuals that appear to
be evading UK taxation will depend on each country's individual
legal framework and international treaties in this regard. However
it is unlikely that such frameworks will directly facilitate investigation
of UK tax offences as a matter of law and international convention,
but instead will more likely facilitate some level of assistance
to the UK tax authority in the event of an investigation.
24. In the case of the Cayman Islands, its
participation in the European Savings Tax Directive and its Tax
Information Exchange Agreement with the United States are both
initiatives that operate under terms and conditions which enable
information and assistance to EU tax authorities and the US tax
authority (the IRS).
25. These two important initiatives provide
a level of information and assistance which would help the overseas
tax authorities to carry out their own investigations.
26. The Cayman Islands Financial Services
Association welcomes any additional opportunities to provide information
on the Cayman Islands to the Treasury Committee of the House of
Commons of the United Kingdom Parliament as part of the Committee's
enquiry into offshore financial centres.
INTRODUCTION
27. This memorandum has been prepared by
the Cayman Islands Financial Services Association in response
to a public invitation for written evidence by the Treasury Committee
of the House of Commons of the United Kingdom Parliament as part
of the Committee's enquiry into offshore financial centres.
28. The Cayman Islands Financial Services
Association (CIFSA) was formed in 2003 to represent Cayman's financial
services industry and to promote information about the industry
locally and internationally. Since its inception CIFSA has served
an important role in providing information to international and
local media about the Cayman Islands financial services industry.
It has also recently launched an awareness campaign aimed at raising
awareness targeted at the resident population of the Cayman Islands
on the nature of services and general role of the industry in
the Cayman Islands.
29. CIFSA is a not-for-profit organization
funded solely by the private sector. Its membership comprises
the jurisdiction's key associations including: the Cayman Islands
Society of Professional Accountants (CISPA), the Society of Trust
and Estate Practitioners (STEP), the Cayman Islands Fund Administrators
Association (CIFAA), the Company Managers Association (CICMA),
the Bankers Association (CIBA), the Insurance Managers Association
(IMAC) and CFA Society.
30. In this context CIFSA is well placed
to provide information to the UK Treasury Committee on the nature
and role of offshore centres, with a focus on the Cayman Islands.
A brief summary of the Cayman Islands as an international
financial services centre
31. The two main sectors of the economy
are financial services and tourism. Other areas such as property
development and construction sectors also play an important role
in the local economy. There are no property, capital gains or
income taxes in the Cayman Islands.
32. The country has enjoyed this tax free
status throughout its entire history. The country has established
itself as one of the world's leading international financial centres.
33. The jurisdiction is a sophisticated
international financial services centre with a wide array of service
providers and high quality professional expertise. Unlike many
offshore centres, Cayman has been in a unique position of being
one of the leaders simultaneously in the areas of banking, mutual
funds, captive insurance and structured finance.
34. Over the past eight years in particular,
the Cayman Islands has undergone a number of enhancements to its
regulatory framework for financial services. The jurisdiction
adheres to the Basel Core Principles for effective Banking Supervision,
the IAIS principles for insurance regulation, the IOSCO principles
for regulation of investments business, the FATF Forty Recommendations
on anti money laundering and the Nine Special recommendations
on terrorist financing as well as best practices in the area of
trust and corporate services regulation.
QUESTIONS TO
BE ADDRESSED
BY CIFSA
35. In the remaining sections of this memorandum
CIFSA will address the majority of the questions identified by
the UK Treasury Committee as valuable for the purposes of its
enquiry. In addressing the questions CIFSA will focus on the Cayman
Islands. The questions which will be addressed are listed below:
— To what extent, and why, are Offshore
Financial Centres important to worldwide financial markets?
— To what extent does the use of Offshore
Financial Centres threaten financial stability?
— How transparent are Offshore Financial
Centres and the transactions that pass through them to the United
Kingdom's tax authorities and financial regulators?
— To what extent does the growth in
complex financial instruments rely on Offshore Financial Centres?
— How important have the levels of
transparency and taxation in Offshore Financial Centres been in
explaining their current position in worldwide financial markets?
— Are British Overseas Territories
and Crown Dependencies well-regarded as Offshore Financial Centres,
both in comparison to their peers and international standards?
— To what extent have Offshore Financial
Centres ensured that they cannot be used in terrorist financing?
— What are the implications for the
policies of HM Treasury arising from Offshore Financial Centres?
— What has been and is the extent and
effect of double taxation treaty abuse within Offshore Financial
Centres?
— To what extent do Offshore Financial
Centres investigate businesses and individuals that appear to
be evading UK taxation?
To what extent, and why, are Offshore Financial
Centres important to worldwide financial markets?
36. In general, Offshore Financial Centres
(hereinafter called "OFCs") have played a key facilitating
role in the world financial markets. The key distinction between
OFCs and traditional onshore financial centres is that OFCs tend
to be financial services centres where support services and mechanisms
are provided to facilitate transactions, while a traditional international
financial centre such as London or New York would engage in the
actual trading or physical execution of such transactions.
37. This section will address the questions
with respect to some of the key areas of financial services using
primary data or secondary research where available.
The role of offshore banking
38. The prominence of an international banking
centre is often reflected by the cross border links with banks
in other locations. A recent study by the Bank of International
Settlements (BIS) in its Quarterly Review December 2007, aimed
to assess the vitality of international banking centres and how
well they are placed to play an important role in international
banking. It made the point that size is only one indicator of
the multi-faceted dimensions.
39. Before looking at the other factors
that determine the importance of a banking centre, the BIS Study
ranked banking centres by market share. This was done by looking
at total international banking liabilities, excluding liabilities
to bank residents.
40. To appreciate the extent of involvement
of the Cayman Islands, the top ten countries by market share are
listed below, showing that the Cayman Islands ranked fourth in
terms of the BIS calculation of market share.
Banking centres by market share (liabilities)—Dec
2007
|
| 1. UK | 22.1% |
|
| 2. US | 12.9% |
|
| 3. France | 6.6% |
|
| 4. Cayman | 6.1% |
|
| 5. Germany | 5.6% |
|
| 6. Switzerland | 4.5% |
|
| 7. Ireland | 3.6% |
|
| 8. Netherlands | 3.5% |
|
| 9. Belgium | 2.9% |
|
| 10. Italy | 2.8% |
|
| Source: Bank for International Settlements, quarterly review, December 2007
|
| |
|
41. In terms of classifying International Banking Centres,
the BIS said another important factor other than size is the degree
of connectivity to International Banking Centres. The idea is
that being connected to many counterparties in the international
banking network enables a banking centre to interact readily with
other locations around the world. The most connected centres have
a presence on both sides of the market (borrowing and lending).
Also, the most connected centres take deposit placements from
a greater number of locations than they lend to. For example banks
in the UK take deposits from 382 locations (90% of all locations)
while lending to 79% of locations.
42. Other measures of the importance of a global banking
centre were; closeness to rest of the world, ability to bring
lenders and borrowers together, financial intermediation and prestige.
These variables are further defined below. The table below is
an extract of the BIS data which indicates how the Cayman Islands
compares to other major banking centres.
International banking centres rankings
| Mktshare |
In-degree | Closeness
| Betweenness | Intermediation
| Prestige |
United Kingdom | 22.1 (1)
| 89.7 (1) | 0.82 (1) | 12.8 (1)
| 20.5 (1) | 8.59 (1) |
| United States3 | 12.9 (2) |
43.9 (20) | 0.60 (24) | 1.4 (25)
| 4.3 (5) | 4.46 (2) |
| France | 6.6 (3) | 80.5 (4)
| 0.80 (2) | 9.9 (2) | 15.7 (2)
| 3.79 (3) |
| Cayman Islands | 6.1 (4) |
61.5 (11) | 0.63 (15) | 2.7 (12)
| 1.4 (16) | 1.87 (6) |
| Germany | 5.6 (5) | 81.2 (3)
| 0.77 (3) | 8.2 (3) | 9.5 (4)
| 2.60 (5) |
| Switzerland | 4.5 (6) | 84.5 (2)
| 0.75 (4) | 8.2 (4) | 11.0 (3)
| 3.56 (4) |
| Ireland | 3.6 (7) | 50.0 (16)
| 0.63 (16) | 1.6 (21) | 0.8 (25)
| 1.04 (12) |
| Netherlands | 3.5 (8) | 65.5 (7)
| 0.69 (7) | 3.6 (6) | 2.8 (8)
| 1.38 (8) |
| Belgium | 2.9 (9) | 79.1 (5)
| 0.70 (5) | 5.5 (5) | 3.3 (7)
| 1.75 (7) |
| Italy | 2.8 (10) | 63.6 (8)
| 0.65 (13) | 2.6 (14) | 1.3 (19)
| 1.02 (13) |
| Spain | 2.6 (11) | 62.0 (10)
| 0.67 (12) | 3.0 (10) | 2.1 (12)
| 1.07 (11) |
| Japan | 2.6 (12) | 48.8 (18)
| 0.65 (14) | 2.1 (15) | 0.9 (24)
| 0.81 (17) |
| Luxembourg | 2.5 (13) | 67.1 (6)
| 0.67 (11) | 3.1 (9) | 1.9 (13)
| 1.19 (9) |
| Singapore | 2.0 (14) | 40.9 (23)
| 0.63 (18) | 1.7 (19) | 2.4 (10)
| 0.97 (15) |
| Australia | 1.7 (15) | 53.5 (14)
| 0.63 (17) | 3.3 (7) | 2.7 (9)
| 1.02 (14) |
Source: BIS Quarterly Review Dec 2007
| | | |
| | |
| | |
| | |
|
43. In the above table the rank of the jurisdiction is
given by the number in the brackets. In addition to its rank as
4th in terms of market share, the Cayman Islands as a banking
centre also ranks 11th in terms of its "connectiveness"
(In- degree) to other international banking centres and as high
as 6th in terms of its "prestige".
Definition of other key indicators for international banking
centres
— Closeness—how close it is to the rest of
the world, in terms of centres having a broad reach to smaller
and more remote countries.
— Betweenness—its ability to bring lenders
and borrowers together.
— Intermediation—its capacity to channel funds
in the financial sector from those who have it available to those
that need it.
— Prestige—The identity of counterparties
that relate to a banking centre. For example, the US is ranked
2nd due to the fact that important centres have sizable deposits
here. Cayman is also highly ranked due to its large bilateral
link with entities in the US.
44. The BIS analysis indicates that the Cayman Islands
features as a very important international banking centre not
only in terms of its size but also in terms of its interconnection
with global financial markets and its prestige. These rankings
are an indication of the importance of the jurisdiction to world
financial markets and the use of the jurisdiction by the world's
leading financial institutions.
The role of Captive Insurance
45. With over 765 captive licensed at the end of 2007,
the Cayman Islands is second only to Bermuda in the number of
captive insurance companies domiciled in the jurisdiction. Developments
in the US legal system in the 1970s and the popularity of liability
claims for issues of medical malpractice meant that some hospitals
and healthcare administrators did not have adequate access to
insurance coverage either because the costs were too high or no
traditional insurance company was willing to cover the risks.
46. Some forward thinking medical colleges and hospitals
started to look at forming captive insurance companies, where
a new company is formed specifically to cover the risks—or
part of the risks of its parent. As an offshore financial services
jurisdiction, which does not impose tax on companies and business
structures and is located close to the US, the Cayman Islands
was seen as an ideal location for this new breed of insurance
companies.
47. While there are many benefits to private companies
in forming a captive, there are a number of benefits to the economy
of the jurisdiction of the parent company and to the international
insurance markets as well.
48. The International Association of Insurance Supervisors
(IAIS) has acknowledged the importance of the captive insurance
markets in the international financial markets. According to the
IAIS, "Throughout the evolution of the captive insurance
market, the reinsurance industry has progressively supported the
captive concept and significant reinsurance pools were formed
to provide extensive capacity at prices that were commercially
attractive to major buyers of insurance. Many of the original
captive insurance programmes were based on property insurance
of well-protected risks that were subject to extensive loss prevention
surveys, exposure analysis and active management of the exposures".
49. Captive insurance is also well known to produce good
risk management benefits as the owner of the captive typically
enhances its risk management procedures to reduce the risks to
its own capital.
50. The IAIS also recognises that captives bring economic
benefits to the economy of the parent company as captives enhance
the financial strength and also competitiveness to their parents.
Owning a captive has brought risk management to higher prominence
in many major international companies, focusing the interest and
support of company boards on reviewing and managing all risks,
including uninsured risks. The placing of group risk within the
captive and active management of that insurance risk has provided
the opportunity for the captive insurance owner to accept higher
deductibles on its primary programme and by insuring them through
the captive the owner is able to obtain reinsurance coverage at
lower cost (IAIS).
51. The captive insurance industry in the Cayman Islands
therefore not only benefits the individual clients but also serves
as an important service for the international reinsurance market
which benefits from enhanced risk management within the captives.
Its position as the second largest captive insurance domicile
outside the United States is proof of its importance in this segment
of the international financial markets.
Role of Hedge Funds
52. The hedge funds sector is the fastest growing segment
of the Cayman Islands financial services industry. The importance
of the Cayman Islands as a domicile for hedge funds for the world's
leading international financial centres is evidenced by the fact
that while the influential money managers that run the hedge funds
are more likely to be found in major cities like New York and
London, or financial centres like Hong Kong and Singapore, to
attract the capital needed to make investments, the chances are
that the hedge fund itself will be registered in the Cayman Islands.
53. In fact around 90% of all new hedge funds are registered
in the Cayman Islands. There were 9,413 hedge funds in the Cayman
Island as of December 2007, which comprises the lion's share of
a global market.
54. The significance of the Cayman Islands hedge funds
sector to global financial markets is evident from a recent report
from the Cayman Islands Monetary Authority which indicates that
gross assets under management for Cayman Islands funds totalled
US$2.316 trillion. This figure is based only on 5,052 funds which
participated in CIMA's first E-reporting exercise for funds at
the end of 2006 and not all funds so the gross assets under management
is likely to be much higher. Based on this significant sample
however, New York was the top investment management location at
28% with the UK (mainly London) being second at 18% of the net
assets under management. This illustrates the confidence of two
of the world's major financial markets in the Cayman Islands hedge
funds industry.
55. According to CIMA there were 153 fund administrators,
some of which are affiliates of the world's largest fund administration
providers in terms of net assets under administration. Ireland
and New York represented the two most significant locations outside
the Cayman Islands in terms of net assets under administration.
56. These statistics show that the Cayman Islands is
not only very connected to the international investment markets,
but is also perceived by leading service providers in these markets
as a centre of excellence.
57. As far as global financial stability goes, it has
been shown that in times of volatile market swings, the sophisticated
trading strategies employed by hedge funds actually aid capital
flows around the world, preventing more severe losses.
58. Hedge funds have also been acknowledged for their
significant contribution to liquidity in capital markets. A 2007
testimony to the US Senate by Mr. Daniel Shapiro, a representative
of the Managed Fund Association explained that "hedge funds
are an important source of liquidity, not only in the traditional
markets for equity securities, but in other markets such as those
for distressed debt, convertible debt, and asset backed securities
in the US."
59. Mr Shapiro also underscored a statement made by US
under secretary Steel that "United States capital markets
are the envy of the world. Our markets are deep, efficient and
transparent. Creativity, innovation and entrepreneurship have
long been the hallmark of U.S. markets and their benefits to our
economy are clear. Private pools of capital—which include
venture capital, private equity, and hedge funds—have helped
make us the world's leading financial innovator."
60. The role of the Cayman Islands is indicative of the
general value of OFCs, which serve as key service centres for
the global financial markets. When these services are provided
in an environment which meets high regulatory standards, offshore
centres play an important role in the global financial architecture.
To what extent does the use of Offshore Financial Centres threaten
financial stability?
61. As far as we are aware, there has not been any empirical
research into the role of OFCs in global financial stability.
One of the most high profile discussions as to this role stems
from a report by the OECD's Financial Stability Forum in 2000
which was based on a survey of various institutions and drew a
number of high level conclusions. The FSF Report is important
as one of its key objectives was to look into the impact of OFCs
on global financial stability. The FSF report concluded that "OFCs,
to date, do not appear to have been a major causal factor in the
creation of systemic financial problems. But OFCs have featured
in some crises, and as national financial systems grow more interdependent,
future problems in OFCs could have consequences for other financial
centres." The main thrust of the FSF Report was that poor
information exchange, weak supervision, inadequate due diligence
and lack of cross border cooperation were important areas to be
addressed to maximise the effectiveness of regulation of global
financial markets, and by extension, to maintain global financial
stability.
62. The FSF also warned that the increasing role of OFCs
as evidenced by growth and assets and liabilities coupled with
weak supervisory systems could have a negative impact on global
financial stability.
63. In the absence of any empirical research into the
role of OFCs in global financial stability, it may be useful to
outline the extent to which the Cayman Islands addresses these
potential issues raised by the FSF.
64. With respect to the issue of weak supervision, while
the Cayman Islands has areas identified for further improvement,
the jurisdiction has received very positive reviews over the past
four years on its regulatory framework. These reviews were carried
out by independent bodies; namely the IMF and the Caribbean Financial
Action Task Force (CFATF), the latter being the Caribbean arm
of the OECD's Financial Action Task Force (FATF) which is the
international standard setting body for anti money laundering
and combating terrorist financing. Both organisations concluded
that the Cayman Islands was largely compliant with all of the
relevant international standards governing the regulation of financial
services.
65. In summary, the extent of changes introduced within
the Cayman Islands regulatory framework over the past eight years
in particular means the jurisdiction is presently one of the most
compliant regimes in terms of financial regulation.
66. On the issues of cross border cooperation and information
exchange, the Cayman Islands official regulatory bodies have been
exchanging information and cooperating with its regulatory counterparts
such as the SEC in the US and with regulators in other OECD countries
for many years.
67. In addition, the Cayman entered into a historic Agreement
for the Exchange of Tax Information with the US. The tax information
exchange agreement with the US came into effect in 2004 for criminal
tax matters and for other civil and administrative tax matters
in 2006.
68. The Cayman Islands implemented a Mutual Legal Assistance
Treaty with the United States in 1990. The Cayman Islands Government
and the United States has successfully prosecuted over 230 cases
since the MLAT was introduced and many of these included the forfeiture
of the proceeds of crime as well as the repatriation of assets
to the United States for restitution to victims of crime.
69. Indeed, the Cayman Islands was the first country
in the Caribbean region, and among the first worldwide, to criminalise
the laundering of the proceeds of all serious crimes and extending
such legislation beyond the ambit of drug-money laundering.
70. Finally, the Cayman Islands signed up to the European
Savings Tax Directive (EUSD) in 2005 and implemented the information
exchange option to sharing information with European Tax Authorities.
Some jurisdictions signed up to the EUSD with a withholding tax
option which meant that they would be liable to pay a withholding
tax but not be required to share information. But the Cayman Islands
private sector fully supported the Government in its decision
to sign up under the more cooperative option which requires automatic
exchange of information with European tax authorities.
71. On the issue of due diligence the Cayman Islands
are now well known to be one of the most compliant jurisdictions
in terms of anti money laundering regulation. As an example of
this, the most recent CFATF report found the Cayman Islands financial
services industry to have a strong anti-money laundering and counter
terrorist financing (AML/CFT) compliance culture. In the examination,
Cayman was recognised to be compliant in 38 out of 49 measures,
which was ahead of the UK, Canada, Spain, Italy and Ireland. Only
the US and Belgium have achieved a higher third-round FATF style
evaluation than the Cayman Islands.
72. In conclusion, in terms of the issues identified
by the FSF as potentially contributing to global financial stability,
the Cayman Islands regime meets the highest international standards
and is therefore functioning under a regulatory framework which
supports global financial stability.
To what extent does the growth in complex financial instruments
rely on Offshore Financial Centres?
73. Generally, there are four main products and services
offered across offshore centres which would come under the definition
of complex financial instruments. These are a) repackaging, b)
securitisation and CDOs (collaterised debt obligations), c) CFOs
and d) asset backed loans.
74. The Cayman Islands is the most commonly used jurisdiction
for repackaging and is widely held to be a key jurisdiction for
many of the other products as well. Generally, a repackaging describes
an issue of Notes by an SPV (special purpose vehicle), where the
Notes are secured on assets of the SPV. The underlying assets
generate cash flows equal to cash flows due under the Notes, and
are thought of as having been repackaged into the Notes issued
by the SPV. The Notes are limited recourse obligations—Noteholders
must look to the underlying assets only and cannot look to any
other assets of the Issuer. Asset-backed Loans are similar to
repackaging but rather than issue Notes the SPV borrows under
a loan agreement.
75. Securitisation, or structured finance as it is also
known, is the process of transforming assets into securities,
which can then be marketed, bought and sold. The prime reason
for undertaking a securitisation is to raise finance because initially
the securities are sold to investors. One of the most popular
types of securitisation is that of mortgage backed securities.
CDOs on the other hand, refer to securitisation of other type
of loans and debts other than mortgages.
76. Finally CFOs are a structured finance product (similar
in structure to a CDO) where the underlying assets are interests
in a hedge fund, or fund of funds, (managed by an investment manager).
Finally, The SPV issues Notes which are linked to the performance
of the underlying fund.
77. The best way to understand the role of the Cayman
Islands in the growth of such complex financial instruments is
to examine the attractiveness of the Cayman Islands to clients
wishing to establish these products. The features of the Cayman
Islands in this regard are key to the success of this market and
other OFCs who attract this business to a certain extent possess
at least some of these features.
78. In the Cayman Islands environment there are some
general reasons which will apply across the financial services
as a whole and some that are more specific to the structured products
market. These reasons are:
— Stable political and economic climate.
— Absence of direct taxation—in particular,
in the context of structured products, no tax on cash flows received
by the SPV under the underlying securities or under the Swap and
no withholding tax on interest or Swap payments by the SPV or
other taxes applicable to the Notes, the Swap or the SPV.
— Minimal capitalisation of SPV.
— Cost—many of these deals are fairly "commoditised"
so there is often not a lot of scope for movement in fees and
other costs associated with the deal. As a jurisdiction the Cayman
Islands have been able to keep both government and service costs/fees
within acceptable levels which results in continued efficiency
for the structured products market.
— Speed of incorporation of SPV.
— Non-intrusive regulatory regime—there is
no requirement to obtain regulatory consents for an issue of Notes,
no restrictions on issues of Notes by the SPV and no requirement
to produce financial statements.
— Minimal profit to be made by the SPV on each transaction.
— High quality of service providers.
79. Generally, the offshore jurisdiction of choice on
any particular structured product deal will depend on the requirements
of that deal. Investor preference is often a major determining
factor, and certain structures (eg where double tax treatment
is required because of the jurisdiction of the underlying assets)
will call other jurisdictions into play.
80. However, the Cayman Islands is widely regarded as
one of the leading offshore jurisdictions for structured products.
The 2006 data for the structured products market by jurisdiction
by country and deal type is given below:
2006 DATA ON PARTICIPATION OF OFCs IN STRUCTURED FINANCE
|
| Jurisdiction | Asset Backed
| CDO/CBO/CLO |
|
| 1 Ireland | 565 | 463
|
| 2 Cayman Islands | 364 |
330 |
| 3 Netherlands | 145 |
122 |
| 4 Jersey | 40 | 34
|
| 5 Luxembourg | 33 | 16
|
| 6 BVI | 1 | 1
|
| 7 Guernsey | 0 | 0
|
| 8 Bermuda | 0 | 0
|
|
| |
|
81. The above table indicates that the Cayman Islands
is second only to Ireland in terms of the number of reported Asset
backed, CDO, CBO products and illustrates the general importance
of offshore centres in this market. It is therefore a fair assessment
to conclude that offshore centres have played a very important
role in the market for complex financial instruments.
How transparent are Offshore Financial Centres and the transactions
that pass through them to the United Kingdom's tax authorities
and financial regulators?
82. Generally, the issue of transparency of OFCs with
respect to overseas bodies such as the UK's tax authorities and
financial regulators relates to the extent of cross border information
sharing where such information is either requested by overseas
authorities or shared as a matter of statistical reporting (for
example to the Bank for International Settlements) or the availability
of information to the general public.
83. The issue of information sharing with the UK's tax
authorities is addressed elsewhere in this memorandum but it is
important to note that the Cayman Islands regulator, the Cayman
Islands Monetary Authority shares information with its counterparts
(such as the SEC in the US or the FSA in the UK for example) in
other countries on regulatory matters.
84. Statistical information relating to transactions
of financial services institutions is publicly available in aggregate
form in the same way that such information is handled in virtually
all other countries as a matter of international statistical best
practices, whether offshore or onshore centres.
85. For example, the Cayman Islands submits statistical
reports with an extensive series of financial statistics to the
Geneva based Bank for International Settlements (BIS) on the banking
industry. The Cayman Islands Monetary Authority also recently
launched the first issue of a new statistical digest on
the hedge funds sector which provides useful data in aggregate
form on a wide range of areas highlighting the structure and nature
of the hedge funds sector in the Cayman Islands. The Cayman Islands
is also a participant in the annual Coordinated Portfolio Investment
Survey (CPIS) which is coordinated by the IMF. The CPIS collects
data from individual countries and jurisdictions on their cross-border
holdings of portfolio investment assets as at the end of the year,
disaggregated in equities, short-term debt securities and long-term
debt securities. The Cayman Islands has been participating in
the CPIS since 2001.
86. The Cayman Islands Monetary Authority also provides
extensive data on its website on the financial services sector.
Viewers can search for all licensed entities by name; can obtain
information on the size, nature, geographical origins of the industry's
aggregated transactions and a host of other information from the
website.
87. The jurisdiction provides information on a disaggregated
basis under terms and conditions of its various information exchange
agreements and in accordance with the law. CIMA, as its financial
services regulator, has a long history of co-operating with official
regulators in other countries including the UK financial services
regulator on information relating to individual institutions on
regulatory matters.
88. Most of the statistical information mentioned above
is available to the general public via CIMA's website.
89. The Cayman Islands treats the information for privately
owned companies with a similar level of confidentiality as in
most advanced economies, whether offshore or onshore financial
centres. Public companies listed on the Cayman Islands Stock exchange
are subjected to the same level of disclosure requirements as
in other countries, while there is no requirement for privately
owned companies to disclose their information to the general public.
90. It is important to note however, that the level of
regulation and oversight of all companies incorporated in the
Cayman Islands (including privately owned ones) is generally of
a higher standard than that seen in most countries. This is due
to the fact that all service providers incorporating companies
in the Cayman Islands are themselves subject to strict licensing,
ongoing supervision and onsite inspections by the Cayman Islands
Monetary Authority, under the Companies Management Law. The incorporation
and administration of private companies is not regulated as a
matter of practice in most other countries, so this layer of oversight
is considered rare.
91. Indeed, the strength of the Cayman Islands regulatory
regime in this area has been recently acknowledge by US Senator
Carl Levin in his introduction of the "Incorporation Transparency
and Law Enforcement Assistance Act" in the United States
Senate. Mr Levin observed that "each year the United States
allows persons to form nearly two million corporations and limited
liability companies in this country without knowing—or even
asking—who the beneficial owners are behind those corporations".
He then acknowledged that "Most offshore jurisdictions already
request this information as well, including the Bahamas, Cayman
Islands, Jersey, and the [Isle] of Man. Our States should be asking
for the same ownership information, but they don't, and there
is no indication that they will any time in the near future, unless
required to do so.
92. This point is also supported by the OECD's 2006 report
entitled "tax Co-operation: towards a level playing field-2006
assessment by the Global forum on taxation" which points
out that certain small jurisdictions such as the Cayman Islands
have put in place mechanisms that enhance transparency and the
exchange of information for tax purposes, whereas certain onshore
jurisdictions (most notably US states such as Delaware, Nevada
and Wyoming) have not.
93. The implication of this observation for the issue
of transparency is that while the information of private companies
may remain confidential in line with the practice in other countries,
there is an underlying obligation that sufficient due diligence
on the persons behind the companies is carried out as a matter
of law in the Cayman Islands and in strict accordance with the
country's anti money laundering and terrorist financing regime.
How important have the levels of transparency and taxation
in Offshore Financial Centres been in explaining their current
position in worldwide financial markets?
94. The traditional idea that absence of transparency
and tax evasion represents key incentives for investors doing
business in OFCs has long been superseded by a number of modern
motives behind the attractiveness of such centres and by extension,
their success. Such factors include the following:
— The increasing importance of "tax neutrality"
as opposed to tax avoidance as a motive for utilising OFCs.
— The accumulation of knowledge and skills in OFCs
relating to both offshore financial structures as well as in other
areas not traditionally regarded as "offshore" (such
as securitisation for example).
— Ease and convenience of doing business associated
with the geographical location of some offshore centres.
— The relatively higher level of regulatory oversight
in some areas as compared to onshore centres (for example in the
areas of company incorporation and anti-money laundering measures).
95. In the case of the Cayman Islands, transparency is
practiced at high levels as mentioned earlier and it is more likely
that the relatively higher levels of scrutiny gives investors
a level of comfort which may not exist in some other financial
centres.
96. It is important to note that investors in Cayman
Islands based entities, cannot evade or avoid taxation as a matter
of practice in the Cayman Islands. Ultimately each investor whether
individual or a corporate entity will be subject to the tax laws
of its originating country so that when dividends/income is paid
the relevant tax obligations will have to be complied with at
that time. While there are some tax benefits to be had legally,
"tax neutrality" has become an equally, and in some
cases more important, advantage when clients use Cayman Islands
based financial services.
97. Being tax neutral means that whatever tax burdens
the proposed transaction will have in the main operating market
of the companies involved (for example in the US or UK), basing
the structure in an offshore jurisdiction will ensure that there
is no additional tax burden. At the same time, the international
investors will have access to a jurisdiction through which to
conduct business that is neutral from the perspective of each
as often several countries are represented in a group.
98. For example, US Investors that participate in a Cayman
Islands-based hedge fund will have to pay tax on their income
to the US tax authorities. The fund, however, does not have to
pay any additional tax for being set up and operated in the Cayman
Islands.
99. Another example is where international joint ventures
are structured as companies in an offshore jurisdiction because
neither party involved wants to form the company in the other
party's home jurisdiction, while both sides will want to ensure
that there are no unwanted tax consequences. This is achieved
by the new joint venture company being established in a tax neutral
jurisdiction.
100. Another key factor explaining the position of the
Cayman Islands as a leading OFC is the level of expertise developed
over the past four decades across numerous areas. The jurisdiction
attracts some of the world's best qualified and sought after bankers,
accountants, attorneys and investment professionals. These professionals
have been attracted by a market which displays two important features;
the presence of some the world's leading financial services firms
(which in turn attracts the best employees) and a working environment
that is one of the safest anywhere in the world and offers a high
quality of living.
101. These professionals, whether brought in from overseas
or trained up locally, pass on their expertise within the industry.
They also increase their own knowledge significantly as a result
of working in a highly sophisticated financial services market.
Indeed there are many instances of Cayman based professionals
being "poached" by other new or aspiring OFCs (such
as Dubai for example) in order to secure the highest levels of
expertise in a given area. Then end result is that the jurisdiction
increases its expertise exponentially and this has high marketing
value to potential clients seeking to use the services of an OFC.
102. Generally, OFCs will differ in the extent to which
their success is based on the modern motives described above.
New OFCs for example, will face an environment which requires
far more regulation than was required thirty or forty years ago,
as regulatory standards have improved dramatically in both offshore
and onshore centres since then. International cooperation and
the increase in tax agreements between onshore and offshore centres
have also changed the landscape of transparency and information
exchange.
103. It is therefore highly unlikely in today's climate
that lack of transparency or tax evasion would be fundamental
success factors for any OFCs whether these are new to the financial
services market or existing for some time. Countries that seek
to rely on these outdated advantages as a matter of strategy are
likely to fail due to heightened international scrutiny and cross
border cooperation.
Are British Overseas Territories and Crown Dependencies well-regarded
as Offshore Financial Centres, both in comparison to their peers
and international standards?
104. As acknowledged by the FSF report in 2000, all OFCs
are not the same. The offshore centres differ in both the nature
and diversity of their financial services on offer as well as
in the quality of their regulatory frameworks.
105. Notwithstanding this diversity, the Cayman Islands
is one of the so called "mainstream offshore centres"
(other jurisdictions widely held to be part of this group are
Bermuda, Bahamas, BVI, Jersey, Dublin and Switzerland). These
jurisdictions can therefore be regarded as Cayman's peers. For
the most part these jurisdictions recognise the relatively higher
quality of each other in terms of both their commercial success
and regulatory standards. As a result there is cooperation at
both the official levels between regulators as well as within
the private sector as evidenced by many of the leading firms having
offices across several of these jurisdictions. In some cases,
these jurisdictions also provide complementary services based
on their relative strengths. As an example the Cayman Islands
is home to over 90% of the world's hedge funds but a large percentage
of these funds are administered in Dublin.
106. With respect to international standards, the various
independent regulatory reviews are the most objective indicator
of whether offshore centres are well regarded in terms of international
regulatory standards. Each individual jurisdiction will differ
in terms of the extent to which it complies with these various
international standards. As mentioned earlier the Cayman Islands
has received very positive reviews of its regulatory framework
in this regard.
107. Commercially, the international financial markets
also clearly rates the Cayman Islands very highly in terms of
the jurisdiction's quality of service and expertise as well as
its reputation as a well regulated centre. This is evidenced by
the country's position as the only offshore centre which can simultaneously
holds the position of being among the top jurisdictions across
the widest range of services. The Cayman Islands is the number
one choice for offshore hedge funds, is regarded as one of the
world's top offshore banking centre, is second only to Bermuda
in the number of captive insurance companies and is the leading
offshore jurisdiction for structured finance transactions.
108. Another significant endorsement of the integrity
of the Cayman Islands generally lies in the ratings of the jurisdiction
by Moody's, one of the world's leading credit rating agencies.
In 2007, Moody's, raised Cayman's ceiling for foreign currency
bonds and notes from Aa3 or high grade, to Aaa or exceptional.
This recent rating puts the Cayman Islands alongside the UK, US,
Canada and Bermuda. The country ceiling is the highest rating
obtainable for an issuer of long-term foreign currency-dominated
bonds. The Moody's rating is of significance in terms of how highly
the Cayman Islands is regarded because Moody's is an independent
provider of economic information that international banking and
other lending institutions use as one of their guides on whether
they should conduct business with entities within a country, or
a government, and to what extent.
109. Moody's advises that an Aaa country ceiling for
foreign currency bonds and notes could be interpreted as "having
the best and/or exceptional quality with the smallest of investment
risk" so the rating confirms the Cayman Islands status as
a quality jurisdiction from the perspective of international investors.
110. The reputation and general quality of the Cayman
Islands is also evident from a recent review by the UK's House
of Commons Public Accounts Committee in the seventeenth report
of Session 2007-08 entitled "foreign and Commonwealth office:
Managing Risk in the Overseas Territories. In this report the
following observations made by the House of Commons PAC are worth
noting:
— The Cayman Islands are regarded as the one of
most highly regulated offshore jurisdictions based on the summarised
report of compliance presented by the PAC which is based on the
IMF assessments. It is also worth clarifying that this table represents
data from the 2005 review by the IMF and not the follow up assessment
by the IMF in 2007. The significance of this observation is that
the 2007 assessment would have captured the improvements made
by the Cayman Islands in any areas identified by the 2005 review.
— The PAC report acknowledges the "major improvements
in capacity since 2000 (in reference to the Cayman Islands' ability
to adequately regulate its financial services industry).
— The Cayman Islands is the only OFC in a UK Territory
or Crown Dependency which reported successful local prosecutions
in connection with investigating suspicious financial activity.
— The Cayman Islands met the US$2.5 billion cost
of Hurricane Ivan without recourse to UK financial assistance.
The PAC also acknowledges that the Cayman Islands has "advanced
systems" in terms of its standard of disaster management.
To what extent have Offshore Financial Centres ensured that
they cannot be used in terrorist financing?
111. The primary international standard which governs
this area is the FATF's nine Special recommendations on terrorist
financing mentioned earlier. An offshore centre's effectiveness
against terrorist financing will depend largely on the extent
to which it has met the requirements for full implementation of
these recommendations.
112. It is also important to note that in the case of
the Cayman Islands, data from the Royal Cayman Islands Police
in 2006 indicates that terrorist financing accounts for a mere
1% of the total suspicious activity reports made in the country.
While no studies have been conducted as to the reason for this,
it is likely owing to the Money Laundering Regulations as well
as an extensive suite of measures targeted at terrorism financing
starting with the introduction of the terrorism law in 2003. The
Terrorism Law addresses various topics that include:
— definition of terrorist activity;
— forfeiture of terrorist cash; and
— disclosure of information.
113. The Cayman Islands Government also gave effect to
various UN Security Council Resolutions through legislative Orders
eg The Afghanistan (United Nations Sanctions) (Overseas Territories)
Order 2001 and The Terrorism (United Nations Measures) (Overseas
Territories) Order 2001.
114. Finally, the Cayman Islands regularly receives executive
orders from the President of the United States specifying suspected
terrorists and lists from the UN Security Council and other credible
sources and these are immediately circulated to the financial
services industry by the Cayman Islands Monetary Authority. This
enables checking of client lists and any necessary follow up actions.
115. In 2005 the IMF review of the Cayman Islands regulatory
regime concluded that the jurisdiction had "a sound legal
basis and robust legal framework for combating money laundering
and terrorist financing". The report also acknowledged that
the Cayman Islands has "an intense awareness of anti money
laundering and combating of financing of terrorism which is supported
by a sound supervisory program."
116. The Cayman Islands has therefore, not only taken
robust steps to prevent its regime from being abused by terrorist
financing, but has also received acknowledgement via several independent
reviews that its regulatory framework aimed at these activities
is of the highest international standards.
What are the implications for the policies of HM Treasury arising
from Offshore Financial Centres?
117. The implications for policies of HM Treasury ultimately
depend on the research and analysis carried out internally within
the UK on the actual impact of OFCs on the UK economy. But the
potential policy implications can be viewed from two angles; a)
the impact of taxation and b) any potential reputation implications
for the UK as a result of the operations of the OFCs that are
Overseas Dependent Territories (such as the Cayman Islands and
Bermuda) or Crown dependencies (such as Jersey or the Isle of
Man).
118. From a taxation perspective, there is research suggesting
that the lower tax regimes of OFCs could potentially benefit the
levels of investment in countries that serve as the home base
of the multinational parent company. Mihir Desai and Fritz Foley
of the Harvard Business School and James Hines of the University
of Michigan, produced a research paper in 2005 which suggests
that "tax haven activity enhances activity in nearby non
tax havens".
119. In a separate paper, Hines concludes that there
is empirical evidence suggesting that a 1% greater likelihood
of establishing a tax haven is associated with a 2/3% greater
investment and sales in nearby non tax haven countries.
120. There are research difficulties in assessing the
exact impact of lower tax jurisdictions on higher tax countries,
but another way of looking at the question of impact is to view
the continuing use of lower tax jurisdictions by companies as
proof that it is economically beneficial to their business and
global competitiveness and by extension good for the respective
economies in which they are domiciled (and also where they tend
to employ the most staff members).
121. Research also suggests that lower corporate tax
rates do not necessarily translate into less tax revenues to the
extent that the lower taxes encourage more taxable economic activity
and this is a further issue for HM Treasury to consider when considering
its domestic tax policies.
122. HM Treasury's policies with respect to the potential
regulatory reputational risk of OFCs are a relatively easier matter
to address. The UK should continue to work with such centres to
ensure that they meet high international regulatory standards.
To a large extent much of this has been achieved already as is
evident from the various independent reviews of some OFCS over
the past eight years. In particular the Cayman Islands has received
numerous endorsements of its regime from international standard
setting bodies as mentioned earlier and these results should serve
as the basis for guiding HM Treasury's policies.
What has been and is the extent and effect of double taxation
treaty abuse within Offshore Financial Centres?
123. Double taxation treaties are usually only executed
between countries where both countries have a direct taxation
system. One of the reasons for this is to prevent abuse of such
treaties by companies who can potentially restructure their affairs
in such a way as to always affect the minimum level of taxes via
the country with the lower tax rate. The abuse occurs because
it is felt that this restructuring goes against the spirit of
the double tax treaty which was primarily to avoid duplicating
tax liabilities for the individual or company, not to reduce the
tax liability (or in some cases, completely avoid any tax liability
at all). As the Cayman Islands does not have a direct taxation
regime, it does not have any double taxation treaties in place.
124. While the abuse of double taxation treaties does
not apply in the case of the Cayman Islands, it is worth noting
that the Cayman Islands does not have a regime which facilitates
or encourages tax evasion. Indeed, the Cayman Islands was excluded
from the list of 35 countries which were blacklisted by the OECD
as "uncooperative" in terms of having a harmful tax
regime and the jurisdiction committed to implementing measures
to prevent harmful tax practices. The previously mentioned agreement
of the Cayman Islands in participating in the European Savings
Tax Directive (EUSD) through the implementation of mechanisms
for sharing information with European Tax Authorities was just
one of such measures.
To what extent do Offshore Financial Centres investigate businesses
and individuals that appear to be evading UK taxation?
125. In general, the extent to which offshore centres
investigate businesses and individuals that appear to be evading
UK taxation will depend on each country's individual legal framework
and international treaties in this regard. However it is unlikely
that such frameworks will directly facilitate investigation of
UK tax offences as a matter of law and international convention,
but instead will more likely facilitate some level of assistance
to the UK tax authority in the event of an investigation.
126. As mentioned earlier the Cayman Islands have signed
up to the European Savings Tax Directive and have in place a Tax
Information Exchange Agreement with the United States. Both of
these initiatives operate under terms and conditions which enable
information and assistance to EU tax authorities and the US tax
authority (the IRS).
127. These two important initiatives provide a level
of information and assistance which would help the overseas tax
authorities to carry out their own investigations.
128. The Cayman Islands does not have a TIEA or any other
form of taxation agreement in place directly with the UK. As the
Cayman Islands does not have a direct tax system the country's
legislative framework does not address (ie criminalise) tax evasion.
However it does provide assistance to other countries under certain
agreements (see discussion under section on double taxation treaty
abuse).
June 2008
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