The International Financial Centres Forum (IFC Forum) is a private sector members’ association. Our members come from the professional services and financial industries in small international financial centres, including the UK Crown Dependencies and Overseas Territories. In the Cayman Islands, our members include Appleby, Butterfield, Harneys, Intertrust, Maples and Calder, Mourant Ozannes, Rawlinson & Hunter and Walkers.
The IFC Forum is a not-for-profit organization that provides a platform to represent the interests of its offshore members in the onshore world. We spend our time providing information about the role of small IFCs in the global economy, explaining what IFCs do, and addressing common misconceptions.
The general public perception of small IFCs is a far cry from the reality. All too often, large “onshore” jurisdictions use IFCs as politically convenient scapegoats on which to blame their economic woes. The IFC Forum seeks to communicate and co-operate with policymakers and the media to ensure that, as far as is possible, the economic and tax policies of the onshore world do not unnecessarily damage the IFCs.
Proposals for public registers of beneficial ownership
Unsurprisingly, the Forum’s activities over the last few months have been in large part focused on global pressure, particularly from the U.K., for enhanced transparency. In particular, this pressure has called for the creation of public registers of beneficial ownership of companies.
The background to the proposals are the commitments relating to tax and transparency made by the G8 countries at the Lough Erne G8 Summit of June 2013. One of these required greater disclosure of the beneficial ownership of companies. In July 2013, the U.K. published a consultation paper: “Transparency and trust: enhancing the transparency of U.K. company ownership and increasing trust in U.K. business.” Similar consultations have subsequently been issued by some of the U.K.’s Crown Dependencies and Overseas Territories, including the Cayman Islands.
The U.K. government finally issued its consultation response document in April 2014. The response confirmed proposals to create central registers detailing ultimate beneficial ownership of companies, and plans to make such registers publicly accessible. Shortly afterwards, David Cameron, the U.K. prime minister, wrote an open letter to the crown dependencies and overseas territories, urging them to move forward with public registers in their respective territories.
Concerns over U.K. government proposals
The IFC Forum has a number of serious concerns about the proposals for public registers, and has contributed to the U.K. consultation process, and equivalent consultation processes in the Cayman Islands, the BVI and Jersey.
Our first concern is that the model for collecting beneficial information currently proposed by the U.K. government is inherently flawed. It relies upon self-reporting by the companies themselves and their beneficial owners. There is no mechanism for systematic verification of the information. This is in direct contrast to the systems that already exist in the Cayman Islands and other crown dependencies and overseas territories, where governments license and supervise corporate service providers, who must themselves obtain and retain the information on beneficial ownership. The system is effective and has been in place for more than 10 years.
In fact, the U.K.’s own action plan, tabled by the prime minister at the time of the June 2013 G8 summit, itself proposed a review of corporate service provider supervision in the U.K. However, no action was taken on that commitment, and the U.K. government has instead preferred self-reporting. We are concerned that the U.K. will seek to impose this inferior and untested system on its crown dependencies and overseas territories.
The driving philosophy behind the Lough Erne commitment to transparency was that companies should know who really owns them, and that tax collectors and law enforcers should be able to obtain this information easily. In the Cayman Islands and other crown dependencies and overseas territories, they already do.
The second major concern is that the system currently proposed does not extend to overseas companies; nor can it. In the likely event that Asian and U.S. financial markets do not adopt these proposals with the same speed and scope, the U.K. is at a serious competitive disadvantage. And the Cayman Islands would be at a similar disadvantage if such a system were forced upon it.
Further, the requirement that the information be made publicly available is potentially dangerous in a number of situations and in any case is not required by Financial Action Task Force (FATF) guidelines. At the very least, we have suggested that the introduction of the proposed register be staged to ensure that data is only made publicly available once it is clear that the data is accurate and that such a move will neither damage competitive interests, nor breach the fundamental human right to privacy.
Engagement with UK government and others
The IFC Forum is in regular communication with the U.K. Government Business Innovation and Skills (BIS) Department, the department tasked with the development and implementation of the proposed strategy. Our representatives have regularly attended government meetings and discussions on operationalization of the strategy. The Forum is keen to remain involved and to work alongside the U.K. government in building what we hope will be an effective and functional system.
The IFC Forum has also outlined its concerns relating the U.K. government’s plans with a number of other stakeholders. These include the Institute of Chartered Accountants of England and Wales (ICAEW), the Confederation of British Industry (CBI), the Institute of Economic Affairs, the Institute of Directors and a number of MPs. Many of them share our concerns and we are looking to work together on a number of issues. It is important that industry allies work together going forward to counter the emotive but largely unsubstantiated arguments from NGOs and to ensure a balanced regulatory regime.
“Global Shell Games”: IFCs are not secrecy jurisdictions
Clearly the working assumption for much of the lay public is that small international financial centers are sanctuaries of secrecy. This is exacerbated by the stories promulgated by the (well-funded) NGOs and the popular press.
This assumption is wrong. In fact, the crown dependencies and overseas territories have been at the forefront of transparency and regulation; regulation has been in place in many jurisdictions for more than a dozen years.
We now have the hard evidence to demonstrate that offshore centers score far more highly in terms of compliance with transparency and information exchange than many of the onshore jurisdictions.
“Global Shell Games” is a recent academic study into compliance with FATF guidelines. Broadly, the authors pretended to be consultants wanting to form a shell company. They sent emails asking over 3,500 different incorporation agents in 182 different countries to form companies for them.
Overall, 48 percent of the agents who replied failed to ask for proper identification; they just went ahead and incorporated. Almost half of these did not want any documents at all.
For current purposes, the most interesting aspect of the study is that, completely contrary to the image portrayed in the media, providers in so-called tax havens, such as the Cayman Islands, had a much better compliance rate than other OECD countries. Also noteworthy was the rather woeful lack of compliance in the U.S., in particular by U.S. company service providers. A mere 7 percent of U.S. company service providers complied with the guidelines.
By contrast, the Cayman Islands enjoyed a 99 percent compliance rate.
The overwhelming conclusion of the study is that the popular cliché pushed by NGOs and the media – the idea that tax havens provide strict secrecy and lax regulation – could not be more flawed.