The last year has seen a significant increase in attention to the role international financial centres (IFCs) play in driving global economic investment and growth as well as deterring, identifying, and combatting economic crimes such as tax evasion, money-laundering, and corruption. While every IFC brings unique attributes to those efforts, certain characteristics stand out for their impact on the global marketplace. Taken as a whole, those characteristics could be considered as The Cayman Model.
The Cayman Model demonstrates how an international financial centre can make the greatest contribution to the global economy by supporting efficient free trade, capital, investing, financing and services, while also helping to fight global financial crime. Over the last 50 years, The Cayman Model has developed to, not only define the jurisdiction as a responsible financial centre, but also to provide a roadmap other financial centres can follow.
Every jurisdiction, regardless of size, can contribute to the fight against global financial crime, but the greater the role a jurisdiction plays in the global economy, the more significant its contribution to the fight can be. That is why Cayman’s role as a premier global financial hub, efficiently connecting law abiding users and providers of investment capital and financing around the world, is such an important component of the Cayman Model.
Approximately two-thirds of the world’s hedge funds are domiciled in Cayman. Recent reporting has estimated the assets under management in these structures alone to be US$2.3trn. Cayman is also home to a growing private equity sector as well, with more than 20,000 vehicles in our jurisdiction. An even broader look at Cayman’s role as a premier global financial hub was included in a report issued late in 2017 by the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes. Their report estimated that in 2014, Cayman attracted at least US$4.1trn in banking assets, direct investment and portfolio investment.
These substantial figures represent Cayman’s ability to enable parties from around the world who are domiciled in countries with differing laws, regulations, tax rules and customs to do business together in our neutral jurisdiction. Global investment capital is pooled in Cayman and then is invested into opportunities around the world, putting Cayman at the centre of the global financial system.
Because Cayman serves as a premier global financial hub, it’s adherence to the highest global financial standards has established the jurisdiction as a strong partner in combating international financial crime.
Cayman and its financial services industry have been recognised for decades as a strong international partner in combating corruption, money-laundering, terrorism financing and tax evasion. Cayman has adopted more of the nearly 20 global financial standards than any other jurisdiction, including the European Union Savings Directive, FATCA and the OECD Common Reporting Standard. Cayman has also signed onto the country-by-country reporting principles under the BEPS process. Adopting and implementing these standards is a key part of how Cayman contributes to global efforts to combat financial crimes while providing economic value to other jurisdictions worldwide.
As Cayman meets or exceeds the full range of globally-accepted standards for transparency and cross-border cooperation with law enforcement and tax authorities, as noted above, it is considered a transparent jurisdiction. Cayman does not meet any widely accepted definition of a tax haven. In fact, Cayman was rated by the OECD’s Global Forum as “largely compliant” with the international standard for transparency and exchange of information, the same rating the OECD gave to other G20 Plus countries such as Germany, Canada and Australia.
A foundational element of Cayman’s commitment to transparency is our verified beneficial ownership regime. The Cayman Islands is a leader in beneficial ownership standards, having had a world class verified beneficial ownership regime in place for more than 15 years. What distinguishes the Cayman Island’s regime apart from most others around the world is that the information in our system is collected and verified by licensed Cayman Islands corporate service providers under existing anti-money laundering and know-your-customer laws.
Many beneficial ownership registries – including central public registers – rely on self-reported information, which can be less complete and accurate. The information Cayman requires to be collected is available to the authorities making proper requests through existing information sharing channels between the Cayman Islands government and other countries.. Under the CRS and FACTA agreements, Cayman proactively shares tax information with other governments, which assists them in the collection of their own taxes.
When it comes to taxes, Cayman has its own regime which collects the right taxes from the right people, at the right time, within its jurisdiction. Unlike other jurisdictions, Cayman has chosen to use fees and other taxes instead of an across-the-board corporate income tax.
Cayman’s tax regime meets or exceeds the revenue targets used by other leading countries around the world, generating government taxation revenue equal to approximately 22 per cent of our GDP (2016). It’s a taxation revenue raising system that works well for the jurisdiction and very adequately funds government operations while keeping the debt-to-GDP ratio modest.
The Cayman Islands also meets none of the descriptions used by entities like the OECD or Transparency International to define a tax haven. The Cayman Islands purposefully lacks any laws or agreements to support the shifting of tax base by foreign entities to avoid corporate taxes in their home jurisdictions. This responsible approach to taxation is central to the Cayman Model and a distinguishing feature of the jurisdiction among IFCs.
Another distinguishing, often-undervalued element in developing a responsible international financial centre is the quality of the professionals working in the industry. However, under the Cayman Model extraordinary value is placed on business culture and on the workers maintaining it.
Cayman is home to the world’s top professionals in areas such as corporate and director services, legal services, public accounting, banking, wealth and asset management, insurance and captive markets. They are vital to the success of the industry and the culture of compliance. The growth in Cayman’s financial services industry is a reflection of the quality of the jurisdiction’s professionals. In addition to attracting investment, they have also attracted the praise of their peers, ranking as the Top Specialized Financial Center by The Banker for nine years in a row. Cayman has also been voted Best Hedge Fund Services Jurisdiction and top Offshore Captive Domicile.
To attract and retain the highest quality professionals, Cayman invests in them. The Cayman Islands provides outstanding quality of life for professionals and their families through world-class infrastructure, health care, education and culture. These investments pay off with a knowledgeable and committed workforce that shares the vision of the Cayman Model.
The quality of Cayman Islands’ financial services industry professionals is not limited to their leadership and business culture, but extends to the levels of professional diversity in Cayman. Not being reliant on a single sector within financial services enhances the ability to draw in a wide range of talented professionals, which helps Cayman maintain an exceptional world-class business culture. It also strengthens Cayman’s ability to enforce the highest standards of transparency and information sharing without fear of alienating a critical contributor to the economy.
The Cayman Islands is not only the leading jurisdiction for international hedge funds, but the second largest domicile in the world for captives, the number one domicile for healthcare captives, and a leading jurisdiction for banking, trusts, capital markets and fiduciary services. As a leading jurisdiction for captives and healthcare captives, Cayman is also a leader in the Insurance Linked Securities space, meshing expertise in securitization, insurance and capital markets to create the most innovative structures, addressing complex risk scenarios. The Cayman Islands is also developing into a premier choice for domiciling non-traditional reinsurance companies. Cayman’s insurance service providers are known for their responsive, inclusive and collaborative approach to developing and supporting new client driven products.
Diversification has been key to both Cayman’s economic success and its success in establishing itself as a globally-recognised leader in combating financial crime.
Finally, the Cayman Model is strengthened by effective cooperation between industry and government. The Cayman Islands Government, and especially the Ministry of Financial Services, is very accessible and receptive to input from the industry. Industry and government work collaboratively to develop innovative and effectively regulated new financial services products and services, such as the Cayman Islands LLC established last year, to help grow the industry.
Industry and government also work on immigration laws that allow the Cayman Islands to have a strong blend of local and international professional talent that is class leading and further attracts clients. While some aspects of the Cayman Model may be challenging for other jurisdictions to replicate, encouraging industry-government collaboration is an element of the approach that other jurisdictions can consider.
The Cayman Model shows how an emphasis on individual jurisdictional leadership and multilateral cooperation can make the greatest contribution both to the global economy and international efforts to combat financial crime. It provides an exceptional road map for other jurisdictions to follow to meet the highest global standards.
Jude is well respected locally and globally having spoken internationally on financial services topics and featured on a number of occasions in international media. He retired as an Audit Partner in 2008 after spending over 23 years with Ernst & Young. As the Global CEO of Maples and Calder, he took an active role in the strategic growth and development of the firm. Jude has extensive experience within the Cayman Islands financial services industry, having served on various Cayman Islands Government and private sector committees. He has served as the CEO of Cayman Finance since 2014.