Cayman Islands: The Supranational Initiatives: The Hidden Agenda?

Anthony Travers, OBE, is Senior Partner and Managing Partner of Maples and Calder, Europe.

The publication of the report "Towards a Level Playing Field"1 prepared by the influential international law firm, Stikeman Elliott, provides a welcome and timely opportunity to pause and analyse more objectively certain of the assumptions that underpin the initiatives of the Organisation of Economic Co-operation and Development ("OECD")2 and the Financial Action Task Force ("FATF"). The new report makes the evident point. The OECD claim to seek a level playing field for the regulation of all jurisdictions but they are unlikely to be, and on the evidence have not been, an impartial referee in regulating a market in financial products and services, 80% of which is dominated by OECD members.

The new report gives substance to a view widely held in the offshore financial centres; that the OECD and the FATF, both of which are agencies of the G7 countries, are simply applying double standards. The report makes it clear that not only is corporate transparency in the offshore financial centres already at a far higher level than that applicable in most OECD jurisdictions but, further, there appears to be no pressure from the OECD jurisdictions to improve their own transparency to a similar level.

Whilst the new report focuses on the transparency of corporate vehicles, partnerships and trusts in the offshore financial centres, similar conclusions can be drawn with regard to the standards of transparency, know your client due diligence and anti-money laundering legislation across the board in each of the recognised offshore financial centres, notably the Cayman Islands, Bermuda and Jersey. No doubt should exist that these new standards of transparency have indeed resulted from the highly successful OECD initiatives and in part from the pressure applied by the Financial Action Task Force with regard to money laundering. But given that those standards have now been introduced, why is it the case that no one has yet turned off the spigot that controls the negative public relations that have been used to shape the public opinion that presaged these initiatives? Few in the recognised offshore financial centres had supposed that aiding and abetting cross-border tax evasion was either sensible, sustainable or permissible in the light of the suspicious activity reporting obligations introduced in the mid 1990s and yet press releases that emanate from Treasury departments still relentlessly press on the subject of the offshore money laundering scourge. If this were an even handed and objective debate, the offshore jurisdictions should now be anticipating from the OECD a more mature recognition of that which has been achieved; indeed, if there were any degree of probity in the debate, some pause for reflection of that sort would be an appropriate to allow the onshore jurisdictions, the United Kingdom apart, time for their legislation to catch up.

But it seems that the offshore financial centres are entitled to no such recognition from the G7 countries nor their Treasury departments. A charitable response might suggest that, notwithstanding the OECD Commitment Letter signed the major offshore financial centres, there is still some time to go before the bilateral agreements pursuant to that commitment are in place, country by country. Perhaps there is also doubt remaining within those Treasury departments as to whether or not the OECD have indeed successfully moved the goal posts to include tax offences within the definition of money laundering. Perhaps that explains why the negative campaigning continues relentlessly. However, even if doubt does remain, it is hard to justify continued criticism on the point; similar doubt would exist in any of the OECD countries.

It is then increasingly difficult to understand why so little credit has been accorded to those offshore financial centres that have acceded to the OECD initiatives on tax transparency and which have applied the new FATF anti-money laundering regulatory regime. Certainly that regime as it now applies in the Cayman Islands, Bermuda and Jersey requires a higher standard of due diligence than exists under the Patriot Act in the United States and in Continental Europe, and it applies across a broader band of financial service provider. Further, the know your client and source of funds due diligence must be applied in these offshore financial centres retroactively to every existing client regardless of the date of inception. In which OECD countries is this rule in force?

The gap between the two standards sought to be applied by the OECD is now so wide that it can no longer be spanned by artifice alone. The offshore financial centre must now drill through corporate ownership until the identity of each ultimate 10% beneficial owner is obtained. No such similar obligation applies in most of Continental Europe or in many other OECD jurisdictions. Why then in the Senate Sub-Committee hearings on Enron did Senator Carl Levin refer to the Cayman Islands as a "secrecy jurisdiction", notwithstanding that the Cayman Islands were one of the first jurisdictions to enter into the full spectrum anti-money laundering treaty with the United States in 1990, and were one of the first to enter into the tax information exchange agreement with the United States in November 2001 following the OECD commitment to tax transparency. Did this not adequately demonstrate co-operation of the highest order in relation to what was at the time new and not universally accepted (then or now) standards of international comity?

The better and more compelling answer is that suggested by the new report. The need for the G7 nations to apply a double standard is primarily driven by the need to prevent an outflow of mobile capital from the high tax European Union jurisdictions where the fear of budgetary deficits, unfunded pensions and uncompetitive levels of social security spending, make increased levels of taxation a foregone conclusion. To the Treasury departments in these jurisdictions, globalisation and mobile capital are the weapons of mass destruction; no wonder the events of September 11th have been so swiftly hijacked by those Treasury departments to maintain a political momentum against those offshore financial jurisdictions which, in their eyes, harbour the threat.

But as time passes, the negative implications suggested by these public relations campaigns are becoming less and less credible. An impartial review of the evidence does not place the OECD jurisdictions in good light. We are aware that the funding for the September 11th terrorists passed through routine banking channels in the United States. That a transfer of US$75,000 to Mohammad Atta, one of the hijackers, at the Florida Sun Trust Bank in Delray Beach triggered a suspicious activity report to FINCEN that was not acted upon3. We are aware that Russian interests were able to launder US$7 billion directly to a bank in Manhattan. We are aware, as is the US General Accounting Office in a report tabled in October 2000 entitled "Suspicious Banking Activities: Possible Money Laundering by US Corporations formed for Russian Entities", that more than 2,000 Delaware companies were formed for Russian citizens from 1997 to 2000 in blocks of 10 to 20 at a time, sold to Russian corporate brokers, with the result that over US$2 billion was laundered directly into the Commercial Bank of San Francisco. Yet, the subsequent report by the US Senate Commission on Suspicious Banking Activity focussed public danger entirely on offshore financial centres.

We are also aware that Mr Abacha transferred US$4 billion from the Nigerian Treasury through banks in the City of London to Switzerland, and we are also aware that notwithstanding the transparency with regard to money laundering in the Cayman Islands which dates from the Mutual Legal Assistance Treaty with the United States in 1990, no similar case of money laundering, or anything like it, has yet been revealed. The relevant United States authorities are somewhat coy about revealing to the Cayman Islands authorities precisely how many of the investigations pursuant to the 1990 Treaty have resulted in convictions for money laundering, if any.

Clearly also the offshore financial centres remain the victims of the internecine warfare between the US regulatory agencies. Little or no credit was given to the offshore financial centres by any agency other than the Department of Justice, which is the Federal department designated by the United States Government pursuant to the 1990 Treaty as having exclusive access to the Treaty with regard to money laundering offences in the Cayman Islands. No favourable conclusion appears to have been drawn from the fact that in the Cayman Islands less than 200 applications have been made by the Department of Justice over a 12 year period pursuant to that 1990 Treaty which provides greater transparency with regard to the information sought than would exist in the United States.4

This transparency is of a very high, indeed some would say the highest, order and given that criminals and money launderers are generally no doubt well advised, an objective analysis should conclude that it has been, for over a decade, sufficient to dissuade the money launderer from the use of the Cayman Islands. But neither that common sense analysis nor the evidence seems to play compellingly with the competing United States agencies. Nor with certain United States prosecutors who no doubt feel frustrated that their investigations lack similar extra-territorial effect, and indeed may not be advanced save by recourse to the Department of Justice. This comparatively simple expedient for information gathering in the offshore financial centres appears not, and for reasons best known to them, an available or attractive option. But whatever the perceived deficiencies of the 1990 Treaty may have been, is continued and continual criticism justified in the light of the cross-border regulator to regulator disclosure now introduced in the offshore financial centres pursuant to the FATF initiatives?

The answer to that question seems affirmative; we should not forget that the European Union is enmeshed in internecine warfare of its own making on the subject of the European Union Savings Directive. Whilst the predictable recalcitrance of the Swiss bankers is providing a possibly fleeting diversion, the fact of the matter is that whether it is immediate and spontaneous tax reporting required by the Directive or the application of a withholding tax, potential for significant damage to the European Union economy arises unless the mechanism of choice (or possibly a classically negotiated European Union compromise), is adopted on a global basis. One has a degree of sympathy on this point; the European Central Bank needs no additional assistance in meeting that objective. Once again, the offshore jurisdictions simply represent the soft and immediate target and it is highly unlikely that full faith and credit and indeed positive publicity from the relevant Treasury departments will be accorded to any such jurisdiction with respect to its tax transparency nor its anti-money laundering legislation whilst that offshore jurisdiction has a more competitive tax rate and is not fully signed up to the European Union playbook. Indeed, the position of the offshore financial centres is somewhat more parlous than that; those constitutionally entrusted with advancing the interests of the Dependent Territories5 appear to regard the Dependent Territories as no more than a chip to be brought to the table in an effort to avoid the imposition of withholding tax on the City of London euro bond market.

It may in the light of the foregoing be naďve to suppose that there is room for objective analysis on the part of the OECD or FATF countries, or indeed a proper forum in which to advance the argument that well regulated and transparent offshore financial centres such as the Cayman Islands, Bermuda and Jersey have an important part to play in enabling onshore institutions to access the international capital markets, reducing reliance on bank and quasi bank funding and indeed therefore the cost of borrowing, or indeed to make the point as was made by Alan Greenspan most recently. In his view, the reason why a current banking crisis may have been averted in the G7 countries has a great deal to do with the financial engineering and risk transference that is an essential part of the bankruptcy remote vehicles structured in the offshore financial centres for the benefit of onshore financial institutions.

Unless and until there is a more realistic assessment by the G7 countries of the policies that drive mobile capital and of the realistic relationship of the offshore financial centres and the onshore markets, it is unlikely that the public relations machines that have been responsible for forming negative public opinion about the offshore financial centres will be reined in. But on any objective analysis the debate and the public relations campaigns have become dangerously unbalanced. Clearly, if those responsible for forming public opinion on these matters are truly intent on co-operation and a globally transparent system, then the deliberate disinformation and disingenuity that underlies this negative campaigning does not form the basis on which to forge any meaningful relationship. It is this relentless bias that in fact poses the systemic risk. As it stands there are hundreds of billions of dollars of well structured financial transactions based in well regulated transparent offshore financial centres with excellent professional infrastructure to support them, all of which are inextricably linked to the financial position of financial institutions in OECD countries. One possible outcome is the flow of these funds to infinitely less transparent centres where the writ of the OECD does not run, with costly dislocation to the current financial architecture. If the financial condition of the G7 economies were robust, that would be a brave enough risk to take. In the current climate it seems ill considered, but would have the ancillary benefit of establishing beyond reasonable doubt the existence of the law of unintended consequences. At the least, those responsible for the negativity should realise that their position is becoming increasingly untenable, that by acceding to the OECD and FATF initiatives, a number of offshore jurisdictions have changed the rules of the game objectively and transparently so, and that as a result their standing has been necessarily enhanced in the eyes of the financial institutions who access the international capital markets. That should be regarded by all as a positive outcome and should be described as such.

1"Towards a Level Playing Field: Regulating Corporate Vehicles in Cross Border Transactions" A report commissioned by the International Tax & Investment Organisation and the Society of Trusts and Estate Practitioners, available at

2 Organisation of Economic Co-operation and Development "Harmful Tax Competition: An Emerging Global Issue", 27 April 1998, "Behind the Corporate Veil: Using Corporate Entities for Illicit Purposes", July 2001 and "Report on the Misuse of Corporate Vehicles for Illicit Purposes", May 2001

3 See "The Base: In search of Al-Qaeda", Jane Corbin, Simon & Schuster.

4 Information obtained must be sent to the United States without the application of client-attorney privilege, or indeed any fifth amendment rights and the Cayman Islands professional would commit a criminal offence if he advised the client that the information has been thus disclosed.

5 see"Partnership for Progress and Prosperity: Britain and the Overseas Territories" presented to Parliament by the Secretary of State for Foreign & Commonwealth Affairs by Command of Her Majesty March 1999

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions