Cayman Islands not a tax haven
by Melva Ifill
It was announced recently that after thirty years of being one of the most reliable places for privacy in banking, the fifth largest financial center in the world has bowed to the pressures of the OECD. The Cayman Islands has signed an agreement with the United States, which effectively makes them an extension of the policing arm of the Internal Revenue Service. The newly signed agreement merely reiterates the practice that has been in effect for some time now.
Under the signed agreement the Caymans have agreed to disregard their policy of non-disclosure and dual criminality requirements and fully cooperate with the taxing authorities in the US by releasing information on beneficial ownership of trusts, International Business Companies and other previously protected entities.
The Caymans, however, will not prosecute the alleged crimes nor will they disclose the information unless "suspected" criminal activity is involved. Unfortunately the Caymans will not require an actual "judgment" to disclose the requested information but only suspicion on the part of the authorities seeking the information. Apparently, this is in response to the terrorist attacks on the US on September 11, 2001. Notably, however, the law will be applied whether or not terrorism is at the heart of a US investigation. The law is not a new law it has merely been formalized in writing.
In application the IRS, if it suspects criminal activity, may apply to the courts of the Cayman Islands for information on accounts believed to be, owned by a suspected individual or company. Upon application to the courts the authorities will receive the information in order to prove their case.
The agreement, scheduled to take effect in 2004, for criminal and tax evasion matters and 2006 with regard to all other tax related matters effectively redefines the Cayman Islands from the status of "tax haven".
Attorneys in the Caymans say this represents a shift in the thirty-year-old policy causing many to ponder what the future holds for this tiny little country that relies on its offshore industry for thirty percent of its Gross Domestic Product.
According to offshore "guru" Steve Saemmler Klein (SSK), of Butterfield Reimer & Associates, S.A. and president of the Offshore Association of Central America and the Caribbean, the Cayman Islands can look forward to a "mass invasion by IRS agents" seeking to repatriate billions of dollars and prosecute those suspected of avoiding their income tax obligations. Even in cases where funds are there legitimately owned by legitimate business entities there is likely going to be a huge expense incurred in defending the claims of the IRS.
Asset protection specialist and US tax attorney F. Antone Accuardi, LL.M., also of Butterfield Reimer & Associates, S.A., (offices in Hong Kong, Belize and Panama) advises that the time is now to consider multi-jurisdictional structuring to keep one's protected assets, protected. When asked what his opinion was on OECD pressure he responded, "The problem I have fundamentally with the OECD's pressure on smaller countries designated as tax havens is their apparent apathy to the fact that these countries rely on the revenues generated by the offshore industry. Perhaps more importantly, many people hold their assets for perfectly legal and legitimate reasons. These reasons include keeping their assets safe from frivolous litigation, creditors and irresponsible heirs. These are people who may have to deplete their assets defending what may amount, in many cases to a witch hunt by the IRS."
It remains to be seen how many more tax haven jurisdictions will bow under the pressure of the OECD. There are currently more than sixty tax havens around the world where billions of dollars are held.
