FATF To Visit Cayman Islands

Caymannetnews

30 April 2001

This story is reproduced by kind permission of Cayman Net News at: http://www.caymannetnews.com

Still under scrutiny from the G7s Financial Action Task Force (FATF), a review team from this organization is scheduled to visit the Cayman Islands, next week Monday, for a series of meetings in connection with this country's commitment to put in place compliances mandated through local legislation, to avoid remaining on the FATF's 'Black List'.

The meetings planned, according to a spokesperson from the Financial Secretary's office: "is a follow-up on the on-going dialogue the Cayman Islands Government has been having with the FATF since its inception."

Meanwhile, one person who has not been afraid to voice his dissent alongside a collection of United States Government Congressmen, to the actions of the OECD is local attorney Mr. Michael Alberga, who has written numerous treatises on the Cayman Islands success as a Financial Planning Centre.

Letters voicing concerns by some of the members of the US Congress and other bodies can be viewed on the Internet at the Freedom and Prosperity web site - www.freedomandprosperty.org.

Mr. Alberga is a third generation attorney and has been practicing law in the Cayman Islands for over 20 years as a partner in the firm of Myers & Alberga. He is a member of various organisations and institutions including the American Bar Association, International Tax Planning Association, State Capital Law Firm Group, McIntyre Strater, International Bar Association, Center for International Legal Studies, International Business Law Consortium, Society of Trusts and Estate Practitioners and was President of the Cayman Islands Law Society for 4 years ending in 1997.

As a member of the Private Sector Committee, he was appointed to review the updated anti-money laundering legislation introduced in the Cayman Islands in 1997 and has been involved in analyzing various aspects of the OECD harmful tax competition initiatives.

Mr. Alberga speaks at various conferences and has written numerous articles over the years.

One of his commentaries appears below.

The Financial Action Task Force (FATF), a body created by the G-7, has spent many years urging and coercing countries to tighten their regulatory mechanisms and to join the fight to make it more difficult for unscrupulous persons to use the world's financial systems for illegal purposes.

This worthy cause has been embraced more or less on a global basis. The campaign which began with the object of stamping out the use by drug barons of financial institutions expanded into other areas of recognised international criminal activity with groups from various countries examining the progress which had been made in legislative changes towards achieving this goal.

The Caribbean Action Task Force (CATF) was formed with a high degree of co-operation from Caribbean countries. Cayman was one of the first countries to submit to self-assessment and received extremely high marks for its efforts in this regard.

A couple of years after the effort was well underway the OECD, in a departure from its usual helpful assessments and its stated purpose of encouraging economic co-operation and development among member nations, issued its intended newly found purpose of harmonizing tax rates on a global basis. Low tax and no tax nations in a globalised world were unfairly encouraging capital to move to more productive areas. This threatened the high tax socialistic systems of many European countries who are unable to encourage necessary structural reforms. Unless agreement was reached with low tax and no tax financial centres to cease these disruptive practices and to become more transparent by agreeing to become tax policemen, they would be sanctioned and hopefully eliminated. This despite accepted principles of international law relative to the sovereignty of nations and numerous decisions by courts that one country will not allow itself to be subjected to the fiscal regime of another country except through treaty arrangements. Unperturbed by these principles the OECD pushed ahead towards achieving its goals by threatening sanctions against non-members who did not readily agree to become tax police, gather information and assist in the collection of revenue for its member countries. At the very best this transparent attempt threatened free trade and the growing movement towards globalization.

As criticism mounted against the OECD's effort, now concentrated on small helpless countries, FATF began to expand its ambit and insisted that recognised offences which should be accorded mutual co-operation and enforcement include fiscal offences. They demanded mechanisms be put into place for the gathering of information by regulatory and other governmental bodies which would assist in the easy transfer of fiscal information to various tax authorities in OECD countries sovereignty and the rule of law, insignificant hurdles.

At a meeting some time ago in the Cayman Islands of CATF, FATF representatives urged and encouraged the Caribbean Action Task Force to endorse the OECD principles and to move towards including fiscal offences in the various pieces of legislation being put into place to enhance the fight against money laundering. This was not met with any degree of enthusiasm from the CATF countries and the rebuff by small helpless Caribbean nations was met with great indignation. Shortly thereafter it became apparent that FATF and the OECD had joined forces and were moving towards including the failure to assist and report fiscal information to OECD countries without the benefit of a double taxation treaty as one of the world's most foremost global evils.

The bureaucrats were summoned and readily mounted their unruly Caribbean horses with the stated goal of galloping flat-out to the finishing line. Threats of blacklists, economic embargoes and other draconian measures were issued to all who did not surrender their sovereignty to the OECD and FATF initiatives. Surrender to one organisation as in the case of Cayman (the OECD) was not good enough. Legislation far beyond anything which existed in the majority of the OECD and FATF countries was absolutely necessary. New organisations sprang to light overnight. The FSF, the Financial Stability Forum, issued a most amazing communiqué, the effect of which was that global financial systems were threatened by financial centres (a finding which IMF had to later admit was without any substance). Countries scrambled to deal with the raft of demands and the effects of blacklists on their economies and citizens while the jockeys shared offices in Paris enjoying tax-free status, the Owners and Trainers sipped champagne at the impending victory.

Unfortunately, bureaucrats, whose ability to think outside the box is limited at the best of times, much less when at full gallop on top of a colonial or ex-colonial horse with whips out and the finish line in sight, had failed to recognise that the Euro-horse was beginning to become restless in the home stable. Not only had it fallen 20% behind the pace but it was also due for its major debut with the public.

The owners (the Prime Ministers and Presidents) and the trainers (the Finance Ministers) huddled in urgent meetings. A crisis was at hand, the jockeys had ridden the Caribbean horse too fast at an early stage in the race.

The carefully bred European steed was in danger of collapse just after the starting gates opened, with disastrous results for the European Union.

Their socialistic and high tax economies had developed a sophisticated black market economy much larger than the jockeys' ability to imagine. Should the public fail to accept the Euro and continue to exchange the various individual European currencies for United States Dollars, there would be light betting on the tote board on opening day. The heads of the Owners and Trainers would roll and in a strange turn of events, the jockeys would remain unperturbed but directed by new Owners and Trainers.

The Germans, astute thinkers, realised that the United States of America had dealt with a similar problem of a different nature. Prior to the reconfiguration of their currency they embarked on a worldwide educational problem which had been extremely successful. There were billions of Deutchmarks held by Russians and nationals of other EU and non-EU members on the black market. Teams were dispatched and paperwork prepared to explain that these would be exchanged without question for Euro's after its initial debut.

The Bank of Spain, fearing a liquidity crisis as estimates began to emerge that between four and ten percent of their GDP, some four thousand billion to ten thousand billion Pesetas (twenty one billion to fifty three billion dollars) happily circulated out of the reach of the taxman and in an underground economy. Known as the dinero "B", this paid for cars, travel, wages, construction, agriculture and a host of other goods and services which were essential to their economic viability. To alleviate this crises the Central Bank of Spain issued a communiqué that as of the 1st January 2002 any person could change up to two and a half million dinero "B"s (pesetas) for Euro's without identification and cheques up to five hundred thousand could be exchanged in a similar manner.

The black market problem in Italy is estimated to be as large if not larger than Spain and that of France large but yet unknown. The problem is so enormous that in Spain there has been a noticeable increase in the funneling of funds into real estate causing prices to rise between twenty-seven and fifty five percent over the last eighteen months. The fear that conversion to United States Dollars and other hard currencies is so great that no longer is money laundering, tax avoidance, tax evasion, know your customer rules, reporting to FIU's, etc of any material importance.

As all of this develops, Cayman and other Caribbean countries will be the subject of visits from the stewards who are coming out onto the track to examine whether the Owners and Trainers can instruct their jockeys to sheath their whips as the Caribbean horse has collapsed over the finish line or whether a few more stripes will urge it towards that goal before it collapses.

Before the inauguration of the Euro is complete, the world's largest exchange of black market currency would have been completed. The total amount exchanged will more than likely exceed all the assets held in the Caribbean financial centres and many others as a whole ­ a super laundromat of gigantic proportions will have been mobilised. FATF and the OECD initiatives temporarily immobilised, except as they relate to the Caribbean.

If this is not Imperialism at its finest moment, then China must be a democratic under populated nation, President Fidel Castro-an advocate of capitalism, Black Beard the Pirate-a missionary, the FMOC- communists and the children of Saddam Hussein -heirs to the British throne.

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