Cayman Islands: And Yet More Fallacies?

But sadly, no more than three minutes into the contribution of the Hon. Mr. Patrick Grady, SNP Glasgow North, it became immediately apparent that any such hope was wholly misplaced.  Far from any recognition of the excellence and transparency of the Cayman Islands financial services industry, the Hon. Mr. Grady proceeded to pillory its reputation with nothing less than a torrent of same unsound, outdated and wholly inaccurate boiler plate clichés that have historically and mistakenly represented misguided public perception.

“The juxtaposition of extreme wealth and poverty across the regions,” stated the Hon. Mr. Grady, “speaks to wider global challenges which emerge when excessive concentrations of wealth come at the expense of sustainable public services and transparency. 

Transparency International said, “Far from being victimless crimes, corruption and tax evasion deprive citizens around the world of much needed public services while at the same time, undermining institutions and democracy.  Developing countries alone lose an estimated US$1 trillion a year to illicit financial flows.”

“The UK Government know that only too well,” he continued, now fully on song, “because several of the Overseas Territories in the region effectively operate as Tax Havens.  The Cayman Islands alone are home to 85% of the world’s hedge funds and an estimate 100,000 registered companies and banking assets in excess of US$500 billion.”

Notwithstanding that none of the points the Hon. Mr. Grady recited are in any way sequiturs, his contribution was remarkable in that it managed to combine in the space of five minutes, all five of the common fallacies of debate.

There is nothing about the concentration of excessive wealth in the Cayman Islands which derives from recycled international flows of capital from regions like the Middle East and Asia into investable markets, primarily in the United States, that in any way comes at the expense of public services in the Caribbean region.  Rather the contrary.  In so far as the Cayman Islands is concerned, and let’s not forget as did the Hon. Member, that the Caribbean is a geographical region in no way politically or financially interrelated. It raises nearly US$1 billion from those capital flows which provides superior public services throughout the Cayman Islands to all its residents and, Mr. Sunak take note: it balances its budget in doing so.  Top marks to the Hon. Mr. Grady for combining Circular Reasoning with a False Dilemma.  But then in seeking to rely on an Appeal to Authority, it would have been a tad more sensible, if, rather than quoting the ironically nontransparent Transparency International, a self-styled German NGO purportedly expert in corruption, he could have suggested precisely how tax avoidance or tax evasion occur through Cayman Islands structuring.  US$1 trillion is indeed a great deal of money but it is a figure that Transparency International has invented.  It is of course more than the figure that the OECD quote which is variously US$400-600 billion, but no matter really, because the OECD invent that number too. 

More to the point, neither the Hon Mr. Grady, Transparency International nor the OECD have ever established, nor can they, how these lost tax revenues, whatever the total, have anything to do with the Cayman Islands.  They cannot because whatever tax revenues are thus avoided result from double tax treaty abuse by the US multinationals through that network typically found in the European Union; and to which the Cayman Islands is not even a party.  The truth, of course, is that the entire OECD-sponsored global double tax treaty network is not fit for purpose. It was not when established by the OECD using their 1927 model and rather than ageing like the fine wines enjoyed routinely by former French Finance Minister and OECD Director Mr. Pascal St-Amans and his former OECD colleagues at their legendary lunches in Paris (funded by their tax-free salaries), the OECD model tax treaty has, in the face of sophisticated cross border IP flows, matured like a bottle of milk.  There is nothing illicit about these financial flows as the Hon. Mr. Grady would have us believe. They pass through the double tax treaty networks perfectly lawfully and with the same free-flowing frequency as the illogicality that riddles the Hon Mr. Grady’s debate contribution. And with the full knowledge and acquiescence of the European Union Tax Authorities, who seem not to comprehend the effect of deductions for research and development, intellectual property and interest payments and in any event are legally powerless to do anything whatsoever about them. Because they are, according to EU law, lawful.

Content with his Hasty (and inaccurate) Generalisation, the Hon. Mr. Grady makes no attempt to establish the true effect of the tax neutrality demonstrated by Cayman Islands financial structuring.  Anyone these days still using the expression “tax haven” to describe the Cayman Islands and other Overseas Territories is, after even the most superficial of technical analysis, by definition, clueless on the subject. The perfectly legitimate Cayman Islands hedge funds and private equity vehicles and companies to which he refers, in the manner of an Ad Hominem slur (if it were possible to defame a jurisdiction), necessarily pay tax on their profits in the jurisdiction of investment and gains. Dividends or redemption proceeds paid through the Cayman Islands account of any investor are automatically reported to the relevant tax authorities under FATCA or the Common Reporting Standard.  The indirect tax system of taxation of application in the Cayman Islands is of complete irrelevance to the debate. Perhaps, the Hon. Mr. Grady in defense of his position would like to explain precisely how tax evasion or tax avoidance occur in the light of the unarguable fact and smooth operation of those reporting systems.

Further, his later suggestion that an “Illicit Finance Commissioner” should be appointed to monitor the presence of illicit finance in the Overseas Territories is laughable in light of the fact that all law enforcement agencies and tax authorities in the important onshore jurisdictions have an unrestricted right to full beneficial ownership information within one hour without more. That is because the 100,000 hedge funds and private equity vehicles to which he refers are all required to have fully documented and verified information filed in respect of every 10 per cent beneficial owner.  Very possibly, he makes the suggestion as this new office sounds very important and is one he has in mind holding. It would doubtless carry a large salary and he would have absolutely nothing to do. Pompous virtue signalling of this sort without reference to the facts is bad enough.  Worse when the Cayman Islands position is compared to the wild west show of undocumented and unverified lunacy that prevails at Companies House in the United Kingdom for which the Hon. Mr. Grady and his colleagues are directly responsible. Perhaps, his time would be better spent considering the money laundering expressway established by then Minister, Mr Vince Cable, in 2011 when enabling United Kingdom companies to be incorporated without the regulated supervision of a licensed company incorporation provider and without documented or verified information on the beneficial owners, shareholders, directors or even the address of the registered office.

No doubt, the tropes spouted by the Hon. Mr. Grady are deserving of a public apology.  It would not be the first time he has had to apologise to the House. But very possibly, he might consider a political career based on debate contributions demonstrating something other than unsound blundering.

Anthony Travers OBE
Anthony Travers OBE is the Senior Partner of Travers Thorp Alberga, former Chairman of Cayman Finance and former President of the Cayman Islands Law Society. The former Managing and Senior Partner of Maples and Calder, he has extensive experience in all aspects of Cayman Islands law and has worked closely with the Government and prepared the Cayman Islands legislation for Mutual Funds and Private Equity vehicles, in the Private Trusts area, the Asset Protection Legislation and drafted the Cayman Islands Stock Exchange Law. Anthony was made an Officer of the Most Excellent Order (OBE) for his services to the Government and the Financial sector in August 1998. Anthony has written numerous articles and has spoken regularly at conferences and seminars.