Date: 01/28/13

Topic: Foreign Accounts

The Cayman Islands Monetary Authority (CIMA) has plans of creating a database with basic details on every financial institution it regulates. This move marks a policy shift to expose to nation’s financial sector. The Cayman Islands has grown to be the worlds leading offshore hedge fund jurisdiction and according to reports has over 10,000 hedge fund registrants. There has been a concerted effort to market the Cayman Islands as the best combination of sensible regulation, robust infrastructure, legal framework and image for financial institutions. Several of the world’s largest wealth management firms and banks provide services in the Caymans including HSBC, Deutsche Bank, UBS, and Goldman Sachs as well as the Big Four auditors.

Access to the CIMA database will either be based on a per search model or through an annual subscription fee. The stated goal of this policy is to “encourage investment in the Cayman Island entities by erasing the process of due diligence for potential investors.” However, this is not the only change as the proposal also encompasses Companies Management Law to enable the regulation and supervision of individuals offering themselves or acting as directors of six or more Cayman Islands-registered entities.

The Cayman Islands financial services regulatory framework is focused on applying international principles coupled with a disclosure based regime. To facilitate this, CIMA commissioned Ernst & Young to conduct an industry wide review of certain aspects of corporate governance. It returned a finding that directorship services are a vital part of the financial services sector but a regulatory network was needed to supervise the standard of services being provided. Therefore, people who act as a director for six or more entities for profit will require the central bank’s permission to adopt an additional directorship.

In a release, the central bank asserted that stronger corporate governance would generate, “better managed entities; better board oversight of an entity; more focused risk management practices and enhanced controls to mitigate risks.” Comments on the proposal are being solicited from the financial industry.

This report indicates that tax havens are succumbing to international pressures for increased transparency. The risk of offshore accounts being discovered has never been larger as traditional tax havens like the Cayman Islands slowly dry up. The only way to protect oneself from certain criminal prosecution is to enter the Offshore Voluntary Disclosure Program. A knowledgeable and experienced tax attorney can guide you through the process smoothly and keep you out of federal prison.