Quarterly review

Tax transparency

Beneficial ownership: Government says US must sign first

The Cayman Islands will not adopt a mechanism for the exchange of beneficial ownership data that is not implemented by the United States, according to government.

Confirming that Cayman’s position had not changed after the Anti-Corruption Summit hosted by the U.K. in May, Premier Alden McLaughlin called for a level playing field in terms of financial transparency and stated that a standard without U.S. participation “is not a global standard.”
Cayman’s participation in the summit was predicated on it joining an initiative for the automatic exchange of beneficial ownership data. This initiative of 40 countries aims to develop a global standard for the automatic exchange of beneficial ownership data between law enforcement agencies and tax authorities of the partner countries.

Premier McLaughlin said government fully supports access to beneficial ownership data by foreign law enforcement agencies to help detect and prosecute corruption, tax evasion and other serious crimes. However, Cayman has not agreed to a specific method of exchanging this information but will take part in the discussions that will lead to the development of such a mechanism.

Cayman has agreed to implement the standard once all G-20 countries, OECD member states and all other U.K. overseas territories and Crown dependencies agree to it.

During the summit, government extended an offer to grant countries participating in the conference the same type of access to its beneficial ownership data that it has negotiated with the U.K.

From June 2017, U.K. authorities will have expedited access to information on who truly owns Cayman-registered companies and other entities, through a centralized platform which has not yet been developed, at the Department for International Tax Cooperation. However, the data is exchanged only on the basis of individual requests rather than the wholesale automatic exchange of all beneficial ownership data that the global standard aims for.

In addition, Cayman will replace its Confidential Relationships (Preservation) Law, which often has been characterized as a “secrecy law,” with a Confidential Information Disclosure Law.

Government has also passed legislation completely abolishing the use of bearer shares, which could be used to conceal the beneficial owner of an entity. Bearer shares had already been immobilized since 2000.

The anti-corruption conference has passed the responsibility for the development of the global beneficial ownership standard on to the Financial Action Task Force and the Organization for Economic Cooperation and Development.

The development of a global standard is expected to take years.

Even when implemented, it is far from certain that all OECD and G-20 countries, and in particular the United States, are going to adopt it.

 

Financial services

About 100 companies linked to Cayman in Panama Papers

The Cayman Islands plays only a minor role in the offshore data leak involving the Panamanian law firm Mossack Fonseca.

Of the 214,000 offshore companies set up by the firm, none was incorporated in the Cayman Islands and only 104 had a link to Cayman. In almost all of these cases, the companies, although incorporated elsewhere, provided a Cayman Islands contact address or were set up on the instruction of a Cayman-based intermediary.

About a third of the companies are still active.

An online database of entities, officers and intermediaries linked to the Panama Papers release, published by the International Consortium of Investigative Journalists, does not include files containing phone numbers, bank account information, financial transactions or passports for privacy reasons.

As a result, the database does not always reveal the beneficial owners of the entities, but more commonly shows only a corporate service provider or parent company.

However, the now-published data includes all of the 214,000 offshore companies established or administered by Mossack Fonseca between 1977 and 2015. In addition, the database contains about 14,000 intermediaries, such as law firms, banks and trust services providers who directed the Panama law firm to establish entities on behalf of their clients.

A search of the Cayman-linked entities, officers and intermediaries revealed the typical assortment of banks and trust services providers, investment entities and corporate directors that can be expected in a corporate database of offshore companies.

In addition to 104 entities connected with the Cayman Islands, there were 32 Cayman intermediaries linked to entities set up by Mossack Fonseca. Cayman companies, service providers and individuals are named about 600 times as officers of entities created by the Panama law firm.

In the international context, this means Cayman’s role in the Panama Papers is relatively benign as far as volume is concerned. Mossack Fonseca worked with intermediaries in more than 100 countries.

 

Cayman mergers and acquisitions activity highest in five years

The Cayman Islands reached a five-year high in the number of local mergers and acquisitions in 2015.

Deals involving entities registered in Cayman accounted for about a third of the overall deal volume and more than a quarter of the transaction value in major offshore financial centers analyzed by offshore law firm Appleby.

“For four years now, we have seen the Cayman Islands ranked as the most popular destination for investors seeking to acquire offshore assets,” said Simon Raftopoulos, a Cayman-based partner and member of the firm’s Corporate Finance and Private Equity teams. “With nearly 1,000 deals recorded in 2015, Cayman had another standout year and was a significant contributor to a robust year for transactional activity in the offshore markets by all key metrics – deal value, deal volume and average deal size.”

Cayman attracted 974 deals in 2015, worth a cumulative US$125 billion, a 14 percent increase in deal value over 2014. Both the number of deals and the average deal size of US$129 million were 7 percent higher than in the previous year, the Appleby’s Offshore-i report found.

Two of the 10 largest transactions of 2015 involved Cayman-incorporated companies as targets. In one notable institutional buyout, Qihoo 360 Technology, a software publishing business incorporated in Cayman, was sold to True Thrive, a consortium of investors also incorporated in Cayman, for $9.3 billion.

This deal reflected the trend of large transactions emerging in the information and communications space, Appleby said.

The total cumulative value of offshore M&A deals across all offshore jurisdictions measured in the report in 2015 increased 56 percent over the previous year, with average deal value topping highs not seen since 2007.

Three of the largest quarterly periods of the last decade occurred in 2015 and contributed to a cumulative deal value of US$442 billion across offshore jurisdictions. The year also saw an impressive nine megadeals worth in excess of US$5 billion each and more than US$150 billion when combined, Appleby reported.

Moreover, there were 75 deals each worth more than $1 billion last year, compared with 52 recorded in 2014.

As a result, the annual average deal size reached a record high of $149 million. The previous high set in 2007 stood at $99 million.

“The offshore markets are thriving and enjoying some of the best deal activity ever witnessed,” said Frances Woo, managing partner of Appleby’s Hong Kong office. “Offshore saw more value than the Middle East, Africa, Eastern Europe, South and Central America combined. Although 2016 remains fraught with uncertainty and challenges at the macroeconomic level could slow global deal activity, we are quietly optimistic that such good news will continue in 2016.”

The majority of M&A deals, about 30 percent, involved insurance and financial service companies (883 deals), followed by manufacturing with 610 deals; IT and telecoms (287); construction (233); and mining and quarrying (192).

The Cayman Islands also led offshore financial centers in the number of initial public offerings involving offshore-incorporated companies, despite an overall drop in the number of offshore IPOs in 2015.

Cayman-incorporated entities accounted for 45 out of a total 82 IPOs of offshore companies last year.

 

Percentage of Cayman-based hedge funds declining

The percentage of hedge fund launches domiciled in the Cayman Islands has declined slightly in recent years, according to a report on key trends in hedge funds in 2015 by data provider Eurekahedge.

Cayman has seen its global share decrease from 26.7 percent for funds launched in 2010 to 25 percent for funds launched as of February 2016. In 2015, only 15 percent of new funds were domiciled in the Cayman Islands.

Meanwhile, the United States has grown its share from 33.8 percent for funds launched in 2010 to 58.3 percent for funds launched as of February 2016. In 2015, nearly half of all new funds (48.4 percent) were domiciled in the United States.

Both Luxembourg and Ireland also took a larger portion of new fund launches, the data provider reported. Luxembourg increased its share as a domicile for new funds from 12.9 percent in 2010 to 16.7 percent in 2016, while Ireland doubled its domiciliation share from 7.3 percent in 2010 to 14.6 percent in 2015.

The United States, the Cayman Islands, Luxembourg and Ireland together account for 82 percent of the world’s hedge funds as of February 2016.

 

Cayman Finance, government sign new agreement

Cayman Finance has signed a new memorandum of understanding with the Cayman Islands government “to enhance the already close working relationship that Cayman’s financial services industry has with government,” Cayman Finance said.

The first MoU between Cayman Finance and the Ministry was signed in 2013.

“Our signing of the new MoU with Cayman Finance is significant because it marks the importance we all place on the private and public sectors working together to enhance, support and protect the industry,” said Minister for Financial Services Wayne Panton.

“It speaks volumes about the unity with which we approach the issues facing our industry today.”

Cayman Finance CEO Jude Scott agreed, stating that the new agreement “augments government’s support for Cayman Finance and enhances the relationship with regard to the joint marketing of the jurisdiction, facilitating industry consultations and tackling international initiatives.”

The memorandum of understanding also provides the ministry with a seat on the Cayman Finance board.

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Michael Klein
Michael Klein Editor Pinnacle Media Group Ltd. PO Box 1365, Grand Cayman, KY1-1108, Cayman Islands T: 345-326-1720C: 345-815-0064 E: mklein@pinnaclemedialtd.com Michael is a financial journalist and copywriter.  In the past he has been responsible for the Risk Management and Corporate Finance sections of a British monthly Corporate Treasury publication.  He has written various financial handbooks, notably on European Banking and Cash Management and the Debt Capital Markets.   In addition he has worked as a copywriter for banks and investment funds and served as corporate communications consultant to US and European blue chip companies.   Michael holds an MA in Political Science and International Law from the University of Bonn in Germany. 

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