Major economies move on money laundering, but what about the Cayman Islands?

UnmaskTheCorrupt_Image

The final two months of 2014 saw a surge of positive news for civil society whose collaborative and consolidated efforts over recent years to push for greater corporate transparency measures are now seeing the light.

Civil society has called for greater light to be shed on the real living people who ultimately own or control companies – the beneficial owners. Current levels of secrecy mean that global detection rates for illicit funds by law enforcement are as low as 1 percent for criminal proceeds.

In 2014 the G20 rose to the challenge set by the G8 the previous year, adopting its own Beneficial Ownership Principles in November and thus corralling a much more diverse set of countries on the issue. Meanwhile the EU agreed on legislative reforms in December to require EU countries to capture this information in central registries and make it instantly accessible to law enforcement and government bodies and those with “legitimate interest”.

So it’s incredibly disappointing to hear that following a stock-take exercise last year, the Cayman Islands have decided to “continue its current method” when it comes to sharing beneficial ownership information, information which is essential in order to crack down on corruption and other illicit financial flows.

The UK British Overseas Territory  has rejected the idea of setting up a public central register to bring together this information to facilitate access to law enforcement, a proposal that Transparency International, Global Witness and Christian Aid advocated for during the consultation.

Why no New Year’s resolution?

Some of the world’s largest secrecy jurisdictions are British Overseas Territories, including Cayman, the British Virgin Islands and Jersey.

In 2013, with the UK under international pressure, the Territories announced a series of consultations regarding their company ownership registration systems. Having information on who really owns companies is crucial to law enforcement, because shell companies are often used to launder the proceeds of crime including corruption and tax evasion.

Almost a year after the consultations closed, Cayman has been the first to make its results public. As it turns out, of the 43 responses received, 44% were from local companies, and 26% from local private sector bodies such as the Cayman Islands Bankers Association (curiously, the report classifies them as “local NGOs”).

Unsurprisingly, 70% of total respondents said that Cayman’s measures “are quite robust and are at a level of compliance beyond those of other jurisdictions”.

The government’s main conclusion? Cayman has no need to improve, as its current system is good enough.

But is “good enough” really good enough for citizens who are the victims of corruption and tax evasion?

In Argentina, for example, investigative journalists have uncovered evidence that millions of dollars in public funds have been diverted into offshore jurisdictions by allegedly corrupt businessmen with links to political power. The funds originally intended for much needed infrastructure projects ended up in bank accounts held by shell companies, including in the Cayman Islands.1395281_762035923849931_6959053550198425558_n

This case is just one of the dozens of international grand corruption and crime cases which have been found to involve shell companies. Having critical information on company ownership publicly available to law enforcement when they need it and not many hours or days after they have submitted a request would greatly aid cross-border investigations. A UK government study estimated a public registry would save £30.3 million in police time alone.

Now that Cayman has decided to stay in the slow lane on beneficial ownership, doing the absolute minimum required to meet international standards rather than showing leadership, how will the UK respond if the rest of its Overseas Territories do the same? And will this satisfy other countries which are losing billions through tax havens, including the UK’s G8 partners such as China?

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Maggie Murphy

About Maggie Murphy

Maggie Murphy is Global Outreach, Advocacy and Campaigns Coordinator at Transparency International.

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7 Responses to Major economies move on money laundering, but what about the Cayman Islands?

  1. Thomas 15 January 2015 at 1:35 am #

    Why should the Cayman Islands make the first move? As stated, the standards maintained by them already exceed those of virtually all other jurisdictions. Pressuring our islands to enact legislation which has yet to be enacted within your own country is absurd. Clean up your own yard before pointing fingers.

    Investors prefer the Cayman Islands for tax neutrality, not tax evasion.

  2. Peter Loscher 15 January 2015 at 2:45 am #

    Maggie,

    The service providers in Cayman that incorporate companies are licensed by CIMA, are required to identify and verify ultimate beneficial owners and controllers of those companies. They retain that information and make it available, on request, to CIMA and law enforcement agencies.

    In fact, in a reason study Overseas Territories such as Cayman and BVI were rated well ahead of the UK and the US etc etc in term of the procedures they follow and the due diligence they collect. It’s a fact that countries such as the US and the UK could learn much from from the Overseas Territories on how to clean up their acts with respect to incorporating entities and preventing them from being abused,.

    Your characterisation of Cayman is wrong, biased and at best misleading.

    As they say, if its not broken, don’t fix it – Cayman doesn’t have a problem to fix, some of the major OECD countries do however. And why no mention of Delaware? If other jurisdictions are looking to improve, unless the bar is raise globally, then those seeking to abuse the system will naturally gravitate to those less stringently regulated jurisdictions, like the US…

    Hypocrisy I feel.

    Looking forward to a balanced response

  3. Maggie Murphy
    Maggie Murphy 27 January 2015 at 12:57 pm #

    Thank you for the comments.

    I absolutely agree that Delaware, Nevada, and a host of other jurisdictions also need to tighten up their legislation and increase beneficial ownership transparency. It is incredibly disappointing that twenty-seven out of 34 OECD countries store or require insufficient beneficial ownership information for legal persons according to the OECD itself.

    Indeed Transparency International has been calling on the Group of 20 leading economies to show leadership in this regard for the last several years. We have also worked hard within the EU, and are very pleased that a new Anti-Money Laundering measures will require central registers containing beneficial ownership to be established in EU countries in the years to come.

    The question of why “should Cayman make the first move” is only valid however if we are happy with the current status quo. Yes they are not the only jurisdiction to receive, hide and transfer corrupt funds but they still receive, hide and transfer corrupt funds – funds that should have been spent in a different country on infrastructure, education, health etc. Right now the fight against corruption needs leaders. It is disappointing that the first British Overseas Territory to give an indication of what action is planned on beneficial ownership has decided not to lead the way.

  4. Taylor Lawson 1 February 2015 at 3:43 am #

    Can someone at a high level explain how a corporation/business successfully launders money?

    Also, what about Delaware and Nevada’s jurisdictions as they currently sit makes them susceptible for money laundering?

    Thanks!

  5. GemPundit 2 February 2015 at 1:15 pm #

    Economic evil and it derives other social and national problems. Lawmakers must stop it for benefits of citizens

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