Cayman Islands: Private Banking In The Cayman Islands

Last Updated: 4 March 1999
Introduction

Private Banking is an often used, but loosely defined term, which may be interpreted in several different ways. It encompasses the provision of banking, investment and trust services to the high net worth individual. Cayman is a leading offshore financial centre and is one of the few equipped to provide "one-stop shopping" to those with a long list of requirements to be met offshore. In the United States, within the international business community, Cayman enjoys an excellent reputation and is widely and increasingly used as the offshore domicile of choice. In the United Kingdom and the rest of Europe, however, Cayman's reputation and employment as an offshore financial centre is less certain, largely due to poorly researched and misinformed tabloid journalism, which tends to focus on perceived negative aspects of Cayman's stringent confidentiality provisions.

Cayman - Location of Choice

The Cayman Islands, which are situated 475 miles due south of Miami, comprise three islands - Grand Cayman, Cayman Brac and Little Cayman - and virtually all business and Government are located in Grand Cayman. Cayman is an English speaking, British Dependent Territory, and while it has a resident Governor appointed by the British Government, it enjoys a large measure of internal self-government. The Cayman Islands can boast of excellent telecommunications systems and easy access with daily flights to and from several cities in the USA. A very sophisticated and diversified financial infrastructure has been developed enhancing Cayman's image as one of the leading offshore financial centres in the world. All the major international accounting firms are represented in the Cayman Islands and the local legal firms are of very high standard, many of them specialising in international tax planning and finance.

Cayman offers the highest standard of living of any island in the Caribbean and, with a pleasant climate the entire year-round and social harmony, it provides a very attractive environment in which to live and work. Cayman does not have exchange control regulations and the Cayman Islands Dollar is pegged to the US Dollar at a rate of CI$1:US$1.20. The Honourable Thomas Jefferson, OBE, JP (former Financial Secretary) in 1991 at a Cayman Banking conference, cited three factors that underscore Cayman's continuing success and these still holds true today, namely:
  • Cayman is a no-tax jurisdiction in contrast to other locations that offer temporary tax breaks or holidays. Cayman does not have income tax, corporation tax, inheritance tax, withholding tax,etc.;
  • Cayman has enjoyed a history of social harmony between the different races and nationalities which constitute the population of over 31,000; and
  • A responsive and responsible government has ensured that Cayman has adapted to the needs of the modern business world.
Cayman Trusts

Currently there are approximately 588 licensed banks and/or trust companies in Cayman with over US$480 billion of assets. Cayman is a common law jurisdiction and the use of trusts has long been recognised in Cayman, as elsewhere, as an excellent means of preserving and protecting assets in a rapidly changing world. However, one may legitimately question why Cayman should be the preferred situ's for a trust. There are several reasons which suggest themselves as follows:
  • As mentioned already, Cayman as a location offers security and stability and highly professional trustees, banking and investment services are readily available. Cayman's standing as a well-run financial centre was strongly endorsed by the Gallagher Report, commissioned by the British Government and published in1989.
  • In today's turbulent world, there is increasing political and country risk and the prudent man is well advised to diversify his asset holdings and to locate certain of his assets in a secure offshore jurisdiction, such as Cayman.
  • Cayman offers modern, pragmatic trust legislation together with a well established financial infrastructure, ensuring that full trustee services including asst management can be provided in Cayman.

Trust Legislation

The trust law of the Cayman Islands is based on the relatively recent Trust Law, 1967 and this statue in turn in virtually identical to the English Trustee Act, 1925. However Cayman, in addition, offers certainly flexibility in trust administration, not found in other common law jurisdictions and this includes:
  • 1.Income may accumulate tax-free in the offshore trust during the life of the trust and in the case of an exempted trust (see below) this can be for a period of up to one hundred years. The normal limitation of twenty-one years from income accumulation does not apply in Cayman.
  • 2.There are two broad categories of trust:
  • (2.1) the ordinary trust, the maximum duration being the usual life-in-being plus twenty-one years; and
  • (2.2) the exemption trust, which can have a maximum duration of one hundred years. In addition, the exemption trust obtains a written undertaken from the Cayman Government guaranteeing its tax-free status from up to fifty years.
  • 3.In contrast to the English Trustee Investment Act, 1961 Cayman legislation is silent on restricted investments for trustees.
  • 4.Trust (Foreign Element) Law, 1987: This act stipulates that Cayman law will recognise the choice of governing law expressed in the trust instrument and that changes in the governing law a repermissible, if allowed for in the trust instrument. In particular, however, this act state that a Cayman trust may be set aside due to:
  • (4.1)the laws of a foreign jurisdiction prohibiting or not recognising the concept of trusts; or
  • (4.2) the Cayman trust defeating certain rights conferred by a foreign law, such as forced heir ship provisions.
  • As a result, Cayman has a strong appeal for settlors/grantors living in civil law countries.
  • 5.Fraudulent Dispositions Law, 1989
  • This act replaces the sixteenth century status of Elizabeth and shifts the onus of proof to the creditor wishing to set aside the trust. Specifically, the act provides for the following:
  • (5.1) the disposition of assets must have taken place at an undervalue; and
  • (5.2) the creditor must demonstrate an intent to defraud on the part of the settlor/grantor; and
  • (5.3) the obligation to the creditor must have existed at the date of the disposition as a result future creditors are specifically excluded; and
  • (5.4) the grantor must have had notice of the obligation to the creditor at the time of the disposition; and
  • (5.5) the creditor must demonstrate that he/she has suffered a loss as a result of the disposition; his/her claim being limited to the extent of the loss; and
  • (5.6) proceedings must commence within six years of the date of the disposition.

Whilst trust companies in Cayman naturally continue to exercise caution in such matters, this legislation makes Cayman a favourable location for the so-called "asset - protection" trust.

Cayman Companies

In Cayman there are now four broad categories of company:

  • 1.resident companies, used for local trading purposes and subject to certain ownership provisions;
  • 2.non-resident companies, used for a variety of international activities.
  • 3.exempted companies (similar to international business companies or IBC's), non-resident companies which are registered as exempted companies in order to provide additional flexibility, such as the ability to issue bearer shares, obtain a written undertaken from the Cayman Government on its tax-free status, dispense with "Limited" in the company name, etc.
  • 4.exempted limited duration companies, i.e. corporate entities with fiscal trasparency in the United States.

Once new business vetting formalities have been completed, many trust companies in Cayman will offer clients same day incorporation and currently over 31,000 companies are registered in Cayman, with 4,269 new companies registered in the first nine months of 1994, (a 30% increase over the same period in 1993). Effective from 1 April 1994 the authorities in Cayman took the unusual step of actually reducing company registration fees and whilst the same high standards are still maintained in Cayman concerning new business, this measure has contributed to the record growth in creation of Cayman companies currently being experienced.

Reporting and accounting requirements are minimal and most trust companies can offer their clients a comprehensive array of company management services, ranging from basic company incorporation and registered office at one extreme to a full board of directors and officers at the other extreme.

Cayman companies have been used for a variety of purposes and some of the more popular uses include the following:

  • offshore captive insurance and reinsurance companies. Cayman is ranked second in size to Bermuda as an offshore captive insurance centre.
  • bond issuing companies raising finance in the international capital markets. A variety of sophisticated financial engineering techniques are employed using Cayman companies.
  • centralised treasury/cash management companies, with tax-free income accumulation taking place in Cayman.
  • investment holding and property holding companies.
  • invoicing and trading companies, etc.,

Company legislation is based on the English Companies Law, 1929 but considerable flexibility is provided through such provisions as:
  • the objects of the company need not be specific.
  • the principle of ultra vires is considerably watered down in Cayman and does not apply to third party transactions.
  • complete confidentiality may be achieved through the use of exempted Cayman companies, in particular.

Collective Investment Schemes

Cayman does not have OECD status nor does it have Designated Territory Status. Thus, it may appear strange that Cayman is particularly popular as a domicile for offshore mutual funds and unit trusts. What Cayman does offer is a lack of red tape and bureaucratic obstacles to the setting up of the offshore vehicles required and, allied with its excellent infrastructure and availability of professional service providers locally, Cayman has succeeded in attracting an ever-increasing share of institutional offshore funds. Mutual funds legislation was introduced into Cayman in 1993 and Cayman as a result has now joined the ranks of the regulated offshore financial centres. However, this is a piece of pragmatic legislation and it has significantly enhanced Cayman's reputation in the international business community.

There are four vehicles which may be employed for collective investment schemes in Cayman, namely:
  • 1.Exempted mutual fund companies.
  • 2.Exempted unit trusts.
  • 3.Exempted limited partnerships, which may be employed as open-ended mutual funds.
  • 4.Exempted limited duration companies.

Cayman is a leading centre for offshore collective investment schemes and with the continued development of this business and the arrival of new service providers, it is taking on more and more of a servicing role, ensuring full compliance with Regulation 864 in the USA.

Conclusion

Much of the credit for Cayman's growth and endurance as a leading offshore centre must be attributed to the responsive and responsible government referred to already and what Cayman has succeeded in doing is achieving an optimum mix of free enterprise and pro-business pragmatic regulation. Cayman has worked very hard to enhance its reputation as a superior offshore financial centre and it is very proud of its recognised status today. It continues to develop to meet the changing needs of the world of international finance and, based on the excellent partnership which has been forged between the government and the business community. Cayman is well positioned to occupy a dominant role for some time to come.

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.

 
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
 
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