Dear Mr. Travers

Thankyou for your comment. It is odd that the allegation against “those who have clearly undertaken no research whatsoever” should come from a man who explicitly (and whose government spokesman Ted Bravakis publicly) declined to co-operate in any way at all when I approached you in recent weeks for a research interview, openly as a representative of TJN, during my recent trip to Cayman. This is an interesting approach to transparency.

But that is anecdotal. Let me begin by exploring areas where I feel we are likely to find ourselves in agreement. You are riled when people in the United States point the finger at Ugland House and its 18,000 odd companies; in return you note a much “bigger” building in Wilmington, Delaware – and we firmly agree: this is grand hypocrisy on the part of the United States. The United States and the United Kingdom, among other big financial centres, have enormous tax haven characteristics. Noting that, however, is quite a different matter from exonerating the Cayman Islands.

You also say – seemingly every week in the local media – that the Cayman Islands are a transparent, well-regulated and co-operative jurisdiction. There can be no doubt that the Cayman Islands is more transparent than a number of other jurisdictions – Panama or Belize would be relatively nearby examples, and Delaware another. Unfortunately, that is not saying very much. Recent work by Jason Sharman on just this issue is revealing. http://taxjustice.blogspot.com/2009/03/new-study-britain-and-us-may-be.html That is, once again, far, far short of being an exoneration.

On our blog we recently pointed out this, from your own Walkers:
http://www.walkers.com.ky/pubdocs/Confidentiality%20Legal%20Professional%20Privilege.pdf
“Section 5 of the CRPL prescribes criminal penalties on anyone who divulges (or threatens, offers or attempts to divulge) or wilfully obtains (or attempts to obtain) any confidential information with respect to business of a professional nature, which arises in, or is brought into, the Cayman Islands. The penalty for committing an offence under the CRPL is up to two years’ imprisonment and a fine of CI$5,000.00.”

CRPL stands for Confidential Relationships (Preservation) Law. Please explain how a jurisdiction with this on its books can claim to be transparent. This is not about normal client confidentiality. This is, unmistakably, tax haven secrecy. And the word “obtain” is startling. You can go to prison just for asking for the information? The fact that you can sometimes get this information by going through the courts to get it only partly mitigates the terrible consequences – this is the legislation of a tax haven, or what we also call a secrecy jurisdiction. The legendary New York crime-fighter Robert Morgenthau has been – very recently indeed – highly critical of the Cayman Islands’ refusal to co-operate. But even that – co-operation with the United States – is the easy stuff. What hope is there for a poorly resourced, politically weak developing country to get the information it needs, on a timely and regular basis?

On the subject of transparency, perhaps you would like to point us to the place where I can find out any useful information about Cayman Islands trusts. Or perhaps you might like to inform me where one could go, as one can in the United States or the United Kingdom, to find a register of company directors companies operating out of Cayman. You cannot obtain the list of directors of a company from either the registrar or the registered office. Why not? Why are the memoranda and articles of associations of companies not available on the public record? I could go on.

Then there is enforcement. During my recent research one highly experienced financial sector operator, whose name I cannot disclose, told me this, after a three-part preamble: “these are just three of my examples of regulations being in force but not being enforced.” I heard some very interesting stories in this respect which I won’t repeat here: I’d have to spend time and money with a libel lawyer first. All in good time.

Separately, there is the OECD’s standards on information exchange. We do not consider that a judgement by organisations such as the OECD (or the IMF) that a jurisdiction is “co-operative” (and Cayman didn’t quite make the cut, did it?) is any grounds for claiming to be clean, even if you do eventually make it onto the “white” part of the list. We do concede that ranking – however flawed (as the OECD list undoubtedly is, for reasons noted above) can put positive pressure on jurisdictions to clean up, and Cayman has responded and will respond. Yet because of their extremely, even pitifully weak nature, these lists and judgements are fig leaves, and we have always said so and will continue to say so.

We reject the OECD’s standards on information exchange – they barely penetrate the veil of secrecy; the fact that some jurisdictions provide “gateways” through to get information is entirely insufficient: in effect, you have to know what you are looking for before you look for it – and often put quite some effort into presenting a case – this is a problem with which the bemused Yossarian would be most familiar.

We support comprehensive, automatic exchange of information on a multilateral basis. The Cayman Islands has implemented measures equivalent to the European Savings Tax Directive (which is riddled with loopholes) which require some information on some limited forms of investment to be reported to beneficial owners’ resident states. As far as I am aware, however, that’s it for automatic exchange of information with respect to the Cayman Islands (please let me know if I’m wrong). Your quote in The Economist is interesting, and, yes, still surprising, and if you are advocating automatic exchange of information with the United States, we would welcome it, especially if it eliminated the loopholes that currently mean that the EU STD is a sieve-like entity. But what about with other countries? Would you advocate – setting aside the political hurdles for now — a comprehensive global multilateral system of automatic information exchange, on all types of income? If you did publicly and unequivocally advocate this, we would welcome it.

There are other things to worry about, though. In an open letter to President Barack Obama on May 5th, you stated that “historically, deferral has been used by some companies to boost the capital they have available for reinvestment, expansion and job creation.” Indeed – and this goes to the heart of the problem with the abuse that Cayman facilitates. What you are doing here is describing how US companies use places like Cayman to cut their tax bills. We are not talking about illegal acts here – but from where the ordinary taxpayer is sitting, this is highly abusive. Make no mistake: tax breaks of this kind are subsidies, and it is the multinationals that are able to obtain these offshore-using subsidies – and as a result others – that is, ordinary people and smaller businesses in whatever jurisdiction is suffering the tax loss – have to pay their taxes for them. If you think these tax subsidies are a force for good, perhaps you would like to explain two things:
a) how do taxpayer subsidies, in general terms, advance the cause of good business, competitive markets and so on;
b) more specifically, how is it that subsidies to multinationals, at the expense of small businesses and society and individuals who have to pick up the bill ultimately, are beneficial either to society at large or to the business community at large?

Digging through the archives while I was in Cayman, I discovered historical references to the place being transparent, or clean, or reputable, by those in positions of authority – stretching all the way back to the 1970s. And yet the scandals just kept coming, didn’t they? BCCI, Enron, Parmalat, Bear Stearns, and so on. I know that you have publicly rejected the notion that Cayman played any role in these scandals – but that, I guess, would be the subject for another debate, another time.

As for the notion that the Cayman Islands is not a tax haven – this statement may work for a domestic audience, but it’s such a laughable proposition that it will hardly do the island any favours for an external one. Just type “We are not a tax haven” into Google and see what you come up with. Try it. http://taxjustice.blogspot.com/2008/09/we-are-not-tax-haven.html The Cayman Islands is cleaner than some, to be sure, but it remains a tax haven or secrecy jurisdiction, pure and simple.