Almost 58% of voters in a recent poll suggested Cayman should
reject FATCA. Don't get me wrong, my stomach says the
same, but I'm going to try to explain why we cannot.
FATCA is a monster. It will cost millions of dollars,
considering all of the costs of compliance for each of the
institutions. But what would happen if Cayman had not signed
up to it?
First, we need to clarify who we are referring to when
discussing if Cayman should have rejected FATCA. The
Government was invited, and only joined with the support of the
industry, so let's evaluate what would have happened if
Government did not sign.
At this stage, I will simplify some concepts to make things
easier. So while some of the statements below may not be an
exact explanation of FATCA, the consequences are correct, and after
all, FATCA itself is several hundreds of pages.
If an institution refuses to sign up to FATCA, 30% on every
transaction it makes in US dollars would be withheld on their own
behalf or on behalf of a customer. So unless local banks were
to sign up for FATCA, from the day of implementation, every time
you made a transaction in a local bank, they would take 30% of your
transaction value. Even more, banks clear a CI Dollar cheque
by transferring the equivalent US dollars between them in the US,
so even CI transactions would be subject to a punitive tax kept by
the US. If the Cayman Islands Government and the banks wanted
to escape FATCA, they would need to stop using the US dollar all
together, and we would need to create a new currency system where
our currency is not pegged to the dollar. Given the UK and
Europe are going the same way, we could not peg it to those
currencies either. Therefore, we would need a floating
currency, which will automatically mean the complete disappearance
of our international financial industry that represents over 50% of
our GDP and government revenue. Even if we were to make the
silly assumption that hotels, restaurants, and every other business
would not be affected by this loss, civil servants, elected
officials, police, and social services beneficiaries would need to
take a 55% cut in their salary, as the Government would loose 55%
of its revenue.
If you still think the Cayman Islands Government and local
institutions should have said "no", I give
up. You should move to Cuba, probably the only country
in the world that might remain completely out of it.
Now, what is the problem with the institutions doing it
themselves and the Government not signing? Well, the problems
are technical in nature — complications in liability and
documentation needed if the Government does not drive it
locally. But the bottom line is while the information would
still be sent to the US, in a way, they achieve what they want, and
the cost for the economy as a whole would be significantly
Let's say the police catch you speeding and driving under
the influence. You are going to pay a fine and be riding a
bike for a while. Do you accept it or do you refuse to pay
the fine and keep driving, making things worse for yourself?
Maybe a few lawyers and accountants like FATCA as they will see
more business, but most of us don't. It's like a
hurricane heading straight at us — ignoring it is not an
option, we need to accept it and get ready.
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