Cayman create Nowhere Land

Posted by: Nick Shaxson Sep 13 2011

Something I’ve just written up for the blog of the Task Force on Financial Integrity & Economic Development. It chimes with a lot of what I say in Treasure Islands. You couldn’t make it up:

On September 9th the Cayman Islands introduced a bill for the establishment of new Special Economic Zones. The most Alice-in-Wonderland part of the bill is this bit, on page 14:

“A special economic zone shall be deemed to be outside of the Islands and not in the Islands.“

Emphasis added. So where will this zone be? It seems that it will, for the relevant purposes, effectively be ‘elsewhere’ – which, in practical terms, means ‘nowhere.’ This ‘it’s elsewhere, don’t-blame-us, we-can’t-regulate-this’ approach is what a lot of the activity of secrecy jurisdictions is designed to do – it’s not so common, however, to see this being made quite so explicit. This is tax havenry, pure and simple.

Who is responsible for this legislation, and who will be implementing it?

“a Chairman, a Deputy Chairman and two other persons appointed by and holding office at the pleasure of the Governor in Cabinet”

And who is this Governor? Well, there’s a lot of stuff on official websites that would take quite a bit of summarising. For simplicity’s sake, Wikipedia is quite good:

“The Governor of the Cayman Islands is the representative of the British monarch in the United Kingdom’s overseas territory of the Cayman Islands. The Governor is appointed by the monarch on the advice of the British government. The role of the Governor is to act as the de facto head of state, and he or she is responsible for appointing the Premier, who is the leader of the party with a majority of seats in the Legislature.”

So the buck stops at Buck House, kind of. (For those not familiar with this terminology, British people sometimes refers to Buckingham Palace, the Queen’s primary residence, as Buck House.) And indeed the Governor has quite a role in this new Caribbean Nowhere Land:

The Authority shall comprise the following members -
(a) a Chairman, a Deputy Chairman and two other persons appointed by and holding office at the pleasure of the Governor in Cabinet; and
. . . .
4. (1) The Governor in Cabinet shall by Order designate a Department of Government as the Secretariat to the Authority.
. . .
A member of the Authority is entitled to receive such remuneration in respect of each meeting attended as determined by the Governor in Cabinet from time to time.
. . The Governor in Cabinet may by Order, on the recommendation of the Authority, declare a parcel or parcels of land, areas or locations in the Islands to be the whole or part of a special economic zone and such Order may add to or remove any parcel or parcels of land, areas or locations in the Islands from such special economic zone.
. . .
The Governor in Cabinet may by Order declare a person to be a developer for the purpose of developing and operating a special economic zone under this Law.
. . .
The Governor in Cabinet may, after consultation with the Authority, make regulations prescribing all matters that are required or permitted by this Law to be prescribed or are necessary or convenient to be prescribed for giving effect to the purposes of this Law
. . .
The Governor in Cabinet may, at any time, revoke the appointment of any member, including the Chairman.”

That last one is a pretty powerful one. Well, they all are, in their own way.

In addition:

Clause 7 provides for the duty of confidentiality on the part of members of the Authority.

Strangely, though, despite this special confidentiality, the UK is supposed to be responsible for the “Good Governance” of the Cayman Islands – and the official paper on what this means (click on the link on this page) says that ‘transparency’ is part of good governance. So how do we square this ‘transparency’ with this duty of confidentiality? More generally, how do we square it with the Cayman Islands’ Confidential Relationships (preservation) Law, 2009, which states:

5. (1)
Subject to section 3(2), whoever-
(a) being in possession of confidential information however obtained-
(i) divulges it; or (ii) attempts, offers or threatens to divulge it; or
(b) wilfully obtains or attempts to obtain confidential information,is guilty of an offence and liable on summary conviction to a fine of five thousand dollars and to imprisonment for two years.

So you can go to jail in Cayman not just for divulging for information, but for merely asking for it. So much for ‘transparency’ as a part of good governance.

Now take a look at Section 3.2, which does provide some exceptions to this confidentiality law. You can penetrate this ferocious secrecy law – only under certain highly restricted conditions. Most important, perhaps, is the part that explores what happens when a crime has been committed outside of the islands. This exception is highly curtailed:

“a constable of the rank of Inspector or above, specifically authorised by the Governor in that behalf, investigating an offence committed or alleged to have been committed outside the Islands which offence, if committed in the Islands, would be an offence against its laws;”

This restricts any attempts to break Cayman’s secrecy in two important ways. First, the foreign crime has to be classified as an offence in Cayman too. Given how lax they are in so many ways, this is a massive loophole (and given that they boast so much about not levying tax, then this would most likely exclude tax crimes, though I’d have to confirm that).

Second, the police officer has to get the Governor’s permission to investigate. This is unusual. Why cannot the police authority just investigate a crime, without having to ask permission from the politicians? What sort of impartial system of ‘good governance’ is this? We have plenty of evidence – including the latest legislation – that the Governor’s willingness to compromise the tax haven status of the Caymans is absolutely not to be taken for granted: breaking through Cayman’s secrecy involves getting involved in a highly politicised process, with the fierce defenders of offshore activity firmly in the catbird seat.

As we know from conversations with disgruntled offshore practitioners, what this means in practice is that the small fry may well get their confidentiality pierced, if they fall foul of the law, while those who possess real political power and influence will find that avenues of protection are often available to them, whether through political processes or other avenues. There will be symbolic and token convictions (and sometimes more than that), to help the jurisdictions show how clean and cooperative they are, but the big fish criminals will often sleep soundly. We have no reason to think that Cayman is any different in this respect.

Back to the Special Economic Zones legislation – some indication of what’s up, from a Tax-news.com story in January – the legislation:

“is expected to offer attractive terms to those looking to make tax-efficient technology-based investments in the Caribbean and Americas region. The agreement permits the creation of what has been dubbed as an enterprise city, with the contractor, Hon Cayman Property Limited expected to invest more than USD500m over ten years.”

This is a bit out of date, admittedly. A story from July notes that the zone will be

“intended to attract global science, technology, commodities and derivatives, media, and educational entities to the Cayman Islands.”

Derivatives? The rest of the story raises all sorts of other questions. Who is Hon Cayman Property Limited? Why will manufacturing and engineering be specifically forbidden from practicing in this zone?

And, importantly, who will be operating here, and under what terms? It’s hard to say. In fact, we may never find out the terms, because:

Such special economic zone enterprise shall be entitled to employ any person it chooses who either has been issued with a current and appropriate work permit or is otherwise entitled to work in the Islands without a work permit, on such terms and conditions as may be agreed between the special economic zone enterprise and that person (including remuneration of whatever kind, currency, or rate they agree) and those terms and conditions shall be regarded as confidential information as defined in the Confidential Relationships (Preservation) Law (2009 Revision);

So you may be faced with prison if you even ask for information about those terms.

What a curious thing to include in legislation.

It’s fair to say, once again, that Britain is intentionally creating new laws in other parts of the world, in order to deepen the offshore system. And, despite all the furious denials, secrecy remains firmly, and deeply, entrenched in the Cayman Islands. If the jurisdiction (although on latest evidence, perhaps we should soon be calling it a jurisdiction plus a Nowhere Land) wants to be taken seriously, it should scrap all this legislation.

For more on this story go to:

http://treasureislands.org/cayman-to-create-new-nowhere-land/

The law was passed and a fully operational Cayman Enterprise City officially launched on Friday, 3 February 2012.

From Dept. of Commerce & Investment Cayman Islands Government

Special Economic Zones

Because of the Cayman Islands’ recently passed Special Economic Zone Law, international companies looking for business opportunities in the Cayman Islands now have more options.

The law sets areas of specialised economic activity in the Cayman Islands, and firms that meet the criteria for domiciling in these zones benefit from:

• a tax-neutral platform
• easy company formation
• reduced customs and trade certificate fees
• fast-tracked business registration and licensing
• competitive employment certificate fees

The Cayman Islands is now open to considering proposals for SEZs. The first approved SEZ operator is Cayman Enterprise City, targeting companies in the technology; media; biotech research; global commodities and derivatives trading; and education fields.

Special Economic Zone Authority

The Special Economic Zone Authority (SEZA) regulates all SEZs in the Cayman Islands. It oversees all licensing, compliance and enforcement activities, and maintains statistical data.

Special Economic Zone Authority Secretariat

The administrative functions of SEZA are handled by the Special Economic Zone Secretariat, which falls under the Cayman Islands Department of Commerce and Investment.

The SEZ application process

• Interested companies must first apply to the zone operator (for example, Cayman Enterprise City) for tenancy space. If approval is granted, the company will receive a provisional letter of acceptance into the SEZ from the zone operator.
• The company then submits a copy of its provisional letter of acceptance to the Cayman Islands General Registry, the government department that incorporates companies. The company also should check with General Registry to determine what additional documentation must be submitted for company incorporation.
• Once application requirements are met, General Registry issues official company registration documents to the company or its service provider. The company provides these documents to the zone operator, which then submits certified copies of these documents to the SEZA Secretariat, along with the following completed forms.
• A SEZA trade certification application (form 1)
• A SEZA customs trader identification number (form 2)
• Personal questionnaire (form 4)
• The SEZA Secretariat reviews the application, conducts the required due diligence, and sends the application to SEZA’s licensing committee for approval.
• If approved, a trade certificate is issued to the company, and the zone operator is notified.

Employment Certificates:

Companies that operate inside the special economic zone must apply for SEZA employment certificates for all non-Caymanian workers they wish to hire.  To do so, they must complete the SEZA employment certificate (form 3) and submit it to the zone operator, which will forward it to the SEZA Secretariat along with a letter of support.

Standard processing time for both certificates is five business days.

All questions regarding the process for applications for trade and business certificates, and also for employment certificates, may be directed to:

The SEZA Secretariat
C/o Department of Commerce and Investment
P.O. Box 126
Grand Cayman, KY1-9000
Cayman Islands

Please see:

http://www.investcayman.gov.ky/portal/page?_pageid=2182,6820019&_dad=portal&_schema=PORTAL