Over the past four years, as a sign of its commitment to maintaining high integrity, the Cayman Islands has participated in a number of important international regulatory and tax related initiatives that impacted its regulatory framework.
- The Review of Financial Regulation in Caribbean Overseas territories and Bermuda ("The KPMG Review")
- The Caribbean Financial Task Force (CFATF) Review
- The Financial Action Task Force (FATF) Review
- The IMF Assessment
- The OECD Harmful Tax Initiative
- The fight against terrorism
The KPMG Review
In March of 1999 A UK Government White Paper highlighted the risk of abuse of the financial services industries in the Overseas Territories and the need for these centres to meet international regulatory standards. Subsequently KPMG was commissioned to carry out an independent review of the Territories and produced a report on the Cayman Islands in October of 2000. Overall, the Cayman Islands received a very favourable report while recommendations were made for improvement in a few areas.
Some of the key positive points from the report were:
- As a result of changes to the Monetary Authority Law, Cayman had demonstrated strong commitment to international cooperation with other regulators.
- That the anti-money laundering legislation of the Cayman Islands taken as a whole was extensive and addressed most of the issues expected of a fully compliant jurisdiction.
- That a number of areas such as corporate services which were not traditionally regulated elsewhere were formally regulated in the Cayman Islands.
As a result of the review, the Cayman Islands progressed its initiative to make the Cayman Islands Monetary Authority an independent body and made amendments to its supervisory laws to enhance the regulators ability to access information from financial institutions.
The Caribbean Financial Task Force (CFATF)
The Cayman Islands is a member of the CFATF and served as one of the first presidents of the organization which was established in the early 1990s. The organisation's members include countries of the Caribbean region and its main objective is to effectively implement its recommendations to prevent and control money laundering.
As a demonstration of its leadership early on, Cayman volunteered to be the first member to participate in mutual evaluations conducted by the CFATF. These evaluations are an assessment of the member countries anti-money laundering framework.
The resulting CFATF report found Cayman to be "substantially in compliance with FATF and CFATF recommendations" and the coordination between the Government and private sector was noted as a positive feature of the jurisdiction. Cayman also participated in a second evaluation and in 2002 the CFATF report noted that Cayman had a 'robust and extensive' framework which was compliant with the FATF 40 recommendations, which serves as the international standard for anti money laundering.
The Financial Action Task Force (FATF)
In June 22, 2000 by the FATF issuing a report entitled "Review to identify Non-Cooperative Countries or Territories: Increasing the Worldwide Effectiveness of Anti-Money Laundering Measures". Cayman was listed amongst a group of 15 jurisdictions that were considered "non-cooperative" by the FATF.
It was felt by many that the review process did not sufficiently take into account the many anti-money laundering practices within the jurisdiction and instead placed too heavy a reliance on technicalities in the legislation.
Nonetheless the Cayman Islands quickly proceeded to enhance its anti-money laundering regime by making all the necessary amendments to legislation as well as introducing a new set of anti-money laundering Guidance Notes which replaced the jurisdiction's previous code of conduct which had a similar purpose.
Cayman was removed from the list of non co-operative countries in June 2002 and acknowledged by the FATF for its leadership within the Caribbean region in the fight against money laundering.
The IMF Assessment
The IMF established an offshore financial centre (OFC) programme which involved carrying out reviews of the supervisory framework of offshore financial centres and the Cayman Islands participated in 2003. The review was more comprehensive than former ones in that it covered prudential supervision as well as anti-money laundering aspects of the framework. The review covered banking, insurance, securities and companies and trust services regulation as well as the anti-money laundering framework.
A preliminary report issued by the IMF concluded that the Cayman Islands were compliant with all of the Basel Core Principles for Effective Banking Supervision, which serves as the international standard for banking supervision.
In June 2000, Cayman was deemed a cooperative jurisdiction on tax matters by the OECD due to its 'Advance Commitment Letter' which was issued by the Government to OECD officials. This commitment obligated Cayman to introduce measures to become a more cooperative jurisdiction with regard to:
- Confidentiality provisions to ensure that information exchanged is adequately protected from unauthorized disclosure
- Effective exchange of information in civil and administrative tax matters to be implemented by the first tax year after 31/12/05
- Transparency, e.g. bearer shares to be abolished or identity of beneficial owners to be readily available for exchange of information for tax purposes
- Effective exchange of information for criminal tax matters by the first tax year after 31/12/03
- Elimination of any aspects of the regime for financial and other services that attract business with no substantial domestic activities.
As a follow up to the OECD initiative on November 27, 2001 Cayman entered into a historic Agreement for the Exchange of Tax Information ("the Agreement") with the US. The restricted tax information exchange agreement with the US will come into effect from 1st January 2004 for criminal tax matters and for other civil and administrative tax matters on January 1, 2006.
Our response in the fight against terrorism
In response to the events of September 11, 2001 the Cayman Islands passed comprehensive anti terrorism legislation and fully cooperates with international bodies in this area. The terrorism legislation covers forfeiture of terrorist cash funding arrangements, terrorist activity, money laundering, and disclosure of information among other issues.
The Cayman Islands Government has also implemented various Orders to give effect to restrictions imposed by the UN Securities Council Resolutions to combat terrorism and its financing.