by Lisa Smith, iExpats.com*

The veil of secrecy over financial dealings of the wealthy in the Cayman Islands is lifting for the first time.

In a bid to give the Caribbean islands a makeover to attract foreign investment, the authorities are ready to open company and hedge fund registers to the public – and the names of their directors.

The government fears financial secrecy laws are tarnishing the image of the islands and are attracting accusations that companies based there evade tax and are involved in money laundering.

The move comes as the US with its FATCA act and the upcoming British law – known as ‘Son of FATCA’ – is about to be unveiled which will compel financial institutions in British dependencies and overseas territories like the Caymans to reveal details of which British taxpayers have accounts there.

It comes as other offshore centres have announced plans to unveil who is holding funds in their financial institutions, most notably the Isle of Man.

Companies and hedge funds exposed

Now, the Cayman Islands are the next to break with decades of banking secrecy by opening up a database of companies and hedge funds.

News of the move comes after The Financial Times claims to have seen a note sent to hedge fund businesses by the Cayman Islands Monetary Authority (CIMA).

There is a consultation period which ends in March, and among the reforms is for directors to be vetted before taking up roles as agents for investors.

CIMA declined to comment on the proposals, but in one document outlined that several other offshore centres had updated their corporate governance laws and regulations since the financial crisis of 2008.

The Cayman Islands hit the headlines last year when it was revealed that US presidential candidate Mitt Romney held a large chunk of his wealth on the island but the secrecy laws prevented an investigation.

International pressure

This was the latest in a long line of international criticisms aimed at the island’s lack of transparency

There was also an issue highlighted two years ago with revelations that some directors were sitting on the boards of hundreds of hedge funds – calling into question their abilities to oversee the companies concerned.

However, a spokesman for the Tax Justice Network (TJN) pointed out: “Among the proposals we see no sign that the Cayman Islands is planning to end its secrecy laws such as the Confidential Relationships (Preservation) Law, for instance.

“Pressure for the Cayman Islands to reform has been intense from media and governments but the tax haven has also been struggling with massive corruption scandals and its own financial problems.

“We need to see serious the proposals are but on the evidence so far, it does look promising.”

For more on this story go to:

http://www.iexpats.com/2013/02/fatca-pushes-cayman-islands-to-unveil-financial-secrets/

COMMENT:

*Re iexpats.com story in iNews Cayman

Please see letter below from Cayman Finance CEO, Gonzalo Jalles, that was submitted to Ms Smith, author of the iepxats.com article on FATCA and the Cayman Islands and that you also pubished today.  I was not able to submit directly as a comment to the story,

kind regards,

Lynne Byles

Dear Ms. Smith,

I read your article above and regret to inform you that it contains several glaring errors and misconceptions.

The Cayman Islands cannot be described as having had a “veil of secrecy” in place and indeed there are no secret or numbered accounts alowed in the Cayman Islands.

In fact, the Cayman Islands has demonstrated its full transparency and international cooperation over the years and has signed exchange of information treaties with over 28 countries. We have also had one such agreement with the US for over 25 years. Under these treaties the information of account holders and investors will be disclosed to the proper authorities of the requesting country under appropriate procedures recognised by the OECD.

The Cayman Islands recognises the legitimate right to financial privacy that is offered in virtually all developed countries. Our jurisdictions has the similar data protection laws that any developed country has and very similar to the US and UK, although those countries do not offer protection to requests from competent authorities.

The names of directors on Cayman Islands funds is not a secret as this information is included in the offering memorandums of the fund. What CIMA is considering is creating a database that will simplify the access to that information, but that can hardly be described as ‘unveiling secrecy’.

You are right that the image of the jurisdiction is sometimes tarnished by uninformed journalists, and Cayman Finance remains at your disposal n if you would like to be informed about the financial services industry in Cayman in the future.

Gonzalo Jalles

CEO, Cayman Finance

FATCA, Lebanese banks ready to spill financial secrets

by Jim Atkins : May 18, 2012

Lebanese banks are ready to give up their financial secrets about wealthy US clients under the Foreign Account Tax Compliance Act (FATCA).

Often referred to as the ‘Switzerland of the Middle East’, Lebanon has long fostered a lucrative but confidential business relationship with wealthy Americans who would rather keep their finances out away from the prying eyes of the Internal Revenue Service (IRS).

FATCA laws due to come in to force in 2013 have turned the tables on Lebanese bankers who must comply with laws demanding they supply names and financial details of US passport holders or organisations controlled by US passport holders direct to the IRS.

Failure to do so means an offending bank will be fined, blacklisted and banned from trading in the US.

To try and save face and maintain the confidentiality of non-US customers, Lebanese banks intend to ask them to sign a waiver that lets the bank release their account details to the IRS.

Although many of the banks are clearly disgruntled by the laws, most see no option other than to comply as being cut-off from one of the world’s largest financial markets is not a prudent choice.

Lebanon’s Central Bank Governor Riad Salameh said that the law “only affects” U.S. citizens.

“This law will have no bearing on Lebanese nationals or other nationalities. We are preparing a mechanism to implement the US action in accordance with the Lebanese law and in a way that will not affect the banking secrecy law,” he said.

Besides reporting financial transactions of US passport holders, FATCA also imposes an obligation on non-US banks to withhold 30% tax on disposals of some assets.

FATCA laws apply to accounts with US$50,000 or more on deposit. Some banks serving few US clients are asking them to close their accounts so they do not have to take on the cost of FATCA compliance.

For more on this story go to:

http://www.iexpats.com/2012/05/fatca-lebanese-banks-ready-to-spill-financial-secrets/

See also iNews Cayman story today “Foreign Account Tax Compliance Act (FACTA) worries”