Relations between Cayman's Premier and Governor go into melt-down

Relations between Cayman Islands Premier McKeeva Bush and its Governor Duncan Taylor have gone into melt-down following Bush’s arrest last week on suspicion of corruption and the illegal importation of explosives. 

Whilst speaking publicly in Jamaica on Thursday, Bush described his arrest as “a vindictive witch hunt” fuelled by the petty jealousies of the UK’s representative and political opponents, and pointed the finger of blame squarely at Mr Taylor, who he described as his “enemy”. Not surprisingly, the governor’s office has flatly denied the accusations.

No doubt it will be some time before the legal process sorts out the rights and wrongs of the allegations made against Bush, who strenuously denies any impropriety.  However, even if he is exonerated it is difficult to see how there can be any sensible working relationship between the two men in the future, which presents a real head-ache for an Island already having to adjust to a much tighter degree of control from the UK following the adoption at the insistence of the UK of the Framework for Fiscal Responsibility.

McKeeva Bush has insisted that he would remain as Premier, despite the inevitable calls for his resignation from opposition party members.  Meanwhile, his own party colleagues are reported to be meeting to discuss how best to handle the situation and it is notable that so far none of them have publicly come out in support of him since his arrest.

Whilst Bush undoubtedly retains a significant degree of support from the public in the Island, it is difficult to see how he can be effective as Premier with such serious allegations hanging over him, and with such an abysmal working relationship with the Governor.  

McKeeva Bush bailed without charge

Cayman Premier McKeeva Bush is reported to have been released on police bail without charge until February, while the Cayman Islands police continue their investigation into allegations including corruption and the illegal importation of explosives.  

Mr Bush spent several hours being questioned today and police have seized some property, including computer equipment. 

It is not yet clear where the situation leaves Mr Bush politically.  Not surprisingly, some opposition members have been calling for his resignation.  Several members of the United Democratic Party met at the Premier‘s house in West Bay after McKeeva Bush’s release from police custody following his arrest, but it is not yet clear what their response will be. 

Axiom Legal Financing Fund to be wound up

Axiom Legal Financing Fund, which has faced a slew of fraud allegations in recent weeks, is reported to have been put into receivership by its directors following a vote at an Extraordinary General Meeting held in London yesterday.

Until a few months ago, the award-winning Fund had been considered a great success but OffshoreAlert, a Miami based company, began to publish a series of articles raising red flags regarding the Fund’s activities, ultimately suggesting that it appeared to be a Ponzi scheme and questioning the bona fides of the CEO of Tangerine Investment Management, the Fund’s investment manager .

The £117m Cayman Islands based Fund was suspended in October following a flood of redemption requests in response to the allegations, and KPMG were appointed to review what had gone on.  It is understood that KPMG will be now be appointed as receivers, following yesterday’s shareholder vote.

It is not clear where this will leave the investors in the Fund, but some are already believed to be taking legal advice about their options.

GAAR commencement date pushed back, and will not apply to arrangements entered into before Royal Assent

It was today announced that the UK’s new general anti abuse rule (GAAR) will come into force from royal assent to the Finance Bill 2013 (expected to be July 2013) and not from 1st April 2013 as originally proposed.

The Government has also proposed that the GAAR will not apply to tax arrangements that have already been entered into before royal assent to the Finance Bill, which will be a significant relief to people who may have set up arrangements many years ago, for example to minimise inheritance tax.

Draft legislation for the Finance Bill 2013 was published today, including detailed guidance notes from HMRC and it appears that the government has taken on board some comments made during consultation in a number of amendments the draft legislation.

The main change relates to something which has been dubbed the “double reasonableness test”, about which there has been widespread concern.   The key aim of the GAAR is to prevent “tax advantages” arising from “tax arrangements” which are “abusive”.  In determining both whether there has been a "tax advantage" and if so whether it was "abusive" the concept of reasonableness was used.  The Government has amended the draft legislation by including clarification of the circumstances to be taken into account in determining whether arrangements are abusive. In addition the draft legislation has been amended to remove a reference to transactions or agreements which include non-commercial terms as one of the indicators of abusiveness.

The legislation also sets out how the GAAR Advisory panel will operate. It will give opinions on specific cases and approve HMRC guidance on the operation of the GAAR, although concerns have been expressed about the length of time that opinions are likely to take. However, it is expected that the opinions of the Advisory Panel will be published in anonymised form which should be a significant help to tax advisers in the early days of the GAAR’s operation. 

However, some trust practitioners remain concerned that the new legislation still provides insufficient clarity for individuals seeking legitimately to minimise their tax affairs.  

The GAAR will not impact the manner in which profits of multinational corporations are allocated between the UK and other countries – something which has been receiving much press attention in recent months.  Tackling that issue would require an international review of the complex transfer pricing rules.

  

Cayman Islands Premier arrested on suspicion of corruption

Premier McKeeva Bush, the leader of the Cayman Islands government, was arrested today in connection with allegations of theft and corruption in connection with the misuse of a government credit card and the importation of explosives without valid permits. 

He was detained at his home by members of the Financial Crime Unit of the Royal Cayman Islands Police Service and his office was searched.

Earlier this year, Cayman Islands Police Commissioner David Baines said Bush was the subject of three police investigations, two of them involving what he described at the time as financial irregularities.

Bush has publicly denied any wrongdoing and was tonight bailed without charges being preferred.  However, he is expected to return to police custody tomorrow for further questioning. 

Blackstone to acquire Intertrust

Private Equity giant Blackstone Group has agreed to acquire Intertrust, the international company and trust administration group, for a reported €675m from Waterland Private Equity Investments.

Fiduciary businesses have long been a favourite with PE houses, largely because of their stable client base and annuity revenue streams but also because the fragmentation of the industry allows for a buy-and-build strategy to be effectively employed as fiduciary businesses undergo a period of rapid consolidation.  Past transactions have included Doughty Hanson’s acquisitions of TMF and Equity Trust, IK Investment Partners acquisition of the Offshore Incorporations Group and Vistra, CBPE’s acquisition of Jersey Trust Company, and RJD’s acquisition of Ipes.  However, the purchase of Intertrust has been agreed at a time when there are unprecedented levels of pressure being put on the activities of multi-national firms such as Google, Amazon and Starbucks, which structure their activities through locations such as Luxembourg and Netherlands.  As such, the acquisition is effectively a bet on the resilience of those locations to weather the current storms.

Jersey and Guernsey fighting for a level playing field on UK's "mini FATCA"

The Chief Ministers of Jersey and Guernsey have issued a joint statement on developments relating to the UK Government’s attempts to introduce a “mini-FATCA” whereby the Crown Dependencies and Overseas Territories would be required to report assets for UK individuals to the UK authorities, in much the same way as the US government requires for its citizens under FATCA.

The fact that the UK is seeking to do this is no great surprise – there has been a whole series of initiatives over the years which are moving inexorably towards automatic data exchange, and most in the industry regard this as inevitable at some point in time.  Although there are vocal arguments that the costs of such arrangements are likely to be disproportionate to amounts collected in additional tax revenue as a consequence, there are equally those in the business who would welcome an opportunity to prove that the onshore jurisdictions are wrong to label the offshore centres as havens for tax evasion, and who resent the fact that the UK media consistently portrays them as such.  However, in my view the real risk for the Islands is that they are required to begin reporting well before other countries are – as it creates an uneven playing field in terms of cost and administrative burden, which will likely result in the flight of business to locations which can offer their services more simply and cheaply.  In short, the clients will disappear to less reputable locations, which does not serve the interests of HMRC, the Overseas Territories, the Crown Dependencies or, indeed, the clients themselves. 

It seems from the statement released by the Jersey and Guernsey authorities that they have decided not to fight the basic principle of reporting the information:

“As communicated last week, officials from Guernsey, Jersey and the Isle of Man continue to engage with US officials, aimed at concluding Intergovernmental Agreements under the US FATCA regulations.

We also share a common commitment with the UK to combat tax evasion and to participate in international efforts to combat financial and fiscal crime. We have long made it clear that neither Island has any wish to accommodate those engaged in tax evasion.”

However, Senator Gorst of Jersey added:

“The UK Government is seeking to promote more widely as a new international standard the principles of the US Foreign Account Tax Compliance Act (FATCA). Jersey considers that it is important that in doing so the UK Government mirrors the approach of the US FATCA in being global in its application, ensuring a non-discriminatory approach for all jurisdictions.  In our ongoing discussions with the UK Government we will be pressing them to make clear the steps they are taking to promote the adoption of automatic exchange of information worldwide to ensure that a level playing field is achieved for all finance centres competing in the global market place.”

It seems therefore that Senator Gorst is well aware of the risks of being at the “bleeding edge” of such initiatives, and will fight to ensure that the Islands are not singled out as being the only territories to which the rules apply.  I commend him in taking this approach, which is in the circumstances probably the only feasible option, as to resist the entire principle would leave the door open for people to conclude that the offshore centres are there to assist in tax evasion.  However, in doing this, the Islands can and should try to regain some of the initiative against those who seek to blacken the reputation of the jurisdictions unfairly.