As the G-20 convenes this morning in London, former Chairman of the Cayman Islands Monetary Authority (CIMA), Tim Ridley, says international standards for transparency remain vague, but that recent efforts to improve local compliance may deflect global blacklisting.
Mr Ridley said that even if the economic summit imposed penalties on tax havens such as the Cayman Islands, a series of international tax information agreements and other recent actions were likely to aid recognition of Cayman as an internationally compliant jurisdiction. Local authorities, he said, had been “asleep at the wheel” for some time, but had responded well in the last six months as pressure mounted in Washington and London.
“What is happening now is better late than never,” Mr Ridley said. Recent international accords “may not save us from the political posturing and shouting from the G20 right now, but I think it should help us in the long term with the OECD [Organisation for Economic Cooperation and Development] and others.” On 1 April, Minister with responsibility for international financial policy, Hon Alden McLaughlin, signed a bilateral tax-information treaty with five Nordic countries and two territories, the first since a similar 2001 accord with the US. The Minister said further commercial agreements with the group were expected in June.
On 19 March, under local legislation rushed through in late 2008, government applied its “unilateral mechanism” for tax- information exchanges to seven European countries, all members of the Organisation for Economic Cooperation and Development (OECD) – Germany, Austria, Luxembourg, Belgium, Slovakia, the Czech Republic and Switzerland. On 24 March, the mechanism was extended to the UK. Finally, on 30 March, the same unilateral mechanism was applied to OECD members Japan, South Africa, Holland and Ireland, bringing to 20 the number of arrangements authorising exchange of information in civil or criminal tax matters. Mr Ridley explained that local legislators had created the mechanism as a nimble way to circumvent OECD politics and gain the dozen exchange arrangements necessary, hopefully, to avoid blacklisting.
“There is a numbers game going on here,” he said, “as the OECD awhile back said that tax havens must have at least 12 tax-information exchange agreements in place to avoid the next blacklist.” However, the 30-member Paris-based organisation was reluctant to count deals already made in relation to the 2006 tax-tightening European Union Savings Directive, he said, because financial centres globally had found ways to circumvent its worst effects.
“It appears that the OECD would not include in that number the [savings-directive] deals Cayman has with all the European Union (EU) members. Thus Jersey, the Isle of Man, Cayman and others were rushing to sign tax-information exchange agreements,” Mr Ridley said.
“But the ploy by some major EU and OECD countries was to drag their feet so Cayman could not get enough agreements in place -- and so these countries could keep attacking Cayman as uncooperative.”
“So Cayman amended its legislation at the end of 2008 to unilaterally allow disclosure on request to listed countries even if there were no information exchange agreements.” The principle standard, he explained, was that countries listed under the unilateral mechanism must not have their own blacklist discriminating against the Cayman Islands.
Minister McLaughlin pointed to Australia, Spain and Italy as examples of countries that had “red-flagged” the Cayman Islands.
“They discriminate against us and for us to have tax information agreements, we have to get off their blacklist,” he told Cayman Net News. “They have issues with offshore jurisdictions.”
Italy and Spain were not, of themselves, “such a big deal”, but for the OECD and the G20, “a consensus organisation,” he said, “it’s a very serious matter. '
“Some countries just have fundamental problems with offshore jurisdictions. Australia has red-flagged us. We have had discussions that have never moved because we insist that you can’t discriminate. We have talked to all of them and are still engaged, but you just reach a point where discussions can’t really move forward,” Mr McLaughlin said.
Mr Ridley said G20 decisions were unpredictable and could range from a blacklist to a red flag to a simple warning: ”It is unclear whether the OECD has got a new black- or green- or white list or whether the G20 will do more than urge all tax havens to commit to international accounting and transparency standards,” he said, hoping that the organisation would be able to clarify exactly what they expected. “There is no real agreed international-transparency standard,” he said, “which is just the way our attackers like it as they can make it up as they go along and move the goalposts.”
Cayman was likely, however, to continue “to pursue further tax-information exchanges where possible and try and get concessions/benefits, and extend the listed countries if needed to avoid” worsening relations with the OECD, G-20 and EU, particularly as the latter was seeking a major extension to the European Union Savings Directive. Still, Mr Ridley said, Cayman also could point to domestic efforts, however nascent, to achieve transparency.
“We actually do have some good points to make,” he said. “The Freedom of Information Law is a good marketing tool for Cayman as it shows we are serious about transparency in government and statutory authorities.
“Likewise the Complaints Commissioner does a good job shining light [and] the Anti-Corruption Commission, when it finally gets constituted and operational, will be a third leg in the fight,” he said.
While moves to open the private sector were still in their early stages, Mr Ridley said, change was inevitable.“It is taking awhile to get people both in government and the private sector to recognise that the traditional knee-jerk culture of secrecy that is trotted out as a defence to disclosure and accountability, regardless of the circumstances, has got to change. But the key is to balance this with protecting the legitimate right to privacy,” he said.