Cyprus bail-out agreed at the 11th hour

In the early hours of this morning a deal was finally thrashed out to save Cyprus from bankruptcy.  Although the details have yet to be fully announced it is understood that key proposals include the closing of the Island's second largest bank, Laiki.  Investors with less than euro 100,000 will be fully protected from loss, but larger deposit holders can expect to lose significant sums of money. It is not yet clear what the impact will be on large deposit holders in other banks.

It is understood that the deal does not require the approval of the Cypriot parliament as the losses to be suffered by deposit holders will not be in the form of a tax, unlike the controversial proposals unanimously rejected by its politicians last week.

Although Cypriots will undoubtedly be breathing a sigh of relief that their economy has been saved from bankruptcy at the eleventh hour, there will be ongoing repercussions from this episode.  Cypriots have been voicing a deep anger with the EU in general and with Germany in particular, over the hard line that they have taken on bailout conditions.  Feelings are running so high that a majority of Cypriots are now said to favour leaving the EU. Meanwhile, the Russians (who represent a significant proportion of the Island's major depositors and who will therefore bear the brunt of the cost of the bank restructuring) will doubtless be very angry, and have even been reported as threatening economic reprisals against Europe.

The Spaniards, Portuguese and Greeks will be watching their own bank deposits carefully over the coming days to see whether nervousness over the losses inflicted on deposit holders in Cyprus infects  those with savings in other troubled European economies. A flight of cash would be disastrous for those countries still struggling with the effects of a deep recession and high unemployment.

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.