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Opinion: Cayman’s compliance with the OECD standards on tax co-operation

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In the second of two articles, Grant Stein (pictured), global managing partner of international law firm Walkers, argues that the Cayman Islands have a long-standing record of compliance with the Organization for Economic Co-operation and Development’s five standards for tax co-operation through laws, procedures, regulatory regimes and bilateral agreements with countries across the globe.

The Organization for Economic Co-operation and Development’s five standards for tax co-operation have become the international norm for tax co-operation, adopted by the G-20 group of countries in 2004 and by the UN Committee of Experts on International Co-operation in Tax Matters in October 2008.
Exchange of information
The OECD expects exchange of information on request where it is “foreseeably relevant” to the administration and enforcement of the domestic laws of the requesting party. Relevance is key, and ‘fishing expeditions’ will not be permitted.
In May 2000, Cayman made commitments to the OECD to introduce measures for the exchange of tax information and was one of the first non-OECD jurisdictions to adopt the principles of transparency and exchange of information. As a result, it was omitted from the OECD’s ‘tax haven’ list published in June 2000.
Ten years on, Cayman continues to honour those commitments with legislation (the Tax Information Authority Law, 2005) and tax information exchange agreements or arrangements currently in place with 20 jurisdictions, Aruba, Australia, Canada, Denmark, Faroë Islands, Finland, France, Germany, Greenland, Iceland, Ireland, Mexico, the Netherlands, Netherlands Antilles, New Zealand, Norway, Portugal, Sweden, the US and UK.
Negotiations are underway to sign up to many more, with an agreement in principle reached recently with the government of Japan and another 10 agreements due to be concluded, several of them with G-20 countries of economic significance to the Cayman Islands, such as Italy and South Africa.
In addition, Cayman enacted the Reporting of Savings Income Information (European Union) Law, 2005 to effect the implementation of bilateral agreements between 27 member states of the European Union in relation to the reporting of savings income information.
Similarly, Cayman has a history of sharing information under memorandums of understanding between the Cayman Islands Monetary Authority and various overseas authorities, as well as prominent regulators such as the Financial Services Authority in the UK and the Securities and Exchange Commission in the US. Indeed, the Monetary Authority Law (2008 Revision) clearly states that one of the principal functions of Cima is to “provide assistance to overseas regulatory authorities”.
It is clear from the actions and agreements concluded over the last 10 years that Cayman is no stranger to the concept of compliance with international tax information exchange standards.
No restrictions from bank secrecy or local tax requirements
Cayman has a longstanding history of co-operation to increase transparency in the banking system and to tighten banking regulation. Various provisions Cayman law compel or require banks to disclose information.
The Bank & Trust Companies Law (2009 Revision) gives Cima supervisory and investigative powers over banking practices, and the Mutual Legal Assistance (United States of America) Law (1999 Revision) was enacted nearly a quarter-century ago in 1986 for the purposes of obtaining information from individuals and entities (including banks) for use in criminal investigations or proceedings.
The Proceeds of Crime Law, 2008 (originally enacted in 1996) deals with money laundering and terrorist financing. For some time, Cayman has maintained anti-money laundering legislation that is among the most stringent in the world and that was updated in 2008 in response to further CFATF recommendations. Cayman also recently published the Proliferation Financing (Prohibition) Bill, which seeks to identify and prevent money being transferred to countries or entities suspected of building or dealing with nuclear weapons in contravention of international mandates.
Accessibility and reliability
The OECD expects information requested by another jurisdiction to be obtainable and reliable. Regulations and systems must be in place that obligate private and government bodies to collect and store relevant and up-to-date information, as well as providing access to an appropriate authority that can forward the information to the requesting country in appropriate circumstances.
Under the Monetary Authority Law, Cima has operational independence with rights of access to relevant client information held by financial institutions. If requests are not complied with within three days, the regulator can obtain a court order for disclosure. Importantly, compliance with such a request will not be treated as a breach of any legal restriction on disclosure or give rise to any civil liability. This safeguards the holder of the client information and encourages co-operation.
It is noteworthy that the Registrar of Companies does not have the ability to share information with overseas regulatory authorities, but Cima is empowered to obtain information from any person reasonably believed to have information relevant to an enquiry, including the Registrar of Companies.
The Financial Reporting Authority deals with money laundering and terrorist financing matters and, under the Money Laundering Regulations, 2009, financial service providers are obliged to comply with various administrative requirements to ensure that they have systems in place to identify suspicious activity and that their staff are trained in and comply with the money laundering regulations.
Clear guidelines and expectations together with tough sanctions (failure leads to criminal offences) mean that financial service providers take this responsibility seriously, and as a result, client records and KYC checks in Cayman are well established, thorough and kept up to date, allowing Cima access to comprehensive and reliable data to assist overseas regulatory bodies with investigations as necessary.
The Tax Information Authority is the competent authority in the Cayman Islands tasked with dealing with all tax co-operation matters. It can make written requests for information, apply to a judge to give effect to a request, apply for a court order to produce the requested information and apply for a search warrant to search for and seize specified information.
These powers provide the authority with effective access to information to pass on to an overseas authority once it is satisfied that the request for information is both reasonable and relevant. The process evidently works: an IRS official quoted in the July 2008 US Government Accountability Office report on the Cayman Islands advised that the Cayman government had provided requested information in a timely manner for all Tiea requests.
Respect for taxpayers’ rights
The rights of the people of the Cayman Islands and elsewhere are respected and protected in a number of ways. The Anti-Corruption Law, 2008 and the Freedom of Information Law, 2007 both reinforce the fundamental principles underlying the system of constitutional democracy: government accountability, transparency and public participation in national decision-making.
In addition to protecting citizens from corruption within the Cayman, the protection also extends to other jurisdictions, where for example, a Cayman company is involved in corruption outside the territory. Cayman is the only offshore centre with this type of legislation in place and whistle-blowers are protected to encourage the disclosure of any wrongdoing. Qualifications to absolute transparency are required, however, to protect the unreasonable disclosure of personal information and information given in confidence by foreign governments and international organisations.
The OECD seeks to strike a balance between the need for jurisdictions to enforce their tax laws and the legitimate desire for confidentiality and privacy in business and financial affairs. Consequently, it requires strict confidentiality to be applied regarding any information exchanged between international and domestic authorities and stipulates that information obtained by such authorities should only be used for the purpose for which it was originally requested.
Cayman addresses this balance in a number of ways. The Confidential Relationships (Preservation) Law (2009 Revision) was first enacted in 1976 to protect bona fide business dealings but recognised the necessity of permitting disclosure under certain circumstances. The legislation codifies the English common law of confidentiality and recognises the duty of lawyers, bankers, accountants, government officials and financial professionals to maintain the confidentiality of the identity and business of their clients. This duty is qualified in various circumstances, including where disclosure is made under compulsion by the Confidential Relationships or another Cayman law.
Cayman has taken a positive approach to international co-operation and the flow of information. It takes a tough stance on tax evasion and corruption and has been proactive in the global fight against money laundering for many years. Laws, procedures and regulatory regimes in place, along with bilateral agreements with more than 30 countries and a key advisory role at the heart of the OECD, all testify to Cayman’s embrace of transparency and co-operation.
This demonstrates just how actively involved Cayman really is at a time when the recent global economic crisis, combined with the ever-increasing complexity of cross-border financial structures and transactions, has shifted the world’s focus toward international co-operation and transparency.

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