Cayman agrees to automatic exchange of information with UK

The Cayman Islands have announced that they will sign a Model 1 IGA with the US in order to facilitate FATCA compliance, and also that they intend to put an equivalent arrangement in place with the UK for automatic exchange of information.

In quick succession, the UK government have therefore ensured that 4 of the key Crown Dependencies and Overseas Territories with significant financial services businesses (Jersey, Guernsey, the Isle of Man and Cayman) have all committed to automatic information exchange.  Those territories will now be waiting to see how quickly the UK government presses rival financial centres to do likewise, to achieve a level playing field and avoid a flight of business to less regulated jurisdictions.  

McKeeva Bush Charged With Multiple Offences

McKeeva Bush, the former Cayman Premier, was charged yesterday with a number of offences including multiple counts of theft and misconduct in public office.  He was initially arrested in connection with these and other matters late last year, but only now have charges been brought.

The theft charges are believed to relate to misuse of a government credit card.

Although Bush continues as leader of the United Democratic Party, he was ousted as Premier following his arrest in December.  He strenuously denies any wrongdoing.

He has been bailed to appear in court on 12th April, some 6 weeks before the Cayman elections.

Whatever the outcome of the proceedings, this is undoubtedly unwelcome publicity for an Island which has been seeking to assure the world of its commitment to probity and good corporate governance.

Cyprus hangs by a thread

The financial future of Cyprus remains hanging by a thread tonight, after the country's Parliament last night emphatically rejected the proposed EU bailout which had been negotiated at the end of last week.

Today the Finance Minister flew to Moscow to ask the Russians to come to the rescue, but the meeting ended with no deal being reached and a planned press conference was cancelled.  Rumours abound of Gazprom having offered to resolve the tiny country's financial difficulties in return for exclusive rights to exploit its oil and gas reserves, but it is an invidious position for the country to be in, trying to negotiate a commercial deal of such importance when known to be hovering on the edge of bankruptcy.

Jersey agrees UK FATCA

Hot on the heels of the Isle of Man and Guernsey, Jersey has agreed to sign an automatic exchange of information agreement with the UK, after having secured special reporting arrangements for non-doms and a disclosure facility to enable UK tax payers who have undeclared money in the Island to regulate their affairs prior to the information exchange regime beginning.

Although practitioners remain worried about the costs of compliance and that the new regime will drive away entirely legitimate and good business from the Island to lower cost (and less regulated) jurisdictions, those in the industry hope that by having agreed to this route the UK will stop its relentless attacks on the Island's finance industry and support its involvement in appropriate tax mitigation and the free movement of capital. One of the early tests of this will be the UK's approach to renegotiating the existing Double Taxation Agreement, which it has committed to reconsider as part of the overall agreement with the Islands.

Guernsey agrees to "mini-FATCA" disclosure arrangement with UK

Following the Isle of Man’s agreement to implement a “mini-FATCA” tax disclosure agreement with the UK, it seems that Guernsey has decided to follow suit.

The UK has been seeking to implement automatic disclosure agreements with 3 key Crown Dependencies, Guernsey, Jersey and the Isle of Man, since last October as a quid pro quo for consenting to the Crown Dependencies signing an Intergovernmental Agreement (IGA) with the USA designed to simplify the reporting requirements for the US FATCA.  It is a moot point whether the UK has the power to block the Crown Dependencies signing the US IGA without the consent of the UK, but both sides have been trying to find a mutually acceptable solution without major conflict as there is an acceptance that in the current financial and political climate, the Islands need to be seen to be doing all they can to ensure that their beneficial tax arrangements are not being abused for tax evasion.

The key concern of the Crown Dependencies is that the UK choosing to impose reporting requirements only on the Crown Dependencies and not on other financial centres, will put them at a competitive disadvantage because of the costs of compliance, which will in turn lead to a loss of business. 

The Isle of Man was the first to agree to the UK’s demands for automatic disclosure, with Guernsey and Jersey taking the opportunity to try to secure some clarifications and benefits before committing themselves.  Guernsey’s agreement now leaves Jersey as the only jurisdiction yet to confirm its position.

It seems that Guernsey has indeed managed to secure changes to some of the aspects of the mini-FATCA arrangements which were causing the greatest concern.  In particular, the UK agreement will include alternative reporting arrangements for non-domiciled UK tax residents (non-doms) and a commitment  to negotiate a revised Double Taxation Agreement between the two countries.

The proposed arrangements between the UK and Guernsey are subject to the approval of the States of Guernsey later this year, but seem to be likely to be approved.

Guernsey's chief minister Peter Harwood, said: “The agreement that we are working towards with the UK will be consistent with our belief that Guernsey's long-term sustainable economic future is best served by safeguarding our position and reputation as a respected, well regulated, tax transparent jurisdiction. With such a UK agreement, automatic exchange under the EU Savings Directive and importantly an IGA arrangement with the US for FATCA now almost concluded, we believe Guernsey business will have both certainty and a competitive advantage.

Cypriots back-tracking on bank deposit tax for deposits of less than Euros 20,000

Under huge pressure from angry citizens, the Cypriot government has submitted a draft bill to its Parliament scrapping its proposed controversial levy for those with deposits of €20,000 or less.

There has been enormous anger that small savers were to be hit by the emergency levy, given that the EU has legislation in place designed to ensure that the cash of small depositors is protected in the event of a bank failure.

Since announcing the original bailout deal, Cyprus has faced calls from its central bank governor (aptly named Panicos!) and from Eurozone finance ministers to raise the exemption threshold up to €100,000, but to make good the consequent cash shortfall by increasing the levy on larger deposits.

It is understood that the draft bill does not raise the proposed levies of 6.75% on deposits between €20,000 and €100,000, and 9.9% on  deposits over €100,000 in order to balance the expected €400 million shortfall that the new exemption will cause.  Given that the Troika have made it clear that no further funding will be provided by them, it is not clear how this draft bill can lead to the successful bailout that the Cypriots so urgently need.

In the meantime, the Cypriot banks remain closed.

Cypriot bail out sparks fears of a run on the banks

The Cypriot government and the EU/IMF finally agreed the long awaited bail out package for Cyprus on Friday, but in hugely controversial fashion. In fact, so controversial that it is not beyond the realms of possibility that when put to the Cypriot parliament for approval tomorrow, they could actually reject the deal and opt instead to leave the Euro and face almost inevitable bankruptcy instead.

The main reason for the passionate opposition from some quarters to the deal which has been struck is that, after pressure from the Germans, an integral part of the bail out deal was agreement to impose a "levy" on all holders of bank accounts in the island, equivalent to 9.9% on accounts of more than €100,000 and 6.75% on accounts under that sum.  It is the first time that the EU have made what effectively amounts to a partial confiscation of cash deposits a condition of financial assistance, and there were immediate fears that it would lead not only to a run on Cypriot banks, but that the panic could spread to account holders in other countries suffering financial difficulties, such as Greece and Spain, sparking another wave of financial problems.

There had been rumours for some time that the EU was seeking to make deposit holders share some of the burden of the bail out, although the Cypriots fought hard to resist it, knowing that it would damage the Island's lucrative financial services sector. The official reasoning for the imposition of the levy was that it was required to keep any rescue package down to a sustainable size for the future, but it is also known that some EU politicians, and most vocally the Germans, feared a political backlash if they went ahead with a loan, leaving the many wealthy Russians who hold accounts in the territory protected and not contributing the rescue cost.  

The fact that larger account holders are facing a levy will not have come as a surprise to everyone, but there is real shock that small depositors are also being hit. The EU has depositor protection in place for account holders of less than €100,000 and it is not clear how this can be squared with the Cypriot deal.

It is a national holiday in Cyprus on Monday, and so nervous banks will have to wait until Tuesday to see what the impact will be within the Island.  Meanwhile, on Monday bankers in Greece, Spain and Portugal will be working hard to calm jittery customers who may fear that similar measures could be taken elsewhere in the future now the principle has been established.