Why regulatory actions and criminal investigations are good for OFCs

Read the article in the Cayman Financial Review Magazine 

In June 2010, I asked the owner of a Cayman registered agent to provide me with a copy of the register of members of a resident company, which any member of the public is entitled to – for a negligible statutory fee – under Section 44 of The Companies Law. He refused to do so, despite my repeated requests. 

When I asked Cayman’s Registrar General Cindy Jefferson-Bulgin to assist me in forcing the registered agent to comply with the law, she replied: “Regrettably the Companies Law does not grant the registrar any enforcement powers in such matters.”

Two months later, OffshoreAlert published an article about the many regulatory actions, complaints, settlements, judgments, arbitration losses and unpaid debts in the United States involving the principal of the Cayman investment firm whose register of members was being denied me. The headline of the story said it all: “Scandal-plagued, debt-ridden US securities broker moves business to Cayman.”

That article prompted the Cayman Islands Monetary Authority to respond publicly that Cayman’s Securities Investment Business Law did not give the regulator any powers to refuse to register an entity that serviced high net worth individuals, regardless of their background. CIMA acknowledged there were “weaknesses” in the law and its embarrassment at the lack of powers given to it by Cayman’s legislators was palpable.

Over in Bermuda, an ‘investigation’ into suspected corruption by politicians and their associates involving a business known as Bermuda Housing Corporation concluded in 2004 with the director of Public Prosecutions claiming – with a straight-face, no less – that only “unethical” conduct had occurred, not criminal. The decision was widely derided.

Around the same time, the Bermuda authorities similarly whitewashed an investigation into an alleged $1 billion money laundering scheme through a Bermuda-based sham mutual fund called IPOC International Growth Fund by Russia’s Telecommunications Minister, Leonid Reiman. The private firm commissioned by the Ministry of Finance to conduct the investigation on its behalf – KPMG Financial Advisory Services – produced a draft report seen by OffshoreAlert in which mental gymnastics were used to conclude that, while the laws of Russia and the United States may have been broken, the laws of Bermuda hadn’t. It was a conclusion that appeared to be contrived, illogical and ridiculous.

The purpose of the above examples – and I could provide countless more – is to highlight that, due to deliberately toothless laws and corruption, it is rare that any meaningful regulatory or law enforcement action is taken against businesses and individuals in offshore jurisdictions, regardless of their backgrounds or conduct. The collective mindset seems to be that inaction and cover-ups benefit a jurisdiction’s reputation by avoiding negative publicity that comes with scandal, thereby maintaining a façade that little or no illegal activity occurs.

I would argue the opposite is true. That ignoring or tolerating wrongdoing is actually the bigger scandal, that the truth will eventually come out in the age of transparency that we live in regardless of attempts to conceal it, and, when it does, it will ultimately do considerably more harm to a jurisdiction’s reputation than the underlying scandals.

The measure of any country or jurisdiction is not that scandals occur but what it does about them when they surface. That’s why the arrest of then Premier McKeeva Bush in December 2012 and subsequent criminal charges for alleged corruption and misconduct was actually a positive for Cayman in terms of its international reputation, rather than a negative, as some believe.

The criminal action sent out a message that Cayman is a mature and responsible jurisdiction, certainly much more so than when OffshoreAlert launched in February 1997, when, whether one chooses to admit the reality of that era or not, Cayman’s financial services sector was an unregulated train-wreck that not just tolerated illegal activity, but appeared to encourage it. The marketing slogan for the industry might as well have been: ‘Don’t worry, we won’t tell anyone’.

Old Cayman buried its head in the sand whenever evidence of suspicious activity surfaced, as it did with the collapse of First Cayman Bank. New Cayman, on the other hand, has demonstrated with its allegations of corruption against Bush, who, by the way, was a director of FCB when it failed, that it will take action against individuals regardless of their position.

By indicting Bush, Cayman has also shown that, in this regard, it is a more mature jurisdiction than its biggest regional competitor, Bermuda, whose regulatory and law enforcement agencies allowed the government of then Premier Ewart Brown to run rampant from 2006 to 2010, with little or no accountability, and whose head is buried as deep in the sand now as it ever has been when it comes to investigating wrongdoing.

Bermuda was publicly embarrassed by its tolerance of the conduct of the Brown administration and its cover-up of the IPOC scandal. As a result, its international reputation suffered considerably.

In the IPOC case, it was left to the British Virgin Islands authorities to bring criminal action, which resulted in IPOC admitting charges and forfeiting $45 million. Even though Bermuda shared in the monetary spoils, the jurisdiction was publicly humiliated, in my opinion. The BVI also showed itself to be a cut above Bermuda when it prosecuted former Financial Secretary Allen Wheatley for corruption involving the Terrance B International Airport, culminating in a guilty plea in 2004. The BVI bucked the trend of OFCs ignoring evidence of corruption and went up in my estimation as a result.

Apart from the ‘feel good’ factor that comes with holding people accountable for their actions, there are also tangible benefits to jurisdictions that no longer ignore or tolerate wrongdoing, the most significant one of which is enjoying a better global reputation. That is important because it should be obvious to anyone that the future of OFCs lies in providing products and services to foreign nationals who are credible and are engaging in transactions that have substance, rather than the appearance of substance.

Such individuals should be drawn to jurisdictions that are credible and reputable, eg New Cayman, and avoid those that are not.
If McKeeva Bush truly loves the Cayman Islands and is genuinely concerned for its future, as he claims to, even he should welcome the criminal investigation into him.

 

Regulatory_actionsSm_AAA.jpg
SHARE
Previous articleDistressed LBOs and fraudulent conveyances:
Next articleAdam Lebor’s “Tower of Basel”
David Marchant

David Marchant is a Miami, Florida-based investigative journalist and publisher of OffshoreAlert newsletter (www.OffshoreAlert.com), which has been covering Offshore Financial Centres since 1997, and organiser of the OffshoreAlert Financial Due Diligence Conference, which is held annually in Miami. His work is regularly referenced by the world’s major newspapers, television stations, book authors and regulators.

David Marchant
Publisher
OffshoreAlert
123 SE 3rd Avenue #173,
Miami FL 33131, USA

T:
+1 (305) 372 6267
E:
Marchant@OffshoreAlert.com
W:
www.OffshoreAlert.com 
LinkedIn

OffshoreAlert

OffshoreAlert specializes in reporting about Offshore Financial Centers, with an emphasis on fraud investigations, and also holds an annual conference about OFCs, focusing on products and services, tax and political issues, compliance, money laundering, fraud, asset recovery and investigations.

The company is 100%-owned and managed by David Marchant, a United Kingdom national who has been a journalist since 1984, working in the UK, Bermuda and the USA.

Marchant and/or OffshoreAlert are generally considered to be leading authorities on OFCs and serious financial crime. They are routinely quoted or referenced by news organizations around the world, including The Wall Street Journal, Los Angeles Times, The Washington Post, USA Today, The Miami Herald, Vancouver Sun, The Economist, BusinessWeek, CBS News, BBC Radio, Bloomberg Television, United Press International and many more.

We have also been referenced in non-fiction books such as 'The Sink: Crime, Terror, and Dirty Money in the Offshore World', by Jeffrey Robinson, in 2003 and 'Crime School: Money Laundering: True Crime Meets the World of Business and Finance', by Chris Mathers, in 2004 and in Government reports such as 'Correspondent Banking: A Gateway For Money Laundering' by the U. S. Senate Permanent Subcommittee on Investigations in 2001. Marchant also wrote the 'Money Laundering' chapter of a textbook for financial journalists called 'Covering Globalization: A Handbook for Reporters', which was published by Columbia University Press, in New York, in 2004.

OffshoreAlert's exposés on fraud, tax evasion and money laundering have contributed to the collapse of several international financial groups and criminal charges being brought against their principals.

A testament to the quality of our reporting and our unwillingness to yield to bullying is that Marchant and/or OffshoreAlert have been sued for libel multiple times in the USA, Canada, Cayman Islands, Grenada, and Panama and have never lost, published a correction, issued an apology or paid one cent in legal fees, costs or damages to the plaintiffs.

OffshoreAlert is neither pro- nor anti-OFCs. We are independent. Our only agenda is to provide credible, accurate and useful information so that our clients can make better-informed decisions.

 

OffshoreAlert
123 SE 3rd Avenue #173,
Miami FL 33131, USA

T:
+1 (305) 372 6267
E:
Marchant@OffshoreAlert.com