The Cayman Islands is acting to tackle money laundering and tax evasion, while also respecting clients’ right to confidentiality. By Ziva Robertson
Much has been written in recent times about ‘banking secrecy’ in offshore jurisdictions and its connection with money laundering and tax evasion.
It is, perhaps, to be expected that at times of financial turmoil governments should look at ways of maximising the efficacy of their tax collection strategies and it is against this background that attention has once again turned to the offshore jurisdictions.
However, critics have largely ignored the many efforts of such jurisdictions to strike a balance between the need to curtail and prevent money laundering activities within their borders and the need to protect the legitimate needs and interests of the clients who comprise and sustain their financial industry. This article examines the measures introduced by the Cayman Islands to strike such a balance.
Confidentiality or secrecy?
The distinction between confidentiality and secrecy is analogous with that of tax avoidance and tax evasion: the former is strategy legitimately deployed to minimise tax liability; the latter connotes an attempt unlawfully to withhold tax.
Similarly, the right to keep one’s legitimate and lawful affairs private should not be confused with attempts ;at ;fraudulent concealment. While there is every reason to seek out and eradicate the latter, offshore jurisdictions (and some onshore ones) ;may legitimately take the view that the former is a right worth protecting.
There are many reasons why persons may wish to protect their confidentiality, ranging from personal safety to lawful financial or estate planning and the avoidance of future family disputes. In the UK, the right to privacy is increasingly protected by the Courts as a human right, yet measures taken by offshore centres to preserve confidentiality by means of legislation is often branded ‘banking secrecy’.
The Confidential Relationships (Preservation) Law (CRPL)
Cayman is seen by some as a ‘secrecy jurisdiction’ that resists attempts at disclosure through the provisions of the CRPL, which, in broad terms, imposes criminal sanctions on professionals who divulge to third parties information imparted to them without the consent of the person who imparted that information or an order of the Court.
There are a number of exceptions to this broad principle, which is intended to protect persons who, in pursuance of legitimate business or personal affairs, choose to avail themselves of the sound financial and legal infrastructure of the islands.
Confidentiality is not, however, absolute, and various mechanisms are available to those who legitimately wish to obtain disclosure of information.
These mechanisms usually involve a short application to the local court to enable it to determine how best to balance the interests of the person whose information is in issue against the legitimate interests of other persons, states or judicial authorities. Disclosure, coupled with appropriate safeguards, is usually ordered when the interests of the case so require.
The EU Savings Directive (EUSD)
In 2005 Cayman implemented primary and secondary legislation that brought it into compliance with the EUSD. Cayman chose to report savings income rather than withhold tax and the regime enables the contracting states to monitor the savings income received by persons who are tax-resident within their shores. These provisions displace those of the CRPL so it is not an offence to divulge the required information.
The Proceeds of Crime Law (POCL)
The POCL, which came into force in Cayman on 30 September 2008, consolidated and repealed Cayman’s anti-money laundering (AML), anti-terrorism and anti-drug legislation. The new regime mirrors closely the English Proceeds of Crime legislation and ensures that Cayman legislation remains compliant with the recommendations of the Financial Action Task Force.
The POCL preserves the AML offences that are, by now, familiar to practitioners (eg entering or assisting in an arrangement for the retention or control of the proceeds of crime; obtaining, concealing or removing property that is the proceeds of crime; tipping off or failing to report suspicions; see box, below).
The defences available under the POCL are similar to those available under English law. They include lack of relevant training; non-disclosure of privileged information obtained by legal or other professional advisors; being in possession of property acquired for valuable consideration; and having a “reasonable excuse” for not making a disclosure. The term “reasonable excuse” is not otherwise defined in the legislation, and it remains to be seen how it will be interpreted in future.
While there are various legitimate reasons for offshore jurisdictions to protect the interests of their clients by means of confidentiality laws, the perception that their legislation encourages money laundering and criminal conduct is, in reality, very far from the truth.
Cayman has, for a long time, been at the forefront of offshore legislative initiatives to ensure that the status of the jurisdiction as a legitimate and ‘clean’ financial centre is maintained and upheld. Its new and comprehensive legislation is testament to the jurisdiction’s commitment to providing a high standard of legitimate financial services, on a par with onshore jurisdictions’.
Ziva Robertson is a partner at Mourant du Feu & Jeune