Cayman Islands: Panama Papers: Some Perspective From The Cayman Islands

Last Updated: 17 April 2016
Article by Ian Huskisson and Neil McLarnon

"Cayman retains many secrecy features—not least a law that can put people in jail not just for revealing confidential information, but merely for asking for it."

Summary

This quote comes from an article in the current edition of Newsweek, entitled "Panama Papers – Top 10 tax havens – where the money is hidden". Although the Cayman Islands ranks below the United States1 in Newsweek's top 10 "tax havens", the Newsweek article adopts the familiar mischaracterization invented and routinely perpetuated by the extreme left wing organization Tax Justice Network that offshore jurisdictions in general and the Cayman Islands in particular incorporate extreme measures to keep a person's confidential information from the prying eyes of foreign tax authorities.

Nothing could be further from the truth. The Cayman Islands has adopted a regime of full transparency, based on the OECD Model Agreement that provides for the disclosure of all beneficial ownership information to tax authorities. The applicable Cayman Islands statute makes it clear that it is no answer to a request that the information required is confidential. In many ways, as can be seen from the recent case discussed below in which Travers Thorp Alberga acted for the United States citizen concerned, it could be said that the Cayman Islands authorities have been too enthusiastic in their desire to assist tax collectors overseas that they may have lost sight of the need to respect basic civil liberties.

It is certainly not the case, as stated by the Newsweek article, that under Cayman Islands law even asking for confidential information to be revealed can put people in jail. Under the Confidential Relationships (Preservation) Law (CRPL) any person who wishes to disclose another's confidential information (typically a client or former client) must obtain consent or the leave of the court. Disclosure to tax authorities is generally exempted from CRPL, though certain procedures must be followed to ensure fairness. In the case discussed below, in which Travers Thorp Alberga represented the United States citizen, the court refused an application under CRPL by four insurance executives to give confidential information in evidence against a former client in a criminal tax trial in the United States. Leave was refused not because of any requirement to keep the client's affairs secret, rather because the correct procedure had not been followed by the Tax Information Authority in the Cayman Islands for obtaining the required evidence and the client's civil liberties had not been respected.

The case underlines the need for there to be a balance struck between the desirability of assisting legitimate tax investigations and prosecutions overseas on the one hand and for a person's fundamental rights to be respected on the other. The fundamental rights engaged include the right to a fair hearing, which will ordinarily bring with it a right to prior notice before orders are made which affect a person's rights. Interestingly, the Federal Court in the United States reached similar conclusions in relation the manner in which the investigations and proceedings in the United States had been conducted, finding that there had been a violation of due process under United States law.

In the matter of the United States of America v Verna Cheryl Womack

Mrs Womack had been indicted for a series of tax related offences in the United States. It was alleged that she had opened a series of bank accounts and set up nominee companies and trusts in the Cayman Islands to conceal a portion of her wealth from the IRS. The prosecution case relied heavily on documents which had been obtained from a number of professional service providers in the Cayman Islands that Mrs Womack had engaged to establish and operate the bank accounts, companies and trusts in issue.

The documents had been obtained by the Cayman Islands Tax Information Authority (TIA) acting at the request of the IRS. The Cayman Islands have enacted legislation to put into effect treaty obligations to ensure the timely disclosure of information to overseas tax authorities. This is known as the Tax Information Authority Law (TIAL). The TIAL establishes the TIA and contains a framework to disclosure of information. The law incorporates some safeguards with the aim of protecting a person's fundamental rights. These include a requirement to obtain a court order prior to requiring disclosure in criminal proceedings and the requirement to give notice to persons affected in certain civil cases.

The CRPL applies to "all confidential information with respect to business of a professional nature which arises or is brought into the islands and to all persons coming into possession of such information at any time thereafter whether they be within the jurisdiction or thereout". It is an offence for confidential information to be disclosed without leave of the court. The practice in the Cayman Islands is to seek leave of the court prior to disclosing confidential information belonging to a third party principal, voluntarily or otherwise. There is no offence committed in asking for information to be disclosed. The onus is on the holder of the information to seek leave of the court in the event the principal does not agree to the disclosure.

Any tension between the two statutes is resolved by provisions in the TIAL which make it clear that no offence is committed under CRPL when disclosure is made of otherwise confidential tax information in compliance with the TIAL. The TIAL also contains provisions for the giving of testimony.

In Mrs Womack's case, the IRS had obtain and relied on a substantial amount of disclosure which it had obtained from service providers in the Cayman Islands under compulsion via the TIAL. Contrary to the image of extreme secrecy that is sometimes projected, disclosure in TIAL cases is commonly provided, extending to bank statements, correspondence and other files. In Mrs Womack's case, she had engaged the services of insurance professionals to assist her set up businesses in the Cayman Islands. These professionals (amongst others) gave extensive disclosure of Mrs Womack's confidential documents to the IRS. Since the disclosure was given in accordance with requests under the TIAL there was no question of their having committed an offence under CRPL by disclosing Mrs Womack confidential documents.

The insurance professionals were then asked to testify at Mrs Womack's trial. One was served with a subpoena. As a precaution however and prior to their giving testimony at trial they wished to obtain the leave of the court under CRPL. They first applied to court without informing Mrs Womack but the court required that she be told about the application before any order was made. Mrs Womack then opposed the making of an order on the grounds that the proper procedure for obtaining testimony under the TIAL had not been followed, amongst others. The court agreed with Mrs Womack and rejected the applications, noting that there was nothing stopping the IRS from instigating a request in the proper form under the TIAL requiring the individuals to testify. The proper procedures under TIAL should not be circumvented by making applications for leave under the CRPL.

The court also considered the question of to what extent a person under investigation or prosecution for tax offences is entitled to notice of attempts to obtain disclosure of their confidential records. In Mrs Womack's case much of the disclosure had been given under compulsion by court order, no prior notice of which had been given to her. Noting that there will always be cases where notice is inappropriate (in particular where by giving notice the investigation risks being compromised) the court accepted the argument advanced by Travers Thorp Alberga on Mrs Womack's behalf that the default position is for notice to be given in cases that come before the court. A person is entitled as of right under Cayman Islands law to a fair hearing and that is likely to be difficult to achieve in conditions of secrecy. The Judge explained that the right to a fair hearing is:

"Consonant with the presumption of innocence, itself another fundamental right recognized by section 7(2) of the [Cayman Islands] Constitutional Bill of Rights in relation to persons charged within the islands with a criminal offence. As will be discussed further below, the presumption of innocence is a right observed by other regimes for mutual legal assistance where they impose a threshold test that request the showing of a reasonable cause to believe that an offence has been committed. The absence of this threshold test from the TIAL regime does not diminish but enhances the importance of notice".

In the context of testimony, the requirement for notice provides the person affected with the right to be present when the information is disclosed and the right to test the appropriateness of the disclosure by cross examination. It is hard to ignore the double standards of a prosecuting authority claiming it is entitled to obtain evidence compulsorily in secret from a jurisdiction regularly (and wrongly) accused of being secretive itself.

Conclusion

There is clearly no valid basis to allege that Cayman Islands law contains any "secrecy" measures in tax cases. It is not an offence to ask for disclosure of confidential information. The IRS and many other prosecuting authorities regularly seek and obtain disclosure of confidential records for use in tax investigations and prosecutions. If anything the Cayman Islands and the relevant authorities and professionals involved have been zealous in their desire to cooperate in international tax affairs. The Cayman courts have intervened where it is necessary and appropriate to do so to ensure fair play, due process and uphold the Rule of Law, which is surely an indication of a properly functioning society as well as a good place to do legitimate business. Both professionals facing such disclosure applications and persons affected by them would do well to take their own separate legal advice in deciding how best to deal with any such applications in accordance with the applicable laws both in order to ensure that the comply with the relevant laws and, in the case of professionals, that they do not leave themselves open to claims in negligence and/or contract by their clients.

Ian Huskisson and Neil McLarnon are partners in Travers Thorp Alberga's dispute resolution team based in the Cayman Islands. They acted for Mrs Womack in this case.

Footnote

[1] Newsweek noted: "The United States is more of a cause for concern than any other individual country, according to the Financial Secrecy Index, because of both the size of its offshore sector, and also its rather wayward attitude to international cooperation and reform. The U.S. provides a wide array of secrecy and tax-free facilities for non-residents, both at a federal level and at the level of individual states. Though the U.S. has been a pioneer in defending itself from foreign secrecy jurisdictions, aggressively taking on the Swiss banking establishment and setting up its technically quite strong Foreign Account Tax Compliance Act (FATCA), it provides little information in return to other countries, making it a formidable, harmful and irresponsible secrecy jurisdiction at both the federal and state levels."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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

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

Authors
Ian Huskisson
Similar Articles
Relevancy Powered by MondaqAI
 
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”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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